ServicePurchasing

Strategic

A Jumpstart to Success

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Acknowledgment

On behalf of all chapter teams, the editorial team would like to thank Dr. Kirstin Scholten

and Drs. Ing. Henk Faber whose expertise and passion guided and supported the creation of

this book.

The editorial team would like to extend their thanks to the authors of the chapters.

Tom Grevers, Mil van Werven, Paolo Zanzotera, Laura Arjaans, Jacques Henricus Gelissen,

Lena Katharina Staubitz, Vít Bartos, Douwe Ribbink, Koen Wegstapel, Rutmer Hylke Faber,

Silke Moes, Kevin van der Veen, Willem Jan Wiebe Bekkers, Imre Oostveen, Rosa Hendrika

Maria Vermeulen, Dianne Warmelink, Marten van der Zee

Further thanks from all that participated in this book is extended to the companies and their

representatives who presented to the purchasing course for providing examples and cases

which were used in the compiling of this book.

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Table of Contents

1.1. Introducing Strategic Service Purchasing................................................................................ 8

1.1.1 Strategic Purchasing ........................................................................................................ 8

1.1.2 Service Purchasing Process.............................................................................................. 9

1.2 Chapter linkage........................................................................................................................ 9

1.3 Book outline .......................................................................................................................... 11

1.4 Book set up............................................................................................................................ 11

1.4.1 Technology .................................................................................................................... 12

1.5 References............................................................................................................................. 13

2.1 Introduction................................................................................................................................. 16

2.2 The role of Purchasing................................................................................................................. 17

2.2.1 Value creation in Purchasing ................................................................................................ 17

2.2.1.1 Value Chains .............................................................................................................................. 17

2.2.1.2 Adding Value to Service Purchasing .......................................................................................... 18

2.2.2 Competitive advantage and functional silos ........................................................................ 18

2.3 Internal Integration ..................................................................................................................... 19

2.3.1 Strategic Alignment .............................................................................................................. 20

2.3.1.1 Vertical integration and make-or-buy decisions ....................................................................... 21

2.3.1.2 Horizontal Integration ............................................................................................................... 24

2.3.1.3 Maverick Buying ........................................................................................................................ 25

2.3.2 Purchasing Efficacy ............................................................................................................... 26

2.3.2.1 Organizational Design of Purchasing......................................................................................... 26

2.3.2.2 Centralization, Decentralization and Hybrid Structures............................................................ 30

2.3.2.3 Cultural Alignment .................................................................................................................... 31

2.3.2.4 Purchasing Skills and Competence............................................................................................ 31

2.4 Performance Management ......................................................................................................... 36

2.4.1 Total Cost of Ownership ....................................................................................................... 36

2.4.2 The Balanced Scorecard ....................................................................................................... 37

2.5 Conclusion ................................................................................................................................... 39

2.5.1 Implications .......................................................................................................................... 39

2.5.2 Limitations ............................................................................................................................ 39

2.6 References............................................................................................................................... 41

3.1 Introduction................................................................................................................................. 48

3.2 Sourcing location......................................................................................................................... 50

3.2.1 Strategic sourcing practices.................................................................................................. 50

Hybrid strategies ................................................................................................................................... 51

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3.2.2 Global vs. Local Sourcing ...................................................................................................... 52

3.2.2.1 Strategic consideration.............................................................................................................. 52

External.................................................................................................................................................. 52

Internal .................................................................................................................................................. 53

3.2.2.2 Trend towards nearshoring....................................................................................................... 53

3.2.2.3 Actual developments in global sourcing ................................................................................... 54

3.3 Supply Base Complexity .............................................................................................................. 55

3.3.1 Networks and Supply base complexity................................................................................. 56

3.3.2 Supply Base Strategies.......................................................................................................... 57

3.4 Category Management................................................................................................................ 59

3.4.1 Portfolio models ................................................................................................................... 59

3.4.2 Category management ......................................................................................................... 60

3.4.3 The role of the supplier ........................................................................................................ 61

3.4.4 Category Captains................................................................................................................. 63

3.4.5 integrating portfolio models and category management .................................................... 63

3.5 Best Value procurement.............................................................................................................. 65

3.6 Conclusion ................................................................................................................................... 68

3.7 References................................................................................................................................... 70

4.1 Introduction........................................................................................................................... 76

4.2 Different sorts of Buyer – Supplier Relations........................................................................ 77

4.2.1 Arm’s length vs. Collaborative relationships................................................................. 77

4.2.2 Classification of buyer - supplier relationships.............................................................. 79

4.2.2.1 Supplier Development............................................................................................... 79

4.2.3 Key factors in partnership success in manufacturing.................................................... 80

4.3 The Relationship Cycle .......................................................................................................... 81

4.3.1 Non-dynamic relationship cycle .................................................................................... 81

4.3.2 Dynamic relationship cycle............................................................................................ 82

4.3.3 Evolution of value in buyer-supplier relationships........................................................ 84

4.3.4 Communication in the relationship cycle...................................................................... 85

4.4 Relationship Performance Measurement ............................................................................. 87

4.4.1 Quantitative operational measurement ....................................................................... 88

4.4.2 Qualitative strategic measurement............................................................................... 88

4.4.2.1 Relationship Quality .................................................................................................. 88

4.5 Contracts ............................................................................................................................... 90

4.5.1 Contracts and their classification .................................................................................. 90

4.5.2 Fairness, trust and opportunistic behavior ................................................................... 93

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4.5.2.1 Fairness.............................................................................................................................. 93

4.5.2.2 Trust................................................................................................................................... 94

4.5.2.3 Opportunistic behavior...................................................................................................... 95

4.6 Conclusion ............................................................................................................................. 97

References......................................................................................................................................... 99

5.1. Introduction......................................................................................................................... 104

5.1.1. Risk............................................................................................................................... 105

5.1.2. Purchasing Risk............................................................................................................ 106

5.2. Risk Identification................................................................................................................ 106

5.2.1. Sources and consequences ......................................................................................... 106

5.2.2. Risk Identification........................................................................................................ 109

5.3. Risk Assessment and evaluation ......................................................................................... 112

5.4. Risk strategies...................................................................................................................... 114

5.5. Implementation of risk strategies within procurement...................................................... 118

5.5.1. Relationship management and contracting ................................................................ 118

5.5.2. Sourcing and supplier selection................................................................................... 119

5.5.3. Internal Alignment....................................................................................................... 120

5.6. Resilience............................................................................................................................. 120

5.6.1. Developing Resilience Capabilities .............................................................................. 120

5.6.2. Developing through purchasing function.................................................................... 121

5.7. Differences in purchasing services and goods in risk management.................................... 122

5.8. Conclusion ........................................................................................................................... 123

5.9. References........................................................................................................................... 125

6.3 Sustainable Purchasing in the External Environment ............................................................... 138

6.3.1 Supplier selection and continuity....................................................................................... 138

6.3.2 Decommoditization ............................................................................................................ 140

6.3.3 Services for sustainable purchasing ................................................................................... 141

6.4 Sustainable Purchasing Concepts.............................................................................................. 142

6.4.1 Purchasing portfolio matrixes ............................................................................................ 142

6.4.2 Life cycle assessment.......................................................................................................... 145

6.5 Conclusion ................................................................................................................................. 147

6.5.1 Book implications ............................................................................................................... 149

6.5.2 Managerial implication....................................................................................................... 149

6.5.3 Limitations .......................................................................................................................... 149

6.5.4 Further research................................................................................................................. 150

6.6 References................................................................................................................................. 151

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7.1 Introduction......................................................................................................................... 157

7.1.1 Introduction to public purchasing ...................................................................................... 157

7.1.2 Chapter roadmap ............................................................................................................... 157

7.2 Public versus Private purchasing......................................................................................... 158

7.2.1 Similarities .......................................................................................................................... 158

7.2.2 Differences ......................................................................................................................... 158

7.2.3 Internal organization of the purchasing function............................................................... 159

7.3 Public procurement policies................................................................................................ 159

7.3.1 EU directives....................................................................................................................... 160

7.3.2 Non-compliance and corruption ........................................................................................ 160

7.4 Public sourcing..................................................................................................................... 161

7.4.1 From delegation towards a total service............................................................................ 161

7.4.2 Types of sourcing................................................................................................................ 162

7.4.3 Tendering............................................................................................................................ 164

7.5 Public-private interaction.................................................................................................... 166

7.5.1 Public and private relationships ......................................................................................... 166

7.5.2 Interaction during sourcing ................................................................................................ 167

7.5.3 Interaction during contract management.......................................................................... 168

7.5.4 Public risks in interactions.................................................................................................. 171

7.6 Sustainability in public purchasing ...................................................................................... 171

7.6.1 Public versus private sustainability .................................................................................... 171

7.6.2 Sustainability within the public sector ............................................................................... 172

7.6.3 Sustainability by the public sector...................................................................................... 173

7.7 Conclusion ........................................................................................................................... 175

7.7.1 Final conclusions................................................................................................................. 175

7.7.3 Limitations .......................................................................................................................... 176

7.7.4 Managerial recommendations ........................................................................................... 176

7.8 References........................................................................................................................... 178