An Exploration of Risks Involved in Managing Supplier Portfolio in Multinational Companies Operating in Indonesia

Nova Sepadyati

doi:10.9744/jti.21.2.79-90

Abstract

Outsourcing applications have widely used and regarded as a primary strategic management tool by firms. However, particularly in the Fast Moving Consumer Goods (FMCG) industry, most companies have at least once declined from a renewing contract with the same service provider. There have not been any studies regarding risk management in a buyer-supplier relationship in multinational companies (MNCs) from developed countries operating in an emerging country, particularly in Indonesia. The purpose of this qualitative study is to find out how MNCs in the FMCG sector in Indonesia choose their suppliers, risk perceived, and how they manage their relationship with different suppliers to ensure their performance. Buyer's previous experience, time/cost pressure, and company's culture proved to influence companies in selecting suppliers. Key risks perceived by companies mainly regarding unperformed suppliers, supplier's opportunistic behaviour, and unstable economic/political condition. To ensure a supplier's performance, companies need to set different relationship positioning for each activity outsourced through a proper type of contract and aligned performance measurement. Moreover, a formal supplier rating has not found in all companies, let alone supplier development initiatives.

Highlights

Outsourcing is a process of shifting an existing business activity, including the relevant assets to a third party
In Fast Moving Consumer Goods (FMCG) industry, Wilding and Juriado [4] found that 74% of consumer goods companies' respondents have at least once declined from a renewing contract with the same service provider, showing dissatisfaction at some point
In answering how companies choosing their suppliers, a standard view that amongst interviewees were that any supplier selection began from various requirements, and every company have their criteria in evaluating suppliers

Summary

Introduction

Outsourcing is a process of shifting an existing business activity, including the relevant assets to a third party Outsourcing has been in business literature for many years, mainly done to achieve economy of scale and lower the cost. In FMCG industry, Wilding and Juriado [4] found that 74% of consumer goods companies' respondents have at least once declined from a renewing contract with the same service provider, showing dissatisfaction at some point. A better understanding of risks in managing supplier portfolio is needed. Only a few works of literature explicitly explain these risks. Finding the main risks from companies’ perspectives and what can be done to face those risks is expected to get a new insight, especially for practitioners in the FMCG industry. The majority of the research on buyer-supplier relationship has been done mostly in developed countries such as USA (Car and Pearson [5]; Narayanan et al [6]), UK (Cousins et al [7]; MacKerron et al [8]), Europe (Schmitz and Platts [9]), or

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