Large Buyers Research Articles

“Asian premium” or “North Atlantic discount”: Does geographical diversification in oil trade always impose costs?

We develop a Global Oil Trade Model (GOTM) to examine the ability of large crude oil exporters or importers to influence inter-regional price differentials by allocating their sales or purchases respectively among different crude oil consuming or producing regions. The model is based on the trade-offs among freight costs, qualities of the crude oils traded and the technical configurations of refineries that process the crude oil. Our reference case (based on 2012 data) minimizes the sum of freight costs and the costs of processing sub-optimal grades of crude oil at a refinery. We model a large Middle East exporter allocating its supply regionally as the leader in a Stackelberg game where all other producers and importers are price takers on the competitive fringe. We then examine the ability of a coalition of importers in Asia to make countervailing strategic purchases rather than act as a price taker. We find that large sellers can increase their revenues while diversifying their customer base by allocating volumes to more distant markets if, by doing so, they capture locational rents from more proximate buyers. Large buyers are unable to reduce their costs compared to the competitive market outcome by adopting countervailing purchase strategies but have the potential to disrupt the rent-seeking of large sellers.

EFFECT OF SUPPLY CHAIN FINANCE ON VALUE OF FIRMS IN THE SUPPLY CHAIN

This study aims to determine the effect of supply chain finance on firm value of large buyers with high credit notes. For this purpose, a two-stage application was performed. Firstly, panel data analysis applied with the data of 2.421 companies from 16 different countries among the G-20 members between 2009 and 2013 and the effect of variables which are affected theoretically by supply chain finance in large companies on firm value is examined. In the second stage of the application, 46 companies which started using supply chain finance between 2006 and 2013 have been identified. Wilcoxon signed-rank test was applied by using the data before and after year which the companies have been started to use supply chain finance and it is determined that whether the variables which is expected to be affected reveal a significant difference between these years. In conclusion, the effect of variables expected to be affected in large companies which make supply chain finance available for their suppliers on firm value differs for each market. Thus, it is concluded that supply chain finance will affect the firm value if the theoretical impacts are realized. However, the second part of the application shows that there is no significant difference in any of the variables before and after supply chain finance using. As a result, although theoretically it is expected that firm value of large companies located within the supply chain finance is affected, there is no effect on firm values in the markets.

Higher Prices for Larger Quantities? Nonmonotonic Price–Quantity Relations in B2B Markets

We study a microprocessor company selling short-life-cycle products to a set of buyers that includes large consumer electronic goods manufacturers. The seller has a limited capacity for each product and negotiates with each buyer for the price. Our analysis of their sales data reveals that larger purchases do not always result in bigger discounts. Instead, the discount curve is like an “N.” While existing theories cannot explain this nonmonotonic pattern, we develop an analytical model and show that the nonmonotonicity is rooted in how sellers value capacity when negotiating with a buyer. Large buyers accelerate the selling process and small buyers are helpful in consuming the residual capacity. However, satisfying midsized buyers may be costly because supplying these buyers can make it difficult to utilize the remaining capacity, which is often too much for small buyers but not enough for large buyers. We briefly discuss the implications for capacity rationing and posted pricing as well as potential applications to other industries. This paper was accepted by Serguei Netessine, operations management.

The Evaluation of Trade Credit Insurance in Lithuanian Business Market as a Credit Risk Management Tool

Abstract In today’s trade, the vast majority of commercial transactions in both domestic and international trade are concluded by applying trade credit terms. The aim of this article is to analyse the trade credit insurance and, according to the methodology, to evaluate it as a credit risk management tool in the context of Lithuanian business market. The authors have proposed a methodology that combines theoretical and practical research methods. First of all, with assistance of qualitative analysis, the alternative external credit risk management tools were examined. Such analysis allows not only to identify the advantages, disadvantages and benefits of researched risk management tools but also to assess the efficiency and rationality of trade credit insurance in the context of alternative methods. In order to carry out an assessment in the practical aspect, considering the lack of statistical data, it was decided additionally to perform an expert evaluation. After performing an assessment of trade credit insurance, it was concluded that in international trade, with a large buyer portfolio and high sales volume, the trade credit insurance becomes the most effective and rational way to manage credit risk, which eliminates the losses because of the debtor’s insolvency or bankruptcy, manages countries and sector’s risks and helps to discipline the debtor, what determines the decline in overdue accounts frequencies, amounts and volumes.

Action Research into a Flood Resilient Value Chain – Biochar-based Organic Fertilizer Replaces Chemical Fertilizer with Double Yield of Pea in Udayapur, Nepal

This paper describes the results of an action research project to identify and analyze a flood resilient value chain option for families of migrant workers in flood affected areas in six Village Development Committees (VDCs) in Udayapur district in Nepal. The best option was cultivation of green peas, with crop productivity increased using urine-biochar prepared on farm as an organic fertilizer and soil improver. The paper describes the value chain selection process and comparison of the effects of different fertilizers on vegetable crops. The yield of fresh pea pods from plots treated with urine-biochar plus Farm Yard Manure (FYM) was more than twice that with Nitrogen Phosphorus Potash (NPK) only, and close to three times that with FYM only (farmers' control). The yields of a range of vegetables increased markedly in plots treated with urine-biochar. Analysis of the value chain indicated that farmers would benefit most by marketing to large buyers or direct to supermarkets in the capital through a farmers’ association. Suggestions are made for future actions both country-wide (promotion of biochar-based organic fertilizer as a priority) and locally (strengthening the pea value chain).

Dynamic Buyer-Supplier Relationships and Supplier Participation in Online B2B Auctions

Buyers often procure multiple goods and services from the same supplier. Accordingly, business exchanged in one setting may affect exchanges between the buyer and supplier other settings. We study how business procured via business-to-business (B2B) auctions is affected by business exchanged between the buyer and supplier concurrent to the auctions. Using two transactional datasets, one with auctions held by a large buyer of truckload transportation services over a four-year period and another with the buyer’s transactions with suppliers over the same time period but governed by long-term contracts, we analyze whether the contractual business affects decisions made in the B2B auctions. We find that concurrent business affects the participation decisions of both parties: the buyer is more likely to invite a supplier with whom they transact more concurrent business, and the supplier is more likely to bid. Concurrent business also affects supplier decisions in the form of reference prices. When a buyer and supplier have a preexisting price for the service up for auction, the supplier sometimes uses that as their bid price, with considerable heterogeneity explained by a supplier’s business model. We show that business external to an auction significantly affects buyer and supplier decisions in a B2B auction.

An Overview of Sugar Sector in Indonesia

Indonesia currently has 63 sugar mills owned by 18 companies. The majority of these factories are old because of underinvestment and have low rates of productivity. The country’s sugar factories have a total capacity of 245,900 TCD or an average of 3900 TCD per factory with rendement of 7.1%. Indonesian sugar consumption within the consumer retail segment is 3 million tonnes per year, while national sugar production is only about 2.5–3.0 million tonnes per year resulting in a shortfall of 300–500,000 tonnes of sugar. Many issues continue to plague the Indonesian sugar industry, ranging from aging factories, reduced sugarcane fields, lack of good varieties, farm inefficiency, poor adoption of technology, slow pace of product diversification and low productivity to a flood of cheap imported sugar due to poor market regulation. Lack of adequate R&D support to the industry is also one of the reasons of low productivity, sugar recovery and loss of technical efficiency. The challenge of cheaply imported sugar into Indonesia serves to highlight the scale of demand for the commodity which places Indonesia among the world’s largest buyers by volume, particularly from the country’s food and beverage manufacturing sector. The bright prospects for investment in the national sugar industry are evident from the growing interests of the private sector to invest in the sector. Besides, the government also plans to revitalize existing sugar units, expand cane area and setup a few new sugar units in collaboration with the private sector to realize the plan of self-sufficiency.

Contracting between Firms: Empirical Evidence

Abstract We analyze contracts between a large buyer and her suppliers. We find that contracts with critical product suppliers contain more clauses that address moral hazard, primarily through monitoring. If holdup concerns are larger, there are more contractual protections against it. Over time, contracts with the same supplier include additional provisions that address moral hazard through monitoring. This dynamic effect is strongest for service contracts, where observability and verifiability are initially lower. Our findings indicate that contracts become more complete over time and provide support to incomplete-contracting models that argue that contracts become more complete as contracting costs decrease. JEL Classification: D86; K12; L24

Contracting between Firms: Empirical Evidence

We analyze contracts between a large buyer and her suppliers. We find that contracts with critical product suppliers contain more clauses that address moral hazard, primarily through monitoring. If holdup concerns are larger, there are more contractual protections against it. Over time, contracts with the same supplier include additional provisions that address moral hazard through monitoring. This dynamic effect is strongest for service contracts, where observability and verifiability are initially lower. Our findings indicate that contracts become more complete over time and provide support to incomplete-contracting models that argue that contracts become more complete as contracting costs decrease.

Quantity Discounts and Capital Misallocation in Vertical Relationships: The Case of Aircraft and Airline Industries

I study transactions between aircraft manufacturers and airlines as well as airlines' utilization of their fleet. Aircraft production is characterized by economies of scale via learning-by-doing, which creates a trade-off between current profit and future competitive advantage in the aircraft market. The latter consideration makes large buyers more attractive than small buyers and induces quantity discounts. The resulting nonlinear pricing strategy may distort both production and allocation in favor of large buyers. In the data, there is a negative correlation between the size of aircraft orders and the per-unit price, and a positive correlation between the price paid and the utilization rate of the aircraft model. The pattern in the data suggests that the manufacturers' price discrimination leads to misallocation of aircraft.To assess whether there is an inefficient allocation, I construct and estimate a dynamic model of the aircraft market that includes a model of utilization. Using the estimated model, I conduct counterfactual simulations where I find that uniform pricing increases aircraft production by 10% and total welfare by 1.6%.

Revisiting the Concept of Undertaking from a Public Procurement Law Perspective A Discussion on Easypay and Finance Engineering

In EasyPay and Finance Engineering (C-185/14), the Court of Justice of the European Union (CJEU) has revisited the concept of undertaking for the purposes of the application of EU competition law. It has clarified the test applicable to economic agents engaging in ‘mixed’ economic and non-economic activities. The EasyPay test determines that, in order not to be qualified as “economic” because of its links with another activity that fulfils an exclusively social function based on the principle of solidarity and entirely non-profit making, an activity must, by its nature, its aims and the rules to which it is subject, be inseparably connected to it. In the paper, we discuss how the CJEU has arguably given a stricter interpretation and adopted a less lenient approach to the severability or separation of activities than in previous cases like FENIN, Selex or Compass-Datenbank. In our view, this interpretation is anchored on a functional analysis of the concept of undertaking, and it is a welcome development that will have far reaching implications. Beyond that general discussion, the paper focuses on the potential implications of the EasyPay test in the area of public procurement and, in particular, for the activities of central purchasing bodies. We submit that EasyPay facilitates a revision of the current position regarding the direct applicability of EU competition law to entities carrying out public procurement activities and, in particular, central purchasing bodies. We also submit that this is highly desirable because it grants legal certainty to economic operators when dealing with a central purchasing body, to the effect that the purchasing activities will be under competition law and the derived constrains on the market behaviour of large public buyers that may abuse of their buyer power.

AN INTRODUCTION OF GOLD SCHEMES, 2015 IN INDIA

India has toppled China to become world’s largest buyer of the gold in 2015. Gold is sensitively attached with the Indians and they prefer buying gold in the form of jewellery. The Central Government has come up with three gold schemes on 5th November, 2015 i.e., Gold Monetisation scheme, Sovereign Gold Bond scheme and India Gold Coin scheme to reduce the requirements of gold through imports. The less volatile nature of gold attracts the Indian consumers to choose gold as the best investment option. Nearly, 20,000 tonnes of gold are idle with Indian households, temples etc. which is not being traded or monetised in the form of jewellery. The accomplishment of economically stable gold investment schemes can bring changes in our economy.
 Therefore, this study attempts to examine the three gold schemes in detail and probable impact of gold schemes on current account deficit (CAD). This paper discuss about the probable advantages and disadvantages of Gold schemes. It also talks about the major concerns that may hinder the success of gold schemes. Finally, the study makes some suggestions to develop gold market and monetise 20,000 tonnes of gold held by households and temples in the country.

Public Procurement and Rent-Seeking: The Case of Paraguay

A model of entrepreneurial choices in an economy with a corrupt public procurement sector is built, providing predictions along two main dimensions. First, corruption is more frequent in sectors where public institutions are large buyers. Second, firms favoured with corrupt contracts enjoy extra returns, so that procurement related activities attract the best entrepreneurs. A large scale microeconomic database, including all public procurement operations over a 4 year period in Paraguay, amounting annually to approximately 6% of the country’s GDP, is then used to corroborate these predictions.

Reforming the Robinson-Patman Act to Serve Consumers and Control Powerful Buyers

The Robinson-Patman Act suffers from two major flaws. First, its fundamental goal is not to promote competition and benefit consumers but to protect small business. Second, it frequently fails to protect either consumers or small business. In particular, the Act’s defenses for meeting competition and cost justification ordinarily allow large buyers to extract discriminatory concessions from suppliers, even when the concessions harm both small competitors and consumers. To eliminate these flaws, three changes are needed. First, the Act’s injury language should be amended: a plaintiff should have to show harm to competition, not just injury to a competitor. Second, the Act’s meeting competition and cost justification defenses should be curtailed. Finally, though not the focus of this article, conforming changes should be made in the Act’s treatment of promotional discrimination. These reforms would create a statute that is much more likely to serve consumers and control powerful buyers. Indeed, if a large buyer such as Amazon or Wal-Mart induces a concession that threatens to harm competition, a reformed Robinson-Patman Act would provide the most desirable remedy. As a general rule, neither structural relief nor common carrier regulation is likely to be preferable. For this reason, the Robinson-Patman Act should be reformed, not repealed.

New approach to customer segmentation based on changes in customer value

In today’s fast moving world of marketing from product-orientation to customer-orientation, the management of customer treatment can be seen as a key to achieve revenue growth and profitability. Knowledge of customer behavior can help marketing managers re-evaluate their strategies with the customers and plan to improve and expand their application of the most effective strategies. B2B or business customers are more complex, their buying process is more complicated and their sales value is greater. The business marketers usually prefer to cooperate with fewer but larger buyers than the final consumer marketer. As a business transaction requires more decision makings and more professional buying effort than the consumer market does, the efficient relationship with business customers is of paramount importance. Most customer segmentation approaches based on customer value fail to account for the factor of time and the trend of value changes in their analysis. In this article, we classify customers based on their value using the RFM model and K-means clustering method. Then, an assessment of changes over several periods of time is carried out. The originality of this research lies in its incorporation of time and trend of customer value changes in improving the accuracy of predictions based on the past behavior of customers. For this purpose, we used the POS customer transactions.

Unveiling the relationship between the transaction timing, spending and dropout behavior of customers

The customer lifetime value combines into one construct the transaction timing, spending and dropout processes that characterize the purchase behavior of customers. Recently, the potential relationship between these processes, either at the individual customer level (i.e. intra-customer correlation) or between customers (i.e. inter-customer correlation), has received more attention. In this paper, we propose to jointly unveil the direction and intensity of these correlations using copulas. We investigate the presence of these correlations in four distinct product categories, namely online music albums sales, securities transactions, and utilitarian and hedonic fast-moving consumer good retail sales.For all product categories, we find a substantial amount of inter- and intra-customer correlation. At the inter-customer level, on average frequent buyers tend to spend more per transaction than the other customers. In addition, on average, large buyers have a longer lifetime. At the intra-customer level, we find that the existence and intensity of compensating purchase behaviors vary across product categories and across customers. From a managerial viewpoint, our approach improves the forecasts of the firm’s future cash flows, especially for the product categories and customers where the correlations are the strongest. Moreover, the correlation parameters also provide additional insights to traditional customer valuation analysis on the magnitude, durability and volatility of the cash flows that each customer generates. We conclude by discussing how these insights can be used to improve customer portfolio decisions.

Nivel de cumplimiento de instituciones públicas costarricenses en elaboración e implementación de los Programas de Gestión Ambiental Institucional

Level of compliance of Costa Rican public institutions in the elaboration and implementation of Institutional Environmental Management Programs. In Costa Rica, the State is one of the largest buyers and its potential impacts on the environment from resource consumption, waste generation and emissions are considerable. Every Costa Rican public institution is required by MINAE Executive Decree No. 36499 (issued in 2011) to develop and implement an Institutional Environmental Management Program (IEMP) to mitigate and control the impacts resulting from their organizational work. The aim of this study was to analyze the level of compliance of Costa Rican public sector institutions in the elaboration and implementation of the IEMP. Available records were consulted at the Ministry of Environment and Energy (MINAE), dividing the institutions into 4 categories: a) ministries; b) decentralized public sector institutions; c) decentralized territorial public sector; and d) other. An on-site assessment tool was then applied in 44 institutions, to determine the level of implementation. As of March 2013, 36.24% of public institutions had submitted an IEMP, with ministries scoring highest on compliance (83.3%). A higher level of implementation was identified for: adoption of an environmental policy, formalization of committees in charge of environmental management work, and systematization of consumption records. There is a need to strengthen staff training and awareness, along with internal disclosure of the IEMP, and incorporation of environmental criteria into the procurement of goods and services, among others. The mean score for the institutions was 70.16 (on a scale of 0 - 100). No significant difference was found between the categories of institutions (t-Student; p = 0.684). The lack of clarity in the application of punitive mechanisms, the low environmental commitment in many institutions and the lack of resources (human and financial) allocated to environmental actions could be affecting compliance with the decree.

A carcinicultura do nordeste brasileiro e sua inserção em cadeias globais de produção: foco nos APLs do Ceará

O artigo faz uma análise da forma de inserção da carcinicultura do Nordeste, em particular dos Arranjos Produtivos Locais - APLs de cultivo de camarão do estado do Ceará, em cadeias globais de produção, bem como sua estrutura de governança. Isto porque os sistemas de cultivo destes crustáceos se concentram no Nordeste, sendo, na atualidade, o Ceará o maior produtor do Brasil na forma cultivado, expressando, ao longo de suas bacias hidrográficas, dois APLs bem característicos (litorais leste e oeste), que estiveram intensamente inseridos em mercado internacional por meio de cadeias globais de produção. O estudo teve por base um levantamento de dados secundários e entrevistas junto aos gestores e proprietários das empresas e outros agentes dos APLs. As principais evidências da pesquisa apontam que a inserção das empresas dos APLs ainda ocorre de forma dependente dos grandes compradores internacionais e os benefícios gerados, em grande parte, são apropriados fora da esfera produtiva, influenciando as capacitações produtivas e inovativas dos produtores locais. A estrutura de coordenação é verticalizada, demonstrado certo grau de assimetria nas relações de poder entre diferentes segmentos de agentes, sendo os principais estágios da cadeia de valor, em parte, controlados por agentes externos aos arranjos.

Managing Imbalanced Supply Chain Relationships for Sustainability: A Power Perspective

ABSTRACTThis study adopts a power perspective to investigate sustainable supply chain relationships and specifically uses resource‐dependence theory (RDT) to critically analyze buyer–supplier–supplier relationships. Empirical evidence is provided, extending the RDT model in this context. The concept of power relationships is explored through a qualitative study of a multinational company and agricultural growers in the UK food industry that work together to implement sustainable practices. We look at multiple triadic relationships involving a large buyer and its small suppliers to investigate how relative power affects the implementation of sustainable supply‐management practices. The study highlights that power as dependence is relevant to understanding compliance in sustainable supply chains and to identifying appropriate relationship‐management strategies to build more sustainable supply chains. We show the influences of power on how players manage their relationships and how it affects organizational responses to the implementation of sustainability initiatives. Power notably influences the sharing of sustainability‐related risks and value between supply chain partners. From a managerial perspective, the study contributes to developing a better understanding of how power can become an effective way to achieve sustainability goals. This article offers insights into the way in which a large organization works with small and medium size enterprises to implement sustainable practices and shows how power management—that is, the way in which power is used—can support or hinder effective cooperation around sustainability in the supply chain.

The Implicit Costs of Trade Credit Borrowing by Large Firms

We examine a novel, but economically important, characterization of trade credit relationships in which large investment-grade buyers borrow from their smaller suppliers. Using a matched sample of large retail buyers and their much smaller suppliers, we find that slower payment terms by large retailers are associated with lower investment at the supplier level. The effects are sharpest during periods of tight bank credit and for firms which we might otherwise characterize as financially constrained. The opportunity cost of extending credit to large buyers appears to be positive and sharply increasing in the financial frictions facing a firm.