Preferred Supplier Research Articles

Demystifying Manufacturer Satisfaction through Kano Model

Suppliers’ role has been gaining strategic significance among the manufacturing supply chains as the competition between them is potentially guided by the strength of their supply base and the level of supply chain integration achieved. Most of the manufacturers started realizing that the tradition of treating their suppliers functionally put them on the losing end rather than on the gaining. So, the manufacturers have started exploring and at times developing their supply base to gain competitive advantages. With this increase in the manufacturers’ interest in exploring and developing the suppliers, onus is now on the supplier to prevent the manufacturer switching to other suppliers and to become the preferred supplier for the manufacturer for its development. However, most of the suppliers fail to relate with the intent of Supplier Development (SD) and are losing out the opportunity for their development as well as the development of nation's manufacturing industry in the current scenario. Sometimes, even though the suppliers find SD as beneficial for them, still they fall short off without being able to showcase enough justification for the manufacturer to go for SD. Thus, in order to address these issues and assist a supplier to favorably and preferably associate with the manufacturer, the current study presents an application of Kano model for achieving the manufacturer satisfaction.

Supply Chain Bilateral Coordination with Option Contracts under Inflation Scenarios

There exist obvious changes in price and demand during the inflationary period, both of which are regarded as the key factors leading to supply chain uncertainty. In this paper, we focus our discussion on price increase and demand contraction caused by inflation, integrate the effect of inflation and option contracts within the model framework, and analyze how to use option contracts to achieve supply chain coordination under inflation scenarios. We consider a one-period two-stage supply chain consisting of one supplier and one retailer and explore the effect of inflation on the optimal ordering and production decisions under three different types of contracts: wholesale price contracts, option contracts, and portfolio contracts. Moreover, we explore the impact of option contracts on the supply chain through using wholesale price contracts model as the benchmark. We find that the retailer prefers adopting portfolio contracts, but the supplier prefers providing option contracts under inflation scenarios. Ultimately, option contracts will be implemented owing to the supplier’s market dominant position. In addition, we discuss the supply chain bilateral coordination mechanism with option contracts from the perspectives of two members and derive that option contracts can coordinate the supply chain and achieve Pareto improvement under inflation scenarios.

Modeling the effects of mergers in procurement

In procurement settings, mergers among suppliers reduce buyers' choice sets and can harm buyers by eliminating their preferred supplier or reducing their negotiating leverage. I develop a stochastic economic model that predicts the effects of mergers based on information that commonly is available to antitrust authorities. I derive general expressions for the ex ante expected changes in price, buyer utility, and supplier profit. Each becomes tractable under certain distributional assumptions. The model predicts that average prices will increase by more than 40% due to the recently litigated acquisition of Power Reviews by Bazaarvoice, in the absence of an effective remedy.

Preferences for contractual forms in supply chains

The supply chain contracting literature has focused on incentive contracts designed to align supply chain members’ individual interests. A key finding of this literature is that members’ preferences for contractual forms are often at odds: the upstream supplier prefers relatively complex contracts that can coordinate the supply chain; however, the downstream retailer prefers a wholesale price-only contract because it leaves more surplus (than does a coordinating contract), which the retailer can capture. This paper addresses the following question: Under what circumstances do suppliers and retailers prefer the same contractual form? We study supply chain members’ preferences for contractual forms under three different competitive settings in which multiple supply chains compete to sell substitutable products in the same market. Our analysis suggests that both upstream and downstream sides of the supply chain may prefer the same “quantity discount” contract, which would eliminate the conflicts of interest that otherwise typify contracting situations. More interesting still is that both sides may also prefer the wholesale price-only contract; this finding provides a theoretical explanation for why that inefficient (but simple) contract is widely adopted in supply chain transactions.

Managing Disruptions in Decentralized Supply Chains with Endogenous Supply Process Reliability

Supply disruptions are all too common in supply chains. To mitigate delivery risk, buyers may either source from multiple suppliers or offer incentives to their preferred supplier to improve its process reliability. These incentives can be either direct (investment subsidy) or indirect (inflated order quantity). In this study, we present a series of models to highlight buyers’ and suppliers’ optimal parameter choices. Our base‐case model has deterministic buyer demand and two possibilities for the supplier yield outcomes: all‐or‐nothing supply or partial disruption. For the all‐or‐nothing model, we show that the buyer prefers to only use the subsidy option, which obviates the need to inflate order quantity. However, in the partial disruption model, both incentives—subsidy and order inflation—may be used at the same time. Although single sourcing provides greater indirect incentive to the selected supplier because that avoids order splitting, we show that the buyer may prefer the diversification strategy under certain circumstances. We also quantify the amount by which the wholesale price needs to be discounted (if at all) to ensure that dual sourcing strategy dominates sole sourcing. Finally, we extend the model to the case of stochastic demand. Structural properties of ordering/subsidy decisions are derived for the all‐or‐nothing model, and in contrast to the deterministic demand case, we establish that the buyer may increase use of subsidy and order quantity at the same time.

Consignment or wholesale: Retailer and supplier preferences and incentives for compromise

We consider two independently managed parties, a retailer and a supplier, that are considering either a wholesale or a consignment contract to produce and market a single good. Both parties have an interest in reaching an agreement, but their first choice of contract type are generally not the same. We define the strength of retailer and supplier preferences for their respective choices of contract type as the ratio of their expected profits for their first choice of contract type over that for the alternative contract type. We study how uncontrollable factors as well as controllable factors affect the strength of retailer and supplier contract preferences. We develop incentive payments that can potentially be used to increase the likelihood of success in negotiating an agreement.

Purchasing professional services: A transaction cost view of the antecedents and consequences of purchasing formalization

Professional services represent an increasing share of expenditures in contemporary organizations. While these services are often of strategic importance, they are also perceived as being difficult to purchase and use, which creates challenges for the purchasing process. In order to address these challenges, organizations are increasingly engaging in systematic efforts to improve their ability to purchase professional services. These efforts focus on formalizing the purchasing process by introducing policies, guidelines, and other measures for the hiring of service suppliers. Based on a transaction cost economic framework, the current paper investigates the nature, antecedents and consequences of formalization initiatives in the purchasing of professional services. The results from a cross-sectional study of 76 large Swedish organizations show that the formalization of purchasing professional services takes two different forms: the formulation of policies and the establishment of preferred supplier agreements. The former is driven by company size, whereas the latter is driven by the frequency of purchase transactions. Only the establishment of policies, however, is found to be positively related to organizations' perceived ability to purchase professional services.

Complexity as a Contract Design Factor: A Human‐to‐Human Experimental Study

Despite being theoretically suboptimal, simpler contracts (such as price‐only contracts and quantity discount contracts with limited number of price blocks) are commonly preferred in practice. Thus, exploring the tension between theory and practice regarding complexity and performance in contract design is especially relevant. Using human subject experiments, Kalkancı et al. (2011) showed that such simpler contracts perform effectively for a supplier interacting with a computerized buyer under asymmetric demand information. We use a similar set of experiments with the modification that a human supplier interacts with a human buyer. We show that human interactions strengthen the supplier's preference for simpler contracts. We find that suppliers have fairness concerns even when they interact with computerized buyers. These fairness concerns tend to be even stronger when suppliers interact with human buyers, particularly when the complexity of the contract is low. We also find that suppliers are more prone to random decision errors (i.e., bounded rationality) when interacting with human buyers. In the absence of social preferences, Kalkancı et al. identified reinforcement and bounded rationality as key biases that impact suppliers' decisions. In human‐to‐human experiments, we find evidence for social preference effects. However, these effects may be secondary to bounded rationality.

Supplier choice criteria and the security aware food purchasing manager

Purpose – The purpose of this paper is to explore the differences in preferred supplier choice criteria between food purchasing agents who focus on supplier security and those that do not. Specifically, this research determines the relationship between purchasing agents’ supplier security preferences and their preferences for product quality, delivery reliability, price, and supplier location. The influence of international sourcing on demand for increased supplier security is also explored. Design/methodology/approach – Choice-based conjoint analysis with hierarchical Bayes (HB) estimation and t-tests are used to assess and compare the utility food purchasing managers derive from different supplier attributes. Findings – Purchasing managers that place a higher priority on security when choosing suppliers were willing to pay suppliers a higher price and receive lower levels of delivery reliability in return for higher security but placed less emphasis on suppliers’ product quality. Firms that source internationally do not have a significantly greater preference for advanced supplier security. However, purchasing managers that value supplier security were more likely to source internationally, potentially indicating that security allows for global sourcing by mitigating the increased vulnerability inherent to sourcing abroad. Research limitations/implications – This research was limited by its focus on the food industry and a relatively small sample size. Practical implications – This work illustrated that food purchasing managers can be segmented by the emphasis they place on security. Food industry managers will find results useful in formulating their future service offerings with respect to security and other supplier choice criteria. Originality/value – This is one of few works investigating security as a supplier choice criterion and utilizing HB estimation of choice-based conjoint data.

Supplier Relationship Management - Current Problems and Solutions

Supplier relationship management or SRM is becoming increasingly relevant to buyers in modern times. It has climbed up in order of importance and is only second to cost cutting as showed by a research undertaken by the supply management publication (Leach, 2012). This precedence over other priorities may not be a new phenomenon as Jared (2009) stresses that progressive companies have long considered their customers, vendors and suppliers as their partners. However, such partnerships can bring their own problems as Heintriz et al (1991) argue. According to them, the decision to continue or terminate partnerships with one’s suppliers should purely be based on a fair system of evaluation. So, the main objective of SRM can be to make the sourcing process between businesses and their suppliers more effective and streamlined. Through current industry based examples, the paper finds out that conventional wisdom of joint collaboration is a ‘one size’ that does not fits all and a more sophisticated ‘fit for- purpose’ approach is the key when developing relationships with preferred suppliers.

What Impact Does Antitrust Intervention Have on Competition? The Case of Public Drug Procurement in Russia

In this paper we study antitrust intervention in long-term relationships between public procurer and his preferred supplier in one of the Russian regions. We presume that antitrust control of auctions held by affiliated procurer increases the risks of implementing long-term relationships with his preferred supplier. However we found out that after the intervention of antitrust agency the number of bidders in the auctions increased, but relative contract prices remained the same. We argue that procurer and preferred bidder invited firm with passive bidding strategy to decrease the risks of antitrust punishment. Thereby, antitrust intervention led to fake competition, but not to honest non-corrupt behavior in public auctions.

Adapting importation policy to global commodity markets: implications of rice import allocation in Singapore

Structural changes in the global commodity markets have particularly serious implications to the food security of import-dependent countries. Adapting importation policy to that global change is essential given that many commodities are imported to fulfill domestic demand. Using Singapore as a case study, this paper examines rice (Oryza) import allocation for seeking adaptive measures, which have broad implications to import-dependent countries. Its quarterly trade data (between 1999 and 2008) have been analyzed using an almost ideal demand system (AIDS) model. Our findings in respect to expenditure elasticity reveal that Singapore will continue its importation from its current range of suppliers, and add new import sources, fulfilling its national diversification strategy. New sources that located in different regions will also strengthen Singapore’s regional diversification strategy. Both national and regional diversification strategies enable any country to tap into associative import sources when unfavorable events deplete supply from a normally preferred supplier. In addition, the results in respect to own-price elasticity suggest that Thailand is Singapore’s primary preferred source while other exporters are secondary suppliers. Supported by the outputs of cross-price elasticity, secondary sources are substitutable. Within a diversified import portfolio, their competitive relationship gives an import-dependent country a strategic position to hedge against price manipulation and escalation, and to substitute expensive suppliers with cheaper alternatives. For these reasons, an import diversification policy is recommended both as an adaptive measure in response to the global change in commodity markets and, at the same time, as a mean for sustaining food security in import-dependent countries.

Supply chain outsourcing risk using an integrated stochastic-fuzzy optimization approach

A stochastic fuzzy multi-objective programming model is developed for supply chain outsourcing risk management in presence of both random uncertainty and fuzzy uncertainty. Utility theory is proposed to treat stochastic data and fuzzy set theory is used to handle fuzzy data. An algorithm is designed to solve the proposed integrated model. The new model is solved using the proposed algorithm for a three stage supply chain example. Computation suggests an analysis of risk averse and procurement behavior, which indicates that a more risk-averse customer prefers to order less under uncertainty and risk. Trade-off game analysis yields supported points on the trade-off curve, which can help decision makers to identify proper weighting scheme where Pareto optimum is achieved to select preferred suppliers.

Supplier selection by F-compromise method: a case study of cement industry of NE India

In this paper, we initially conducted a brief review of supplier selection methods to find most cited multi-criteria decision making method, present trend of supplier selection and most cited criteria for supplier selection. Our study reveals that irrespective of several limitations of analytic hierarchy process (AHP), AHP and its integrated model is most preferred supplier selection method. Present research trend of supplier selection gives more emphasises on multiple sourcing instead of single sourcing. Based on our initial study, a suitable integrated model is proposed. In this integrated model, fuzzy analytic hierarchy process (FAHP) and VIKOR (VlseKriterijumska Optimizacija I Kompromisno Resenje; in Serbian) is used to select suppliers from a predefined supplier base. Multi-objective genetic algorithm (MOGA) is used further to allocate order among suppliers. Finally, a case study is discussed to use proposed method.

Harmony in Competition: On Preferences for Contractual Forms in Supply Chains

The supply chain contracting literature has focused on incentive contracts designed to align supply chain members' individual interests. A key finding of this literature is that members' preferences for contractual forms are at odds: the upstream supplier prefers more complex contracts that can coordinate the supply chain, with the simple 'wholesale price only' contracts eliminated by market force; however, the downstream retailer prefers the wholesale price only contract because it leaves more surplus (than a coordinating contract) that the retailer can get. This paper addresses the question: Under what circumstances do suppliers and retailers prefer the same contractual form? Our analysis suggests that both sides of the supply chain may prefer the same 'quantity discount' contract, thereby eliminating the conflicts of interests that otherwise typify contracting situations. More interesting still is that both sides may also prefer the wholesale price only contract, a result that is new to the literature.

An investigation about Brazilian mango and grape exports

PurposeThe objective of this paper is to characterise the transactions between European buyers and Brazilian mango and grape producers.Design/methodology/approachThe method selected for this paper was multiple case studies. The Brazilian mango and grape supply chains' export activities to Europe were investigated. The field research was undertaken in Brazil, Germany, The Netherlands and the UK. In total, 41 face‐to‐face interviews were carried out.FindingsThe supermarkets' literature tends to generalise the strategies of retailers focusing on differentiation and preferred suppliers. However, in empirical research conducted in the UK, Germany and The Netherlands it is possible to conclude that the procurement strategies of supermarkets can vary sharply. The results reveal the presence of different agents who demand different quality standards. The level of intensity depends on consumer behaviour, the features of product commercialised and the characteristics of the production segment in each country.Research limitations/implicationsFirst, in relation to the empirical method there is a limitation because the case study does not allow statistical generalisation. Consequently, it will be interesting to undertake quantitative research in order to quantify the variables presented and their impact on the structure of value chains. Second, the research focuses only on two stages of the supply chain, producers and buyers.Practical implicationsThe differences between UK and German supermarkets challenge the supermarket literature, which tends to generalise the strategies of retailers focusing on differentiation and preferred suppliers.Originality/valueThe study shows that the issue of influence and activities of retail agents along the value chain can be analysed taking several variables into consideration: the products commercialised; the distribution segment; and the consumer market. This result opens the way for analysing different structures of the value chain and the impact of these differences on the entry of producers for developing countries into the global market.

The micro-politics of operational adjustment: veto players and the consolidation of demand in the NHS

Recent reports about procurement within the NHS have been highly critical. One problem identified in the reports is the fragmentation of NHS demand across an unnecessarily large number of suppliers. This fragmentation is said to increase transaction costs, reduce opportunities for scale economies and reduce NHS leverage over suppliers. It has been suggested, therefore, that an important way of improving procurement in the NHS is the better consolidation of demand with a lower number of preferred suppliers. However, such a policy, because it will create ‘winners’ and ‘losers’ within NHS organisations, has political as well as technical and practical ramifications. In this article, the authors present a model, the Veto Players Model, in order to assist managers to address these political ramifications. In the article, the authors not only demonstrate the utility of this model with regard to demand consolidation policies, but also argue that the model provides useful lessons for change management initiatives more generally.

Preferred supplier programs for consulting services: An exploratory study of German client companies

Research has recently provided evidence that at least some companies have involved purchasing departments in buying professional services such as management consulting services. Some departments have established preferred supplier programs (PSPs) for consulting services, i.e., programs for consultancies with whom a company seeks to build up long-term relationships. While there are several studies that analyze such programs for suppliers of goods, research on business services is limited. Our aim is to present an exploratory analysis of PSPs for consulting services. Based on a survey of German client companies, we found that the most important reason for establishing PSPs is to reduce costs and transaction costs. Furthermore, our findings revealed that companies with and without PSPs for consulting services apply high significance to relational selection criteria. Moreover, in companies with PSPs, purchasing departments are more frequently involved in selecting consultancies compared to companies without PSPs. Finally, we found that companies with and without PSPs do not differ in their assessment of problems associated with the purchasing of consulting services. The study contributes to research on the purchasing of consulting services by indicating that the consultant–manager relationship should be extended to a service triad, involving purchasing professionals, managers, and consultants. Moreover, we contribute to research on PSPs by extending the focus to PSPs for knowledge-intensive service providers.

GRP pipe for Turkish irrigation project

Kemal Tunc, General Manager of Turkish pipe manufacturer Subor, explains how the company has become a preferred supplier of glass reinforced plastic (GRP) pipes for irrigation projects in the country.

Balancing the Bids, Solutions for Unit Price Auctions

Many organizations use procurement tenders to buy large amounts of goods and services. Especially in the public sector the use of these reverse auctions has grown rapidly over the past decades. For the (reverse) unit price auction experience as well as theory has shown that they can attract skewed/unbalanced bids, i.e. bids where the price structure is distorted to take advantage of estimation errors. This paper shows that if the unit-price auction is used to select several preferred suppliers, rather than a single winner, the incentive to skew is reduced, and sometimes even removed. When a part of the contract has to be served the bid-taker can take the prices from the tender and assign this to the cheapest of the preferred suppliers. This punishes bidders for unbalancing by assigning them more of the products they underpriced.