Characterize the Different Types of Buyer-Supplier Relationship Described in the Case
The provided case describes 8 different types of buyer-supplier relationships. These are as follows:
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- Toyota: a federation of businesses dominated by a Toyota; the suppliers are partners, and the main company possesses partial ownership of these companies.
- General Motors: produces most parts of vehicles itself; mostly has arm’s-length relationships with suppliers, and engage in deal-bidding. The relationships are characterized as “adversarial”.
- Microsoft and PC makers: Microsoft was a large monopolist in the computer software market, and consistently pressured PC makers into collaboration, punishing them for the lack of cooperation.
- Shipping lines in Hong Kong. Shipping lines served as suppliers of storage space in container terminals, and charged their buyers (shippers) high prices; operators probably engaged in price-rigging.
- Hollywood. The movie producer had arm’s-length relationships with directors, actors, crew, etc. (e.g., with suppliers); each team was assembled for the sake of an individual movie, and no long-term loyalty existed.
- Prato wool firms. Numerous localized and fragmented businesses were engaged in the production of woolen cloth; each firm completed only one or a few stages of production, thus simultaneously acting as buyers and suppliers. The firms cooperated as equals.
- Airbus. The aircraft manufacturer built a vast network of relationships with suppliers, maintaining ties to over 1,500 supplier companies around the globe; apart from the main assembly line, it also had numerous departments which produced some aircraft parts in different locations.
- Acer. At a certain point, the company spun off its manufacturers and established relationships with them in which these manufacturers were the providers of outsourcing.
How and Why Do They Differ From Each Other?
There are several aspects in which the discussed cases differed in regards to the buyer-supplier relationship. Some of these aspects are as follows:
- The number of suppliers used (from a few suppliers to over 1,500 suppliers for Airbus); is due to the degree of the complexity of the product, and, possibly, because of the size of the buyer.
- The geographical dispersion (e.g., firms representing different parts of the textile production process located in the Prato region, Italy, vs. the suppliers of Airbus from all around the globe); is a consequence of several factors, such as the availability of materials, types of relationships, and many others.
- The structure of the relationship (a line of equal firms completing different parts of the textile production process in Prato; a network of relationships for Airbus; a relationship “centered” around the “main point”, such as in Microsoft and PC manufacturers, or Hong Kong container terminals and their clients). It depends on the roles of the members in relationships, the specifics of the product, etc.
- The power balance (Microsoft and Hong Kong container terminals are monopolists; the Prato firms are equal partners; in General Motors, the buyer and suppliers are “adversaries”; arms-length relationship; vertical integration/subordination and domination, etc.). It also depends on such factors as the role of relationships, the possibility to find alternative suppliers/buyers in the market, etc.
- The role of the supplier (suppliers of parts or raw materials; executives of certain processes, etc.). It depends on the specifics of the products to be supplied or purchased.
- The length of relationships (short-term contracts in Hollywood, long-term relationships in Airbus). This probably depends on the specifics of the products and position in the market: in Hollywood, some new actors are needed for each film; in Airbus, the same or similar parts are needed over long periods of time for similar products; in Microsoft vs. PC makers, Microsoft is the absolute monopolist – supplier of software, etc.
Which Type Do You Think Is the Best Approach to Buyer-Supplier Relationships?
The supplier-buyer relationship presents a considerable value (Hoffman et al. 93), and a wide range of factors related to the specifics of the production determine the best approach to it. For example, for a PC producer, it is probably best to be able to choose from a number of roughly equal producers of software, but this is practically difficult. For a car manufacturer, it would perhaps be unprofitable to maintain a vast network of suppliers from around the globe (as is the case with Airbus), because this could cost rather much.
It also depends on the perspective (the buyer’s vs. the supplier’s) (Gebert 11): for a buyer, it is more profitable if the buyer is a monopolist, whereas, for a supplier, it is more profitable to be the only provider of the necessary products or services. From a certain third-party perspective of long-term stability, it is probable that relationships between multiple independent firms are better due to their greater flexibility; for instance, it would perhaps be difficult for aircraft maker to fully produce all the necessary parts for each type of aircraft, whereas ordering them from different companies which also create other products (such as Rolls-Royce for Airbus) apparently provides greater flexibility and easier adapting to change.
In Which Directions Do You Expect Supplier-Buyer Relations to Move in the Future?
According to Obal and Lancioni, the buyer-supplier relationship is undergoing considerable change due to the fact that the technology promotes increased levels of contact between these two parties (851). In particular, it is stated that suppliers often have to provide education for purchasers pertaining to the possibilities opened by these new technologies and to prepare the buyers for these new technologies before the latte can be used (Obal and Lancioni 852-853). Therefore, it might be possible to hypothesize that suppliers may play a considerable part in promoting innovation and pushing buyers towards it. In addition, it should also be noted that the availability of various information on the Web might allow buyers to more easily select alternative suppliers, which may stimulate the emergence of a situation in the future in which buyers more often change suppliers than nowadays.
Gebert, Konstantin. Performance Control in Buyer-Supplier Relationships: The Design and Use of Formal Management Control Systems. Springer Gabler, 2014.
Hoffman, Erik, et al. Performance Measurement and Incentive Systems in Purchasing: More Than Just Savings. Springer, 2014.
Obal, Michael, and Richard A. Lancioni. “Maximizing Buyer-Supplier Relationships in the Digital Era: Concept and Research Agenda.” Industrial Marketing Management, vol. 42, 2013, pp. 851-854.