It is apparent that firms, whether manufacturers, distributors, service providers whatever their background in one way or another is involved in procurement of goods or services (Bailey and Farmer, 1998). As such, in a broader sense both supplier and buyer firms have own perceptions of procurement function as elaborated below.
2.11.1 Buyers perspective of procurement practices
Apparently, all firms despite their size or type of business engage in procurement of goods or services in one way or the other. As such, the role of any procurement function is ―to ensure delivery of the right goods and services; of the right quality; in the right quantity required by the business; from the right source at the right price‖ (Bailey and Farmer, 1985). Different firms place different values on each of the five rights depending on the effect on the overall business of their procurement arm not one or two even the rights wrong. As such, different firms seek to align procurement strategy to overall business strategy and objectives. Also the level of importance placed on their procurement arm is shown through position of the function on the overall business structured and the extent to which it is empowered to go about leading on each of the five rights.
2.11.2 Suppliers perspective of procurement practices
Many sources suggest that supplier firms see procurement function as ‗boundary spanning bridge‘ between buyer and seller firms. In response suppliers also assign designated salespersons that act as an intermediary between buyers and their firms (Jones, 1987). The practice of personal selling and sales management has also gone through a paradigm shift from
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making short-term sales to building long-term relationships (Kotler, 2000), and this has gradually dictated changes in supplier companies‘ perspective of role of procurement. Also, Lovelock and Wright (1999) argue that over the years supplier firms have shifted from focusing on just influencing buyer behavior to managing relationships. Supplier motives are: volume insurance; exploiting power and efficiency processing.
Most suppliers‘ philosophy is that regardless of how wonderful the firm‘s products are if no one knows about them, it is not going to be a successful business (Kotler, 2000). As a result, supplier firms spend huge amounts to market and link their products with existing, new and potential customers. Therefore tasks associated with this function include among many other things outside the scope of this study, a good understanding of the buyer‘s business and what is important in the business; for example price; delivery times; speed to market; dependability; knowledge of the organization and activity of the clients (Kotler, 2000; Krajic, 1998). This link between supplier and buyer organizations help sellers of goods and services anticipate their client needs and assist them with technical solutions that offer an efficient response to them. Further, through analysis of the clients‘ profitability and projected business, suppliers also seek to align their business plan to that of their clients resulting in development and implementation of appropriate sales actions.
2.11.3 Dynamics of preferred supplier and the preferred buyer procurement practices
It is no surprise to hear buyers talking of choosing preferred suppliers but, as Karljic Matrix has shown, suppliers too, have their preferred buyers (Bensaou, 1999; Kraljic, 1983). The difference is that since suppliers always say yes (the customer is always right; after all), the buyer will not necessarily know if they are the preferred customers (Bensaou, 1999). Nevertheless, when a number of buyers all need a scarce resource in hurry, then the supplier must choose who gets first response and best support (Kraljic, 1983). However, the ideal match is when a buyer chooses a supplier as its preferred one, and the supplier analysis indicated the particular buyer as the preferred one – in effect, both analyses will result in formation and development of more productive relationships providing significant mutual benefits. As such, it becomes much easier for parties to justify any specific asset investment to support each other‘s business.
2.11.4 Comparison of procurement practices in Japanese and Western firms
Common sense and advances in how companies conduct business, enlightened self-interest, and the realization that competition is (or should be) between value chains – not members of a value chain (Bailey et al, (2005); Lysons and Farrington, (2006); Cousin, (1991); Hines, (2004); Porter 1990), all combined to motivate relational exchange partnerships which involved buyer and supplier organizations working towards cooperative rein in a collaborative mode. However any attempts to understand procurement practices or activities in isolation are futile without seeking to understand relational exchange partners‘ motives. Inevitably, buyer and seller behaviors are inter-dependent (Ford, 2002). Many times influencing these behaviors between relational exchange partners is the dynamics underpinning the diversities and complexities associated with interactions.
Typical drivers of procurement practices between firms include strategic importance of goods and services; unpredictability of customer demand; unpredictability of supplies and overall market conditions; nature or type of business; nature and characteristics of product or service, value of total spend on particular goods and services and attractiveness of customer account (Dubois and Perderson, 2002; Hines, 2004). Essentially, partners are motivated by need to maximize shareholders‘ wealth through ensuring secure, efficient and effective business
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operations. According to Kanter (1989), definition of buyer and supplier partnerships – it is a long-term process and should not be viewed as an instant cost saving exercise but rather as an investment, which is very much how Japanese manufacturers viewed relationships with suppliers of materials goods and services.
In addition, Lorange and Roos (1992) explain a partnership as essential when considering the supplier of materials, goods and services as a stakeholder in the buyer or client‘s organization. In a study on buyer-supplier firms partnerships, Cousins (2002) established that Japanese buying organizations recognized that suppliers were the experts in their own field of technology, and that could draw upon their expertise to create synergies with their own organizations. As such, the approach involves taking the supplier as a ―co-worker‖, working with fewer suppliers commodity, commodity per supplier; developing long term relationships, managing close interactions and all functions, sharing physical proximity and agreeing blanket contracts. In contrast to the Japanese firms approach as stated by Cousin, Lamming (1993), suggested that in the West, perceptions of buyer and supplier firms partnerships are based on profitability and cost reduction whereas the partnership philosophy according to Cousin (1991) should be based on improving productivity and efficiency; sharing of risks and rewards, of technology and innovation, leading to a reduction in costs and creation of sustainable competitive advantage. Essentially, this approach is fundamentally anchored and underpinned by the operations management perspective of Total Quality Management principles (TQM).