Authors: Tutor: Examiner: Subject: Level and semester:

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1 Authors: Tutor: Examiner: Subject: Level and semester:

2 PREFACE Purchasing managers and their staff should question their present sourcing strategy (Faes and Matthyssens, 2009, p. 253) 2

3 ACKNOWLEDGMENT First of all, the authors would like to show special appreciation to the case companies; Arcoma, Lasermax Roll Systems, Ljungby Maskin, SP Maskiner, Swepac, and to the pretesting company Svetruck. Special gratitude to the respondents at each company for their time and effort, this thesis would not have been possible without your participation. Additionally, the authors would like to thank the supervisor Ph.D. Hooshang Beheshti for tutoring and feedback. The authors would also like to thank the examiners, Ph.D. Pejvak Oghazi and Ph.D. Vinit Parida. Finally, a grateful thanks to all involved during this process that have contributed to this project in different ways. Thank you everyone for making this possible! Linnaeus University, Växjö, Vanja Melin Schalén Malin Lindén 3

4 ABSTRACT Titel: Competitive advantage through strategic sourcing: A SME perspective. SME: The size of an enterprise can be measured by its employment, sales, or profit (Tam et al, 2007). Small and medium sized enterprises range between 10 and 250 employees. Five Swedish SMEs was used for the multi case study. Background: The competitive market situation has created a shift in companies strategy thinking. Strategies focus increasingly on core activities and business development. One effect of this is that companies choose to outsource activities they don t consider to be core business (Van Weele, 2010; Thrulogachantar and Zailani, 2011). Purpose: The purpose was to investigate strategic sourcing plans that SMEs can apply to increase their competitive advantage. Methodology: The research was conducted through a qualitative study with a deductive approach. A multi-case study was made on five SMEs in Kronobergslän, Sweden, with two semi-structured interviews at each company. Result and conclusion: The investigation resulted in a current view of SMEs sourcing and suitable recommendations for SMEs to direct their purchasing activities to strategic sourcing. The process of implementing a strategic plan for SMEs can be seen as relatively difficult but there are purchasing activities that can be improved by a strategic thinking. To keep in mind is that supplier s performance matter, but it is the resources of suppliers that are the main competitive advantage and it is in this area where supplier development and sourcing strategies should focus. Further research: However further research could investigate strategic sourcing in a different approach, both from a supplier and customer perspective. Keywords: strategic purchasing, strategic sourcing, sourcing strategy, competitive advantage, information technology, SME 4

5 TABLE OF CONTENTS 1. INTRODUCTION BACKGROUD PROBLEM DISCUSSION PURPOSE RESEARCH QUESTIONS DELIMITATIONS DISPOSITIONS THORETHICAL FRAMEWORK PURCHASING MANAGEMENT STRATEGIC PURCHASING STRATEGIC SOURCING SOURCING STRATEGY SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING SUPPLIER DEVELOPMENT IMPACT OF STRATEGIC PURCHASING ON COMPETITIVE ADVANTAGE INFORMATION TECHNOLOGY METHODOLOGY RESERCH APPROCACH INDUCTIVE VS. DEDUCTIVE RESEARCH QUALITATIVE VS. QUANTITATIVE RESEARCH RESEARCH DESIGN DATA SOURCES RESEARCH STRATEGY DATA COLLECTION METHOD DATA COLLECTION INSTRUMENT OPERATIONATIONALIZATION AND MEAUSUREMENT OF VARIABLES INTERVIEW GUIDE PRETESTING SAMPLING STUDY POPULATOIN SAMPLING FRAME SAMPLE SELECTION AND DATA COLLECTION PROCEDURE DATA ANALYSIS METHOD FOR A QUALITATIVE APPROACH QUALITY CRITERIA FOR A QUALITATIVE METHOD CONTENT VALIDITY CONSTRUCT VALIDITY EXTERNAL VALIDITY RELIABILITY SUMMARY OF METHODOLOGY

6 4. EMPIRICAL FINDINGS ARCOMA STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY LASERMAX ROLL SYSTEM STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTY GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY LJUNGBY MASKIN STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY SP MASKINER STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY SWEPAC STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY ANALYSIS INDIVIDUAL ANALYSIS FOR ARCOMA STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY INDIVIDUAL ANALYSIS FOR LASERMAX ROLL SYSTEM STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL

7 PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY INDIVIDUAL ANALYSIS FOR LJUNGBY MASKIN STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY INDIVIDUAL ANALYSIS FOR SP MASKINER STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY INDIVIDUAL ANALYSIS FOR SWEPAC STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY CROSS-CASE ANALYSIS STRATEGIC PURCHASING STRATEGIC SOURCING SINGLE VS MULTI GLOBAL VS LOCAL PARTNERSHIP VS COMPETITIVE BIDDING INFORMATION TECHNOLOGY CONCLUSIONS AND IMPLICATION CONCLUSIONS RESEARCH QUESTION RESEARCH QUESTION RESEARCH QUESTION SUMMARY OF CONCLUSIONS MANAGERAL IMPLICATIONS ACADEMIC IMPLICATION LIMITATIONS SUGGESTIONS FOR FUTURE RESEARCH REFERENCES APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX

8 APPENDIX List of figures 1.1 DISPOSITION OF THESIS LEVELS OF PURCHASING RANGES OF BUYER-SUPPLIER RELATIONSHIPS CONCEPTUAL MODEL OF THEORETICAL FRAMEWORK A GRAPHIC ILLUSTRATION OF THE DEDUCTIVE APPROACH RESEARCH DESIGN RESEARCH DESIGN OPERALIZATION MODEL PROCESS OF THE INTERVIEW GUIDE STRUCTURE OF ANALYSIS List of tables 3.1 RESEARCH STRATEGY DEFINITION OF SME DEFINITION FOR INVESTIGATED SMES INFORMATION ABOUT THE RESPONDENTS SUMMARY OF EMPIRICAL ANALYSIS OF ARCOMA ANALYSIS OF LASERMAX ROLL SYSTEM ANALYSIS OF LJUNGBY MASKIN ANALYSIS OF SP MASKINER ANALYSIS OF SWEPAC

9 1. INTRODUCTION This chapter presents the background of this thesis. It begins with the introduction and background descriptions followed by problem discussion that pointing out the drivers behind this thesis. Further the purpose and detailed research discussions that motivate this thesis are defined. The last section in this chapter presents the delimitation and the disposition. Competitive conditions on markets have gone through changes in the last decades, which have led to a need for companies to adapt to new requirements imposed on them either by consumers or competition (Porter, 1985; Galbreath, 2002). Competition is affected by market changes and the requirements for companies to stay competitive in these markets (Galbreath, 2002). Conditions effecting the environment are changed buyer preferences, increased globalization, shorter product life cycles and technology changes (Pressey et al. 2007). Due to changed market situations companies are driven to give first priority to cost and cycle-time reduction, quality improvement and focus on core activities (Van Weele, 2010). It could also mean opportunities for companies to take advantage of new needs or minimize threats of competition. To do so they need to recognize these opportunities and develop effective strategies to ensure their success (Monczka et al. 2009; Van Weele, 2010; Thrulogachantarm and Zailani, 2011). The previous statement is in line with Porter s, (1996) view that strategies are important for companies future competitiveness and that they can be used to benefit understanding about markets companies operates in. Strategies exist in different levels in an organization and are the direction and scope of an organization over the long-term, which achieves advantages in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations (Johnson et al. 2008, p. 3). The competitive market situation has created a shift in companies strategy thinking. Strategies focus increasingly on core activities and business development. One effect of this is that companies choose to outsource activities they don t consider to be core business. This has made management more aware of purchasing functions growing influence in the business and its strategic role in the overall corporate strategy (Van Weele, 2010; Thrulogachantar and Zailani, 2011). A company s purchasing strategy can be developed by analyzing supplier s power and the principles of buyer selection. Companies then need to see to the stability and competitiveness 9

10 of the supply base, how they want to cooperate vertical with their suppliers and their distribution among suppliers (Porter, 2004). 1.1 Background There are three main stakeholders to consider in business strategy decisions; major competitors, primary customer groups or target groups and major suppliers (Van Weele, 2010), for illustration see Appendix 1. Porter, (1985) identified the relevance of this stakeholders in the competitive five forces model. The bargaining power of supplier s effect the competitive positions in markets, the statement us is strengthen by Renko et al. (2011), and facing competition in markets need to be company priority to gain or keep a strong competitive advantage on the market. The purpose of purchasing actions is a determining factor of the level of strategic approach and strategic intent with involved stakeholders (Ho et al. 2011). Strategic implementation is a process with several aspects that consider strategic activities as internal competences which can lead to capability improvement and stronger competitiveness (Chiang et al. 2011). Strategic approach is defined in this thesis as an effort by the company to create long-term goals, objectives and strategies concerning management of supply base and purchasing functions. It is making decisions on a management level that affect activities on an operational level and making the purchasing department a central part of the information and material flow. Xu, (2010) define supply chain as a set of activities ranging companies functions from the ordering and receipt of raw material, manufacturing of products, through to the distribution and delivery to the customer. An objective of a Supply Chain Management (SCM) for the buying company is to achieve sustainable competitive advantages by, among others, reducing cost and lead time and enhance quality, delivery performance and effectiveness. Close relationships in the supply chain could be a determining factor for the competitive success. For the supply chain to operate efficiently all functions that are related need to operate in an integrated manner, including quality management. To enable a working relationship between the supply members the communication flow of SCM is vital (Chen et al, 2004) and information systems is growing in SCM context for strengthen communication (Xu, 2010). Knolmayer, (2009) indicate that SCM would not be possible without advances in information systems and technology (Achrol and Kotler, 1999; Knolmayer, 2009). Short-term objective of SCM is to increase productivity and reduce inventory and cycle times. The 10

11 strategic long-term goal is to increase key deliverable s such as, customer satisfaction, market share and profits, but ultimately improving the total process efficiency and effectiveness for all supply chain members (Williams, 2006). If SCM is characterized as the entire chain of material and information flow (Shin et al. 2000), a limitation of terms are needed to clarify the supply relationship intended in this thesis. Shin et al. (2000) explain that the term Supply Management (SM) is used to describe the management efforts or philosophy necessary for creating an operating environment where the buyer and supplier interact in a coordinated fashion. According to Rendon, (2005) strategic sourcing is an aspect that characterizes the shift to supply management. Sourcing strategies should be in line with business strategy, processes and integrate Information Technology (IT) services (Rendon, 2005; Van Weele, 2010). Considering these elements give an strategic advantage and create long-term value (Rawlinson and Howie, 2007). 1.2 Problem discussion The structure of the current business context is changing quickly, generating a great deal of uncertainty. This environment forces companies, particularly small and medium-sized enterprises (SMEs), to be innovative and to constantly review their processes and practices in order to survive on the market. This means that they must keep a close eye on their performance (Bahri et al. 2011). Definition of a SME or large enterprises can be measured by its employment, sales, or profit (Tam et al. 2007). The increased competitions on markets has led to a focus on innovation business models and products. One threat is how easily the innovation of products can be copied which decreases the competitive advantage (Oke and Kach, 2012). This leads to a need to find innovations that are harder to copy. Small companies have advantages such as flexibility and higher efficiency. However, small companies have some factors against them such as less resources, lack of funds and limited physical human resources and may have less power in both collaboration and competition with large organizations (Tam et al. 2007). These factors affect SMEs competitive position and ability to stay competitive though product development and growth (Hammer, 2004). The shift towards strategic purchasing from operational and tactical (Ferguson et al. 1996; Brookshaw and Terziovski, 1997; Van Weele, 2010) can lead to competitive advantages on markets if used in effective manner. Purchasing managers in SMEs may find it difficult 11

12 organizing the strategic activities since they may lack the time and resources for such efforts. The strategic activities involve, among other, creation of purchasing strategy and aligning it with overall corporate plans, objectives and not focus on cost cutting and low price when selecting suppliers but to evaluate the possible gained value from existing and potentially new suppliers (Quayle, 2002; Pressey et al. 2007). There is separation in the organizational structure and flexibility of SME and large enterprise's affecting their different conditions of competitiveness (Tam et al. 2007). SMEs lack of human resources and specific expertise to stay on the forefront of markets. SMEs can exploit their advantages by using knowledge and expertise from external sources (Tam et al. 2007). When companies in a higher extent focus on their core business, outsourcing becomes more common, allowing companies to evaluate their core activities (Pressey et al. 2007; Van Weele, 2010). Sourcing strategies may be one option to manage the process of outsourcing and generate competitive advantages, (Tam et al. 2007). Sourcing is an ongoing process, not an isolated decision. By deploying flexible services from wherever they are best provided, SMEs can quickly and effectively respond to changing market conditions (Rawlinson and Howie, 2007). The SMEs may benefit from suppliers capabilities to create added value and enhance competitive advantage to the buying company (Pressey et al. 2007). Strategic sourcing can be adopted to evaluate suppliers, especially companies capabilities and quality management (Mehltretter, 1996; Talluri and Narasimhan, 2004; Rendon, 2005) and create a buyer-supplier partnership that is on a less operational and more a strategic level (Chiang et al. 2012). Companies need to develop a functional partnership with strategic suppliers (Pressey et al. 2007) and buyer-supplier relationships can be a base of competitive advantage if companies combine resources in unique ways (Sánchez-Rodríguez, 2009). To gain a strategic sourcing advantages and create value (Rawlinson and Howie, 2007), IT services is an important factor of the sourcing strategies (Rendon, 2005; Van Weele, 2010). Investment in IT can enhance buyer s information management which foster closer partnerships and may extract better terms from suppliers by efficiency of transaction processing (Stump and Sriram, 1997). By not following the development in new technology companies risk missing out on an important tool for more efficient supply flow by enhancing the communication channel with suppliers (Van Weele, 2010). Bad communication is often a 12

13 weakness when buying companies make the effort to increase their supplier s performance. Good communication foster mutual support, thereby improving customer responsiveness among channel members and it is vital in the development of SM capabilities (Shin et al. 2000). It is said that there will be a change and increased integration between standalone ERP systems, the systems used to make decisions on sourcing strategies, e-procurement and contract management systems that communicate information between buyers and suppliers (Giunipero et al. 2006, p. 839). IT and Internet can be seen an operational tool to improve the outcome (González-Benito, 2007) but if company s don t harness the technologies for strategic purpose the possible benefits might be overlooked. 1.3 Purpose The purpose is to investigate strategic sourcing plans that SMEs can apply to increase their competitive advantage. 1.4 Research questions The three research questions are conducted for investigating the purpose: RQ1: What is the current sourcing plan in SMEs purchasing department? RQ2: What are SMEs possible solutions for strategic sourcing? RQ3: How can strategic sourcing help to increase competitive advantages for SMEs? 1.5 Delimitations Due to the strict time frame and limited resources for the research, this thesis is limited in some aspects. The investigation focused exclusively on SMEs, since the study population was the most relevant for this thesis according to previous research recommendations where lager enterprises often is examined in strategic purchasing context (Williams, 2006) and that strategic purchasing often is a low priority to SMEs (Pressey et al. 2007). A geographic limitation was the Swedish market, specifically Kronobergslän. Focus was on manufacturing companies operating business-to-business (B2B) since strategic sourcing affect the bottom line of manufacturing companies (Jonsson, 2005). The authors did not take consideration to what part of the world the SMEs suppliers were located because of the increased global sourcing (Van Weele, 2010). Five case studies were investigated. The number of SMEs depended on the time aspect, resource restraints and how well the amount of gathered data 13

14 can fulfill the research questions. Two interviews were made on each company to gain deeper knowledge about the level SMEs manages their purchasing. Furthermore, focus was mainly on the SM part of the supply chain. SM was delimited to the buyer-supplier relationship and this thesis is written from a buyer perspective and do not include sub-contractors. Data collection were only focusing on buying manufacturing company and the top managers working with purchasing, since suppliers were outside the range of the research. 1.6 Disposition This thesis is mainly composed of five parts. First the background for the study is presented followed by a problem discussion that leading to a research problem. Chapter two is the theoretical framework used in the study and chapter three contains methodology where the studies approach is explained. In chapter four the empirical data is presented, containing all the factors related to the study. Theory and empirical data is analyzed, where the research problem is evaluated. This thesis ends with conclusions and recommendations. To give a clearer view of the disposition, a brief content of each chapter is presented below in figure 1.1. Figure 1.1 Disposition of thesis 14

15 2. THEORETHICAL FRAMEWORK This chapter present the framework of references applied in this thesis. It provides knowledge regarding purchasing management, strategic purchasing, sourcing strategy, impact of strategic purchasing on competitive advantage and impact of information technology on competitive advantage. On which the empirical framework and analysis will be conducted. 2.1 Purchasing management Purchasing management is divided into purchasing on a strategic, tactical and operational level, see figure 2.1. The strategic level concerns the purchasing decisions that influence the company in the long-term and provide a total overview of the purchasing management. The key with purchasing management is if suppliers are not managed by their customers, customer relationships will be managed by the suppliers. It has also been called supplier resource management and relates to activities needed to supplier relationships (Van Weele, 2010). The activities should also be in alignment with companies overall business strategies and interest. Purchasing management has both internal as well as external aspects (Thrulogachantar and Zailani, 2010; Van Weele, 2010). How authority is dedicated and where in the organization decision making is made may differ. When it comes to purchasing there are two views. A centralized authority is one where a supply executive at corporate headquarters has the power and makes decision about the organizations purchase expenditures. A decentralized decisionmaking is when the purchasing authority for the purchasing is at a business unit and central level. Often there is a mix of the two depending on the level of decisions. Evaluation of suppliers for example may be centrally led. Centralized purchasing should focus on factors such as support, integration, and coordination of several tasks that are common across the business, the challenge is to know what of these aspects to control centrally and which to assign to operating units (Handfield et al. 2009). Before the 1980s purchasing was mainly operational or tactical. Even during the 1980s purchasing activities were viewed as a tactical function and were treated as isolated planning performed by top management (Ferguson et al. 1996). The last decades purchasing has gone from tactical and operational to a strategic approach (Ferguson et al. 1996; Brookshaw and Terziovski, 1997; Handfield et al. 2009; Van Weele, 2010). 15

16 Figure 2.1 Levels of purchasing (Ferguson et al. 1996) The tactical level is responsible for decisions and activities concerning purchasing management affecting on product, process and supplier selections that a company s purchasing department perform and also how to accomplish the overall business strategy (Van Weele, 2010). Giunipero et al. (2006, p. 841) stated that tactical buyers will be more concerned with day-to-day activities. Operational purchasing is the lowest level of purchasing functions and dealing with problems that contains the quality of products or services supplied, problems with meeting delivery deadlines and reluctance to adapt products or services to meet the company need (Pressey et al. 2007). The operational level follows the framework that the strategic and tactical level creates and is responsible for ordering activities and expediting functions (Van Weele, 2010). To develop the business unit goals and strategies the base is corporate strategic plans, which drives the operational strategies and daily activities of the functional part (Sánchez-Rodríguez, 2009). An operational approach give companies positive effects when using operational purchasing thinking on operational performance, such as IT investments within the purchasing function (González-Benito, 2007). González-Benito, (2007, p. 219) identified that a broader set of purchasing practices intervene in the relationship between IT investment and operational performance in the purchasing function Strategic purchasing Key to strategic purchasing is the acknowledgment that purchasing plans should be in alignment with the business strategy and lead to integration of purchasing and its practices with companies objectives (Pressey et al. 2007; Sánchez-Rodríguez, 2009). Companies that use strategic purchasing in high extent evaluate their suppliers differently depending on for example the fit with the competitive strategy (Sánchez-Rodríguez, 2009). Companies 16

17 purchasing and manufacturing strategies must be similar with their business unit and corporate level strategy. Strategic planning processes that are well developed, properly implemented and controlled have a positive effect on companies performance (Sánchez- Rodríguez, 2009). It can also be the unique combination of strategic purchasing and supplier development practices or activities (Chiang et al. 2011). Ellram, (1994) identified, strategic purchasing as the process of planning, implementing, evaluating, and controlling strategic and operating purchasing decisions for directing all activities of the purchasing function toward opportunities in line with companies capabilities to achieve long-term goals. It is critical for companies to have good relationships with strategic suppliers and that the strategic suppliers are aware of the implicit or explicit criteria by which buyers evaluate relationships. Strong relationships with supplier can provide great benefits for buyer and supplier (Pressey et al. 2007; Sánchez-Rodríguez, 2009). All companies don t distinguish labor or have the same need for the strategic significance of the purchasing function. The degree companies integrate strategic purchasing is revealed through their actions, such as purchasing managers participation in the business strategic planning process, the formalization of a strategic plan in the purchasing function and how to support business strategy. Purchasing managers should participate in the development phase of the business strategy in order to acquire good knowledge about strategic objectives. This is accomplished by purchasing professionals, training of purchasing professionals oriented to requirements resulting from business strategy, or measurement of purchasing performance in terms of its contribution to business strategic objectives (González-Benito, 2007). Managers on a strategic level need to focus on building relationships and lower the total costs. Implementing strategic approach requires new knowledge in a combination of communication, technology and financial skills (Giunipero et al. 2006). Paulraj et al. (2006) found that impact for companies at a starting stage of strategic purchasing can lead to better supply integration and performance. Executives must understand the key role that purchasing function can play in integrating buyer supplier parts by focusing on different aspects, such as process, relational, information, and cross-organizational teams and that strategic purchasing can create a win win situation for both buyer and supplier companies, which can have an impact on supply chain performance. 17

18 A more strategic role is going to be a requirement of supply management professionals in thefuture. Our data indicated that there are strong trends underlying this movement (Giunipero et al. 2006, p. 841). Purchasing need to build strategic relationships, to reduce the cost and focus on total cost with those suppliers they have not started collaboration or integration with. Improved process efficiencies give lower cost when having strong relationships with suppliers, which also creates innovations that improves quality and cost. There is some expertise needed for a company to achieve success with a strategic approach, by (1) team-building through leadership, decision-making, influencing, and compromising and (2) strategic planning skills through project scoping, goal-setting, and execution and (3) communication skills through presentation, public speaking, listening and writing also (4) technical skills through web-enabled research and sourcing analysis; and (5) broader financial skills through cost accounting and making the business case (Giunipero et al. 2006). 2.2 Strategic sourcing Strategic sourcing comprises concepts of strategic purchasing, supplier development, information sharing with suppliers and inter-functional integration of purchasing. Strategic sourcing is defined as a critical challenge of designing and managing supply networks in line with the organizations operational and performance objectives (Chiang et al. 2011). Decisions around strategic sourcing cannot only be based on operational level, such as cost, quality, and delivery. It has to incorporate a strategic level and capabilities evaluation of suppliers, such as highlighting quality management practices, long-term quality output, supplier s strength, process capabilities, management practices, cost reduction at the same time as increasing profit, design and development capabilities (Talluri and Narasimhan, 2004; Rendon, 2005; Giunipero et al. 2006), for table of activities see appendix 2. Because of the expanded competition, strategic sourcing need to consider the total cost of ownership, company s growth and profit making and comparing different alternative partners (Faes and Matthyssens, 2009). Sourcing strategies helps with the procedure for companies to establish long-term relationships with their suppliers and achieve the considerations of strategic sourcing (Chiang et al. 2011). When conducting a plan for strategic sourcing there are some aspects to consider, such as technology, quality, availability, cost and fulfillment. Technology is a vital part for more effective communication with suppliers. The strategic sourcing plan is performed in an implementation phase (Van Weele, 2010). 18

19 Rendon, (2005) sees the strategic sourcing process as a step in the procurement process that incorporate the identification and selection of the supplier whose costs, qualities, technologies, timeliness, dependability, and service best meet the organization s needs. Procurement includes all activities required in order to get the product from the supplier to its final destination (Van Weele, 2010, p. 6). It is related to the company s value chain and is a part of purchasing input, it could be several factors like raw material or suppliers (Van Weele, 2010). There are two main functions to strategic sourcing; rebuilding the supply base and responding to purchasing needs reported from manufacturing and other function of the company. There is no point in time when a company should design a supply base, it can be both for current business or establishing new businesses (Johnsson, 2005). Strategic sourcing has a crucial contribution to the bottom line of a manufacturing company (Johnsson, 2005). Portfolio analysis is a way to structure and segment the supply base (Handfield et al. 2009). Often there are four groups in which products are divided; critical, routine, leverage and bottleneck products. Depending on the type of product the sourcing strategy is identified. Following categories of products and suppliers are identified as a foundation of determining the sourcing strategy. Critical products are often high-tech, high volume products and are often supplied at customer specification. There is also only one source of supply available and usally the type of product represent a high share in the cost price of the company s end product (Handfield et al. 2009, p. 196). The suppliers should preferably be strategic and can be seen as means to help develop competitive advantage and work beyond a simple purchasing agreement (Handfield et al. 2009; Koufteros et al. 2012). If focus is on selecting strategic supplier, there is an enhanced chance of integration (Koufteros et al. 2012). Low cost products is referred as routine products. The aim is to reduce the number of items in the category through for example small volume spend and simplification of the procurement process using electronic tools. There is also work involved with trying to find the suppliers that can automate the purchasing process as much as possible. Leverage commodity or preferred suppliers generate the possibility for cost savings. The items or services in the category represent a significant part of the spend and are important for business. Bottleneck commodity and transactional suppliers have unique requirements or niche suppliers which is significant to the business. Often the type of products is expensive, 19

20 because of the market position of the supplier. The suppliers are found through competitive bidding, and should preferable be based on IT requirements, followed by negotiation (Handfield et al. 2009) Sourcing strategy Sourcing strategies is a strategic part of managing supply chain and is defined by Van Weele, (2010) as identifies for a certain category from how many suppliers to buy, what type of relationship to pursue, contract to negotiate for, and whether to source locally, regionally or globally (Van Weele, 2010, p. 10). Handfield et al. (2009) identified category as a specific family of products or services that are used in delivering value to the end customer (Handfield et al. 2009, p. 190). Sourcing strategies are often focused on one category of products or services. Often there are subcategories within the categories. Van Weele, (2010) discuss the connection between categories and sourcing strategy and by dividing categories of products it helps to identify the appropriate sourcing strategy. There are several issues to consider when conducting the sourcing strategy. The sourcing strategy should be considered as a long-term process and be in line with the overall business strategy, business processes and integrate IT services (Rendon, 2005; Rawlinson and Howie, 2007). By connecting these elements the strategic approach to sourcing generate two advantages; it shifts the focus from only cost- cutting to long-term value creating of the enterprise, even though cost improvements can be made. Second it can provide economies of scale and more sustainable and long-term cost savings (Rawlinson and Howie, 2007). Van Weele, (2010) defines some issues that are considered vital when preceding a sourcing strategy, which are; single vs. multi sourcing, global vs. local sourcing and partnership vs. competitive bidding Single vs multi Single vs multi implies if the company has one or several suppliers for the same product. Single sourcing is defined as an extreme form of source loyalty to a single source even if there are other possible sources. A positive advantage is that single sourcing has the possibility to cut costs through cost advantages and quality improvements which lead to enhanced global competitive position. Other positive advantages are the various supply base reduction efforts, total cost cutting strategies and reducing through time projects in purchasing (Faes and 20

21 Matthyssens, 2009). Since the transaction costs are decreasing a greater effort can be made to develop relationships with the supplier generating greater competiveness against other supply chains (Van Weele, 2010). A negative factor when using single sourcing is dependency on one source, given that it can lead to higher switching costs, potentially less competitive cost structures and is costly if changing suppliers. Using single sourcing means the emphasis is even higher on finding the perfect fit among the alternative supplies (Faes and Matthyssens, 2009). Another issue is if there is an increased demand that the single supplier can t meet (Handfield et al. 2009). Single sourcing leads to best results in innovative technology circumstance and expertise-oriented situations (Faes and Matthyssens, 2009). Multiple sourcing is defined as when a buying company has several similar available suppliers for the component orders for the same item (Faes and Matthyssens, 2009). There are two main reasons for using multiple sourcing. It reduces dependency on individual suppliers and other advantages that companies gain by having competing suppliers such as risk reduction of becoming locked into one technical solutions, that later will be outdated or becoming dependent on one supplier (Gadde and Håkansson, 2001). Negative aspects are the loss of not developing a close relationship with suppliers and high transaction costs for the company (Van Weele, 2010). To gain advantages from both multiple and single sourcing companies can apply hybrid strategy by mixing the two. There is also a need to separate two other branches of hybrid sourcing; parallel sourcing and network sourcing (Faes and Matthyssens, 2009). Gadde and Håkansson, (2001) identified that the key with network sourcing is that companies can create an inter-company environment, so the collaboration can exploit the benefits to all supply sources, the customers, and ultimately the end-customer Global vs local The strategies are built on whether the suppliers for the product are global or locally placed, depending on the requirements of the product and the supply market structure. Local is often preferred when it comes to high-tech products that might need high flexibility on changes, support and maintenance. The decision about what sourcing strategy to choose should be based on considering total cost of ownership (Van Weele, 2010). If a company manage to integrate and coordinate their supplier relationships on a global scale they have a chance of enhancing their competitiveness (Murray et al. 2009). Monzcka et al. (2005, p. 304) defines global sourcing as proactively integrating and co-ordination common items and materials, 21

22 processes, designs, technologies and suppliers across worldwide purchasing, engineering and operating locations. According to Murray et al. (2009) both large and small company s choose to outsource activities that before was performed within the organization and sourced from domestic suppliers. To achieve an effective global sourcing strategy the supplier countries need to be low cost countries only (Van Weele, 2010). The choice of preceding a global sourcing strategy is not only to reduce price but to enhance quality, reliability and technology of components and products. How to source globally is based on strategic decisions that are effected by a company s capabilities to compete (Kotabe and Murray, 2004). There are both advantages and disadvantages for the company when using global sourcing. Advantages are mostly connected to cost and price benefits such as lower unit cost and different productivity levels. The importance is to also consider the possible advantages beside costs such as access to product and process technology, developing alternative suppliers to stimulate competition, getting access to new markets and enhance quality while lowering costs. It could give an competitive advantage if sourcing from suppliers that competitors might not use, domestic could lead to the same supplier and same advantages (Handfield et al. 2009; Van Weele, 2010). The disadvantages can be a bit more complex since it is often a difference in culture, the distribution and logistics is more complicated leading to increasing handling costs (Van Weele, 2010). When sourcing globally there are some pitfalls to avoid for succeeding with the strategy and especially with low cost countries there are a need for awareness of the fast changing political circumstances that can affect relationship with the suppliers. There are also local environmental effects which makes the need for flexibility greater (Kotabe and Murray, 2004) Partnership vs competitive bidding The strategic decision to be made is if there is a need or want to develop a long-term relationship through partnership sourcing or keep the suppliers on an arm s length by using competitive bidding and sounding out competition (Jonsson, 2005; Van Weele, 2010). Using competitive bidding is often related to multi sourcing where the different alternative suppliers compete to create the best market price (Jonsson, 2005). When a supplier has a corporative relationship with the buyer it is often referred to as partnership. Partnership with suppliers can 22

23 give a positive influence on company performance. The relationship can grow from joint resources and exchange of valuable knowledge with different partners (Lawsona et al. 2007; Handfield et al. 2009). As the partnership proceeds more trust will dvelop and less face to face and personal communicating is needed, this contribute to a more effective relationship where the performance of each party is shared (Jonsson, 2005). Collaborative relationships with external sources are a source of innovation. Small companies are often more depended on collaborative partnership to succeed with innovations (Oke and Kach, 2012). Partnership can translate to relational strategies since the buyer-supplier relationship often is called a strategic alliance between the buyer and supplier (Tam et al. 2007), see figure 2.2. It may create opportunities for the buyer to leverage their strength and strengthen or make new competitive advantages (Jonsson, 2005). The integration of relationship and level of partnership can differ and go through a step by step process since the implementation does not happen in an instant. (1) Pure transaction is a one-time exchange of value between two parties without any prior interaction. (2) Repeated transaction can be refereed as repeated pure transaction where a least one exchange has occurred between buyer and supplier. After comes (3) long-term relationship and depend on market control. (4) Buyerseller partnership refers to total dependence from both buyer and suppliers in an area where mutual trust fosters. Next step is (5) strategic alliance defined as the formation of a new entity where the intention is to move each of the partners toward the achievement of some long-term strategic goal (Tam et al p. 300). The alliance is a collaborative relationship aimed at gaining common advantages (Jonsson, 2005). The final step of partnership is working as a (6) network organization. It results from multiple strategic alliances, usually combined with other external organizations (Tam et al. 2007). Figure 2.2 Ranges of buyer-supplier relationships (Frederick and Webster, 1992; see Tam et al. 2007, p. 300) 23

24 Supplier development Krause and Ellram, (1997) define supplier development as any effort from the buying company to together with supplier increase the performance and/or capabilities of the supplier and to meet the buying company s short and/or long-term supply needs. Supplier development is described as activities undertaken to improve the current or future relationship between buyers and suppliers, either short- or long-term which could lead to improved or expanded capabilities (Williams, 2006). Williams, (2006) state that supplier development is any systematic programme established to create and sustain a network of competent suppliers. Possible outcomes of supplier development include improved communication, joint problemsolving and risk-sharing as well as reduced costs. Supplier development is a subject in SCM which has been significantly researched because manufactures realized that supplier performance is important for their establishing and maintaining competitive advantage. Supplier development has a critical role when driving performance improvement in purchasing and contributes to overall organizational effectiveness. Direct involvement in supplier development activities plays an important role in supplier performance improvement (Li et al. 2011). In the Buyer performance context performance of manufacturing companies can be evaluated by one or several key competitive priorities which is described in four categories: quality, delivery, cost and flexibility. Supplier performance is defined by the following measures: lead-times, on time delivery, delivery reliability, quality, and cost (Shin et al. 2000). 2.3 Impact of strategic purchasing on competitive advantage Both managers and researchers have for several years been considering strategic purchasing as an effective practice for companies to gain a competitive advantage (Carr and Pearson 2002; Thrulogachantar and Zailani 2011). Strategic purchasing construct a competitive advantage by having access to raw materials, suppliers with an effective system for measuring quality of products supplied, develop advantage over competitors in relationship with suppliers, working close together with suppliers on product development efforts and close working relationship with suppliers to improve each other s processes (Brookshaw and Terziovski, 1997). A company can create a wining situation with strategic purchasing for both the buying company and the suppliers, by fostering relational capabilities that creates sustainable competitive advantages. Using strategic purchasing can create and protect the 24

25 sustainable competitive advantages for both the buying company and the suppliers. It gives maximized transaction value in the long-run (Paulraj et al. 2006). A strategic approach helps companies to drive advantages from the capabilities of suppliers to deliver superior value to the buying company and leading to strengthen of buyer s competitive advantage (Pressey et al. 2007). The initiative of strategic sourcing has been proven to be affective and result in cost reduction, increases in productivity, quality improvement, and return on investment (Rendon, 2005). Considering sourcing as strategic has been considered as a driver for company growth (Van Weele, 2010). 2.4 Information technology There are tools and practices that can provide purchasing function with help to reach objectives and improve performance, adoption of IT being one of these tools to be studied (González-Benito, 2007). IT includes software, communications systems, personnel and resources dedicated to support capabilities (Stump and Sriram 1997). In earlier findings in the 1980s, there was no positive connection between the substantial IT investments that were being made in many industries and the productivity rates. Updated literature has declined these results and has shown positive effect on productivity that contradicts the previous assumption. As there has been a higher focus on companies core competences a greater dependence on supplier has emerged, which has increased the potential of purchasing function as a source of competitive advantage (González-Benito, 2007). Companies make more investments in IT to gain this enhanced competitiveness, improve financial performance, or impact areas such as purchasing and marketing. Investments in IT to support purchasing functions consist of two dimensions, an internally orientated and outer-directed dimension. The first dimension at improving the operational efficiency and effectiveness of the purchasing function, by enhanced supplier evaluation capabilities and reduction of internal order processes time and costs. The second dimension aims to enhance inter-organizational communications and processes of transaction efficiency (Stump and Sriram, 1997). Investment in IT can be viewed in bargaining position since it can enhance buyers information management, extract better terms from suppliers by efficiency of transaction processing and foster closer relationships. If IT investment is made to support the purchasing function they can reduce costs of communicating and transacting and make internal databases available for sharing with vendors also referred to as suppliers (Stump and Sriram, 1997). If 25

26 the IT investment is successfully implemented, it can reduce buyers routine processes cycle times and automate routine procedures, which leads to reducing costs, especially after implementation phase (Derick et al. 2008) and provide more time for purchasing personnel. Which enable a more elaborated value analyses, foster closer relationships with strategic suppliers and work with the company s supply bases (Stump and Sriram, 1997). Supply base is a factor that often gets affected in the implementation since the number of supplier relationships is affected and often IT is used when supply base grow or change (Derick et al. 2008). From a perspective of effectiveness the enhanced capabilities of IT investment may lead to reduction of supply base, buyers also tend to eliminate those suppliers who don t possess adequate communications or data exchange capabilities, or the motivation to obtain these capabilities (Stump and Sriram, 1997). According to Dewett and Jones, (2001) it can be concluded that the efficiencies in information that comes from adopting IT are used to increase the strategic integration of purchasing. Also to develop advanced purchasing practices such as collaboration with suppliers, supplier evaluation, supplier involvement in product design and development. These methods are relevant to turn IT investments into improvements in quality, flexibility and readability (González-Benito, 2007). ERP systems have the potential to integrate seamlessly organizational processes and reporting systems using common shared information and data flows (Handfield et al. 2009; Monczka et al. 2009; Tambovcevs, 2011). The system is a central part of an organization and support decision making in the organization, by providing information about people, processes and technology It allows communication within the whole organization and parties that affects by the decisions, such as suppliers. The buying company exchange information electronically with the suppliers through electronic data interchange (EDI), which streamlining the communication process (Handfield et al. 2009; Monczka et al. 2009; Van Weele, 2010). According to Motiwalla and Thompson, (2009) SMEs have a harder time to adopt and implement an ERP system step by step and often need support from then vendor. From the SMEs perspective it is often activities related to testing, reporting, and data conversion that is most frustrating in the ERP life cycle. Another reason for SMEs reluctance to ERP system is a technology that demands both resources in shape of time, cost and human application. According to Derick et al. (2008) Internet-based technologies with the purpose of connecting information system with suppliers are relatively low marginal cost. 26

27 Most value activates use technology (Van Weele, 2010) and supply managers seek new technologies to improve quality and delivery performance (Jonsson, 2005; Giunipero et al. 2006). E-business refers to applied electronic commerce that converts key-business process electronically over the Internet with the use of IT (Jonsson, 2005). E-commerce is growing and is becoming an increasingly vital element of purchasing (Jonsson, 2005; Giunipero et al. 2006). E-commerce is the procedure of sharing business information, maintaining business relationships and performs transactions trough Internet-based technologies. It is a tool to interact purchase goods or services or to create a integrated systems to enable business processes to facilitate delivery of goods or services. Interacting with suppliers may occur through information, files or payments being performed electronically (Walker and Rowlinson, 2008). E-procurement it directly focused on support the purchasing process (Van Weele, 2010) and the benefits is mostly made by automated transactions (Giunipero et al. 2006). It manage the document flow by automating document process and sending purchase documents to suppliers electronically (Handfield et al. 2009) through either e-market places, e-auctions, e-catalogues or by order and payments solutions (Van Weele, 2010). Procurement processes will be streamlined to help cut purchasing costs for all procured goods and services (Giunipero et al. 2006, pp ). E-procurement has disadvantages. When investing in IT the cost increase, it requires ongoing management and standardization of processes between differing systems, higher IT security risk and increased risk for higher cost when purchasing components when ordering small order volumes (Walker and Rowlinson, 2008). 27

28 Figure 2.3 Conceptual model of theoretical framework Information Technology E-Business 28

29 3. METHODOLGY In this chapter the methodology applied for this thesis is introduced. The choices of research approach, research design and research strategy is described and discussed. Furthermore; a motivation is presented for choice of data sources, data collection method, case study and data analysis method have been collected. Finally, a discussion about the research quality is presented though validity and reliability. 3.1 Research approach A research approach needs to characterize the link between the theory and research. First step explain whether a deductive or inductive approach is most suitable to use. Then data gathering method was decided between three choices; qualitative, quantitative research, or a mix of the two. According to Bryman, (2008) the chosen research approach steer all research decisions and outcomes Inductive vs. Deductive Research There are two approaches the authors could use when conducting theory and empirical material. These approaches are inductive and deductive research methods (Bryman and Bell, 2005; Gray, 2009). Inductive is a research approach where theory generates from practice and the theory is a result from a research contribution. The researcher starts by examining the environment to devlop the hypotheses and result in new theory. Deductive research approach is when researchers use what is known from a certain area and theories connected to it and later reject or strengthen the theory (Bryman and Bell, 2005; Gray, 2009). It is the most common approach and view about the relationship between theory and empirical in social science. The approach is made in linear steps to test the current theory which later is confirmed or rejected (Bryman and Bell, 2005). This thesis is written with a deductive approach with linear steps, see figure 3.1. The reason is that it is in line with the purpose. Collecting theories was needed to find the relevant empirical to make a proper analysis. First step was examining and collecting existing theories, to gain a deeper knowledge and understanding for the chosen subject to confirm or reject a theory. 29

30 Figure 3.1 A graphic illustration of the deductive approach (Bryman and Bell, 2005) Qualitative vs. Quantitative Research There is often a separation made between qualitative and quantitative research methods (Bryman and Bell, 2005). The methods provided different strategies for approaching the methodological issue. Qualitative research method means that emphasize is put on words to create a deeper understanding of the studies than what a quantitative research method provide. Emphasis is on the understanding the social reality on the basis of how the participants interprets reality in a particular environment. The ordinary flow of the steps in the qualitative research approach is more of a theory generating than a test of theory that is specified before the data gathering begins. It is confirmed that theories that are specified in the beginning can be tested with qualitative data. Quantitative research method is a step by step linear process from theory to conclusions. It is about gathering an amount of data which transforms and presents in the form of numbers and statistics. The amount of variables studied is often few but they are studied on several number of units. Using a quantitative research method means to emphasize quantifying when it comes to gathering and analyzing data, depended on a certain relevant group of the population (Bryman and Bell, 2005). After gathering data with a deductive approach, the authors used the data to describe observations and result. Emphasis on this study was to gain a deeper knowledge about five Swedish SMEs and their sourcing strategies to see how strategic sourcing can strengthen or contribute to new competitive advantages. The authors choose to focus on a in-depth understanding of multi-case study by using qualitative approach. 30

31 3.2 Research Design The research design provided a framework for how to perform the research project. Research design is a detailed foundation for how to generate data needed to answer the research questions (Bryman and Bell, 2005). It was used to perform the research effectively and efficiently. The discussion is mainly between three choices; exploratory, descriptive, and causal design (Malhotra, 2010), see figure 3.2. Figure 3.2 Research design (Malhotra, 2010, p. 103) The purpose of exploratory research design is to investigate, explore and clarify a problem or situation for the researcher to gain insight and understanding. It is an approach that often is carried out in the early stages of a project. This method is often open to changes and adoption as the project unfolds and therefore does not usually involve structured questioners and large samples (Malhotra, 2010) The method often involves talking to expert or performing focus groups (Gray, 2009). Compared to exploratory, conclusive research is often more formal and structured. The base is large, representative samples. Conclusive research design can be divided into descriptive research and casual research. The larger objective is to obtain evidence of a cause-and-effect relationship (Malhotra, 2010), meaning how a change in one variable can affect the value in another variable (Bryman and Bell, 2005). The major objective of descriptive research is to describe something usually market characteristics or functions (Malhotra, 2010, p. 106). It is distinguished by previous studies, therefore the information is clearly defined, preplanned, structured and the representative samples are normally large. Descriptive design requires answers to the condition of who, what, when, where, why and way of the research. Majority of descriptive research design is used in 31

32 marketing research studies. Descriptive research design is mainly used for five reasons. Because of the need to characterize relevant groups, the need to estimate the percentage of units in a specified population exhibiting a certain behavior, determine the perceptions of product characteristics, determine the degree to which marketing variables are associated and make specific predictions (Malhotra, 2010). Descriptive research design was chosen since the purpose was identified through investigating existing studies. This also provided the authors with a preplanned and structured design. The purpose is about exploring competitive advantage for SMEs through strategic sourcing, which means this thesis is focused on marketing research studies. Descriptive research design was needed to decide relevant sample population and made predictions about the studied variables, see figure 3.3. Figure 3.3 Research design (Malhotra, 2010, p. 103) Descriptive research design can be divided into either cross-sectional design or longitudinal design. Longitudinal designs is one or several fixed samples of population elements that are measured frequently on the same variables. The design gives a deep analysis both from a specific time and how the respondents opinions changes over time. Cross-dectional design is the most common used descriptive design in marketing research and is defined as information gathered from only one given sample of population elements. Cross-sectional design is used when collecting qualitative data from several cases with objective to make generalized findings. There are two different types of cross-sectional designs; single cross-sectional designs and multiple cross-sectional designs (Malhotra, 2010; Bryman and Bell, 2011). 32

33 Single cross-sectional designs mean that one sample of respondents is used once to gather data. The sample of respondents is drawn from the target population. Multiple cross-sectional designs is when there are two or more samples of respondents, and information from each sample is obtained only once (Malhotra, 2010, p. 108). It is normally used over long intervals with different samples on each occasion (Malhotra, 2010). Cross-sectional design was used to limit the qualitative research to a relevant sample population. The approach was relevant since the objective of this thesis is to make generalized conclusions suitable for SMEs by investigating five cases. Single cross-sectional designs was chosen to match the time and budget limitations. 3.3 Data sources Primary data is gathered with the aim of addressing the research problem and is observed and collected directly from first-hand collecting. It is the researcher that gather the primary data and using primary data can be both costly and time consuming (Malhotra, 2010, Gray, 2009). It is often gathered after available secondary data has been collected and analyzed. Secondary data is previously gathered data that s been collected for another purpose. Since the data already exist it is gathered easily, during short time and is cost effective. It can help to identify a problem, define the problem in a better way and develop an approach to the problem or to help devise a research design. It may help to answer research questions or be helpful to interpret primary data. A disadvantage is that it is originally gathered for another purpose and may not be relevant. There are two classification of secondary data; internal or external. Internal secondary data is gathered within an organization. External secondary data is gathered outside an organization (Malhotra, 2010). Secondary data was collected to gain deeper understanding and knowledge of the research problem, mostly through published materials and research papers. To gain information about SMEs in Kronobersglän, Sweden external secondary data was used through sample data gathered by the computerized database Affärsdata.se. Primary data was gathered through semi-structured interviews answered by five SMEs in Sweden and was the main source of the analysis. Two interviews was performed on each company with relevant respondents. 33

34 3.4 Research strategy The research strategy aims at clarifying how to answer the research questions and purpose. (Bryman, 2008), see table 3.1. Experimental design is a methodical procedure performed to verify, falsify, or establish the validity of a hypothesis. One or more variables are changed to reach different effects. Survey strategy is gathering data from questionnaires, telephone, interviews, in-persons interviews, online and . Archival analysis is a form of observational method where the aim is to observe gathered documents of the unit of analysis (Yin, 2009). Case study strategy is a research strategy performed through focus groups, content analysis or in-depth interviews; unstructured or semi-structured and is generally flexible (Gray, 2009; Yin, 2009; Thomas, 2011). History strategy is gathering and analysis historical documents (Yin, 2009). Table 3.1 Research strategy Strategy Design Type of research question Requires control over behavioral events Focus on contemporary events Experimental design How, why Yes Yes Surveys Who, what, where, how many, how much No Yes Archival analysis Who, what, where, how many, how much No Yes/No Case study How, why No Yes History How, why No No (Yin, 2009, p. 8) The investigation was made through a case study approach. Case study approach was suitable since it provides data which gave the authors deeper knowledge about the studied cases at the same point in time. This provide the opportunity to collect data about the cases and making generalized conclusion which is applicable for other SMEs. The purpose is to investigate how SMEs sourcing is today and why they should invest in strategic sourcing. 3.5 Data collection method 34

35 A case study was the most attractive choices for data collecting methods based on the research strategies. The case study was based on five companies and was performed with in-depth interviews (Yin, 2009). Since this thesis investigates five SMEs the strategy is multiple case studies, meaning the focus is on several cases and comparing the findings to make theoretical reflections (Bryman and Bell, 2011). The choice for gathering data is content analysis and in-depth interviews. The definition of content analysis is the objective and systematic of the manifest content of a communication. This thesis is based on observing and analyzing the content or message of existing research and theories, annual reports, ads and websites helping in the configuration of the interviews, identifying the research problem and in conducting the theory framework (Malhotra, 2010). In-depth interviews or qualitative research interviews were chosen as the appropriate method to gather qualitative data for deeper understanding. It gave the opportunity to ask key respondents about facts and opinions. It allowed the authors to make follow-up questions. In-depth interviews helped the authors to come in contact with other relevant people in the company to interview, to get several perspectives (Bryman, 2008; Ying, 2009). 3.6 Data collection instrument Operationationalization and measurement of variables Operationationalization is a doctrine, mainly associated with a version of physics that emphasizes the search for operational definitions of concepts (Bryman, 2008, p. 696). Operationationalization and measurement of variables is one step in the process to perform qualitative research (Bryman, 2008; Gray, 2009). In the process of qualitative research the first step was to specify the concepts, and second step is to measure those concepts, illustrated in figure 2.3. Third step was to connect these with the interview guide. Operationationalization was vital for the practice of the chosen theories. The purpose was to break down the theory concepts to an applicable level, see figure

36 Figure 3.4 Operationalization model Theoretical construction 1. Strategic purchasing - A company s purchasing and manufacturing strategies must be similar with their business unit and corporate level strategy (Sánchez-Rodríguez, 2009). - Key to strategic purchasing is the acknowledgment that purchasing plans should be in alignment with the business strategy and lead to integration of purchasing and its practices with companies objectives (Pressey et al. 2007). - When it comes to purchasing there are two views. A centralized authority is one where a supply executive at corporate headquarters has the power and makes decision about the organizations purchase expenditures. A decentralized decision-making is when the purchasing authority for the purchasing is at a business unit and central level (Handfield et al. 2009). - The last decades purchasing has gone from tactical and operational to a strategic approach (Ferguson et al. 1996; Brookshaw and Terziovski 1997; Handfield et al. 2009; Van Weele, 2010). - Strategic purchasing as the process of planning, implementing, evaluating, and controlling strategic and operating purchasing decisions for directing all activities of the purchasing function toward opportunities in line with companies capabilities to achieve long-term goals (Ellram, 1994). Question no. Appendix 3 1.1, ,

37 Theoretical construction 2. Strategic sourcing Single vs multi sourcing - Single vs multi implies if the company has one or several suppliers for the same product (Faes and Matthyssens, 2009). Global vs local sourcing - Global or domestic sourcing is built on whether the suppliers for the product are global or locally placed, depending on the requirements of the product and the supply market structure (Weele, 2010). - How to source globally is based on strategic decisions that are effected by a company s capabilities to compete (Kotabe and Murray, 2004). Partnership vs competitive bidding sourcing - The strategic decision to be made is if there is a need or want to develop a long-term relationship through partnership sourcing or keep the suppliers on an arm s length by using competitive bidding and sounding out competition (Jonsson, 2005; Van Weele, 2010). - When a supplier has a corporative relationship with the buyer it is often referred to as partnership. Partnership with suppliers can give a positive influence on company performance (Lawsona et al. 2007; Handfield et al. 2009). - Rendon, (2005) sees the strategic sourcing process as a step in the procurement process that incorporate the identification and selection of the supplier whose costs, qualities, technologies, timeliness, dependability, and service best meet the organization s needs. - The relationship can grow from joint resources and exchange of valuable knowledge with the different partners (Lawsona et al. 2007; Handfield et al. 2009). - Competitive bidding is to keep the suppliers on an arm s length by using competitive bidding and sounding out competition (Jonsson, 2005; Van Weele, 2010). - Supplier development has a critical role when driving performance improvement in purchasing and contributes to overall organizational effectiveness. Direct involvement in supplier development activities plays an important role in supplier performance improvement (Li et al. 2011). Question no. Appendix 3 2.1, 2.2.1, , , , 2.3.2, , ,

38 Theoretical construction 3. IT and competitiveness Competitive advantages - Using strategic purchasing can create and protect the sustainable competitive advantages for both the buying company and the suppliers (Paulraj et al. 2006). Question no. Appendix , IT - There are tools and practices that can provide purchasing function with help to reach objectives and improve performance, adoption of IT being one of these tools to be studied (González-Benito, 2007). - The first dimension at improving the operational efficiency and effectiveness of the purchasing function, by enhanced supplier evaluation capabilities and reduction of internal order processes time and costs (Stump and Sriram, 1997). - The second dimension aims to enhance inter-organizational communications and processes of transaction efficiency (Stump and Sriram, 1997). - If IT investment is made to support the purchasing function they can reduce costs of communicating and transacting and make internal databases available for sharing with vendors also referred to as suppliers (Stump and Sriram, 1997). - E-commerce is growing and is becoming an increasingly vital element of purchasing (Jonsson, 2005; Giunipero et al. 2006). - From a perspective of effectiveness the enhanced capabilities of IT investment may lead to reduction of supply base, buyers also tend to eliminate those suppliers who don t possess adequate communications or data exchange capabilities, or the motivation to obtain these capabilities (Stump and Sriram, 1997). - ERP systems have the potential to integrate seamlessly organizational processes and reporting systems using common shared information and data flows (Tambovcevs, 2011). - E-procurement it directly focused on support the purchasing process (Van Weele, 2010) and the benefits is mostly made by automated transactions (Giunipero et al. 2006). - Supply managers seek new technologies to improve quality and delivery performance (Jonsson, 2005; Giunipero et al. 2006) , , , , , ,

39 3.6.2 Interview guide Interview guide is the term for memory instructions needed to cover data from a specific area (Bryman, 2008). When the authors prepared the interview guide the research topic was in focus, see appendix 3. The in-depth interviews were made through semi-structured interviews and the questions were more general developed, see figure 3.5. The authors had a list of questions forming the interview guide and the respondent had the opportunity to discuss with the authors. The same interview guide was used for all interviews, the questions were not always discussed in the same order, but all were answered. Configuration of the interview questions was made to answer the research questions (Bryman, 2008; Thomas, 2011). The questions were structured to follow the same structure as the operalization model, creating a red thread. It was also necessary that there were no leading questions. General questions were included to contextualize the SMEs answers. The theories were operationationalized to gain deeper and more complex answers from the respondent to reduce the risk that respondents had another perception on the theories then intended by the authors (Bryman, 2008). To ensure the empirical and analytical accuracy the interviews was recorded with a recording machine. The interviews were conducted through personal visits at the SMEs manufactories, held either inside a conference room or in the respondent s office for the respondents comfort. According to Bryman, (2008) a save environment makes the respondents calm and secure when answering the questions. The interviewer need to be knowledgeable, structured, clear, gentle, sensitive, open, steering, critical, remembering and interpreting (Kvale, 1996; see Bryman, 2008, p. 445) which the authors took under consideration before and during the interviews. The choice of semi-structured interviews was to ensure information of the response but at the same time have the possibility to gain unexpected data. Semi-structure provides an interview guide that was applied for all interviews which ensured answers on the same questions from all respondents and cases. 39

40 Figure 3.5 Process of the interview guide (Bryman, 2008, p. 446) Pretesting A pretest was performed to ensure the result from the semi-structured interviews to be accurate and reliable (Grey, 2009; Malhotra, 2010). First the formulated interview guide were reviewed and revised by supervisor Ph.D. Hooshang Beheshti, Radford University, USA. Then pretesting was made with one SME company to identify potential problems, eliminate them and then improve the finalized interview guide. To gain as relevant feedback as possible the pretest was made on a similar company to those of the actual investigation. The pretesting was made through telephone with the purchasing manager at Svetruck. For summary of interview with Svetruck see appendix 4. The company is a manufacturing B2B company of forklift stationed in Ljungby (Andersson, 2012; Svetruck, 2012). After performed pretesting some questions in the interview guide were clarified and altered. 3.7 Sampling The definition of a population in this thesis is the universe of units from which the sample is to be selected. The term units is employed because it is not necessarily people who are being sample the researcher may want to sample from a universe of nations, cities, religions, firms, etc (Bryman, 2008, p. 168). Sample is the segment of the population that is selected for investigation. It is a subset of the population. The method of the selection may be based on a probability or a non-probability approach (Bryman, 2008, p. 168). 40

41 3.7.1 Study population The chosen study population was small and medium-sized enterprises (SMEs), see definition in table 3.2. What constitutes an SME is defined in EU law, Recommendation 2003/361/EC, by the European Commission, 1 January 2005 (European Commission, 2012). Table 3.2 Definition of SME Enterprise category Headcount Turnover or Balance sheet total Medium < million 43 million Small < million 10 million Micro < 10 2 million 2 million (European Commission, 2012). Enterprise does not need to fulfill all criteria and may exceed one but still be defined as an SME (European Commission, 2012). SMEs in Sweden constitute 99 % of all business in Sweden. Sweden applies the European Commission s definition for an SME (Swedish Competition Authority, 2012). The population was chosen because the research problem is applicable on many enterprises. After the first step in the deductive research SMEs was found most relevant through existing academic research paper that had investigated similar research problem from SMEs and larger enterprises view. Therefore it became the main focus for the purpose. The delimitation of population was also dependent on budget of the investigation and the time limitation. The chosen case studies were within the definition of being SMEs for illustration see table 3.3. Table 3.3 Definition for investigated SMEs Case study Employees No. Turnover Arcoma Lasermax Roll Systems ( )* TSEK ( )* Ljungby Maskin TSEK ( )* 41

42 SP Maskiner ( )* Swepac ( )* *(Bolagsverket, 2012) Sampling frame Fallowing represent the sampling frame from where the five companies was chosen. The definition of a sampling frame is the listing of all units in the population from which the sampling will be selected (Bryman, 2008, p. 168). A sample frame of the population was taken from the database AffärsData. It is a database with information about companies and can deliver different variables. AffärsData is one of Newsline Group AB brands. Newsline Group AB includes in Bisnode Group, that is a world leading publisher of digital business information since Both teachers and students have access to the database through license by Linnaeus University (Affärsdata, 2012) Sample selection and data collection procedure To not influence the answers from the respondents the sample selection method used to gathered data from the database AffärsData.se were non-probability sampling. Nonprobability sampling is when some units in the population are more likely to be selected than others which is why it is applied, often requires judgmental before being applied to a population. (Grey, 2009; Malhotra, 2010). Judgmental sampling is sampling in which the population elements are purposely selected based on the judgment of the researcher (Malhotra, 2010, p. 379). It was an appropriate mean of selecting the companies since is considered both time and budget factors. Five case studies were selected from the population of SMEs the demands were manufacturing companies located in Kronoberglän, see information about respondents in table 3.4. The authors selected to perform two interviews at each case study, with two different respondents. The first interview was held with a purchasing manager, working on a management level and the second interview differed between the five case studies. Three 42

43 interviews were conducted from respondents working on an operational level and two were conducted working on a management level that had collaboration and insight in the purchasing department. The differences occurred due to the SMEs small organizations and the number of employees at each purchasing department. Eight interviews were conducted when face to face when visiting the SMEs, and two interviews were made through telephone. The reason for performing two telephone interviews was because the respondent at respective case study were either too occupied to schedule a physical meeting or because the respondent traveled. All interviews extended between minutes. None of the respondents saw the interview guide in advance, due to the risk of creating perception about the topic or investigate the topic. The aim was to receive honest answers about the situation inside their purchasing departments, although all respondents were introduced in the purpose and topic. All case studies were SMEs and in early contact with the case studies it appeared that all had small purchasing departments and employees both on management level and operational level possessed similar knowledge. Table 3.4, Information about respondents Case study Interviewed persons Position in the company Date Type of interview Arcoma Hans-Åke Bengtsson/ Purchase manager/ , 14:30-15:30/ In-depth interview, Växjö/ Randi Hvidtfeldt Fransson Purchase , 15:30-16:30 In-depth interview, Växjö Lasermax Roll Systems Kim Elwér/ Peter Johansson Purchasing manager/ Production manager , 13:30-14:30/ , 11:00-11:30 In-depth interview, Ljungby/ In-depth interview, telephone Ljungby Maskin Torbjörn Pettersson/ Robin Lundin Purchaser/ Production planer , 10:00-11:00/ , 11:00-11:30/ In-depth interview, Ljungby/ In-depth interview, Ljungby SP Maskiner Ida Mattison/ Benny Granath Purchasing manager/ Site manager , 10:00-10:30/ , 11:00-12:00/ In-depth interview, Ljungby/ In-depth interview, Ljungby 43

44 Swepac Pär Setterman/ Thomas Hellman Purchasing manager/ Spare parts , 13:30-14:30/ , 14:30-15:00 In-depth interview, Ljungby/ In-depth interview, telephone 3.8 Data analysis method for a qualitative approach When analyzing the qualitative data three steps were used (Bryman and Bell, 2011). These contributed to a precise and correct analyze of the collected data. Qualitative research aims at decipher, examine and interpret meaningful patterns or themes that emerge out of the data (Malhotra, 2010, p. 196). There are three steps when analyzing qualitative data, which are data reduction, data display and draw conclusion and verification. Data reduction was used to determine which parts of the data that will be emphasized, minimized, or set aside for the research. Then the data was visualized with the use of figures and tables. In the last step the gathered analyzed data was considered and its meaning was evaluated for the research questions (Malhotra, 2010). 3.9 Quality Criteria for a qualitative method This part present two important quality criteria: validity and reliability. The concepts are presented to emphasis the trustworthiness of the result and data collected. Validity ensure the assurance and integrity of the results that are generated from research and the reliability insured that the result was reliable and stable (Bryman, 2008) Content validity Content validity was established through face validity and means that the measure reflects the content of the investigation and the questions in the interview guide are related to the theories about sourcing and competitive advantage and focused on the research questions (Bryman, 2008). The face validity was confirmed through pretesting. The feedback gained from the pretest improved the interview guide by insuring ambiguities and questions were clarified to generate relevant data for answering the research questions. 44

45 3.9.2 Construct validity Construct validity was used to estimate the construct validity of a measure and to create research questions from relevant theories (Bryman, 2008). Construct validity was exploit by two ways, secure archival records and by providing proof for the chain of evidence. Archival records were searched to strengthen the answers from the ten interviews and used sources were SMEs homepages and financial background. Archival analysis was collected from previous research for gathering data to strengthen the theoretical framework. The chain of evidence was established by recording all the interviews with a recording machine and by transcript documented from the interviews. It provide the possibility to easily refer back to the gathered data for correct understanding of the respondent s opinions and expression during the interviews and gave trustworthiness to the presented empirical findings. Construct validity were strengthen by using respondents involved in the purchasing department activities and by conducting the same information from two different interviews on the same SME. Multiple sources of evidence also ensured the construct validity, by letting experts review the collected information and interview guide to see whether it was valid in the pretesting phase. The supervisor read the interview guide and content through the thesis process, for expert input. One pretesting was made with the purchasing manager working on a SME that fulfilled the criteria for an SME in a B2B market External validity The external validity considers to what extent the investigated SMEs can be generalized to other SMEs, situations and to the whole population (Grey, 2009). This thesis aims at making the result applicable to the population of SMEs making the external validity vital. A multi case study was chosen to make the result generalizable by using an analytic approach and not a statistical. By using a multi-case study the collected data could be compared to test the theories to compare outcome of the results. The theory of sourcing is in this case applicable and useful for other SMEs. 45

46 3.9.4 Reliability Reliability consider the stability of the findings, whether it is possible to conduct similar result at a different time period (Grey, 2009; Yin, 2009; Thomas, 2011). The objective for using reliability was to make sure that if the same case study is repeated the result would be the same. There is a need to emphasize that the studied subject of sourcing is constantly changing both in practice and in theories and also SMEs attitude towards strategic thinking. The author s goal for using reliability is to minimize errors in the research. For ensuring correct documentation two ways was used; case study protocols and multi interviews. Case study protocols were contributing to accurate replication by a documented work process. Methods used were a recording machine to document the interviews and written documentation from one of the authors during the interviews. The two interviews conducted through telephone were on speaker, with the respondent s permission, to strengthen the reliability. The same interview guide was used for all ten respondents, proving the possibility to replicate the investigation. The data was similar from all five case studies, which emphasis the reliability. 46

47 3.10 Summery of methodology 47

48 4. EMPIRICAL FINDINGS Empirical data included in this chapter is collected from five B2B manufacturing companies in Sweden, Kronobergslän. Two deep-interviews were performed on each company to gain deeper insight of how the companies manage their purchasing,. The empirical findings presented are the relevant data for this thesis analysis. 4.1 Arcoma One respondent were the purchasing manager and the other at an operational level. Arcoma is a Swedish B2B manufacturing company located in Växjö, south of Sweden. The company is market leading in medical radiology systems and subsystems, equipment for X- ray rooms, with distributors worldwide. Their products consist of ceiling stands, examination tables, chest units, skeletal units and are electronically advanced. Arcomas products are electronically advanced. Each X-ray rooms consist of 2500 parts and many components (Arcoma, 2012). Arcoma was grounded 1990 and has today 67 employees (Bengtsson, 2012). See additional background in appendix Strategic purchasing There is a purchasing strategy but it does not entirely work in practice since it is considered hard to use in everyday work. The purchasing strategy is flexible for the company. Purchasing department has goals that need to be fulfilled such as lowering costs, reduce number of suppliers and reduce stock but it is not there yet (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). The purchasing manager said that the company strives to work with the strategy and goals in all purchasing activities and it is something that is more consisting in the background but it is not in focus (Bengtsson, 2012). The purchasing department is not in contact on a regular basis with the company s overall objectives and their work is not based on these either (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). According to the purchasing manager it is the customer and market that dictate the conditions they strive for. There is a desire to incorporate the purchasing department in the corporate business decisions process but the reality is that purchasing manage the everyday purchasing (Bengtsson, 2012). The employees making the decisions depends on the situation, 48

49 but mainly it is the purchasing manager that makes the decisions. Certain specific strategic components need involvement from marketing department, where they search for the customer need. Strategic decision for change is in components to production on a highest level of management. There is a sense that there have been organizational changes, but without implementing changes in the everyday work life of the purchasing department (Bengtsson, 2012; Hvidtfeldt Fransson, 2012) Strategic sourcing Single vs multi The supply base consists of around 130 suppliers which is considered too many. The purchasing manager estimated that it is around 40 suppliers more than actually needed (Bengtsson, The reason for the amount is that the suppliers are not chosen with any strategy by the company, they are selected when there is a need for it building on the existing supply base for example in product development efforts (Bengtsson, 2012). The respondent on an operational level said that they work with one main supplier but there are also backup suppliers, if the main ones can t deliver for some reason. New suppliers is often more common when starting new projects, such as in the first phase of product development, because of the lack of sourcing strategy (Hvidtfeldt Fransson, 2012). The strategic suppliers are around 20% of the supply base, which means around 26 strategic suppliers. These 20% of the supply base provide 80% of the purchased components (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). There is a separation within the supply base and some suppliers have higher demands from the company. The demands are connection to the suppliers who make the special components produced from drawings. Then there are the standard components and finished products. In those cases they might order similar components from about four suppliers instead of only using one (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). When choosing new suppliers they need to meet company s quality demands. One example is environment and laws, which is something that is controlled in manuals. A supplier is not selected if they do not meet the criteria that are in the manual. The company also has a specific purchasing situation that it limits the purchasing when it comes to selecting possible suppliers since they have a regulatory factor to ensure because their end product has to be 49

50 approved on the different markets in; USA, Europe and Asia (Bengtsson, 2012; Hvidtfeldt Fransson, 2012) Global vs local About 80% of suppliers are located in Sweden and about 20% are global suppliers. The purchasing manager said that they have suppliers from the whole world (Bengtsson, 2012). Both respondents said that the company use the same strategy and manages all suppliers the same (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). The purchasing manager said that those suppliers that are not from Europe are main suppliers that sell vital components for their products. The global suppliers represent a major part of the purchased volume and purchasing value (Bengtsson, 2012). The respondent working in the purchasing department has come to the conclusion that global suppliers have better payment terms, but longer lead times (Hvidtfeldt Fransson, 2012). The strategic suppliers is both located in Sweden and Europe, these suppliers they build relationships with. The purchasing manager said that they are dependent on several global suppliers but are a small part of these suppliers production, which is a factor that can create problems (Bengtsson, 2012) Partnership vs competitive bidding About 90% of their supply base has worked with them for a couple of years and some have been with them from the beginning. Purchasing department does not work actively to replace or find new suppliers only if one supplier fails to meet the company demands. Decisions about who to replace is made during a yearly evaluation meeting. In the process of finding new supplies purchasing does not consider the suppliers attributes, values or goals. Decisions about replacing suppliers occur if they contributes to interruptions in production, don't meet the demands, cant delivery in time, compromise quality or make unrealistic price increases. It could also be that another supplier offers a similar component. Decisions about reduction in supply base are made during evaluation, especially for suppliers for electronic. One goal is to work even more with supplier performance evaluation. Evaluation of suppliers occur ones every year to test their effect on the overall company. Strategic suppliers are chosen in evaluation process and possible supplier replacement is discussed. Important evaluation factors are; delivery performance, impact on manufacturing, quality, reclamation, price and 50

51 which suppliers that have not updated their article appendix to the agreement impact decisions made. Evaluation takes place internally in purchasing department together with quality department, reclaiming and in some extent production where all supplier is evaluated. Afterwards is a plan of action made for the supply base (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). Strategic suppliers are in focus when developing strategic relationships. The opinion from the respondents is that all suppliers are equally important for the company in different ways. In everyday life there is no distinct difference between strategic suppliers and other suppliers and they consider themselves having a close relationship with suppliers (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). Both respondents consider it important to develop production friendly components since they help in decreasing the end price. In projects made, appropriate suppliers have been selected by purchasing department. Development department has collaboration with suppliers during product development while purchasing manager is responsible for commercial contact. The agreements are updated ones every year, the basic agreement is often used but there is an ever changing article appendix. Both respondents explained that collaboration with suppliers in technological product development is becoming more common in the purchasing department, especially the development of technological components in the products. All information that is needed in the product development process is shared with suppliers, making them a part of the project in the development phase. The communication tools are , telephone and face-to-face meetings (Bengtsson, 2012; Hvidtfeldt Fransson, 2012) Information technology The ERP system used is iscala and is integrated with all departments. It is neither integrated with or connected to the suppliers. About five years ago they had a trial run where purchasing tested a shared system, where both buyer and suppliers ERP system was connected through a joint system. Some parameters from the buyer were wrong leading to a failure to meet their one demands and the project was eliminated (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). 51

52 Communication with suppliers is made 90% via , but also through fax and telephone. The communication system is based on events which make appropriate since it is easy to coordinate with several suppliers at the same time and it is easy to track a conversation if needed (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). Customers orders commentate much of the orders sent to supplier and the output making it almost impossible with suppliers storage. The stock for output is small since the finished goods often get delivered when finished (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). The respondent on an operational level said that it is the systems that differ, and it is customer order that controls what to purchase (Hvidtfeldt Fransson, 2012). 4.2 Lasermax Roll Systems One respondent were the purchasing manager and the other respondent were also from a management level, working in the production department. Lasermax Roll Systems is a Swedish B2B manufacturing company located in Ljungby,south of Sweden and in USA. They have also a manufactory in Italy (Elwér, 2012). The company offers high-speed digital printing operations; comprised from unwinders, rewinders, form folders, cutters, stackers, buffering, punching, converting, and quality control systems.. The machines are large and consist of many components, which means many components to purchase from the suppliers. Lasermax Roll Systems has customers in around 50 countries worldwide (Lasermax Roll Systems, 2012). The company was founded in 1984 and was owned by Strålfors until The company has changed ownership several times the last years and is now owned by Technau Srl. The company has 159 employees worldwide (Elwér, 2012). See additional background in appendix Strategic purchasing There is a purchasing strategy which is made with the previous owner, Strålfors. Future plans are to develop a purchasing strategy with their facilities located in USA and Italy. There is a chance they share the same suppliers as the facilities in the other countries. If it is the case there is an opportunity to gather the supply base and gain a higher volume order and make collaborative agreements. One identified strategy is based on finding strategic components that is similar to the ones found in machines from the other facilities. Strategic components 52

53 can be an engine, gear, electronic or an electrical component and is based in having the same components in all machines. It would make the coordination of suppliers even more possible. Strategic components can t be found somewhere else and that s making them strategically important. In one way all suppliers is vital since of one component is missing there is a risk that the whole production stops and it will cost (Elwér, 2012). The purchasing department has employees that are responsible for the operational organization and buy the components based on the premises that the purchase manager has made in the contracts with the suppliers. Purchasing department is mainly responsible for production purchase, components and larger machine s to the factory and not purchase for example office material or such. Purchasing manager s role is to ensure the right prices for components and that the terms are met. The purchasing manager said that it his responsibility that suppliers contracts is updated for how they should purchase, what it can cost and how long the lead time can be with the suppliers (Elwér, 2012; Johansson, 2012). The core of purchasing is to use genuine suppliers, that has a stable economic, works in the right industry, follows laws and demands, has a environment policy and live up to other business specific demands (Elwér, 2012). All departments affect the purchasing department in some way. Construction department is most influential since there is the competence for what components that work and don t work and what changes is needed (Elwér, 2012; Johansson, 2012). It is the purchasing manager that makes all decisions concerning purchasing and there is no regulations in the description constitution on how big volume or amount the purchasing manager are allowed to make. The descriptions controls that the purchasing manager meet the material requirements for production and that material input works without interruptions to a relevant price and with desirable quality. If any important question is surfacing the highest level of management will be involved. The purchasing manager makes a budget every year which is based on experience, since he has many years of experience in the company. Production and construction also has a part in the budget development (Elwér, 2012). 53

54 4.2.2 Strategic sourcing Single vs multi The purchase manager stated that the company has around 100 active suppliers, where half of them are strategic important for us (Elwér, 2012). Non-strategic suppliers produce components which could be bought somewhere else. The purchasing manager explained that the aim is to have one main supplier per component but if there is another manufacturer who can make a similar one the company often have in their data base (Elwér, 2012). They normally use one main supplier, partly because the computer system can only manage one main supplier per component. They do however have back up supplier if any complications occur with the main supplier (Elwér, 2012; Johansson, 2012). The products are somewhat specialized, according to customers demands and needs and some components have to be custom made by the material handler. They are dependent on some suppliers that produce components no one else can provide them with (Elwér, 2012; Johansson, 2012). The purchasing manager has coded all components from 1-4 where four means there is only one known supplier who can provide the components. It makes the purchasing manager question if they should continue using the component or produce it themselves. The purchasing manager explained that the number of unique components decreases since the company can develop components and their products themselves, own the construction and use other suppliers that produce the components according to the drawings (Elwér, 2012). The size of the suppliers differs. In cases where the supplier is larger than the company there is a lack of commitment from suppliers, according to both the respondents. The purchasing department tries to work with an appropriate size of suppliers, to be strategically strong (Elwér, 2012; Johansson, 2012) Global vs local The supply base has both global and local suppliers. The components provided by global suppliers are in most cases delivered through a distributor. The benefits using a distributor are that it means less responsibility; the disadvantage is that cost is higher. The preconception of the purchasing is that global suppliers want to use distributors but in some cases direct contact with the suppliers is needed (Elwér, 2012; Johansson, 2012). 54

55 Partnership vs competitive bidding Both respondents explained that they have worked a long time with several suppliers but compare them with each other. The relationship is vital since they value their suppliers. The respondents realizes the importance in having a functioning relationship and collaboration with suppliers and be honest both with the good and bad. They think a supplier should be frank and search for parameters that fulfill the buyers needs such as cost, quality and the logistic assignments (Elwér, 2012; Johansson, 2012). The purchasing manager stated that he tries to use medium size companies, where they are strategically important for the suppliers, to gain more service and effort from the suppliers (Elwér, 2012). The respondents explained about the evaluation that occur ones every year with the suppliers. 30 strategic suppliers are collected and all involved departments can voice their grade. The grades are based on 12 parameters that are vital for the company. Evaluation of the around 70 others is not made, but purchasing sees the daily work with them as knowledge generating. Non strategic suppliers are evaluated if there is any error, to see what can be improved or search for alternative suppliers. When new suppliers has been selected, they are first introduced in the processes and then educated about what demands the company has on suppliers (Elwér, 2012; Johansson, 2012) Information technology The ERP system used is Movex, which is integrated in the whole organization. The ERP system is however not integrated or connected with suppliers (Elwér, 2012; Johansson, 2012). The reason is that strategic suppliers were not connected or able to communicate via EDI, which would mean major problems for both parties. This was about 7-8 years ago and then it was expensive and complicated. They have tested forecast of the orders but it did not work since the data was incorrect and it was too much hassle. The purchasing department works with suppliers plans for some selected suppliers where the components are so specific that suppliers must continually know when to deliver them. The supplier plan is sent weekly through . There is a wish to use supplier plans in a higher extent but it require too much resources and time. Suppliers ranking is also made in the computer system where they are divided into groups, depending on how replaceable they are. The goal is to minimize the stock and that there is a small stock for both output and components (Elwér, 2012). 55

56 4.3 Ljungby Maskin Both respondents were on an operational level, since Ljungby Maskin don t have any purchasing manager on a management level in their organization. One of the respondents had worked in the company longer and had slightly more responsible than the other respondent. Ljungby Maskin is a Swedish B2B manufacturing company located in Ljungby in south of Sweden. They are a niche company that target the market for high-quality wheel loaders, for customers who value high comfort, smooth handling, high productivity and rugged design. The machines are large, robust and heavy and consist of both large and many components. The company has customers in Northern Europe, were Sweden is the largest market. Most of the components are manufactured in-house or purchased by leading suppliers (Ljungby Maskin, 2012). Ljungby Maskin was founded in 1983 and is still family owned. They have 107 employees (Pettersson, 2012). The company has its own subsidiaries in Denmark and Netherlands, but also retailers in other countries in Europe (Ljungby Maskin, 2012). See additional background in appendix Strategic purchasing They have no documented purchasing strategy but they have an unspoken. It is based on always staying ahead and secures the material flow through control of which components that are in stock. The purchasing department consists of three employees; two purchasers werw one have more responsibilities and one purchasers working with purchasing of steel and other raw material and with production. The respondent working in the purchasing department pointed out the companies small flows. Number of components purchased for spare parts is sometimes larger, in those cases they try to buy in higher volumes. The purchasing is controlled by need and production manager purchase after production need. Many components is made by own production, meaning a lot of raw material is purchased. In some cases the material can t be processed so they buy finished components. Purchasing of standard components or raw material and special made components is, in some cases, integrated with the same supplier, if not possible they use another supplier. Purchasing are controlled by purchasing need making it difficult to harness the opportunities of ordering in higher volume. It is also important to keep track of the component stock and have contact with suppliers that deliver components that is assembled in an early stage and can risk to slow 56

57 down and delay the production. Emphasize is on how critical the component is, which enhances the security stock (Pettersson, 2012). Both respondent explained that they have no specific purchasing management process, it is the CEO that is involved in all business decisions and make all major purchasing decisions as well. It provides the company with fast decisions since the company is small and the CEO is often close to hand. Ones every week there is also production meetings where smaller purchasing issues is addressed and opinions are uttered (Pettersson, 2012; Lundin, 2012) Strategic sourcing Single vs multi Purchasing department have about suppliers and there is no separation between strategic suppliers or other suppliers and all is considered as equally important (Pettersson, 2012; Lundin, 2012). Four suppliers are extra cared about and they deliver both big and unique components. These four suppliers are critical for the organization (Pettersson, 2012). There is an awareness and trace from previous purchasing strategies in how to manage suppliers. Ones the objective was to broaden the supply base, to multiple sourcing, while another time is was to decrease the number of suppliers. The supply base looks different for each component because of it (Lundin, 2012). Neither one of the respondents said that they actively search for new suppliers, but search for new components among existing suppliers (Pettersson, 2012; Lundin, 2012). New suppliers is compared and asked to make an offer. Almost 90% of all components have one supplier. The respondent working in the purchasing department said that it is only during extreme circumstances we use other suppliers, than the main supplier (Pettersson, 2012). In the cases of several suppliers the determining factor is the delivery guarantees. The respondent on the operational level said that the company has also taken business decision about some specific components and to only use some supplier s brands. It makes them bound to only purchase and negotiate with one supplier (Lundin, 2012) Global vs local The respondent working in the purchasing department said that they has about global suppliers and it is mostly because there are no Swedish suppliers as an option, that buy 57

58 components from globally suppliers. Global suppliers are often used through distributors. One advantage with using distributors is that there is no need for a contact person on the site, for example in China. The negative with having a distributor is the extra cost. An example were that they don t consider it to be more expensive to have several suppliers in Sweden but costly to have one for example in China and one in Brasilia (Pettersson, 2012) Partnership vs competitive bidding The relationship is considered important (Pettersson, 2012; Lundin, There was a difference in the answers from the two respondents). One respondent considered the price and quality to be the most important objectives. Also for this department there is not consideration for supplier s strategy, values and goals and if these is consistent with the buyers view. The most vital is that the supplier meets the component demands of the buyer which is on time delivery, right cost with right quality. The prices of new and potential suppliers is compared with the current suppliers and they are not resistant to change suppliers if they find a better solution somewhere else (Lundin, 2012). The other respondent talked more about the relational aspect and they has worked many years with current suppliers and stated that buyersupplier relationship is important and chemistry was mentioned as a factor. Important objectives in a supplier are good lead times and price, which often is something contradicting. Purchasing consider the buying company as a mean for suppliers to sell their products. There is a fine balance and cost saving is a priority. The SCM-philosophy was mentioned as something positive and the purchasing department tries to balance theory with practice (Pettersson, 2012). Something common from both respondents was the thought that the collaboration with suppliers is valued in product development (Pettersson, 2012; Lundin, 2012). However there is no collaboration concerning the manufactory simplicity to reduce the purchasing costs. The respondent working in the purchasing department said that there are some custom made components that suppliers has developed for the company and sell them to the company, but that the company has paid the development process for (Pettersson, 2012) Information technology Purchasing department mostly work with a ERP system called Monitor which is integrated in the whole business and is used by all departments (Pettersson, 2012). It been used for about 3-58

59 4 years. Much time is dedicated to fit all the parameters to be right in the EPR system (Lundin, 2012). All input is done manually at one time in Monitor, which both respondents mentioned as important to take into consideration and that is also the reason that all in the purchasing department is not equal dependent on the ERP system (Pettersson, 2012; Lundin, 2012). Some departments use the ERP system somewhat on a daily basis and it is important that the information is in order (Lundin, 2012). The most important parameters is when and how much, the calculation of these parameters is managed manually because of the small flow. All information about orders for each component is stored in the ERP, but an ERP is hard to fully trust, partly since the delivery is dependent on how the suppliers manage their production, flow and suppliers communication with subcontractors (Pettersson, 2012). All contacts and orders to suppliers go through . To track down the components the order number is used and the goal is to make one order per delivery point, so they don t need to wait for components to get delivered, to avoid part orders and part delivery s to track down the components (Pettersson, 2012). The ERP system is not integrated with the suppliers. They have ten suppliers that randomly use monitor as well. These are not integrated, but a XMLfile is always attached in the and placed in the ERP. It means less manual work. If the suppliers don t use a comparable ERP system, they receive an with order confirmation. Both cases require manual control (Pettersson, 2012; Lundin, 2012). There is no difference between the managemnet with suppliers who is comparable with monitor and the ones who isn t (Lundin, 2012). The respondent working in the purchasing department stated that todayg all suppliers demands forecast (Pettersson, 2012). Manuel paper documentation is a complement to the ERP system as well as controlling of the components that is in stock and will be purchased. The purchasers control the amount of component volume still in stock before they order more, which depends on the kind of component. Component ordered from the strategic suppliers is made on a weekly basis and other components are controlled with 3-7 weeks intervals. Also a patch system is used, where each component box in the storage has its own note and the employees note when one is running out. Then the notes are placed in a box from where the purchasing department note the order and send them to the suppliers (Pettersson, 2012). 59

60 4.4 SP Maskiner One respondent were the purchasing manager and the other respondent were also from a management level, working as a site manager and were the previous purchasing manager and had deep insight in the purchasing departments activities. SP Maskiner is a Swedish B2B manufacturing company located in Ljungby in south of Sweden. They produce harvester heads for the professional forestry for all forestry operations and have today distribution network worldwide. Among its competitor SP Maskiner has the longest experience in the market from developing and designing their machines. The machines are large, robust, heavy and consists many components. The customers are spread over the whole world, making them an international company. The company was founded in 1978 and is incorporated in the Weland forestry machine division since Weland itself is a family-owned company specialized in sheet and steel (SP Maskin, 2012). The company has today 33 employees in Ljungby (Mattison, 2012). See additional background in appendix Strategic purchasing Both respondents on the management level explained that there is an unspoken purchasing strategy but don t work actively with it or have it specified or documented. Purchasing considers their core role is to provide the components and material to production. Both respondents said that the company is a part of a concern which is situated in Småland, Sweden. Then continued talking about the lack of a budget for purchasing since it is hard to control what happens in the external environment. They put more emphasis on flexibility in the strategy thinking. The respondents both said that the existing strategy is focusing on how they could evolve as a company, the difficulty is how to get there. A strategy does exist for development (Mattison, 2012; Granath, 2012). The site manager said that the development plan is for five years and the market plan for three years but these only provide rough goals. It is hard to estimate how the market will change in coming three years, the economic is unsure and it is hard to influence how much the customer segment will purchase and therefore they need to be flexible in customer order (Mattison, 2012) The optimal is to have strategic suppliers that can contribute with more functions in the cases where the suppliers are strong competitive (Mattison, 2012; Granath, 2012). 60

61 Both respondents on the management level explained that they continually work with cost since it is what they consider having most influence on. Focusing on benchmarking the market, the pricing can be different depending on where they sell in the world. They are not trying to use price as a market tool to win customers due to the fact that it is high technological products and fairly high efficiency. The product is intended for a target group that is knowledgeable and wants high class and demand better technique exploitation. It is the market outside of Europe that especially demands this. By targeting these kinds of customers that understand the system it will lead to less damage and need of service and spare parts (Mattison, 2012; Granath, 2012). The everyday decisions are made by the purchasing department. The CEO and the concern does not influence very much. The influence that could be seen was not from the top hierarchy but from other companies belonging to the concern where assets are shared for exemple agreements with suppliers. The aim is to work in the most extent possible with joint suppliers. Then it creates the opportunity to negotiate together, order larger volumes which decreases the prices and becoming a more prioritized and influencing customers. Construction department helps with evaluation of the supplier for competitive tendering. Production is also a part of evaluation when is come to flows and quality (Mattison, 2012; Granath, 2012) Strategic sourcing Single vs multi The supply base for production consists of 150 suppliers, not services included. Of these 150 about 80% is responsible for input and 40% is hard to replace and is more unique. Out of the supply base there are 25 strategic suppliers that affect about 80% of the total cost (Granath, 2012). Each component has one supplier but sometimes alternative suppliers are used for back-up. When not using the main supplier the cost increases. The goal is to not have more than one supplier per component. There is awareness that this supply base could be reduced. Alternative suppliers are mostly used because of their dependency on spare parts, if some component in their product break the customers lose a lot of money. They have a purchasing strategy and quality statistics for the suppliers they get continuous products from (Mattison, 2012; Granath, 2012). The purchasing manager said that evaluation of suppliers takes place in smaller meetings and the goal is not to renew the supply base but if something is not working with current suppliers it occur (Mattison, 2012). 61

62 Global vs local About 40% of the suppliers for spare parts are global and the rest are made from own construction. Purchasing found the differences when working with global and local sourcing hard to define because all suppliers are individual. One negative factor with global supplier is longer lead time and a positive is the use of expertise that might not be found domestic. Global is mostly used when there is no better alternative locally but the local suppliers are valued since it allows for easy communication and access (Mattison, 2012; Granath, 2012). Both respondents on the management level emphasized that they are a small company where some global suppliers are bigger and that the company is dependent on these suppliers, but the suppliers is not dependent on them (Mattison, 2012; Granath, 2012). The purchasing manager stated that a big problem working with such small volumes is to slim the stock levels toward production and the spare parts sales (Mattison, 2012) Partnership vs competitive bidding To keep the suppliers active purchasing department put pressure on them. They do this by both examining if they can produce components more efficient themselves to lower costs and compared to other suppliers (Mattison, 2012). When buying from a supplier there is an additional cost for 25-30%. For it to be valid the margin has to be so much better than if they were to make it themselves. They might get a competitive disadvantage towards their competition who manufactures components themselves. In the end it is the user, the customers, that will have to pay. Competitive bidding between suppliers is especially used in the development phase. The construction department makes the designs, not the suppliers. Then a request for quotation is made and supplier expertise is facilitated (Granath, 2012). Collaboration occurs during development and dealing with new components, the respondents explain their specifications to the suppliers. The bottom line is always that the buyer is the customer and the supplier s role is to live up to what they promised to deliver. There are two product ranges and the objectives are different depending on what range. The parameters in the product ranges are cost and technique. In the high-tech range cost is not the essential factor and in the other cost is more essential then technique (Mattison, 2012; Granath, 2012). 62

63 The site manager talked about how production is a larger part than spare parts in the company even though spare parts is an important aspect of customer satisfaction. The site manager mentioned that the turnover for spare parts is between 15% to 20% (Granath, 2012). From suppliers they value constant communication and feedback, but from their experience it is often an activity that does not work. One example is when delivery delays occur. They also value when their suppliers can offer high-tech technologies and expertise, technical services, cost reductions, quality and delivery reliability and lead time precision (Mattison, 2012; Granath, 2012) Information technology The objectives seem to be in line with what they consider to be their customer needs which are; product sustainability and easy to use technology. The ERP system used is Monitor, which is integrated in their organization and is a central database that serve all companies in the concern but it is not integrated between the companies accept for accounting purposes. The electronic communication with suppliers is through (Mattison, 2012; Granath, 2012). The demand comes from the customer and effect the demand on purchasing and they do order planning based on customer preferences. If there is a change, often a question of earlier delivery, a changed order will be send and then confirmed. An order confirmation comes back with date, status, delivery number, price and delivery time. Then it is placed in the system so employees affected by the ordering will see if the order is on its way. The preconception from the respondents is that it is not relevant for the company to integrate with their suppliers. Firstly they have to few goods groups and no flow that is needed to draw use out of it and it will put too much demand on the suppliers. On the other hand they have no insight to the supplier s organizations. The bottom line is that they make the orders in Monitor and then e- mail to suppliers (Mattison, 2012; Granath, 2012). In their inventory they have outgoing and incoming goods. The site manager said that the concern does not give any particular limits of how much to put in stock. Because of the spare parts the stock is high compared with the size for the company. The preconception from the respondents is that companies selling higher volume benefits from an integrated ERP system, than the company that deals with smaller volumes (Granath, 2012). 63

64 4.5 Swepac One respondent were the purchasing manager and the other was at an operational level. Swepac is a Swedish B2B manufacturing company located in Ljungby in south of Sweden. The company is market leading of soil compactors and they are operational with assembling. Customers are rental companies in the construction industry and targets high-quality products with a high level of functionality, good ergonomics, quality in the selection of materials and concern both for the life cycle and working environment (Setterman, Hellman, 2012). The company was founded 1993 and has today 20 employees in Ljungby. Swepac is the case company out of the five that produces most machines each year, around 2800 (Setterman, 2012). For additional background see appendix Strategic purchasing The purchasing manager explained that the company has a strategy and it is connected somewhat to the corporate strategy. The core objective of strategy is to fulfill what s in the budget. The purchasing manager continued talking about that after a budget is in an agreement with the CEO a production plan is made, calculating volume and employees. The company makes a production plan which becomes the base for ordering components. The purchasing strategy was seen as fairly operational and somewhat related to the corporate strategy (Setterman, 2012; Hellman, 2012). The organization is small in size. The purchasing manager explained that it is a repeating purchasing organization since the company doesn t produce any components or customer specific products, the company use a standard program which is constantly repeated. Purchasing department cooperate and consult with other departments such as marketing, construction department and the department responsible for technology, but is also influenced by the corporate strategy. The purchasing department is responsible for purchase for the products and manufacturing but not material for offices or equipment. Those decisions are made by the CEO. It is the purchasing manager who make majority of the decisions related to purchasing, but if larger changes is to be made, such as the engine in the machines, the earlier mentioned departments will state their opinion. Partly because the degree of refinement is low and partly because purchasing can t buy something that the construction doesn t approve. At the same time construction can t make a product that is not within reason to purchase, often it 64

65 is a matter of cost. The bottom line is how the product outcome is and how good quality the purchased components have. If any conflicts occur the CEO are the final decision maker with high impact (Setterman, 2012). The volume of products that they sell are seasonal, most sells takes place during spring which affect the company s purchasing plan. The purchasing manager explained that the company s business has been and is still influenced by the economic (Setterman, 2012). The product models are the determining factors for how large amount of volume that should be assembled and sold. A predetermined mix commentate how the products should be put together and how much to be purchased from suppliers. The mix is dependent on economic and how sales department manage to sell the products on the market (Setterman, 2012) Strategic sourcing Single vs multi The supply base consists of about a 100 suppliers, where 20 are strategic suppliers (Setterman, 2012; Hellman, 2012). There is a separation between suppliers they buy components form which are dependent on drawings and suppliers they buy standard components from. They only search for and change suppliers when there is a real demand for it (Setterman, 2012). There is a specific strategy for selecting the supply base. There are two important parts of components and for both of these they have four main strategic suppliers. Partly to make it easy to change supplier fast if potential loss would occur but also to test what the different suppliers has to offer and how they can reduce the prices. They always ask what the suppliers have to offer in terms of costs, partly because the technological conditions to make the components always change among the suppliers (Setterman, 2012) Global vs local Most of the suppliers are located within an area of km. There are a few suppliers in Europe and Asia. Components from Asia are purchased through Swedish distributors. Global suppliers need to fulfill the same quality demands as those suppliers from Sweden and for it to be viable; the cost has to be between 30-40% lower than the domestic (Setterman, 2012; Hellman, 2012). The disadvantage with global sourcing is the long lead times witch they 65

66 estimate up to half a year for delivery. It is also hard to ensure the quality since there is often a lack of contacts that can perform evaluation on the spot, which risks the capital to get tied up. The purchasing manager explained that finding the needed contact can become a hard process and the company doesn t have the resources to have a contact placed regularly in Asia (Setterman, 2012). Components from Asia are purchased on a 12 month agreement, where there are predetermined conditions for how big volume that has to be purchased during the year. The purchasing manager makes the decisions of where and from who the components are purchased from. One example of evaluation is if purchased goods from Asia, with longer lead times, lives up to the desired demands that motivate the choice. A lower purchase price is not worth compromising the quality (Setterman, 2012) Partnership vs competitive bidding The purchasing manager said that there is a process for how to proceed before they start collaboration with a supplier. The demand suppliers must meet in quality, delivery reliability and environmental aspects. Swepac s environment effect is low since they only assemble the components. It makes the demand to have low environmental effect on their suppliers and supply chain higher. This aspect can make some suitable suppliers lapse. If the suppliers can t meet the demand the purchasing manager will search for new suppliers (Setterman, 2012). The objective of purchasing is to have long lasting relationship with suppliers but collaboration did not seem to effect the buyer-supplier integration. Legally the two are separated, the company buy a service from the suppliers. A supplier can be replaced if there is a valid reason. If a supplier can t meet the companies demand or keep up with the technical development, which is a constant threat in their market, they will change the supplier. The purchasing manager said that they strive for supplier collaboration mainly in product development. Because suppliers are experts in their field and they have better opportunities to develop more optimal component solutions. While the purchasing manager explained that their employees working in the technical department becomes generalist and know a little of everything. It is then we need the expert competence from the suppliers, who are expert in their fields (Setterman, 2012). The purchasing manager said that the awareness of each 66

67 other s organizations increases with time and understanding of what the company demands (Setterman, 2012). The purchasing manager talked about how the company is affected by the economic situations, since this determines how much they sell and partly how their suppliers live up to the agreement and manage the delivery time. Making delivery time is a vital capability since this affect the lead time and can create disturbance in the manufacturing process. All material that needs to be delivered one week has to be followed up the week before. There always has to be room for some corrections in the orders to the suppliers. The respondents sees the delivery time as a more important factor than the quality. They bind contract with few evaluated suppliers that conduct sample deliveries (Setterman, 2012) Information technology The ERP system used is Pyramid and the whole organization in connected through the ERP system. According to the purchasing manager it is considered the heart of the company, without ERP the entire company would stop. Suppliers are however not integrated in the system. The fact that they use a standardized assortment facilitates the order management. This means the suppliers system is not critical because they are not integrated. There is no specific IT-strategy that the suppliers should have insight into the ERP system (Setterman, 2012; Hellman, 2012). Orders for suppliers are sent through , with an attached PDF-file and in turn suppliers make an order confirmation, verifying they received the order. This way they manage a large amount of orders, with many components to large amounts without being a large organization. Also it makes it possible for one person to direct purchasing. From making the order there are eight weeks of lead time, meaning they have a long breaking distance. Also other agreements exits where it is predetermined how many order to be made during a certain time. They also work with provisional order, where suppliers reserve an order about 12 weeks before, where the orders become solid 4 weeks before. If no changes are made the order becomes permanent. Before that point purchasing may push the order 4-5 weeks. Each order has its own number series which provides security and better planning for both parties (Setterman, 2012). 67

68 Normally there is no everyday contact with the suppliers, except through the business system and information sent through IT services, such as . They do however meet the suppliers yearly. It can be more frequent if strategic suppliers are a part of some development or such. Besides the orders there is also product information presented. No paper-based information is used only electronically. They work continually to improve delivery time, quality, lowering the lead time and secure supply delivery. Delivery time is seen as much bigger problem than the quality. The idea is that these aspects are to be implemented and occur through the ERP, but it is now under construction. With local suppliers they don t have too many problems with delivery (Setterman, 2012). The respondent said that they have an own stock with finished products. The goal is to keep as small volume of storage as possible to avoid tying up capital in the form of component stock. It can be a problem if one supplier cannot deliver the whole order since it may affect the assembling time (Setterman, 2012). 68

69 Table 4.1 Summary of empirical Case study Employees No. Employees, purchasing department Arcoma 67 3 Lasermax Roll Systems Ljungby Maskin (Purchasing manager, 2 purchasers) (Purchasing manager, 2 material handler) (2 purchasers; one with more responsibilities, 1 purchaser for steel) SP Maskiner 33 2 (1 site manager acting as purchaser manager, 1 purchaser Swepac 20 1 (Purchasing manager) Products/year Number of suppliers Number of strategic suppliers 150 (that (20% of consists of 130) 2500 parts)

70 5. ANALYSIS In this chapter data collected from the empirical gathering was analyzed by connecting it with the theoretical framework. The first part of the analysis was made for each case study individually by tables and analytic summary. Second part of the analysis was conducted through cross-case analysis summarizing the case studies and answering the research questions. Figure 5.1 Structure of analysis 5.1 Individual analysis for Arcoma Strategic purchasing The purchasing strategy of Arcoma is tactical because their goal is lowering costs, reduce number of suppliers and reduce stock (Pressey et al. 2007). The activities of the purchasing management are, based on the strategy and goals, also tactical in its core. The purchasing strategy is not applied in the everyday work and is not consciously connected with the company s overall objectives and corporate strategy. According to González-Benito, (2007) this means that purchasing is not integrated in the business decision process and does not work integrated with the organization. This fact is also an indicator that the strategic thinking is not applied in the purchasing management activities. In consideration of these factors, there is a desire to incorporate purchasing department in the business decisions and strategy, which implies a change for a strategic development of the strategy. What also can be found is that reducing the number of suppliers, even though it is a short-term goal also can be seen as an strategic effort of sourcing according to Johnsson, (2005). 70