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

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

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

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, 2012-05-23 Vanja Melin Schalén Malin Lindén 3

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

TABLE OF CONTENTS 1. INTRODUCTION... 9 1.1 BACKGROUD... 10 1.2 PROBLEM DISCUSSION... 11 1.3 PURPOSE... 13 1.4 RESEARCH QUESTIONS... 13 1.5 DELIMITATIONS... 13 1.6 DISPOSITIONS... 14 2. THORETHICAL FRAMEWORK... 15 2.1 PURCHASING MANAGEMENT... 15 2.1.1 STRATEGIC PURCHASING... 16 2.2 STRATEGIC SOURCING... 18 2.2.1 SOURCING STRATEGY... 20 2.2.1.1 SINGLE VS MULTI... 20 2.2.1.2 GLOBAL VS LOCAL... 21 2.2.1.3 PARTNERSHIP VS COMPETITIVE BIDDING... 22 2.2.1.3.1 SUPPLIER DEVELOPMENT... 24 2.3. IMPACT OF STRATEGIC PURCHASING ON COMPETITIVE ADVANTAGE... 24 2.4 INFORMATION TECHNOLOGY... 25 3. METHODOLOGY... 29 3.1 RESERCH APPROCACH... 29 3.1.1 INDUCTIVE VS. DEDUCTIVE RESEARCH... 29 3.1.2 QUALITATIVE VS. QUANTITATIVE RESEARCH... 30 3.2 RESEARCH DESIGN... 31 3.3 DATA SOURCES... 33 3.4 RESEARCH STRATEGY... 34 3.5 DATA COLLECTION METHOD... 35 3.6 DATA COLLECTION INSTRUMENT... 35 3.6.1 OPERATIONATIONALIZATION AND MEAUSUREMENT OF VARIABLES... 36 3.6.2 INTERVIEW GUIDE... 39 3.6.3 PRETESTING... 40 3.7 SAMPLING... 40 3.7.1 STUDY POPULATOIN... 41 3.7.2 SAMPLING FRAME... 42 3.7.3 SAMPLE SELECTION AND DATA COLLECTION PROCEDURE... 42 3.8 DATA ANALYSIS METHOD FOR A QUALITATIVE APPROACH... 44 3.9 QUALITY CRITERIA FOR A QUALITATIVE METHOD... 44 3.9.1 CONTENT VALIDITY... 44 3.9.2 CONSTRUCT VALIDITY... 45 3.9.3 EXTERNAL VALIDITY... 45 3.9.4 RELIABILITY... 46 3.10 SUMMARY OF METHODOLOGY... 47 5

4. EMPIRICAL FINDINGS... 48 4.1 ARCOMA... 48 4.1.1 STRATEGIC PURCHASING... 48 4.1.2 STRATEGIC SOURCING... 49 4.1.2.1 SINGLE VS MULTI... 49 4.1.2.2 GLOBAL VS LOCAL... 50 4.1.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 50 4.1.3 INFORMATION TECHNOLOGY... 50 4.2 LASERMAX ROLL SYSTEM... 52 4.2.1 STRATEGIC PURCHASING... 52 4.2.2 STRATEGIC SOURCING... 54 4.2.2.1 SINGLE VS MULTY... 54 4.2.2.2 GLOBAL VS LOCAL... 54 4.2.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 55 4.2.3 INFORMATION TECHNOLOGY... 55 4.3 LJUNGBY MASKIN... 56 4.3.1 STRATEGIC PURCHASING... 56 4.3.2 STRATEGIC SOURCING... 57 4.3.2.1 SINGLE VS MULTI... 57 4.3.2.2 GLOBAL VS LOCAL... 57 4.3.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 58 4.3.3 INFORMATION TECHNOLOGY... 58 4.4 SP MASKINER... 60 4.4.1 STRATEGIC PURCHASING... 60 4.4.2 STRATEGIC SOURCING... 61 4.4.2.1 SINGLE VS MULTI... 61 4.4.2.2 GLOBAL VS LOCAL... 62 4.4.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 62 4.4.3 INFORMATION TECHNOLOGY... 63 4.5 SWEPAC... 64 4.5.1 STRATEGIC PURCHASING... 64 4.5.2 STRATEGIC SOURCING... 65 4.5.2.1 SINGLE VS MULTI... 65 4.5.2.2 GLOBAL VS LOCAL... 65 4.5.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 66 4.5.3 INFORMATION TECHNOLOGY... 67 5. ANALYSIS... 70 5.1 INDIVIDUAL ANALYSIS FOR ARCOMA... 70 5.1.1 STRATEGIC PURCHASING... 70 5.1.2 STRATEGIC SOURCING... 72 5.1.2.1 SINGLE VS MULTI... 72 5.1.2.2 GLOBAL VS LOCAL... 72 5.1.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 73 5.1.3 INFORMATION TECHNOLOGY... 73 5.2. INDIVIDUAL ANALYSIS FOR LASERMAX ROLL SYSTEM... 74 5.2.1 STRATEGIC PURCHASING... 74 5.2.2 STRATEGIC SOURCING... 76 5.2.2.1 SINGLE VS MULTI... 76 5.2.2.2 GLOBAL VS LOCAL... 76 6

5.2.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 77 5.2.3 INFORMATION TECHNOLOGY... 77 5.3 INDIVIDUAL ANALYSIS FOR LJUNGBY MASKIN... 78 5.3.1 STRATEGIC PURCHASING... 78 5.3.2 STRATEGIC SOURCING... 80 5.3.2.1 SINGLE VS MULTI... 80 5.3.2.2 GLOBAL VS LOCAL... 80 5.3.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 81 5.3.3 INFORMATION TECHNOLOGY... 81 5.4 INDIVIDUAL ANALYSIS FOR SP MASKINER... 82 5.4.1 STRATEGIC PURCHASING... 82 5.4.2 STRATEGIC SOURCING... 85 5.4.2.1 SINGLE VS MULTI... 85 5.4.2.2 GLOBAL VS LOCAL... 85 5.4.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 86 5.4.3 INFORMATION TECHNOLOGY... 86 5.5 INDIVIDUAL ANALYSIS FOR SWEPAC... 87 5.5.1 STRATEGIC PURCHASING... 87 5.5.2 STRATEGIC SOURCING... 89 5.5.1 SINGLE VS MULTI... 89 5.5.2.2 GLOBAL VS LOCAL... 90 5.5.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 90 5.5.3 INFORMATION TECHNOLOGY... 91 5.6 CROSS-CASE ANALYSIS... 91 5.6.1 STRATEGIC PURCHASING... 92 5.6.2 STRATEGIC SOURCING... 93 5.6.2.1 SINGLE VS MULTI... 93 5.6.2.2 GLOBAL VS LOCAL... 95 5.6.2.3 PARTNERSHIP VS COMPETITIVE BIDDING... 96 5.6.3 INFORMATION TECHNOLOGY... 98 6. CONCLUSIONS AND IMPLICATION... 100 6.1 CONCLUSIONS... 100 6.1.1 RESEARCH QUESTION 1... 100 6.1.2 RESEARCH QUESTION 2... 101 6.1.3 RESEARCH QUESTION 3... 103 6.1.4 SUMMARY OF CONCLUSIONS... 104 6.2 MANAGERAL IMPLICATIONS... 105 6.3 ACADEMIC IMPLICATION... 106 6.4 LIMITATIONS... 106 6.5 SUGGESTIONS FOR FUTURE RESEARCH... 106 REFERENCES... 108 APPENDIX 1... 115 APPENDIX 2... 116 APPENDIX 3... 117 APPENDIX 4... 119 APPENDIX 5... 121 APPENDIX 6... 122 APPENDIX 7... 123 APPENDIX 8... 124 7

APPENDIX 9... 125 List of figures 1.1 DISPOSITION OF THESIS... 14 2.1 LEVELS OF PURCHASING... 16 2.2 RANGES OF BUYER-SUPPLIER RELATIONSHIPS... 24 2.3 CONCEPTUAL MODEL OF THEORETICAL FRAMEWORK... 28 3.1 A GRAPHIC ILLUSTRATION OF THE DEDUCTIVE APPROACH... 30 3.2 RESEARCH DESIGN... 31 3.3 RESEARCH DESIGN... 32 3.4 OPERALIZATION MODEL... 36 3.5 PROCESS OF THE INTERVIEW GUIDE... 40 5.1 STRUCTURE OF ANALYSIS... 70 List of tables 3.1 RESEARCH STRATEGY... 34 3.2 DEFINITION OF SME... 41 3.3 DEFINITION FOR INVESTIGATED SMES... 41 3.4 INFORMATION ABOUT THE RESPONDENTS... 43 4.1 SUMMARY OF EMPIRICAL... 69 5.1 ANALYSIS OF ARCOMA... 71 5.2 ANALYSIS OF LASERMAX ROLL SYSTEM... 75 5.3 ANALYSIS OF LJUNGBY MASKIN... 78 5.4 ANALYSIS OF SP MASKINER... 83 5.5 ANALYSIS OF SWEPAC... 88 8

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

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

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

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

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

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

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

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. 2.1.1 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

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

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

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

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). 2.2.1 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. 2.2.1.1 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

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. 2.2.1.2 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

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). 2.2.1.3 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

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. 2007 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

2.2.1.3.1 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

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

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

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. 839-840). 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

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

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. 3.1.1 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

Figure 3.1 A graphic illustration of the deductive approach (Bryman and Bell, 2005) 3.1.2 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

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

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

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

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 email. 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

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 3.6.1 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 3.4. 35

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, 1.1.1 1.2 1.3 1.4 1.5, 1.6 36

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, 2.2.2 2.2 2.1.1, 2.1.2 2.3, 2.3.9 2.3.1, 2.3.2, 2.3.3 2.3.4 2.3.5, 2.3.7 2.3.6, 2.3.6.1 2.3.8 37

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 3 3.1.1, 3.1.2 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). 3.1.3 3.2.1 3.2.2 3.2.3 3.2.4, 3.2.4.1, 3.2.4.2 3.2.5, 3.2.5.1, 3.2.5.2 3.2.6, 3.2.6.1 3.2.7, 3.2.7.1 3.2.8 38

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

Figure 3.5 Process of the interview guide (Bryman, 2008, p. 446) 3.6.3 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

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 < 250 50 million 43 million Small < 50 10 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 67 185 737 268 Lasermax Roll Systems (2009-09-01-2010-12-31)* 159 146 324 000 TSEK (10-12-31)* Ljungby Maskin 107 317 511 000 TSEK (10-12-31)* 41

SP Maskiner 33 90 163 681 (11-06-30)* Swepac 20 45 949 663 (10-12-31)* *(Bolagsverket, 2012) 3.7.2 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 1989. Both teachers and students have access to the database through license by Linnaeus University (Affärsdata, 2012). 3.7.3 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

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 30-70 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/ 2012-04-18, 14:30-15:30/ In-depth interview, Växjö/ Randi Hvidtfeldt Fransson Purchase 2012-04-18, 15:30-16:30 In-depth interview, Växjö Lasermax Roll Systems Kim Elwér/ Peter Johansson Purchasing manager/ Production manager 2012-04-19, 13:30-14:30/ 2012-04-24, 11:00-11:30 In-depth interview, Ljungby/ In-depth interview, telephone Ljungby Maskin Torbjörn Pettersson/ Robin Lundin Purchaser/ Production planer 2012-04-17, 10:00-11:00/ 2012-04-17, 11:00-11:30/ In-depth interview, Ljungby/ In-depth interview, Ljungby SP Maskiner Ida Mattison/ Benny Granath Purchasing manager/ Site manager 2012-04-19, 10:00-10:30/ 2012-04-19, 11:00-12:00/ In-depth interview, Ljungby/ In-depth interview, Ljungby 43

Swepac Pär Setterman/ Thomas Hellman Purchasing manager/ Spare parts 2012-04-17, 13:30-14:30/ 2012-04-17, 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). 3.9.1 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

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. 3.9.3 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

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

3.10 Summery of methodology 47

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 5. 4.1.1 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

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). 4.1.2 Strategic sourcing 4.1.2.1 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, 2012. 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

approved on the different markets in; USA, Europe and Asia (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). 4.1.2.2 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). 4.1.2.3 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

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 e-mail, telephone and face-to-face meetings (Bengtsson, 2012; Hvidtfeldt Fransson, 2012). 4.1.3 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

Communication with suppliers is made 90% via e-mail, but also through fax and telephone. The communication system is based on events which make e-mail 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 2004. 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 5. 4.2.1 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

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

4.2.2 Strategic sourcing 4.2.2.1 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). 4.2.2.2 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

4.2.2.3 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). 4.2.3 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 e-mail. 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

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 6. 4.3.1 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

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). 4.3.2 Strategic sourcing 4.3.2.1 Single vs multi Purchasing department have about 80-100 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). 4.3.2.2 Global vs local The respondent working in the purchasing department said that they has about 15-20 global suppliers and it is mostly because there are no Swedish suppliers as an option, that buy 57

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). 4.3.2.3 Partnership vs competitive bidding The relationship is considered important (Pettersson, 2012; Lundin, 2012. 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). 4.3.3 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

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 e-mail. 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 e-mail and placed in the ERP. It means less manual work. If the suppliers don t use a comparable ERP system, they receive an e-mail 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

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 2003. 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 7. 4.4.1 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

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). 4.4.2 Strategic sourcing 4.4.2.1 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

4.4.2.2 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). 4.4.2.3 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

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). 4.4.3 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 e-mail (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

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 8. 4.5.1 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

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). 4.5.2 Strategic sourcing 4.5.2.1 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). 4.5.2.2 Global vs local Most of the suppliers are located within an area of 200-250 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

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). 4.5.2.3 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

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). 4.5.3 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 e-mail, 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

Normally there is no everyday contact with the suppliers, except through the business system and information sent through IT services, such as e-mail. 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

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) 159 3 (Purchasing manager, 2 material handler) 107 3 (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 130 26 (20% of consists of 130) 2500 parts) 600-700 100 50 25 80-100 4 200 150 25 2800 100 20 69

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 5.1.1 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

Partnership vs Competitive bidding Global vs local Single vs multi Table 5.1 Analysis of Arcoma Case study Arcoma Type of strategy Hybrid strategy. Specialized components Standard components Supplier size One main supplier. One or several for the same component. See a disadvantage in them being a small part of many of their global supplier s production since the company is dependent on these suppliers. Supply base 130 suppliers. 26 strategic suppliers. Both local and global. 20% of the supply base is global. Advantage Disadvantage Strategic suppliers local Strategic suppliers global Supply base Better payments terms and stronger competitiveness since the components are more technological developed then local. Longer lead times. Build relationship with mostly Swedish, local gives flexibility, support and maintenance. Yes, especially European suppliers. 90 % has worked with them for several years. Competitive bidding Changing supplier How? Supplier evaluation factors Partnership When searching for new suppliers they explore the supply market and the supplier s conditions. If supplier contribute to interruptions in production, don't meet the demands, can t manage delivery time, quality, make unrealistic price increases or if another supplier offer similar component. Evaluation process of suppliers occur ones every year to test suppliers effect on the overall company. Delivery performance, impact on manufacturing, quality, reclamation, price and which suppliers that have not updated their article appendix to the agreement impact decisions is made. When choosing new suppliers they need to meet company s quality demands such as; environment conditions and laws. They develop closer relationship with strategic suppliers, but the supply base overall is no difference in everyday life. 71

Information technology Product development Components development Order fulfillment process computerized Development department has collaboration with suppliers during product development, while purchasing manager handle the commercial contact. Technological component development with suppliers. 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 Yes through e-mail. ERP system ERP system integrated with suppliers Communication E-commerce E-procurement Suppliers manage inventory IScala. Integrated with all departments in the organization. No. Tested a joint system five years ago, but parameters were wrong, suppliers could not meet up to company demand. Purchasing department is positive to integrated collaboration. The communication system is based on events. Communication with suppliers is made 90% via e-mail, but also through fax and telephone. Positive: Easy to coordinate with several suppliers at the same time, easy to track a conversation. Yes No. Due to the small organization. No. Due to the small organization. Not possible because of the components. They could see the suppliers having a stock in the company that supplier is responsible for and refill, but it is not considered reasonable today. 5.1.2 Strategic sourcing 5.1.2.1 Singel vs multi According to Faes and Matthyssens, (2009) using a mix of single and multi sourcing results in hybrid strategy. Arcoma use Hybrid sourcing and it is divided dependent on type of product and supplier category. 5.1.2.2 Global vs local The reason for global sourcing according to Arcoma was due to the perceived advantage of better payments terms and expertise which means stronger competitiveness since the components are more technological developed than what the local suppliers could provide (Kotabe and Murray, 2004). Global sourcing is also most efficient for companies with higher material flows where significant cost cutting is gained. The thought is to have strategic suppliers local. However Arcoma have tied the major part of the purchasing volume and value 72

to global suppliers. According to Handfield et al. (2009) definition of strategic supplier it means that they have strategic suppliers on a global scale as well. 5.1.2.3 Partnership vs competitive bidding About 90% of the suppliers in the supply base have been with them for several years. When they do search for new suppliers they explore the supply base and the suppliers conditions and compare them meaning they partly use competitive bidding even if it is not used in the ordinary work of the supply base. According to Krause and Ellram, (1997) supplier development is any effort from the buying company to together with supplier increase the performance to meet the buying company s short and/or long-term supply needs. The evaluation process can be seen as an effort from the buying company to assess supplier performance. It shows that they work towards supplier development, since they do the evaluation to see if the suppliers meet the company s short- and/or long-term needs. Supplier development can be seen as a vital part of partnership to enhance the supplier performance which can improve the overall organizational effectiveness (Williams, 2006). Collaboration concerning product and component development can be seen as a type of alliance partnership. Using alliance partnership can generate common advantages (Jonsson, 2005). Especially performance advantages from both the buyer and supplier. 5.1.3 Information technology Internally integrated ERP improves the operational efficiency in the purchasing department if implemented successfully (Stump and Sriram 1997). The ERP is not integrated with suppliers but in the internal organization. For it to become reality the managers needs to search for future solutions and keep up with technological development in the area. According to Walker and Rowlinson, (2008) e-commerce is a tool to interact purchase goods or services or to create an integrated system to enable business processes to facilitate delivery of goods or services. Interaction with suppliers may occur through information, files or payments being performed electronically. By this definition Arcoma use e-commerce however they don t use it in a way that might generate competitive advantage. It is mostly used for one purpose and is not elaborated in the communication aspect of the sourcing strategy. E- procurement is not the optimal source of IT use since it often demands high volumes to be efficient and beneficial, which they do not have. 73

5.2 Individual analysis for Lasermax Roll Systems 5.2.1 Strategic purchasing The practical activities of the purchasing function are on an operational level of purchasing. Handfield et al. (2009) identify operational activities to be for example transactions and purchase items to operation units. Lasermax Roll Systems activities are operational mainly since purchasing is responsible for purchase of components for production and buying larger machines to the factory. Contrariwise to the operational activities, the core of purchasing was described as strategic thinking since it involves sourcing by evaluation supplier s capabilities (Ellram, 1994). The core activities are 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. It is the purchasing manager s task to work with suppliers that live up to these core activities. It shows that they value the choice of suppliers and that the choice of suppliers affects them as a company. The purchasing strategy of Lasermax Roll Systems is made by the previous owner which means it is somewhat outdated and is not connected to the current business strategy and the new organizational decision in an immediate manner. According to Ellram, (1994) strategic purchasing is a process where planning, evaluation, and controlling of strategic and operational decisions is vital. The purchasing strategy of Lasermax Roll Systems is being updated which show that the actives and planning of the strategy is not made strategically. One future strategy that was identified was to develop a new strategy with the facilities located in USA and Italy. The goal is to possibly share the same suppliers, which they might even do today, and possibly find new strategic components with other facilities and lower costs by ordering in higher volume. This coordination of suppliers implies a future strategic thinking of approaching sourcing and conducting the supply base. It shows an effort from the purchasing manager to direct the strategy to strategic approach in the future by building relationships to lower the total costs (Giunipero et al. 2006). By coordinate their purchasing activities with other manufactures within the organization they gain stronger purchasing power and may be a more important buyer for the suppliers that will put more effort into serving them. 74

Partnership vs Competitive bidding Global vs local Single vs multi The management is not involved in all purchasing decisions, only when major questions arise. There is however influence from departments on the same organizational level, where collaboration concern purchasing actives effecting the involved departments. The main involved departments are construction and production. This collaboration show one step for implementing strategic thinking in the everyday work defined by Giunipero et al. (2006). The step according to theory is team-building which is accomplished through shared decisionmaking, influencing and compromising. Implementing the strategic approach requires new knowledge which purchasing gains from within the organization. Table 5.2 Analysis of Lasermax Roll Systems Case study Type of strategy Lasermax Roll Systems Hybrid strategy. They have one main supplier but also backup suppliers in their data base. Specialized components Standard components Supplier size Supply base One supplier that they work closer with. Customer s orders are the determining factor to the components. Work with one main, but have backup suppliers. See a disadvantage in being a small part of many of their global supplier s production since the company is dependent on these suppliers. 100 suppliers. 50 strategic suppliers. Use both global and local suppliers. Advantage Disadvantage Supply base Since they use a distributor for most of the components bought abroad it means less problem for them. Longer lead times. A disadvantage using distributors is that the cost is higher. They have worked with many of their suppliers for a long time. Competitive bidding Changing supplier How? There is not much use of competitive bidding in a way that the theory means it to be. If there is an error that occurs with a supplier the first approach is to solve the problem together. The problems repeat themselves and never get fixed or if the suppliers are not focusing on development. Evaluation process of suppliers occur ones every year testing strategic 75

Information technology suppliers. Supplier evaluation factors Partnership Order fulfillment process computerized ERP system ERP system integrated with suppliers Communication E-commerce E-procurement Suppliers manage inventory These are based on 12 parameters. Also put value in being frank, both with the good and the bad. Cost, quality and the logistic assignments. They develop closer relationship with suppliers which give an indication that they do use partnership sourcing. Yes. Enter data in the ERP system, sent weekly through e-mail and enter replies in the ERP system. They have order plans for selected suppliers where the components are so specific those suppliers must continually know when to deliver them. Wish to use it in higher extent, but it requires resources and time. Movex. Integrated in the organization. No. Evaluated it 7-8 years ago, then it were too expensive and complicated for both them and their suppliers. E-mail Enable easier communication. Yes No. Due to the small organization No. Due to the small organization 5.2.2 Strategic sourcing 5.2.2.1 Single vs Multi According to Faes and Matthyssens, (2009) using a mix single and multi sourcing results in hybrid strategy. Which Laxermax Roll Systems does although the hybrid strategy is divided dependent on the type of product and supplier category. 5.2.2.2 Global vs local Using distributes for global suppliers can be beneficial for a SME since it reduce uncertainty. One less disadvantage could be that there is no need to deal with the difficulties of negotiating with another country (Kotabe and Murray, 2004; Van Weele, 2010). A main advantage of global sourcing is cost cutting (Van Weele, 2010; Handfield et al. 2009). A disadvantage using distributors is that the cost is higher, which take away the main advantage of global sourcing. It could indicate that their reason for global sourcing is based on other factors defined by Kotabe and Murray (2004) such as finding new expertise and knowledge and get insight in new markets. 76

5.2.2.3 Partnership vs competitive bidding Lasermax Roll Systems have worked with several suppliers for a long time. This does not however mean that they have formed a partnership in the sense of using the long-term relationship as a tool of enhanced competitiveness. They do not either use competitive bidding as it is defined by Jonsson, (2005). If there is an error that occurs with a supplier the first approach is to solve the problem together, the first indication is not to change the supplier or examine the supply market on a regular basis. Supplier development can lead to expanded capabilities for an organization (Williams, 2006). Since focus is on enhancing the supplier performance to meet their own needs they work towards supplier development on a regular basis more than competitive bidding. According to Shin et al. (2000) some of the supplier performance measurements are; quality, cost, on time delivery and delivery reliability. Cost, quality and logistic assignments are three of the evaluation criteria by the purchasing department, giving one more indication that they work towards supplier development. There are some indicators towards a partnership sourcing, which is in line with Lawsona et al. (2007); Handfield et al. (2009) perspective of partnership of aiming to develop closer relationships with suppliers, try to solve problems with suppliers, emphasis on collaboration and having a honest relationships. 5.2.3 Information technology Internally integrated ERP improves the operational efficiency in the purchasing department (Stump and Sriram 1997). The ERP is not integrated with suppliers. The decisions was made 7-8 years ago through an evaluation, it was considered too expensive and complicated for both supplier and buyer. An updated evaluation might show a different result. Tambovcevs, (2011); Monczka et al. (2009); Handfield et al. (2009) concluded that making a new evaluation of the current market for IT and new technology has to be done on a management level for the end result to match the company and purchasing needs and conditions. Theuse of the Internet indicate that they use e-commerce on an operational level. There is no use of e-procurement due to the small material flow. The purchasing manager wish to use prognoses orders in a higher extent but it requires both resources and time (Walker and Rowlinson, 2008). 77

Global vs local Single vs multi 5.3 Individual analysis for Ljungby Maskin 5.3.1 Strategic purchasing The purchasing strategy is not documented but the operational aspects of the strategy were to secure the material flow and the component stock. The CEO has much influence in the purchasing activities but there is no specific connection to the corporate strategy in the purchasing department. For a company striving for strategic approach it could mean a challenge. For the strategic planning process to be successful and enhance performance it needs to be well developed and implemented (Sánchez-Rodríguez, 2009). What can be seen is that the small organization work in a way that is not theoretical implemented but there is a close relationship and communication on a daily basis between the people responsible for the strategies; managers and CEO. On part connected to the corporate strategy is the decision to produce some components themselves and purchase some finished components purchased from suppliers. It gives effect on the supplier sourcing and also could mean cost cutting. Table 5.3 Analysis of Ljungby Maskin Case study Type of strategy Specialized components Standard components Supplier brand Supply base Ljungby Maskin The mentality is that they have no strategic suppliers, but there is four that are extra cared about since they deliver both big and unique components. Around 90 % of components has only one supplier source. Meaning they use a hybrid strategy. These are manly distributed among four suppliers. Keeping only one supplier is standard procedure. The company has also taken business decision about some specific components and to only use some supplier s brands, making them bound to one supplier. 80-100 suppliers in the purchasing supply base. They use both global and local. About 15-20 suppliers are global and it is mostly because there is no Swedish suppliers as an option. Global suppliers are often used through distributors and function as the middleman. Advantage Disadvantage Global suppliers are often used through distributers and functions as the middleman. With the distributers was the increased cost and global in general was longer lead time. 78

Information technology Partnership vs Competitive bidding Strategic suppliers local Supply base Local sourcing can provide flexibility, support and maintenance. They tend to source locally when the components provide better attributes than outboard. The relationship and chemistry was discussed when it came to supply base. Also the fact that they have been working with the same suppliers for many years. Competitive bidding Changing supplier Supplier evaluation factors Partnership Components development Order fulfillment process computerized ERP system ERP system integrated with suppliers Communication E-commerce E-procurement In the search for new components suppliers makes offers that is compared meaning they work towards competitive bidding. They are not resistant to change suppliers if they find a better solution somewhere else. If failing to meet demands, can t delivery time, can t meet the quality demand or another supplier offer similar component but better. Price, quality, meet component demands and on time delivery. Focus was also on the relationship aspect of supplier collaboration. Sees the supplier partnership and development as vital, SCM-philosophy was mentioned as something positive and that chemistry between the buying company and the supplier. Both respondents agreed that suppliers were valued in term of product development. The collaboration is however mainly when suppliers develop components and sell to the company. But the company has paid for the development process. Yes. From ERP system, sending trough e-mail, and typed in responses in ERP system. Manuel paper documentation is a complement (both for stock and purchasing). Oder information is stored in the ERP system. Negative: ERP hard to fully trust, since delivery is dependent on supplier performance; production, flow and communication to subcontractors. Monitor. Integrated in the whole company. Used it for 3-4 year and work close with the vendor. Important parameters: when and how much. Calculation of the parameters is managed manually because of the small flow. Internally integrated ERP improves the operational efficiency in the purchasing department. No, but have 10 suppliers that also use Monitor and a XML- file is always attached in the e-mail and placed in the ERP, which result in less manually work. No difference in the handling with suppliers, depending on ERP system. E-mail Yes No 79

Suppliers manage inventory No, the purchasers do inventory. Use a note system, were employees control when they running out of components and give note to the purchasers. 5.3.2 Strategic sourcing 5.3.2.1 Single vs multi The current situation shows that Ljungby Maskin tend to use single sourcing in a higher extent than multi sourcing, because around 90 % of the components has only one supply source. If multi sourcing is used it comes down to delivery time meaning they use a hybrid strategy. According to Faes and Matthyssens, (2009) a disadvantage in single sourcing is dependency, a factor affecting the company when using only one supplier brand. Single sourcing could also lead to cost cutting, quality improvement and relationship improvement to generate greater competitiveness (Van Weele, 2010). Handfield et al. (2009) define strategic suppliers as the ones responsible for the critical components or specialized components. The mentality of the purchasing department is that they have no strategic suppliers, but there is four that are extra cared about since they deliver both big and unique components. These according to theory can be seen as strategic suppliers since the buyer is quite dependent on them. 5.3.2.2 Global vs local Distributors are often used as the middleman to manage global suppliers. It generates advantages, such as not having to deal with negotiation with other countries (Kotabe and Murray, 2004; Van Weele, 2010). Another reason was less human resources needed. A detected disadvantage with distributes was the extra cost, which takes away one of the major advantages for using global sourcing, which is cost cutting (Van Weele, 2010; Handfield et al. 2009). It indicates that the reason for global sourcing might not be the cost savings but other factors. Another disadvantage with global sourcing was longer lead time (Van Weele, 2010). Though this factor was less pushing when using distributors. There was still a tendency to source locally if the components provide better or same standard as global. Reasons for why a SME can benefit from local sourcing, especially if cost cutting and high order volume is not a priority, is that local sourcing can provide flexibility, support and maintenance (Van Weele, 2010). 80

5.3.2.3 Partnership vs competitive bidding The fact that they have been working with the same suppliers for many years indicate a partnership approach to sourcing. In the search for new components suppliers make offers that are compared, meaning they work towards competitive bidding. Ljungby Maskin used a competitive bidding sourcing view since 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. The supplier conditions valued can be seen from both the operational view and the strategic view. Conditions such as price, quality, meet component demands and on time delivery can according to Pressey et al. (2007) be seen as operational objectives. According to Handfield et al. (2009) relationship thinking and future objectives can be linked to a strategic thinking approach, that the company also adopted. It became apparent that the respondents purchasing roles effected the view of how purchasing is managed. One sees the supplier partnership on a more strategic level than the other respondent, because the respondent stated that buyer-supplier relationship is important and SCM-philosophy was mentioned as something positive. Suppliers were valued in terms of product development. The collaboration is however mainly when suppliers develop components and sell to the company. The company paid for the development process. There could be common advantages for both buyer and supplier if engaging an alliance partnership (Jonsson, 2005; Tam et al. 2007). The reason for mixed views on how purchasing department sees the source was especially different for Ljungby Maskin. It could be due to changed strategies in the past, no elaborated purchasing strategy or the simple fact that the operational manager was fairly new in the organization or the different managerial point of view of the respondents. 5.3.3 Information technology The ERP system is integrated internally and has been used for 3-4 years. Much time is dedicated to the system to support its capabilities and function, which is common for these type of systems (Stump and Sriram 1997). If an ERP is successfully implemented it can help to support decision making in the organization. ERP allow for easier integration of managers in the purchasing activities, it can also contribute to external communication, for example 81

with suppliers (Handfield et al. 2009; Monczka et al. 2009; Weele, 2010) but this is not something that is currently used by the company. According to Walker and Rowlinson, (2008) e-commerce is a tool to interact purchase goods or services or to create an 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). By this definition Ljungby Maskin use e-commerce but they don t use it in a way that might generate competitive advantage or strengthen a strategic plan. E-procurement often demand high volumes to be efficient and beneficial (Stump and Sriram 1997) neither of which SMEs manage, making it not the optimal source to use. One order process used is based on paper notes, were employees control when they running out of components and give note to the purchasers. The use of e-commerce can help this process to reduce internal order processes time and costs and make transactions more efficient, both internally and inter-organizational. 5.4 Individual analysis for SP Maskiner 5.4.1 Strategic purchasing The purchasing strategy is not documented, there is an unspoken strategy but it is not in focus. The core role however could be seen as tactical since it is based on providing components and material to production (Pressey et al. 2007). Flexibility was the lead word for the strategy thinking, which could explain the undocumented strategy. The reason is due to the changing environment that effect purchasing. Seeing to the need to be flexible and the core role of purchasing indicate that the strategy is mainly about the tactical activities. One respondent on a management level said that they have one purchasing strategy and quality statistics for suppliers they get continuous products from. They perform evaluation to measure supplier performance. If something is not working with current suppliers they take actions, but the goal is not to renew the supply base. That show on a awareness and critical ability in the evaluation process. A strategy is developed for the development of the whole company meaning purchasing is a part of the holistic corporate strategy. There is also a market plan, but both of these provide rough goals, mainly due to the flexibility factor. Pressey et al. (2007) states that if the purchasing plan is in alignment with the organizational goals and business strategy then they 82

Single vs multi have a foundation for strategic purchasing. Another factor that could be seen as a part of the undocumented strategy is the emphasis on technology in the products and suppliers competence in the area. Even if price is a vital factor in many markets the technology is what the target group seems to focus on. Giunipero et al. (2006) discuss about the step of implementing strategic approach that involves team-building and is accomplished through shared decision-making, influencing and compromising. According to one respondent on a management level the company does follow this thought by adopting influences from the other companies in the concern, to gain benefits especially through joint agreements with suppliers. When collaboration occur with companies belonging to the concern, they achieve stronger market positions and gain more impact when negotiate with joint suppliers to be able to reduce cost and get a more important buying company. According to Paulraj et al. (2006) cross-sectional relationship can give a win-win situation both for the suppliers and the buying companies. By being involved in improving the performance in the supplier s production it gets greater insight into how the suppliers work and how it affects the components that gets delivered to them. It can decrease the cost, make sure the quality fit the company's demands, but also help the suppliers in develop the procedure for producing the components so the lead time decrease. According to Paulraj et al. (2006) that can result in strengthen relationship with suppliers, since the relationship give positive impact for both the buying company and the suppliers. Table 5.4 Analysis of SP Maskiner Case study Type of strategy SP Maskiner Only work with one supplier per component group but also use back up suppliers. This means they use hybrid sourcing and mix both single and multi sourcing. Specialized components Spare part components One main supplier. It is often for this purpose they use multi. To in the end satisfy customer needs. 83

Partnership vs Competitive bidding Global vs local Supply base 150 suppliers. 26 strategic suppliers, these stand for about 80 % of the total cost. Both local and global. 40% of the global suppliers represent spare parts, rest is made from own construction. Global is mostly used when no local solutions is found. Advantage Disadvantage Strategic suppliers local Strategic suppliers global Supply base Hard to separate since the performance of suppliers is individual but contribute to expertise which is not found domestic. Longer lead times and they are a small company where some global suppliers are bigger. The company is dependent on these suppliers but the supplier s production is not dependent on them. These are valued since they allow easy communication and access, which means greater flexibility, support and maintenance as well. Several of their strategic suppliers are globally place since they represent a major part of the spare part. Also since they have a dependency on these to deliver expertise to stay competitive. 90 % has worked with them for several years. Competitive bidding Changing supplier How? Supplier evaluation factors Partnership Product development They use competitive bidding since they search for own ways to more effectively produce component. They also put supplier s offers against one another, especially in the development phase by making a request of quotation. The end decision is based on cost cutting to lower the customer price. If a supplier can t live up to the purchaser s demands they will search for new. Evaluation process of suppliers occurs in smaller meetings. The goal is not to renew the supply base but to evaluate the current suppliers performance. High-tech technologies and expertise, technical services, cost reductions, quality and delivery reliability, lead time precision and constant feedback. The competitive bidding became more apparent than the partnership aspect of the buyer-supplier relationship. The strategic suppliers were connected to the total cost of the components purchased and the bottom line was that the company is the customer and the supplier is the provider. During the development phase, where collaboration seems to be most used, the company s approach was competitive bidding Collaboration occurs during development and dealing with new components, the company explains their specifications to the suppliers. 84

Information technology Components development Order fulfillment process computerized Technology is a vital part for the products success on the market. The product ranges is however divided into two tracks. One where technology is more vital and one where cost reduction is more important. Yes. Enter data in the ERP system, send through e-mail, enter replies in the ERP system. When places in the system, all employees can see the order. Order planning comes from customer demand. ERP system Monitor. Integrated in the organization, but not for the whole concern. ERP system integrated with suppliers Communication E-commerce E-procurement Suppliers manage inventory No. Preconception: it is not relevant to integrate with the suppliers because few product groups, low volume, small flow so it would put too much demand on the suppliers, no insight in the suppliers organizations and they do the orders in the ERP system and them e-mail them. Electronic communication through e-mail. Yes No No 5.4.2 Strategic sourcing 5.4.2.1 Single vs multi SP Maskiner only works with one supplier for each component group but use back up suppliers. This means they use hybrid sourcing (Faes and Matthyssens, 2009). Not using the main supplier will increase the cost since multi sourcing often comes with higher costs according to Van Weele, (2010). The critical components has only single source, these are often seen as strategic suppliers (Handfield et al. 2009). 5.4.2.2 Global vs local According to Handfield et al. (2009) one definition of strategic supplier is if they represent a high share of the cost price. About 26 suppliers represent about 80 % of the total cost, which means they are strategic suppliers. About 40% of the global supplier s accounts for spare parts, the rest is made from own construction. In cases where local supplier can t perform according to demands the buyers competitiveness is enchanted by using global sourcing because Kotabe and Murray, (2004) identified that global suppliers may contribute to expertise that is not found domestic. It could be concluded that many of their strategic 85

suppliers are globally place since they stand for a major part of the spare part and they have a dependency on these to deliver expertise to stay competitive. It was clear that local suppliers are valued because of the same reasons why global is seen as a disadvantage. Local sourcing can provide easy communication and access, which means greater flexibility, support and maintenance (Van Weele, 2010). 5.4.2.3 Partnership vs competitive bidding Factors that are valued in a supplier are evaluated if a supplier don t meet the demands. The first approach is to find the problem and solve it. 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. Findings from the gathered empirical is that SP Maskiner is not focused on supplier development as a tool to enhance supplier performance but rather keep track on them. Competitive bidding became more apparent than the partnership aspect of the buyer-supplier relationship. Strategic suppliers were connected to the total cost of the goods purchased and the bottom line was that the company is the customer and the supplier is the provider. These factors are not in line with the partnership thinking of integration and collaboration (Lawsona et al. 2007; Handfield et al. 2009). Even during the development phase, where collaboration seems to be most used, the company s approach was competitive bidding. The product ranges is however divided into two tracks. One were technology is more vital and the other were cost reduction is more important. This demands different types of alliances with suppliers to generate the wanted advantages According to Jonsson, (2005) there are common advantages to be gained from an alliance partnership. 5.4.3 Information technology The ERP system is integrated, but not with the whole concern. Stump and Sriram (1997) sated that the use of internally integrated ERP improves the operational efficiency in the purchasing department. Suppliers are not integrated with the motivation that it is not relevant to integrate suppliers because of few product groups, low volume, small flow, it would put too much demand on the suppliers. It also means they have no insight in the supplier s organizations. Much like the other cases, they do use e-commerce in its most basic form by the use of e- 86

mail. E-mail is considered the easy communication tool where orders are replied. Ones the orders are in the system, all employees can access it. Neither e- procurement nor supplier controlled inventory is used for the same reason. SP Maskiners material flow is too small for it to be effective. 5.5 Individual analysis for Swepac 5.5.1 Strategic purchasing The purchasing manager sees the core objective of strategy as fulfilling the budget, but in the same time it is somewhat connected to the corporate strategy. The core can be seen as an activity and a aim for the purchasing manager. It indicate to a tactical thinking of the purchasing strategy since the budget is a activity that effect the everyday work (Giunipero et al. 2006) and that it is a part of the corporate strategy. Also it is a factor that effect and in some extent dictates the processes of purchasing. After the budget is finalized they make a production plan which is on the tactical level of coordinating the purchasing activities (Van Weele, 2010). The production plan becomes the base for the operational activities (Pressey et al. 2007). Purchasing issues and decisions is also influenced by the corporate strategy on a strategic level (Sánchez-Rodríguez, 2009). This means that the company work in all levels with purchasing but focus is on the tactical level. A part of the corporate strategy is to not produce components or parts in-house but to purchase all components from suppliers. That generates a special purchasing situation, where the company becomes dependent on functional and close relationship with suppliers to rely on the delivery and quality ability required from the company (Giunipero et al. 2006). When it comes to larger purchasing issues and internal collaboration the manager is influenced by other departments on the same organizational level, especially marketing, construction and department responsible for technology. Purchasing and construction departments are especially dependent on each other and need close collaboration. Similar to another company, the purchasing department shows a first step for implementing strategic approach with team-building (Giunipero et al. 2006). The CEO has the final say in major purchasing decisions, issues or changes. The collaboration is due to the bottom line of the product outcome which refers to how good the components quality is. According Pressey et 87

Partnership vs Competitive bidding Global vs local Single vs multi al. (2007) the aspects of quality improvement are on an operational level and the bottom line of the collaboration with construction is to enhance the quality of the product outcome. The product sales are seasonal, which mean that the company in high extent needs to rely on their production plan to meet delivery deadline and order the components in time. Since the sales is seasonal the production plan also need to be somewhat flexible when it comes to order volume (Pressey et al. 2007; Sánchez-Rodríguez, 2009). Which effect the communication and relationship the company choose to have with their suppliers. Table 5.5 Analysis of Swepac Case study Type of strategy Swepac Two vital parts of components has four main strategic suppliers meaning they use mostly multi sourcing. Specialized components Supplier size Supply base They buy components from suppliers which are dependent on drawings and they separate these from suppliers that provide standard components. There is no special attention to the supplier s size and the effects. It could be because they tend to use competitive bidding and multi sourcing. The supply base consists of 100 suppliers and 20 strategic suppliers. A specific strategy for choosing the supply base. Both local and global, but majority is local and placed within an area of 200-250 km. Advantage Disadvantage Strategic suppliers local Strategic suppliers global Supply base Often they use distributers for global suppliers located in Asia. Another advantage that needs to be guaranteed is that the cost is less. Longer lead times and ensure quality is harder. Build relationship with suppliers that were located mostly in Sweden and Europe. These are used when it comes to cost cutting, as long as it does not compromise the quality and lives up to the demands. The objective both in theory and in practice for the company is to work with the suppliers during a long time period to gain advantages. Competitive bidding Changing supplier Their approach to suppliers shows a more competitive bidding sourcing than partnership aims. When searching for new suppliers they explore the supply market and 88

Information technology How? Supplier evaluation factors Partnership Product development the supplier s conditions. Evaluation process of suppliers occur based on their sample deliveries and offers. Also how they have evolved and how their current condition is. It indicates no effort of supplier development. The demand suppliers must meet is quality, delivery reliability, demand on technical development and environmental aspects. Their 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. Most collaboration is preferred to be limited to product development, meaning they don t work with partnership sourcing in an integrated manner. The suppliers are experts in their field and they have better opportunities to develop more optimal component solutions. Order fulfillment process computerized Yes. Enter data in the ERP system, send through e-mail with an attached PDF-file. Have provisional order, with longer foresight before it becomes permanent. Negative aspects with order planning is the need to occur timely and may be hampered by economy. ERP system ERP system integrated with suppliers Communication E-commerce E-procurement Suppliers manage inventory Pyramid which is the heart of the company. No. Due to the small organization IT services, such as e-mail and one meeting yearly, or if needed. No paper-based information, only electronically and it can increase the supplier involvement in product design and development. Yes No No 5.5.2 Strategic sourcing 5.5.2.1 Single vs multi Focus was on two vital parts of components which has four main suppliers, which means that for their critical components they use multi sourcing. This is contradicting to what Faes and Matthyssens, (2009); Handfield et al. (2009) stated about critical components, Swepac should have single sourcing and strategic suppliers. For the company strategic supplier and critical product means they buy components from suppliers that are dependent on drawings and then separate these from suppliers that provide standard components. There is no special attention 89

to supplier s size or their effects on the company in that context. It could be because they tend to use competitive bidding and multi sourcing which leads to less dependency for the buyer. 5.5.2.2 Global vs local They often use distributes for global suppliers located in Asia minimizing disadvantages of global sourcing. Some of these disadvantage defined by Kotabe and Murray, (2004) are rapidly changing political circumstances that can affect relationship with the suppliers and local environmental effects which makes the need for flexibility greater, difference in culture, the distribution and logistics is more complicated and increasing handling costs. Usually the sourcing occur local, both in Sweden and Europe and these are the suppliers they build relationships with. Van Weele, (2010) claims that building relationships by using local sourcing means flexibility, support and maintenance. Global strategic suppliers are used when it comes to cost cutting, as long as it does not compromise the quality and lives up to the purchasers demands. Swepac is the case study who produces most amounts of products, which means a higher material flow. It makes the cost aspect of global souring more beneficial and in focus for them. If cost is not a primary competitive driver it can be hard to motivate the choice of sourcing if it is the main gained advantage. 5.5.2.3 Partnership vs competitive bidding Swepac s approach to suppliers shows a more competitive bidding approach to sourcing then partnership objectives. This is mainly because they test their suppliers and use multi sourcing (Jonsson, 2005). The testing is based on supplier s offers to reduce costs and test the suppliers technological conditions since these often change. They also evaluate suppliers after they made sample deliveries and offers and how they have evolved, developed and how their current conditions are in general. There is no real indication of supplier development effort. The demand suppliers must meet is quality, delivery reliability, demand on technical development and environmental aspects. According to Pressey et al. (2007) these measurements are of operational purchasing activities. Partnership can be seen in product development efforts meaning they don t work with partnership sourcing in an integrated manner since it is limited to one area, even though they prefer long-term relationships. The company finds themselves dependent on supplier s to strengthen the competitiveness. The 90

awareness of each other s organizations increases with time and also what the company demands. To reach the aim the company needs to focus more on supplier development and put the relationship thinking into practice. Collaboration in product development is valued because the suppliers are experts in their field and they have better opportunities to develop more optimal component solutions. Using this type of alliance partnership can according to Jonsson, (2005) generate common advantages. Especially performance advantages from both buyer and supplier. 5.5.3 Information technology The ERP system is integrated internally and it is considered the heart of the organization. According to Stump and Sriram, (1997) an internally integrated ERP improves the operational efficiency in the purchasing department. The ERP is not integrated with suppliers and they use e-mail to communicate with external sources. The use of e-mail and suppliers order confirmation makes it possible to manage large amount of orders with many components to large amounts without being a large organization. Swepac don t use e-commerce in the extent to where it generate advantages and benefits strategically. They do not use e- procurement or have suppliers that manage their inventory due to the small material flow. The company considers IT services such as email and yearly meetings as sources of communication with suppliers and these enable easier communication. Dewett and Jones (2001) identified that using electrical communication can be a gateway to increase the supplier involvement in product design and development. 5.6 Cross-case analysis Empirical findings show the apparent factors influencing the SMEs resources, limitations and decision making. Factors such as the SMEs small organizational size, small material flow, the produced product volume is low but the end products are large in size and target a higher price segment. Previous sourcing theory has focused on larger enterprises and according to Tam et al (2007) it could be due to the preconception that smaller enterprises have limited resources which affect their ability to develop strategic sourcing strategies. This theoretical view and the mentioned factors influencing the SMEs was taken under consideration during the analysis. It does not mean that there are not parallels to be drawn from larger enterprises or that the theories of strategic approach to purchasing activities can t contribute to the SMEs development. Tam et al. (2007) further claims that outsourcing can be a contributing activity 91

to enhance competitive advantage, which is especially true for the SMEs since they might not have the ability to cope with all activities themselves. It can create the opportunity for the SMEs to gain the benefits of larger organization by using external capabilities. Jonsson, (2005); Van Weele, (2010) claims that implementation of strategic sourcing can help to gain a proper supply base to meet the organizations and future market demands. 5.6.1 Strategic purchasing Strategic approach to purchasing is not a short-term goal rather a long-term objective of the entire organization (Sánchez-Rodríguez, 2009). Strategies can be a source of competitive advantage if implemented properly and applied by all involved in the same manner (Porter, 1985; Sánchez-Rodríguez, 2009). The SMEs size might even be an advantage in the context of strategy implementation since the strategic goals of a strategy needs to be integrated in all departments and applied by all employees. The overall atmosphere in the organizations seemed to build on communication which makes it easier to implement a common plan. All the SMEs in the case study had a purchasing strategy but on different levels of operational and tactical but there was an overall strategic awareness however not in the practical implementation. Then there were differences in the actual formation and use of these strategies, some were documented strategies and undocumented. Lasermax Roll Systems had an outdated purchasing strategy and Arcoma, Ljungby Maskin, SP Maskiner, Swepac pointed out that they don t use the strategy in the everyday work or that it is not documented. When strategy is not applied in the everyday work of the employees nor documented it fails to serve its purpose since according to Johnson et al. (2008) the aim of a strategy is to work towards long-term goals. Porter, (1996) discussed the importance of strategies for a company's competitiveness. Further Sánchez-Rodríguez, (2009) states that the purchasing strategy and manufacturing strategy should be in line with the overall corporate strategy. However, this did not prove to be true for the companies surveyed in this thesis. SP Maskiner and Swepac were two of five case companies that had integration with the corporate strategy, but at the same time their purchasing strategy was not documented or it was outdated making it difficult to see the possible connections. The SMEs ability to integrate purchasing strategy development with the corporate strategy is the base for their future competitive success. 92

Development of a purchasing strategy with strategic approach can lead to benefits for the SMEs that their current or non-existing strategy might not provide such as meeting long-term goals. Since organization size of the SMEs is small and the road to management is not far it does not necessarily need to be as complicated effort as Willams, (2006) claims it to be when implementing a strategic thinking in the organization, partly due to the close organizational work and flexibility of the SMEs and partly because the theory s often sees the strategic implementation from a large enterprises perspective. All of the five case studies have the base for developing a strategic purchasing strategy since they have the operational and tactical thinking which is needed to develop a strategic level according to Sánchez-Rodríguez, (2009). In formulating the strategic purchasing strategy there are some key skills that Giunipero et al. (2006) defined which can be a useful frame. First are communication skills through team building and joint decision making; CEO has a role in the purchasing department s activities, even though it is not a significant role in the everyday work. It was found that departments or subsidiaries on the same organizational level had the most influence on purchasing decisions. These are the ones that should be strategically integrated in the purchasing strategy and where joint decision making should take place, both short- and long-term. Another skill needed for a successfully strategic approach is based on the technical skills of the buyer and their sourcing analysis (Giunipero et al. 2006). Van Weele, (2010) identify technology as an aspects to consider in strategic sourcing approach because it is a vital tool for effective communication. The SMEs does not consider technology, in the supplier context, as a part of their purchasing strategy and technologies function is mostly on an operational level. 5.6.2 Strategic sourcing 5.6.2.1 Single vs multi sourcing SMEs supply base contribute to quality and customer satisfaction and is a vital part of the enterprises product success. It is especially true because the SMEs mostly buy components that they later assemble to finished products. All case studies except Swepac have their own component production even though it is not the predominant part. It give more emphasize on sourcing for the suppliers who can provide the best offer and fit for the enterprises demands and standards. The supply base should not be seen as given for the SMEs after it s been established ones because according to Jonsson, (2005) a supply base should be designed for the current business and adapt to both market changes and internal organizational changes. 93

Rebuilding and evaluation the supply base is a function in strategic sourcing which should incorporate other department s needs. The SMEs collaboration focus should lie with marketing, manufacturing and R&D, both internally and inter-organizational. Common for all cases is that they mostly search for new supplier if another fail to meet there demands. For the SMEs to adopt a strategic sourcing approach there is a need to first start to evaluate their current supply base on a deeper level then just their operational performance and how it affect the company. Four of the five SMEs, except for Swepac, clearly use hybrid sourcing based on the definition of Faes and Matthyssens, (2009). They often use one main supplier for a component but have so called back-up suppliers if the main supplier fails to meet delivery time. Using the back-up suppliers tend to lead to higher costs which could depend on other agreements and less order volumes. A positive factor with back-up suppliers is the low risk for high switching costs. It also became apparent that choice of sourcing approach was dependent on the product category and type of component, if it is standardized or custom made. Handfield et al. (2009) connect the type of product to different supplier types and if using single or multi sourcing. Single sourcing was preferred by the SMEs when dealing with critical products that are specialized, custom made, or components that are unique for a specific supplier. The case studies also tend to connect these types of components with strategic suppliers. According to Handfield et al. (2009) these types of suppliers should be seen as a tool to develop competitive advantage. Swepac used multi sourcing in a higher extent and applied it to two critical components. There is however a tendency for hybrid sourcing in some components groups but focus is on multi sourcing. Multi sourcing require more resources and larger volume flows to be an cost effective sourcing strategy (Van Weele, 2010) which large enterprises often hold (Tam et al. 2007). Based on these findings single sourcing could be seen as the stronger alternative for the SMEs. Using single sourcing contributes to reduction in the supply base. The benefits of creating a partnership can help to achieve their purchasing goals and evaluate their supply base, before adopting a strategic thinking into the everyday work of purchasing employees. With fewer suppliers to manage, time and resources can be put on other activities of purchasing collaboration like relationship and quality management. Due to the small material 94

flows they might also benefit from reducing the supply base. If there are sources that can provide different components but from the same source it could increase the ordered volume. Order in advance contributes to enhanced effectiveness (Stump and Sriram, 1997) and utilizing technology collaboration on both a strategic and operational level. Becoming a larger part of the suppliers production means becoming a strategic customer. According to Porter, (1985); Renko et al. (2011) considering the bargaining power of suppliers it is important since it effect the competitive positions on markets. All cases agreed that being a small part of a larger supplier s production contributes to problems and made it difficult to be a strategic buyer. Dependency is one of the disadvantages with single sourcing but not in multi sourcing (Van Weele, 2010). Multi sourcing allow the SMEs more flexibility and less dependency on one supplier which might help their production flow to run smoothly by less interruptions, defend against price increases and it makes it more easy to change supplier if the current don t meet the demands (Gadde and Håkansson, 2001). On the other hand, these aspects can be seen as short-term objectives rather than long-term advantages. 5.6.2.2 Global vs local Depending on product and supply market there is a need to distinguish which activities to source global and which to source locally (Van Weele, 2010). All cases used both global and local sourcing, in different extent. Local sourcing was most preferred of the two strategies. Global sourcing is an aspect that is much investigated from larger enterprises perspective and according to Tam et al. (2007) larger enterprises also tends to gravitate towards global sourcing more than SMEs. The investigated SMEs perceived global sourcing as resource demanding and effective when dealing with larger material flows. One of the advantages of global sourcing is cost cutting (Handfield et al. 2009; Van Weele, 2010) but it is not the objective of the SMEs for using global sourcing. Their focus for global sourcing is on gaining expertise and knowledge from new markets and gain competitive advantage by differentiating themselves. This objective is in line with strategic thinking of global sourcing. Still local sourcing or domestic sourcing was most applied, especially with the strategic suppliers. It is an approach that can facilitate the relationship with these suppliers in the future (Sánchez-Rodríguez, 2009). The domestic suppliers are located in a close distance which enables better communication, flexibility and decrease lead time. Because of 95

the changing markets the SMEs strive to be flexible in order and material flow, making local sourcing beneficial for them. If the focus would be on making prognoses or orders in advance they might find other advantages through sourcing outside their comfort zone. By streamlining the orders and logistics they will have more time to focus on collaboration with strategic suppliers no matter where they are located. Lead time was the major disadvantage with global sourcing that all the SMEs agreed on, since the lead time is longer with global sourcing and is a smaller problem with local sourcing. On time delivery is vital since they operate in markets where demand is constantly changing. Local sourcing provides the advantage of flexibility which gives competitive advantage through the ability of fast adoption to changing market demands (Van Weele, 2010). 5.6.2.3 Partnership vs competitive bidding Partnership and competitive bidding was hard to determine. In the theoretical meaning the two are separated in a distinct way (Jonsson, 2005; Van Weele, 2010). None of the investigated SMEs used either partnership or competitive bidding. The SMEs purchasing strategy is in some cases not connected to their partnership philosophy. Most of them pointed out the important of long-term relationships but from the analysis and gathered empirical data their actions did not justify for a partnership approach. Managers involvement in partnership development and their aims from the partnership is determining of the strategic level of partnership. Further the SMEs objectives will also determine what competitive advantages that possibly can be gained. Defining a sourcing strategy would benefit the SMEs both by evaluating current suppliers and potentially new suppliers. A strategy would define the buyer s objectives, goals or strategies to compare them with current or new supplier s objectives, goals or strategies (Paulraj et al. 2006). This can give positive impact on the SMEs. It helps to make the buyer-supplier relationship more effective by working for the same goals, demands and it contributes to fewer errors in the collaboration and can provide deeper insight in each other s organizations. Supplier attributes most valued by the SMEs are delivery performance, cost reduction, feedback, impact on manufacturing, quality, reclamation, price, and technological service. Most of these actives are on an operational level (Talluri and Narasimhan, 2004; Rendon, 96

2005; Pressey et al. 2007; Handfield et al. 2009). For the SMEs to generate the desired advantages on the market and get suppliers to meet their demands they need to implement more strategic objectives of partnership sourcing. For example with quality management and not only work with quality on an operational level and develop relational strategies to become a strategic alliance to foster common advantages. Considering the factors of the SMEs as mentioned earlier, a source of competitive advantage for these SMEs is effective relationships in the sense of less face-to-face interaction and communication (Jonsson, 2005). After a while the partnership lead to dependency from both ends where the supplier can become almost as a part of the own organization. Where expertise and knowledge is put together and create a strong strategic alliance allowing the SMEs the same conditions as larger enterprises, and the ability to reach new markets without the worrying implications which the SMEs mentioned earlier. Achieving this type of relationship could also counter the disadvantage of single sourcing defined by Faes and Matthyssens, (2009) such as supplier dependency when using single sourcing, even though it is a long process before the benefits are visible. Accoring to Tam et al. (2007) it is a step by step process of how a relationship develops and becomes a network organization. Considering the overall collaboration the SMEs have with their suppliers in product development, which is beneficial but only short-term goals and integration, and that most have had many of the suppliers for a long time, show that they are somewhere between repeated transactions and long-term relationship level. Even if most of the SMEs were convinced of the importance of developing buyer-supplier relationships in the future there was little trace of effort towards long-term collaboration. SMEs could gain the resources they lack in the future by develop a network organization. Considering their current positions and conditions it is not an unrealistic goal. The process of achieving network organization could be implemented by fist examining the criteria that SMEs have now and what they realistically can implement to archive the goal. Williams, (2006) made the conclusion that supplier performance is important for manufacturing enterprises since they are a vital source of competitive advantage. This is especially true when investigating the SMEs and their product categories. Technology is a vital competitive advantage and criteria valued in suppliers, making the buyers involvement in the supplier development and performance even greater. Krause and Ellram, (1997) define 97

supplier development as any effort from the buying company to increase supplier performance and/or capabilities. Single sourcing can enhance the source loyalty and partnership and utilize the supplier development advantages of knowledge exchange, joint resources, improved communication, joint problem solving and risk-sharing. In the context supplier development can be seen as a strategic part of the final step to for the SMEs to reach strategic sourcing, because the aim for suppliers meet the buying enterprises long-term needs. 5.6.3 Information technology Except for the analyzed issues above, there are some more aspects to consider in the sourcing strategy. According to several studies technology is one of these issues (Rendon, 2005; Rawlinson and Howie, 2007; Van Weele, 2010). These issues needs to be fulfilled in the strategy to gain the wanted advantages of sourcing. Since the SMEs don t have any long-term goals for how to develop communication with their suppliers in the future or have IT as an integrated strategic plan in the overall corporate strategy the sum is that they don t have a IT strategy for sourcing or supplier communication. The absence of a developed or documented purchasing strategy could be linked to the view of IT in supplier context. By having a clear IT strategy for purchasing activities it may give directions for the needed investment in the future to improve the operational contact and communication with suppliers. González-Benito, (2007) stated that all enterprises need to develop and search for new technologies. But due to their organizational capabilities and resources the SMEs cannot invest in expensive IT solutions. Handfield et al. (2009); Monczka et al. (2009); Tambovcevs, (2011) define ERP as a system that integrate both external and internal parts of an organization. Integration of ERP systems with external sources can be a long process that demands resources. All the SMEs rely on ERP system for internal integration of departments and for communication and sharing of information that is stored in the ERP system. The ERP systems is not integrated with the suppliers because of the SMEs organizational size and resources which are too small, or because the strategic suppliers uses a system that is not easy or affordable to connect with. Arcoma tried to integrate the suppliers some years ago and Lasermax Roll Systems evaluated the possibilities a couple of years ago, but it did not succeed because of the hard implementation phase. For SMEs it could be more vital to explore new technology that require less resources but that can contribute to more effective communication and integration of suppliers, both on an operational level and strategic level. 98

The main use of the Internet based interaction with suppliers is through order e-mails. Only Ljungby Maskin attached a XML-file containing data from their ERP system in their e-mail orders and received responses from the suppliers that use the same ERP systems or were able to interact with their ERP systems. All investigated SMEs use e-commerce and share information through Internet in a higher distinct than what they have connected with their purchasing strategy on a strategic level. All SMEs use e-commerce with suppliers, through communication of orders, purchases and drawings with help of Internet. Sending information, order plans and orders through e-mail is the most common means of communication (Jonsson, 2004). E-commerce can be much more than an operational tool for transactions (Walker and Rowlinson, 2008). By using e- commerce SMEs can share business information with suppliers and facilitate the partnership implementation. E-commerce can create an integrated system with suppliers based on SMEs own terms, conditions and resources. Lack of contact with global suppliers and lead time was the two main negative factors of global sourcing. Use of Internet could be a fast way to communicate with global suppliers in a more effective way. It can provide a deeper collaboration around product and supplier development which gives a competitive advantage through deeper insight in new markets. The use of Internet communication contributes to stronger collaboration with their strategic suppliers that often was local. In the partnership strategy e-commerce allow easy communication with their strategic suppliers. Even if e-procurement intends to support the purchasing process (Van Weele, 2010) none of the case studies use e-procurement and the reason is their small flow and their current handling of their suppliers. The small order volumes means higher costs when purchasing components by the use of e-procurement since e-procurement is cost cutting when the orders and communication is streamlined (Giunipero et al. 2006). 99

6. CONCLUSIONS AND IMPLICATION This chapters outline conclusions based upon the key findings from the previous chapters and answers the research questions. Followed by limitations during the investigation and suggestions of possible future research that can be conducted in the field of Strategic sourcing. 6.1 Conclusions 6.1.1 RQ1: What is the current sourcing plan in SMEs purchasing department? Strategic purchasing First conclusion about the current sourcing plan of SMEs is that the investigated SMEs lacked an implemented, documented or developed strategic purchasing strategy. It is also the main issue of the sourcing plan since it is an integrated part of the overall purchasing strategy. Because of limited resources SMEs goals are fairly short-term and profit-oriented. Strategic Sourcing Hybrid sourcing was the most common approach use to manage the supply base. Hybrid strategy provide both advantages of single and multi sourcing such as less dependency on suppliers but at the same time developed partnership with strategic suppliers (Faes and Matthyssens, 2009). However the hybrid strategy could be developed and focused at strategically selecting suppliers and components that require multi and single sourcing. One of the main functions of strategic sourcing is rebuilding and evaluating the supply base. The supply base is especially vital for SMEs since they have much to gain from external expertise and knowledge, that they don t have the capacity, resources and knowledge to focus on themselves. All investigated SMEs use both local and global sourcing. The most common reason for global sourcing is not cost cutting but gaining deeper insight to new markets and access to new and developed technology. Local sourcing was most preferred because of the flexibility and where strategic suppliers are preferably located. The conclusion of the analysis is that none of the SMEs use a clear partnership or competitive bidding sourcing approach. They do value relationships and use competitive bidding to certain 100

extent when searching for new suppliers. Further it could be concluded that purchasing is seen only from an operational perspective in the SMEs and not a central part of the organizational structure. Evaluation of suppliers could be a strategic activity, depending on the purpose. During evaluation focus was on what suppliers did wrong and the reason for changing supplier was due to failure to live up to buyers demands. The determining of the strategic level of partnership can be viewed from purchasing managers perspective; their goals, strategy's and objectives will also determine what competitive advantages that possibly can be gained. Supplier attributes valued by SMEs are; delivery performance, cost reduction, feedback, impact on manufacturing, quality, reclamation, price, and technological service. Most of these actives are seen on an operational or tactical purchasing level. Information technology There is no developed IT strategy, which is in line with an undeveloped purchasing strategy. All investigated SMEs used ERP system, even if it is considered resource demanding. The ERP systems are integrated in the organizations and are seen as a central part in the purchasing departments. Internet is the most electronic tool in interaction with suppliers. The SMEs limited resources make it impossible to invest in extensive technical IT solutions in corporation with suppliers. E-commerce is used mainly through e- mail and is not used to its full potential that it can with today s technology. If implemented correct it could mean less resources needed for the order and communication with suppliers, by streamlining much of the manual work currently used. 6.1.2 RQ2: What are SMEs possible solutions for strategic sourcing? Strategic purchasing First step of implementing strategic sourcing is to develop a structured purchasing strategy on a management level based on their operational and tactical strategies. Incorporate it in the overall corporate strategy and implement the strategy within those departments and employees working on operational level with purchasing. IT is proven by theory to be a source of competitive advantage if implemented correctly. Incorporate IT in the purchasing strategy, both on the operational level of orders and inventory and on a strategic level such as communication, information sharing, management and collaboration purposes. By developing a purchasing strategy the company can integrate the strategic purchasing approach in all 101

departments and human resources allowing the organization to work towards the same goals, both long- and short-term Strategic sourcing A possible solution to ensure a competitive strong supply base is making the evaluation an ongoing project instead of a time to time event, as it currently was for most of the SMEs. The criteria for evaluation should also be based on strategic activities, just as much as it is for operational activities to ensure competitive advantage. Strategic activities are such as; quality management, capability evaluation, supplier development, relationship management and technology evaluation. The supply base is a function in strategic sourcing which should incorporate other department s needs as well. The negative aspects of global sourcing was more pushing than local sourcing and lead time was the main aspect all SMEs discussed. Single sourcing in combination with global sourcing might allow them to order higher volume from global suppliers. The effort will involve management since reducing the supply base affect many in the organization and could mean a long process. From a perspective of strategic sourcing it could be said that their local sourcing plan is strategic since is allows communication, easy management and most of the strategic suppliers are local. However the close distance, long-term relationship and flexibility could be used for more purpose than cost cutting, shorter lead time and easy access to be strategic in the objectives. It is with these suppliers where critical components and strategic suppliers can become a part of a stronger partnership. In considering what approach to develop in the purchasing and sourcing strategy one could be development of partnership since the focus is already on long-term relationships. Partnership can make suppliers become a part of the internal processes. To compete with Larger Enterpirces, SMEs have to develop cooperative partnership with their suppliers, especially strategic suppliers. Adopting sourcing strategies in a more cooperative manner is a necessity. It is not only suppliers that can be integrated. Even if purchasing department in all SMEs have collaboration with other departments, a stronger integration can be made with production, R&D, marketing and incorporating suppliers in the organization on a strategic management level. A possible solution for the supplier errors is to work towards supplier development efforts to enhance competitiveness. Higher focus should be on enhancing supplies capabilities 102

and long-term quality output. This is accomplished by thinking and applying strategic focus in the decision making and evaluation. It cannot be denied that the operational values generated by purchasing are vital for a company. The use of strategic sourcing and supplier development can enhance the operational aspects with strategic objectives of partnership. Information technology First of all IT has to be implemented in the sourcing strategy and clear objectives need to be stated. The objectives should describe the demanded functions and long-term goals of a technology implementation in purchasing. Technology is an important part of strategic sourcing plan and needs to be incorporated in the decision making of sourcing. Resources are limited when it comes to information technology and SMEs and strategic used e-commerce could provide features an ERP is too expensive to provide. 6.1.3 RQ3: How can strategic sourcing help to increase competitive advantages for SMEs? Strategic purchasing Competitive advantage is strengthen by development of strategy that shift SMEs from an operational and tactical level to a strategic level of purchasing management. Development of a purchasing strategy incorporates sourcing planning. If the sourcing plan is made with objectives, goals and values it will give a clearer view of suppliers that fit the company and their market demands making the supply base competitive stronger. Implementing IT in the purchasing strategy provides a tool for the purchasing function to reach the strategies, objectives and improve performance. It can both utilize and enhance the operational level of the strategy and the inter-organizational communications and processes leading to enhanced operational performance. The strategic focus should lie in value analyses, foster closer relationships with strategic suppliers and constant work with supply base. Strategic sourcing Competitive advantages that might be gained from evaluation and reduction of supply base is adoption to market and internal organizational changes to keep or gain competitiveness through development and growth. By using single sourcing for global suppliers and focus more orders on one supplier, SMEs can still get the wanted expertise from other markets but also gain cost cutting. Another advantage is closer relationship with suppliers located 103

globally, enabling easier communication and relationship management. Negotiating contracts with the local suppliers can lead to benefits for SMEs. Contract manufacturing can be an area for manufacturing SMEs to consider for improving business performance, business operations and to help build partnerships with suppliers. Main competitive advantages generated for SMEs by a partnership approach is joint resources and network sourcing, sharing of problems and faster technological development. Strategic partnership influence the operational performance in a positive way; valuables such as cost, delivery performance, transaction and quality. Suppliers should be regarded as a competitive advantage from an inter-organizational perspective and a part of the SMEs network to gain access to new markets, resources and strengthen the overall competitive position of the company. Working with supplier development for SMEs means advantages through capability development. Collaborative relationships with external parties are a source of innovation and differentiation on markets. Supplier development and strategic sourcing plan can enhance operational performance and management control is achieved. Information technology Use of Internet in strategic sourcing may generate advantages by joint resources, insight in supplier s organization and make the implementation of network sourcing effective, saving resources. Using a common database or communication channel allow the buyer and supplier to have a more streamlined collaboration, where less human resources is needed for both operational and strategic interaction. The process is long and implementation in the organization can cost more than the use of the technology, that is why long-term goal has to be defined, to make sure that the wanted advantages is fulfilled. 6.1.4 Summary of conclusions The conclusions are based on theoretical assumptions where SMEs can gain competitive advantages by implementing a strategic thinking in the organization. The applied theory is not as simple and uncomplicated in reality. The process of implementing strategic purchasing is long and a constant project that preferably has to penetrate the whole organization, especially management level. The process of implementing a strategic plan for SMEs can be seen as relatively difficult, due to the limiting factors mentioned before. The theories are more appropriate for larger enterprises but there are some aspects of the strategic sourcing which 104

SMEs can apply to enhance their competitiveness. Information technology is one of these aspects. It has long been considered an area where SMEs can t develop since they lack the resources but technology is constantly under development, because of it there are more realistic options for SMEs to adopt to their sourcing plan and an area where managers should follow the market changes. 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. 6.2 Managerial Implications Based on the analysis, conclusions and current status of the SMEs, the following steps are the realistic recommendations for the SMEs to begin pursuing strategic sourcing: Develop a purchasing strategy, with manager s involvement, and that all employees have access and knowledge of. It should contain of both long- and short-term goals for purchasing. Connect the IT strategy to both purchasing strategy and competitive strategy. Develop the hybrid strategy in the overall purchasing strategy to utilize the common advantages of both multi and single sourcing. Conduct a deep evaluation of the supply base, based on suppliers strategic activities and how these can improve the operational performance. Develop a closer partnership with strategic suppliers and evolve and integrate suppliers in the internal network organization. Technology that can be used is video enabling technologies to increase partnership between buyer and suppliers. Investigate the possibilities of how E-commerce can help in information sharing and easier communication with global suppliers, especially the global suppliers SMEs are dependent on. IT should support the operational everyday work to fulfill the goal-setting of the strategic sourcing plans and partnership management. Investigate new technologies, such as e-commerce, that might fit your organizations purchasing needs. 105

6.3 Academic Implications Most theory about strategic sourcing is adapted to large enterprises point of view, leading to a more critical analysis in this thesis of the claimed advantages. All theory's demand resources and are long-term processes if implemented. This means that not all the steps and possible advantages with strategic approach are realistic for SMEs to achieve. The research confirmed that changes in the purchasing strategy takes place irregularly and in different directions and managers can developed better means to plan the moves. The study has a deductive approach, meaning that the purpose is to test the current theory to reject or confirm it. The gathered empirical and theory was connected and discussed in an analysis where a suitable method was chosen to find errors in sourcing of SMEs. The analysis resulted in a strengthen of the gathered theory by the study. Thus, theoretical contributions were to demonstrate the use of strategic approach for SMEs when striving for stronger competitiveness. 6.4 Limitations The main constraint was time limitation and resource limitations for the research, only SMEs in Kronobergslän was used in the investigation. Another limitation in the research was the qualitative approach. Multiple case studies were performed meaning data was only conducted from five case companies within the area. SMEs in Ljungby tended to show similar approaches and use suppliers in the local area, perhaps in a higher distinct than SMEs in the rest of Sweden who don t have the same industrial market close located. Suppliers and product categorys are indivuduall in their performance and needs. Making it a obstacle when generalizing theories to the entire supply base. There were common features detected but by going deeper into each product category might revil other aspects. 6.5 Suggestions for future research Further research can be conducted from a broader geographic range of SMEs both within Sweden and other countries, since SMEs in Kronobergslän showed a clear preferable local tendency that might not appear with a broader sampling frame. Market research can be a larger part of the investigation, where customer preference and the SMEs ability to grasp market conditions and demands, is a factor. The lack of developed purchasing strategy can 106

become a main focus for future research and to find the reasons behind the attitudes of strategy development in SMEs. Deeper investigation and focus could lie on the strategic advantages gained with hybrid sourcing for SMEs. Higher emphasize on the e-commerce possibilities that exist specifically for SMEs and invest the possibility to improve the order planning system within the SMEs organizations together with the interactions with their suppliers. This research was investigated from buyer perspective. Further research can also study the buyer-supplier relationship from supplier perspective and their input on the possible improvements in relationship building with the buyer. Investigate what competitive advantages the supplier can gain from a partnership strategy. The perspective can also be seen from the market and how the market perceives activities in the supply chain. Investigation can focus on customers awareness and demands on activities of purchasing in manufacturing companies, both from a Business to business and Business to consumer. To gain deeper knowledge about SMEs strategic sourcing in manufacturing or service companies future research can focus on specific types of suppliers or product categories. 107

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Andersson, P.O; purchasing manager at Svetruck. 2012. Interview 2012-04-16, 9:30-10:00. Johansson, P; Production manager at Lasermax Roll Systems. 2012. Interview 2012-04-24, 11:00-11:30. Bengtsson H-Å; Purchase manager at Arcoma. 2012. Interview 2012-04-18, 14:30-15:30. Lundin, R; Production planer at Ljungby Maskin. 2012. Interview 2012-04-17, 11:00-11:30. Elwér, K; Purchasing manager at Lasermax Roll Systems. 2012. Interview 2012-04-19, 13:30-14:30. Granath, B; Site manager at SP Maskiner. 2012. Interview 2012-04-19, 11:00-12:00. Mattison, I; Purchasing manager at SP Maskiner. 2012. Interview 2012-04-19, 10:00-10:30. Pettersson, T; Purchasing manager at Ljungby Maskin. 2012. Interview 2012-04- 17, 10:00-11:00. Hellman, T; Spare parts, Swepac. 2012. Interview 2012-04-17, 15:00-15:30. Hvidtfeldt Fransson, R; Purchaser at Arcoma. 2012. Interview 2012-04-18, 15:30-16:30. Setterman, P; Purchasing manager at Swepac. 2012. Interview 2012-04-17, 13:30-14:30. 114

Appendix 1 The strategic triangle Customers Marketing Company Competitive Benchmarking Strategic Sourcing Competitors Suppliers (Van Weele, 2010, p. 189) 115

Appendix 2 Strategic and operational sourcing activities Strategic Sourcing activities Manage relationships with suppliers/ capability evaluation (Talluri and Narasimhan, 2004; Handfield et al. 2009). Negotiate companywide supply contracts (Handfield et al. 2009). Manage critical commodities (Handfield et al. 2009). Highlight quality management, process capabilities, design and development capabilities (Talluri and Narasimhan, 2004; Rendon, 2005). Develop electronic purchasing systems and focus on technology (Handfield et al. 2009; Van Weele, 2010). Operational Activities Mange transactions and performance feedback with suppliers (Handfield et al. 2009). Cost reduction and delivery time (Rendon, 2005; Pressey et al. 2007). Use e-systems to obtain standard or indirect items through catalogs (Handfield et al. 2009). Quality improvement of products and services applied (Talluri and Narasimhan, 2004; Rendon, 2005; Pressey et al. 2007). Source items that is unique to the operating unit (Handfield et al. 2009). 116

Appendix 3 Interview guide 1. Strategic purchasing 1.1 Do you have a purchasing strategy? Yes O No O 1.1.1 If yes, is your purchasing strategy linked to your corporate strategy? Yes O No O 1.2 Does purchasing department participate in the development of company s corporate decisions/goals/corporate strategy/competitive strategy? 1.3 How is the company s purchasing organization structured? Is it centralized or decentralized? 1.4 Who in the corporate hierarchy is most influential with regard to purchasing department decisions? 1.5 What are the core objectives/capabilities of purchasing department? 1.6 What are the company s core objectives and strong competitive points? 2. Strategic sourcing 2.1. Are suppliers many or just one? How many suppliers do you have? (Not sub-contractors) 2.2.1 Why does the company choose single/multi sourcing? 2.2.2 Does the company have several suppliers for each product/each component? 2.2 How do you select your suppliers? 2.1.1 Are your supplier s global/local (domestic) or both? 2.1.2 What is the reason for choosing a global/local (domestic) supplier? 2.1.3 Does it apply for all supplier or just a few? 2.3 When selecting and evaluating suppliers, how do you proceed? (Partnership vs competitive bidding) 2.3.1 Are the suppliers viewed as operational assets or are they a part of the internal organization? 2.3.2What does relationships with suppliers mean to you? 2.3.3 What do you value in terms of; quality, cost, delivery, capabilities, flexibility etc.? 2.3.4 How important is supplier s attribute/goals/values in the decision making? 2.3.5 How long has the company worked with current suppliers? 2.3.6 Is your goal to search for new suppliers? 2.3.6.1 If yes, explain the reason for searching for new suppliers. 2.3.7 Is it important that you have a collaborative relationship with your suppliers? Yes O No O 2.3.8 Is the supplier performance measured in terms of its contributions to the company s success? 2.3.9 Depending if the company use competitive or partnership sourcing, explain how that affects the contract terms and conditions. 117

3. IT and competitiveness 3.1 Competitive adtages 3.1.1 What are the company s customer s priorities and what needs is purchasing responsible for fulfilling? 3.1.2 What are the competitive advantages that the purchasing department focuses on? 3.1.3 Do you consider IT strategy as a competitive strategy? Yes O No O 3.2 IT 3.2.1 Is your order fulfillment process computerized? Yes O No O 3.2.2 What information does the company share with the suppliers? 3.2.3 What is the IT function for purchasing in the company? (Example fax, integrated ERP systems, Internet, web-based applications, etc) 3.2.4 Does your company use e-commerce? Yes O No O 3.2.4.1 If yes, is your purchasing and payment system linked to your supplier s computer bases and are transactions done electronically? Yes O No O 3.2.4.2 If yes, do you consider this a competitive advantage? Yes O No O 3.2.5 Do you require your suppliers to synchronize their IT system with yours? Yes O No O 3.2.5.1 If yes, how much access do you allow for supplier to have in your system? 3.2.5.2 If yes, have you lost suppliers because they did not want to synchronize their IT system with yours? Yes O No O 3.2.6 Do you have an ERP system? Yes O No O 3.2.6.1 If no, how do you interact with your suppliers? Please explain (for example, do you use any integrated system) 3.2.7 Do the company use e-procurement? Yes O No O 3.2.7.1 If yes, do you consider it to be a competitive necessity? Yes O No O 3.2.8 Does your supplier manage your inventory for you? Yes O No O? 118

Appendix 4 Summary of interview with pretesting company; Svetruck 1. Strategic purchasing Svetruck don t have a written purchasing strategy, but their activities are connected to the corporate strategy. The goal is to use suppliers that are well known and knowledgably about the business. Svetruck produces most of their component in-house and therefore buy mostly raw material. It makes R&D department smaller. The most important attributes of suppliers are the ability to offer high availability on components and high quality to create robust products. Their R&D department does not search for new suppliers, only when there is a need for development. It is the purchasing manager that takes purchasing decision and has the authority to take purchasing decisions regarding high amount of money or high refinement. For strategic decisions concerning changing brand for the engine, product development or larger decision the CEO would be involved. The purchasing department collaborates with R&D, construction and production department (Andersson, 2012). 2. Strategic sourcing 2.1 Single vs multi Svetruck have around 400 active suppliers that used the last three years. They have different sorts of suppliers. Since the company mostly buy raw material they have several suppliers for the same material, such as steel because of the need to reduces cost. In those cases it is the daily rates and availability that determine. For standard components they have taken a strategic business decision to only use one supplier for each component or a specific brand. They use for example only one supplier for gear box and two for the engines. Reason to strategically choose one brand and one component is due to the market conditions (Andersson, 2012). 2.2 Global vs local Most of their suppliers are places in Sweden and Europe. They do however have suppliers in Asia as well. Those are old supplier s which Svetruck have built long lasting relationship with and from where offers components to older products. The negative aspect with global sourcing is long lead time and that it takes long time to secure the process and that the componentmeet demanded quality (Andersson, 2012). 119

2.3 Partnership vs competitive bidding Relationship is an important factor for Svetruck and something that they nurture. The purchasing manager mentioned the importance in supplier s knowledge about Svetruck organization, culture and way of working. An discussion were held about the specific location in Ljungby area, with several manufacturing companies is located close. The purchasing manager also mentioned that several smaller suppliers in the local area are proud of being suppliers for Svetruck. They change suppliers when a relationship does not function or when they are forced to choose new suppliers for other reasons. The company collaborates with suppliers in product development and mainly with existing suppliers. Product development and collaboration with suppliers occur when there is a specific demand from customers (Andersson, 2012). 3. Information technology Svetruck use the ERP system Monitor, which were installed 2 may 2011 and are still being implemented in the organization. The system is not integrated with the suppliers and they do not use any EDI transaction. Suppliers also using Monitor have a special attached file that is synchronized through the system. Order transactions go via e-mail. Other communication with suppliers is made with e-mail, telephone meetings and face-to-face meetings. In most cases it is the supplier visiting Svetruck and not the other way around. In the future the purchasing manager believe on an increased use of vide meeting, instead of face-to-face meeting and they do also develop material handler system for production planning. It will make the internally planning easier and will enable contact and the capacity for suppliers to take part in the planning (Andersson, 2012). Few suppliers manage the inventory for components in production. In those cases it is global suppliers from Asia offer components that are used in production. The reason for this arrangement is due to the differences in the consumption (Andersson, 2012). 120

Appendix 5 Additional background about Arcoma Arcoma develop their products and the technology by desire, creativity and the will to change. On their official homepage they call themselves an unusual company and they highlight an familiar atmosphere, were employees feel high responsibility with an collective goal and work environment with high speed. The company wants to encourage innovative thinking and have employees with knowledge about the whole organization to be able to change work position inside the company. This is something that they want to imbue even on a management level (Arcoma, 2012). 121

Appendix 6 Additional background about Lasermax Roll Systems Lasermax Roll Systems focus is to offer an array of innovative products, which has lead to over 80 patents during the years of development. Since the beginning of 1984 has the company installed 8,000 systems worldwide, in around 50 countries and different markets for both commercial printers, digital print providers, direct mailers, education, finance, government, insurance, and telecommunications (Lasermax Roll Systems, 2012). The company need to develop their products to make them compatible with today s advanced technology and to be meet the customers printing needs (Elwér, 2012). They have distributors selling their products in around 15 countries and has partnership with mostly leading industry vendors and organizations for example manufacturers of digital printers, inserters, bindery equipment and paper companies (Lasermax Roll Systems, 2012). 122

Appendix 7 Additional background about Ljungby Maskin From the start has the company delivered around 3,000 wheel loaders to their customers (Ljungby Maskin, 2012). In contrast to the competitors they manufactures few amont of machines each year, therefore strives to be best on the market. Since the company is still family owned with their management level deeply involved and close in the daily activities and the CEO; Rune Andersson, is a known symbol for the company (Ljungby Maskin, 2012; Pettersson, 2012). The company strived to developed machines that manage tough jobs and long service-time. The overall company concept is to produce customized machines of superior quality, for optimum productivity, providing the highest levels of safety and comfort for the operator. Ljungby Maskin has concentrated on manufacturing most of the components in-house and their aim is to use marking leading suppliers. They have also taking a company decision to only use Mercedes Benz and Scania as a supplier for engines, ZF as a supplier for transmission, ZF and Graziano as a supplier for Axles and Parker and Sauer-Danfoss as a supplier for hydraulic pumps (Ljungby Maskin, 2012). 123

Appendix 8 Additional background about SP Maskiner SP Maskiner is a Swedish B2B manufacturing company located in Ljungby in southern Sweden. They produce harvester heads for the professional forestry for all forestry operations and has today distribution network worldwide. Among its competitor has SP Maskiner the longest experience in the market from developing and designing their machines. The machines are large, robust and heavy and consist of both large, heavy and many components. The customers are spread over the whole world, making them to an international company. The company was founded in 1978 and is incorporated in the concern of Weland forestry machine division since 2003. 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). The slogans is always ahead and that is something that the company highlight. Today had the company started co-operations with other machine manufacturers, such as Komatsuforest, Rottne, Timberpro, Tigercat and Gremo. The aim is to offer an extensive product line that covers all forestry operations so the customer can use their machines from starting thinning to final felling and debarking of plantation grown tropical hardwoods (SP Maskin, 2012). 124

Appendix 9 Additional background about Swepac The overall company aim is to make machines that manage tough conditions in difficult environments. The customers are mostly Swedish earth-moving contractors or plant hires operators that need a machine that can generate revenue, therefore has Swepac conscious worked with reducing cost, both when it comes to components, spare parts and maintenance costs. Swepac take full responsibility for their products after delivery, both when it comes to spare parts, service and technical support (Swepac, 2012). According to Swepac official homepage the suppliers is chosen because their manufactured standard components have good quality and the suppliers promise security of delivery. The company also sees to the environmental goals and resources and possibilities to develop Swepacs final products (Swepac, 2012). 125

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