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Summary of Purchasing Strategy and Systems - All required articles - University of Twente - MSc Business Administration

Name: Summary of Purchasing Strategy and Systems - All required articles - University of Twente - MSc Business Administration
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Summary of all requires articles for the subject "Purchasing Strategy and Systems" - University of Twente - MSc Business Administration. The summary contains the following articles: 1.Eatough, M. (2014). Leaders Can No Longer Afford to Downplay Procurement. 2.Capron L., & Chatain, O. (2008). Compe...

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business administration
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university of twente
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purchasing
strategy
systems
articles
required articles
purchasing strategy
universiteit twente
purchasing strategy and systems

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1.Eatough, M. (2014). Leaders Can No Longer Afford to Downplay Procurement
Today’s corporations are directing more and more of their budgets toward a complex web of global
specialist providers and suppliers to help deliver on their businesses’ core strategies. As a result, the role
of procurement (should be/is) magnified. Suppliers must be incentivized, coached, sanctioned, and
rewarded. However, most procurement departments are neither ready nor empowered to take on their
new responsibilities. Reasons for this:
- An unproductive fixation on cutting costs - This is naïve. Shareholders value comes from
delivering the corporation’s objectives, not from decreasing spending.
- Organizational isolation - Procurement teams are often disconnected from the functions they
serve and the markets they engage. Too often, they are not fluent in the nuances of the business
and therefore lack the expertise and authority to challenge or influence spending decisions. This
frustrates sales and the revenue-generating front lines, further isolating procurement.
- Glacial processes - Procurement teams tend to rely on processes that are far too slow to support
the business’s needs.
- Acting without inquiry - Procurement fails to ask the most basic of questions: why? Many lack the
training and skills to thoughtfully analyze a sourcing request and their aforementioned isolation
makes it nearly impossible to truly understand business priorities.

What can be done to improve procurement? The answers lie in four fundamental areas that need to be
addressed and resolved by C-level (high-ranking executive titles) leaders:
- Leaders should reassess and clearly define the role of procurement in the company philosophy.
- Leaders should change the way procurement is measured, connecting its objectives to those of
the budget holders it is there to serve. Leaders should consider what the business is trying to
achieve and design metrics around these areas.
- Leaders should determine whether the current cast of procurement executives has the required
skills and abilities.
- Leaders must give procurement teams incentives to create a welcoming atmosphere for
suppliers.

,2. Capron L., & Chatain, O. (2008). Compettors' resource‐oriented strategies:
Actng on compettors' resources through interventons in factor markets and
politcal markets.
Resource-based view (RBV) scholars have made great advances in understanding how a firm can build a
resource position through the development of its own resources, but they have paid relatively little
attention to the firm’s relationships with its external resource environment and its actions on
competitors’ resources.
In this paper, we argue that we can reach a better understanding of how a focal firm creates and sustains
competitive advantage by considering its actions on its competitors’ resources. As RBV scholars
recognize, ‘competitive advantage derives from firm-specific resources that are scarce and superior in
use, relative to others’. Competitive advantage is a relative notion, and a focal firm can act to widen the
gap between itself and its competitors by degrading the resource position of its competitors. To degrade
the resource position of its rivals, a firm can deploy strategies in its resource environment to reduce the
quantity and/or effectiveness of its rivals’ resources.

In our framework, a focal firm intervenes in factors markets and political markets to reduce the quantity
and/or effectiveness of its rivals’ resources. Reducing the quantity of available resources directly impairs
the competitors’ production capacity if those resources were previously fully utilized by competitors and
are in short supply, compared to the demand for their services. Decreasing the effectiveness of
competitors’ resources can also hurt their production capacity, if target competitors have to turn to less
effective resources to carry out their production. Actions that increase rivals’ resource costs or impair the
effectiveness of their resources, reduce the quantity they can profitably produce. Competitors’ output
capacity restriction then feeds the residual demand that accrues to the focal firm. Increased residual
demand can generate additional scarcity rents for the focal firm.
The RBV helps us to understand the role of valuable resources and scarcity rents to the focal firms, and
leads us to argue that a focal firm can increase its scarcity rents by reducing the quantity or effectiveness
of its competitors’ resources. Both industrial organization economics (IO) and corporate political activity
(CPA) contribute to our understanding of the market (IO) and non-market mechanisms (CPA) that a focal
firm can use to exert control over its external resource environment. Combining these three streams of
literature provides value, as it meshes an internal perspective that focuses on a firm’s characteristics

,(RBV) with two perspectives that emphasize the relationship of a focal firm with two distinct external
environments.
We then use the first-mover advantage (FMA) and competitive dynamics (CD) literature to take into
account competitive interactions in factor markets and political markets, and examine which type of
competitors’ resource-oriented strategies are likely to elicit retaliation from competitors being attacked.

1. Background
1.1 Definitons
Resources are tangible or intangible assets that are tied semi-permanently to the firm. Resources are said
to confer an enduring competitive advantage on a firm to the extent that they are valuable, rare, and
hard to imitate or substitute. A focal firm resource-oriented strategy is when the focal firm takes actions
to upgrade its own stock of resources in order to maximize the value offered by its own resources (i.e. by
raising customers’ willingness to pay for the focal firm’s product or by reducing the costs of acquiring or
using its resources). A competitors resource-oriented strategy is when a focal firm takes actions in its
resource environment to degrade the resource position of its rivals in order to widen the gap between
the value offered by its own resources and the value offered by its rivals’ resources. These two strategies
are not mutually exclusive.
A focal firm can take two kinds of actions to exert control over its competitors’ resources:
1) Reducing the quantity of resources that are available to its competitors. In this case, competitors
whose stock of resources is restricted can no longer serve the same level of demand because of
output restriction.
2) Impairing the effectiveness (i.e. the quality or value-creating ability) of its rivals’ resources. The
effectiveness of a resource is the ability to create value for customers (willingness to pay) in
excess of the costs of acquiring and using that specific resource.
A focal firm can intervene in two types of resource environments to attack its rivals’ resources: (1)factor
markets, and (2)political markets. Factor markets are the markets where resources that firms need to
compete in their product markets are exchanged. A focal firm can intervene in factor markets by
enhancing its own resource position through effective resource picking, but also to deliberately weaken a
rivals’ resource position. The political market is an arena in which demanders of policies (e.g. firms and
consumers) interact with providers of policies (e.g. politicians and bureaucrats) to shape policies that
favor demanders’ interests. Demanders of policies provide suppliers with information, financial incentives
and votes in exchange for favorable policies. Regulations play an important role in the process of
defining, trading, and allocating resources among firms, thereby influencing the quantity and
effectiveness of resources that competitors can use.
Scarcity rents are the operations profits earned by a firm controlling superior effective resources that are
in short supply compared to the demand, thereby constraining the output of the firm. We define the
profit from the ownership of a resource as the difference between its scarcity rent, that is generated by
the possession of a resource, minus the cost of acquisition of that specific resource. This profit is above-
normal when it is superior to the opportunity cost of the capital used to realize the profit.

2. Compettors’ Resource-Oriented Strategies: Effects on Compettors’ and Focal Firms’ Resource
Positons

, Preemption of scarce resources in factor markets reduces resource availability and employee poaching,
which has a direct negative effects on the target rivals’ stock of resources. This can also raise the cost of
acquiring or using needed resources. These actions can also reduce the effectiveness or target rivals’
resources by forcing them to turn to substitute resources of lower quality. This can in turn reduce target
rivals’ customers willingness to pay.
Decreasing the quantity of resources available to its competitors by making preemptive acquisitions of
regulated resources can be accomplished by intervening in political markets. A focal firm can also engage
in lobbying activities to make its rivals’ resources less acceptable to its clients, customers, shareholders or
other parties with the broader institutional context, and thereby make those depreciated resources more
costly to use.
The effects of actions on rivals’ resources in factor markets and political markets on the focal firm’s
resource can have a positive and neutral effects. The actions can increase the quantity (and potentially
their effectiveness) of available resources to the focal firm – assuming that those newly acquired
resources are portable. Political strategies that aim at raising rivals’ costs by blocking the use of
substitute resources may create the opportunity for a focal firm to capitalize on its valuable, rare and
costly to imitate resources. Government restriction on the resource forces competitors to pay a higher
price for the resource or to use an inferior resource. These actions do not enhance the resource position
per se of the focal firm, but they create a favorable resource asymmetry by degrading a target rivals’
resource position.

3. Relatonship between Actons on Rivals’ Resources, Residual Demand and Scarcity Rents to a
Focal firm

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