Collaborative Purchasing amongst Supply Chain Competitors

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According to the research made by one of the most remarkable British economists Christopher (Christopher, 1995), in the market supply chain is the exclusive aspect while the enterprises mean nothing to the participant in the circle. And the real competition is the competition amongst the suppliers instead of the competition among enterprises. Supply chain management is a comprehensive management idea and method which covers the all process from suppliers to the clients, including four realms supply, production plan, physical distribution and demand. And supply chain must be guided by the integrated production plan, be supported by sundry technologies, ESP. relies on the Internet to carry on the plan of supply, production and physical distribution. Supply chain management emphasizes that the core enterprise to erect suitable fellowship with the appropriate enterprise. Through the accomplishment of the partial job done by those appropriate enterprises, and the core enterprises themselves shall focus on the management and arrangement of energy and resources, complete the key business that the competitors failed. As thus, not only the ability to compete can be improved, but do good to the other partners in the supply chain.

The evolution of the supply chain management has a close connection with the development of social economy and technology. With the rapid development of Internet and computer technology, varieties of enterprises begin to realize that the importance of collaborative purchasing not only between themselves, but the supply chain competitors as well. Speaking of supply chain purchasing, the definition is so crucial that must be clarified, which refers to the enterprises demanding for the goods can purchase from the suppliers of enterprise servers directly. Compared with the traditional purchasing methods, supply chain purchasing has no effect on the supply-demand relationship as well as the purchasing ideas. However, all of the enterprises existed in the supply chain keeps a Strategic Partnerships; therefore, purchasing can be achieved under a friendly and corporative circumstance. Besides, the market environment is changing from production-oriented market to demand-oriented market, the diversity of requirements begins to appear, whereas, the whole connections in the supply chain like purchase, and product and market are depended on each other. In order to obtain a comparative advantage in the competition, purchasing management is mostly to coordinate the channel between buyers and sellers, and to do some researches to reply the changing demand. In this case, the theories of purchasing can be divided into two categories, timely purchasing theory for manufacturing enterprise and quick response purchasing theory for large-scale retailers.

Purchasing management is one of the basic connections in the procedure of managing, which is also regarded as important for the Chinese enterprises since China has become one of the members of WTO. Under such a new marketing environment, does the supply chain have an effect on the purchasing management? Frankly speaking, purchasing management will make the purchasing from simply to rationally. That is to say, the proper purchasers will purchase the appropriate products with a right price and right time and an appropriate quality from suitable suppliers. Business organizations will tend to set up powerful functional departments and the indispensable ability gradually to give a support for purchasing which can acquire right products and services effectively.

Its characteristics mainly contain the following areas. First, supply chain management largely focuses on external resources, which are also the core part of the management. Supply chain management is characterized as compatible, integrated, and synchronic. With the requirement of the purchasing flexibility and the ability to the market-controlling, supply chain management must keep an intimate information connection with the suppliers and cooperate with each other to establish a fairly new supply and demand model. Therefore, the focus of purchasing work is going to change into an effective management of the external resources, which contains the formation of the stable and multi-level suppliers network, the establishment of the suppliers database system, the education and training for the suppliers, the suppliers products design and quality control, and the evaluation and rewards and punishment system of the suppliers. Second, the purchasing management is of procedure-oriented. Because of the meticulous division of labor, the traditional purchasing management has many obvious problems in the connection of information. While the supply chain management values the purchasing processes, which takes the buyers enterprises and the node enterprises as a whole procedure and to form an integrated supply chain management system (Croom S Pietro Romano, 2000 and Mihalis Giannakis 2000).

Purchasing management under the supply chain purchasing concentrates on the purchasing process, by controlling the flow of capital, goods and the information to coordinate the best match between total cost and overall efficiency. Third, the enterprises and the suppliers are in a win-win partnership. Under the traditional conditions, enterprises and suppliers are of the basic trading partnership. Under the supply chain conditions, the win-win partnership defines the relationship between purchasing enterprises and the suppliers perfectly. And the manufacturers can assist the suppliers, which can also help the suppliers reduce the cost, improve the quality and quicken the development of products. By erecting the mutual trust relationship, the purchasing enterprises can bring down the transition cost. Besides the long-term cooperation contract can provide more information and cooperation opportunity than the short-term contract (Cooper, M. C., 1997 L.M. Ellram, 1997and J T Gardner 1997). Fourth, purchasing can be informationized. The supply chain management can become a distinguishable concept in the E-commerce times; one of the significant reasons is that the information technology is of the main means. So the integrated information can achieve the informationized internal service and external operation. The informationized internal service can be achieved easily, mainly by the erection of the purchasing management information system and financial accounting information system. Information makes the purchasing management paperless and the messaging speedy, and also largely improves the reaction to the market. Purchasing external operation contains two parts internet purchasing and supplier information system. Internet purchasing is a kind of new purchasing way started recently. It is characterized as sufficient resources, fast messaging, low transaction costs and effective purchasing. Informationized supplier management refers to that the enterprises connects the suppliers information system with purchasing information system by internet, so as to provide supply and production requirements information timely. By the long-term cooperation with the suppliers, the strategic partnership can be finally established (Hausman, W.H., 2002). Fifth, the selection of suppliers availability of resources is enlarged to the choosing of suppliers ability of sustainable development. In the traditional purchasing model, suppliers are chosen by the price competition. Manufacturers and suppliers are of short- term business deal. If the buyers are not suitable with the suppliers, the suppliers will be reselected by the way of market competition. On the other hand, supply chain management values the suppliers ability of cooperation as well as the long-term profits. Therefore, when the buyers select suppliers, they need to estimate the suppliers comprehensively, not only by the basic target like quality and price, but the technology, ability and creativity as well.

This article mainly reviews the competitors of supply chain in the collaborative purchasing. So a large amount of cases are going to be touched in the E-Business. Literally and practically speaking, the purchasing terms likes collaborative purchasing, cooperative purchasing, and group purchasing are used interchangeably. Group purchasing is a comparatively old concept, which has been used in the healthcare industry a lot, that is to say, group purchasing is prevalent in the cooperatives and other nonprofit organizations mainly educational and social enterprises. Many other industries where the collaborative purchasing prevails in are manufacturing, logistics and etc. For example, collaborative purchasing used in logistics, like two or even more sellers share the same lanes, the collaborative logistics helps buyers to consolidate the goods and share the transit ability, which can achieve a win-win partnership for both of the purchasers and buyers. In this article, the interaction among similar and different size buyer enterprises is studied, and who purchases collaboratively but produce or sell independently and remain competitors in the market. When the collaborative purchasing become an attractive proposition for the buyers and sellers, but in the real purchasing process both comparatively equal-size buyers and others different small size buyers take the collaborative purchasing in certain cases (Turban, 1999). For instance, in COVISINT (erected by GM, Daimler C Chrysler, and Ford louse) large buyers form a consortium, and in the group purchasing organizations small size buyers procure collaboratively. On the other hand, GM, which is a major buyer, collaborates with other small shippers on transportation. Which market conditions lead to what type of collaboration? Furthermore, does a buyer prefer a large buyer to a small buyer to collaborate? Motivated by these questions and the industrial practices, this explores when the buyers and the suppliers benefit from collaboration in purchasing. By looking at the case where buyers have limited capacities in the E-Business, which affect their purchasing power, this paper takes the purchasing strategies of the buyers affected by their competition in the end market and the selling strategy of the seller into consideration and identifies the conditions under which the participants benefit from collaborative purchasing.

Literature Review

The origin of the supply chain

Supply chain is developed from the Economic chain created by Peter?Drucker (Drucker, 1954), who is also called the father of modern management. And from which, the Supply chain is completed in the late 1970s by Keith Oliver (Keith Oliver, 1979). Then the Economic chain is finally developed into Supply chain by Michael?Porter (Michael?Porter, 1985), one of the most famous management scientists in 1985. What is the Supply chain? Michael?Porter put forward lots of definitions. Generally, from the nature of purchasing, supply chain purchasing contains three features. First, it is mainly based on the requirement of the enterprise; second, it is of active way; third, supply purchasing is cooperative. From the purchasing environment, the supply chain purchasing is more harmonious that the traditional one. From the efficiency of the information sharing, one of the remarkable features is effective information connectivity and sharing.

As the inventory, purchasers can benefit a lot from the fairly new purchasing way. For example, zero inventory, cost saving, reduction of cost, dedication to getting the job done and increase of efficiency etc. Because suppliers own their rights of inventory, so they can rely on the changes in demand to adjust the production plan and delivery plan. As a result of this, suppliers can avoid making the extra production caused by blind, and decrease the risk and the waste arising from the overstocked products (Shaw, 1997). As to the delivery of goods, supply chain purchasing is based on the suppliers in the same chain, which can be completed in a way of small quantities and multi-frequency. Speaking of the relationship between suppliers and purchasers, buyer company and seller company are related in a friendly and cooperative way. Co-ordination, interworking and bilateral support can be reached easier than the traditional method. Traditional purchasing makes the suppliers and the purchasers in an antagonism environment, so it is probable for the suppliers to adulterate the purchasers, which results in the great efforts made by buyers to reduce the heavy workload and high cost. On the other hand, the suppliers in the supply chain purchasing are responsible for the profit, as a consequence of the intimate interest; the suppliers must behave themselves with self-discipline, guaranteed quality and exemption. In such a way, the costs and the manufacturing costs can be largely saved, the quality also can be fully ensured.

All in all, the main aims why the enterprises take the supply chain management are to achieve the greatest satisfaction of the clients, to reduce the cost, and to optimize the whole process of assuring efficiency. Speaking of supply chain, four different realms must be mentioned, supply, production plan, physical distribution, and demand. The collaborative efforts among firms have been studied a long several directions. There is a growing body of literature on vertical relationships which includes supply chain coordination between buyers and suppliers through mechanisms such as return policies, rebates and collaboration, as well as revenue sharing enabled through contract manufacturing or outsourcing and coordination through quantity discounts. Most of the earlier research on horizontal collaboration has been in the context of research and development joint ventures. These studies consider the interaction among the enterprises that are partners in research and development investment but are competitors in the end market. This article mainly focuses on the horizontal collaboration in purchasing. According to a conventional survey (BearingPoint, 2001) made by a famous consultant firm that a consortium constituted by 15 small and medium-sized companies can be beneficial to all involved enterprises. For the buyers, the main motivation behind the formation of buyer groups is to acquire the quantity discounts provided by the suppliers. As to the quantity discount, the supplier sets price breaks or uses continuous pricing. The survey provides an accurate analysis and categorization of the studies on quantity discounts. The main motivations for the suppliers to obtain the discounts are price discrimination against buyers, to pass the supply chain costs on to the buyer partially and to increase the whole system efficiency by changing the buyer s ordering pattern. A significant portion of the supply chain on quantity discounts focuses on the other motivation: achieving cost minimization from the supplier s or buyer s perspective and achieving overall cost minimization through channel coordination. Introducing quantity discounts changes the ordering quantity of the buyer and this, in turn, reduces supply chain related costs such as inventory holding, order replenishment or purchasing. If the demand is sensitive to the price, discounting would attract more demand, benefiting the suppliers. On the other hand, most of the studies on quantity discounts in the economics literature focus on the first motivation and try to design an optimal discount scheme that extracts all or some of the consumer.

Review on previous study

Previous study made by other experts on collaborative purchasing has been relatively scarce, partially because this concept of purchasing is comparatively new to the economists or the enterprise managers. In fact, a problem has been studied by Mathewson and Winter (Mathewson, 1984 and Winter, 1984) that a group of buyers negotiates and makes a contract with some suppliers to get a lower price. In return, the buyers get the products only from the suppliers in the contract which supplies a trade-off between low price and low product availability. Authors conclude that as the numbers of suppliers increase, the buyers are more likely to benefit from contracts and the formation of buyer circles might be welfare increasing or decreasing depending on the model s parameters. Anand and Aron (Anand, 2003 and Aron, 2003) do some research on the optimal design of an online business to customers buying scheme under demand uncertainty. In their research, the buyers arrive and demand single units, and as the number of units demanded increases the price drops. Under this circumstance, the supplier s benefit from collaborative purchasing increases as demand uncertainty increases. Furthermore, collaborative purchasing outperforms single pricing when the goods are produced after total demand is realized under scale economies. Spiegel ( puts forward production subcontracting between two competitors operating at the same horizontal stage in the supply chain. The author shows that this arrangement, if it occurs at all, always increases production efficiency.

A recent study by Granot and Sosic (Granot,2003 and Sosic, 2003)considers formation of the alliances such as COVISINT where a few large buyers or retailers who may be competitors join their buying powers to decrease purchasing costs. The authors determine the conditions which lead to alliance formation, focusing on the profits of the buyers primarily, assuming that the suppliers would find it beneficial to be part of the formation although their profits are different. This paper differs from theirs in two aspects. This thesis models a decreasing wholesale price explicitly which is analyzed as a possible common theory in their study, and considers the suppliers decision about wholesale prices. Furthermore we consider capacitated buyers, and analyze how the capacity of the buyers affects their willingness to collaborate. In summary, this paper considers that collaborative purchasing in a business-to-business (B2B) setting, where the buyers collaborate for procurement and then compete in the end market.

Collaborative Purchasing

Purchasing is defined, as the course of buying goods and services for a firm or in a broader perspective, as the activity of obtaining goods and service for a firm, in a narrow sense. In many manufacturing or retailing companies purchasing managers have pursued a policy of reducing costs for a long time, collaborative purchasing has been considered as one of the competitive strategies for cutting costs in the recent business environments.

Collaborative purchasing usually consists of two or even more independent buyers. The enterprises in the circle work together, or through an independent third party, for the purpose of combining their individual needs for purchasing materials and capital goods to deal with more value-added pricing, service, and technology. From which sellers could not be obtained if each firm purchased goods and services alone. That is to say, two or more small or medium-sized enterprises can combine their purchasing capital; share the same physical distribution and the current information, which can reduce their costs and human power a lot. Collaboration is becoming more prominent in the e-business world with many individual organizations. Many terms are used to refer to collaborative purchasing or group buying. This term can be distinguished mainly due to the nature of the parties involved in the purchasing cooperation. Essig (Essig, 2000) classified these terms into consortium purchasing, group purchasing, buying offices, cooperative purchasing, and pooled purchasing according to three criteria - field of activity, formality of the cooperation and independence of cooperation members. Much research on purchasing and supply management addresses collaborative purchasing.

The companies involved in collaborative purchasing usually expect to acquire lower costs; as well as price reduction, lower management costs, increased flexibility of inventories and lower logistics costs are benefits that the members of a purchasing group may achieve. Faes and Matthijssens (Faes, 2005 and Matthijssens, 2005) based on a survey to summarize the top five perceived benefits of a coordinated purchasing approach: better internal exchange of information, improved market negotiation strategy, significant cost savings, more impact on monopolistic supply markets, and improved insight in market and cost structure. To maximize the effectiveness of the buying power against sellers by integrating purchase quantity, the research on collaborative purchasing using the auction mechanism has been suggested.

As the internet has emerged as an indispensible way for business, the percentage of internet-based, through a third agent party especially auction-based purchasing has greatly increased. In practice, there are various kinds of group-buying auction sites including,, and In a word, this purchasing management model is the so-called E-business. There are several studies that discuss the usefulness of E-business based on collaborative purchasing or group buying from a diverse perspective. Chen (Chen, 2001) analyzed the group-buying auction from the perspective of game theory under some assumptions, such as the fact that the independent private values model applies and buyers are risk neutral and symmetric, and Chen found that the buyers' dominant strategy exists. In another study, through a modeling analysis, Chen showed that the group-buying auction with cooperation leads to market expansion that benefits sellers as well as buyers, and the mechanism dominates the fixed-price mechanism for the sellers. A master s thesis composed by Xun Chen from Southwest Jiao tong University (Xun Chen, 2004)chose some Auto manufacturer to take the main investigation and study object, passed through to the investigation and study contact induction summary, has obtained the domestic middle and small sized automobile Manufacturing firm in coordination purchase aspect some general character characteristic. This article based on the coordination purchase s implication, automotive industry s coordination purchase operation pattern refinement is two stratification planes: Namely the enterprise purchases the internal coordination, the enterprise to purchase the exterior coordination (Xun Chen, 2004, p26) And the automotive industry enterprise purchased the internal coordination in the past s transformation already to consummate through the ERP system s management, but under the automobile manufacturing firm exterior coordination pattern union supply chain management pattern s supplier stock management conducted the research has realized the substitute management stock information coordination Not only this article discussed the middle and small scale automotive industry implementation substitute management stock information coordination operation pattern Simultaneously has discussed the coordination purchase operation flow. Compares with the original operation flow, enhanced the flow to carry out the efficiency largely reduced the inventory cost.

The formation and development of global supply chain makes China participate in international labor division to drive the industry development and to promote the improvement of technology level and thus has an effect of promoting economic development But because we are the participants but not the managers of the supply chain it is the developed countries master the most important parts of the value-add such as core technology and band-sale advantage The corporations in China are in the subordinate position which is mainly engaged in the low value add processing part and is not good for technology development and innovation, and cannot gain the core competition advantage of industry The auto industry is one of the dominant industries in the country of industry, but still in the period of supply chain conformity, and the supply chain often auto-industry in China still has a gap in comparison with the supply chain in the developed countries The research of this thesis made by a doctor called Guohong Du (Du, 2007) takes auto industry as all example, and uses the global supply chain strategy of the Ford Company for reference This thesis analyses the practical condition of the auto industry in China, and bow to reply to the effect of the global supply chain, and discusses about the measures that we should carry out to enter into the high level of the global supply chain to increase the competitive advantage often enterprises and to promote the development of economy in China

Another dissertation composed by Tao Sun (Sun, 2006)from Shandong University states the background and significance of the research, reviews the VMI research both overseas and domestic based on Supply Chain Management, and introduces the origin, progress and practice of VMI theory related to Supply Chain Management Inventory Management, and VMI Furthermore it explores the key issues eared by both the buyer and seller when implementing VMI, based on the research of the purchasing organization and process in PAVCSH combined with inspection of the sellers cooperative intention, purchasing organization, vendor, and inventory Finally, it draws the conclusion that VMI is feasible in PAVCSH after analyzing thoroughly This dissertation applies VMI theory and method and makes in-depth perspective research of the VMI implementing process in PAVCSH on the seven stages including Establish VMI objective, mode, steps, supporting technical system. framework contact, teamwork and process reform It establishes the VMI evaluation index system in accordance with the specific situation of PAVCSH and proposes the V/VII evaluation method, thus examining the effect of implementing VMI. Through systematic research on the risk in VMI implementation both in PAVCSH and the vendor, it provides measures to avoid risks so as to control the risks The conclusion summarizes the whole dissertation and foresees the prospect for further development of VMI. The research object of this dissertation is the feasibility analysis on a practical VMI program of PAVCSH The research of this dissertation plays an important role in the evaluation and implementation of VMI program for enterprises both theoretically and practically

With the business management mode changing from a single company to a network company, market competition has been no longer a firm against a firm but rather a supply chain against a supply chain. Thus, the following questions naturally bring forward What about a supply chain s competitiveness? How does a supply chain defeat another one? What market share can a successful supply chain gain? They have attracted the attentions of numerous researchers and are also the focus of the follow paper which tries to answer the questions by evaluating supply chain competitiveness from the perspective of game theory. In the journal Evaluation of Supply Chain Competitiveness Based on Game Theory composed by Qi ming and so on from International Conference on Management Science & Engineering (Qi, 2007) proposes that supply chain competitiveness is determined by supply chain information supply chain strategy and supply chain payoff collectively It sets up a system of evaluating indicators and evaluates the competitiveness synthetically To show the application of the evaluation method introduced in the paper Lots of firms of Guangdong Province P. R. China are studied and five supply chains are chosen to be evaluated with their competitiveness The results provide some guidelines for decision makers to improve the supply chain competitiveness and gain much more market shares

WEPEC (The West Pacific Petro Chemical Company Limited)which is referred of in an essay, is one of the most representative case about the supply chain management It is a Sino-France joint venture that has a capacity of 1000 tons per year and it is need to import about 80% of crude material (WEPEC, 2005, p.18-19) Once the high crude costs has made it lost tens of thousands RMB for a long period and because of under-developed supply chain management which is the main reason for the deficit to this company. In this essay entitled Research on ISCM of WEPEC (WEPEC, 2005), composed by one of the experts in this company tried to reveal this lethal shortcoming In the beginning of this essay, the problems existing in WEPEC supply chain are pointed out under the current social and economic background and put forward the necessity and significance to carry out ISC in WEPEC Then author instructs the ISC concept and theories the ISC current developing conditions both China and the other countries are instructed briefly by the author On the basis of that the supply chain of WEPEC is analyzed carefully and the detail problems against ISC in the joint of supply chain are listed out Further then the target, strategy, principle of ISC to be developed in WEPEC is set up Finally, considering the practical conditions of WEPEC the whole plan of ISC is developed on the basis of using the ISC theories correctly At the end of this essay beyond of a conclusion is given some shorts and limits of ISCM are pointed out as well

The core problem in supply chain management is planning. With the great differences happened in the supply chain nowadays, the complexity of planning explodes hugely Therefore traditional planning systems are not adoptable because of such weaknesses as centralized top-down management, and uncertainty and such limitations as communication efficiency and speed. This doctoral paper named Research on Multi-agent Supply Chain Planning System in the Environment of E-Commerce (Hu, 2006) composed by Qinghe Hu from Northeastern University suggests a different viewpoint which is an open planning method focusing on the autonomous agents who move individual planning functions based on total customer service According to the theories of the systems engineering and software engineering, a multi-agent architecture has been developed for supply chain planning It is organized by a layer alliance including strategy, tactics and operation cooperation groups Such related decision problems as the logistic network building the project acquirement and evaluation, and the task assignment are researched and finally a prototype software system is implemented.

There are also some researches focused on the retailing. The thesis named as Researches on the techniques and models of SCM in Retailing Industry written by Xuefeng Liu (Liu, 2004)mainly analyses the current situations and relevant policies of application of these techniques and methods in retailing industry. Firstly, the thesis discusses the basic theories of SCM In this part it also takes the Game Theory to analyze cooperation of supply chain and discusses the role of SCM in commercial competitions in detail. In the second place the thesis talks about the core information technologies that contains automatic discrimination Electronic Data Interchange (EDI) Internet technology and Electronic Commerce (EC). In the third part, the thesis summarizes all kinds of techniques and methods, which mainly combined by Material Requirement Planning (MRP), Manufacturing Resources Planning (MRPII), Distribution Requirement Planning (DRP), Just In Time (JIT), Vendor Managed Inventory (VMI) Third Part Logistics (TPL), CAO etc (Liu, 2005, p. 34) In the fourth part the thesis expounds the Efficient Replenishment (ER) models of retailing industry, which involves main data consistency model reordering operation model and production distribution model In the end the thesis discusses the current circumstances and relevant policies of the application of techniques and methods of SCM in retailing industry, which guide my research profoundly By analyzing of shortcomings of the usage of techniques and methods of SCM in retailing industry, the thesis provides the relevant policies about how to employ techniques and methods of SCM in retailing industry, which mainly consist of strengthening the researches on SCM and introduction of SCM changing conceptions promoting the application of bar code, EDI, EC in retailing industry, carrying out BRP, Optimizing the physical distribution system, strengthening inventory management, and implementing management by information(Liu, 2005).

With the development of the distributed supply chain and the E-Business, the enterprises are forced to use new information technologies to improve the supply chain management Now Supply chain system is a part of information system that could be used and evaluated to support the management of enterprises So E-SCM system tends to become an important part of the enterprise. This paper On the Evaluation of the SCM in E-Business Circumstance (Hu, 2004)written by Zhiyan Hu from Fudan University begins with a through review of researches on supply chain performance Evaluation, and then discusses the details of the performance evaluation model of E-SCM system in E-Business environment Then, from the point of the SCM system itself, the paper analyses the successful factors of SCM system, which is also a significant aspect of evaluating SCM system performance. Besides, this paper shows the most basic ways to evaluate supply chain management and put forward the steps of FAHP Comprehensive Evaluation on SCM system accurately. The development of E-Business causes the revolution of SCM. The occurrence of E-Business has influenced enterprises SCM inevitably and profoundly To achieve more efficiency and benefit, the enterprises must attach importance to evaluate the performance of SCM system in the E-Business environment