Financial Contributions of Sector Procurement essay

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Research conducted to date for example suggests that, for consortia-based procurement exchanges and Sector Procurement Collaboratives the bargaining power of representing multiple groups of buyers and their collective purchasing power provides economies of scale and leverage in bargaining with suppliers (Devine, Dugan, Semaca, Speicher, 2001). The motivations of purchasing consortia are primarily focused upon gaining expected cost savings and collect information on supply markets (Tella, Virolainen, 2005). Although perfectly in line with accepted marketing views and strategies, there is a gap in this research, which does not take into account the long-term effects of inter-process maturity and transaction velocity over time.

According to Johnston et al. (2003, p. 23), the recognition of trust as an important part of the buyer-supplier relationship does not preclude fact of paucity of empirical evidence to suggest the level of such importance. Trust and its dependent behaviors, as well as its impact on inter-organizational activities, have simply not received the attention they deserve. The authors suggest that this is a significant shortcoming, as a lack of empirical evidence also means a lack of basis for future study. A further shortcoming is the fact that few studies at the time of writing address the perspectives of buyers and suppliers separately. This is also important in determining the exact dynamic of the buyer-supplier relationship and how this can mature into a relationship that creates knowledge rather than only exchanging it.

The current global trend does not appear to support long-term supply chain relationship management for the ultimate aims of both sharing and creating knowledge. Indeed, it is one of continually reducing the number of suppliers in many consortia-based exchanges and Sector Procurement Collaboratives. This in turn creates increased price pressure, which can lead to the rapid degradation of product and service quality over time (Edgell, Meister, Stamp, 2008).

The danger of this is that competition may become one- rather than multi-dimensional. The critical supply chain processes necessary to deliver products of high quality are then severely reduced. This has a negative effect upon trust, which erodes over time as a result of quality issues (ELSamen, Chakraborty, Frankwick, 2006). This is a fundamental flaw within a supplier strategy that is driven not so much by managing effective interrelational issues, as by logistics and efficiency issues.

When a supplier strategy mindset is purely price-driven on the part of Sector Procurement Collaboratives, specific benchmarks of performance relative to supplier-wide enterprise compliance and quality management become necessary (Kumar, Ozdamar, Ng, 2005). This is a most common occurrence in industries that are highly regulated, including healthcare and historically established businesses. In order to continue operating, these industries and businesses must follow stringent safeguards defined by federal agencies such as the Federal Drug Administration (FDA) and others.

Such compliance is not driven by a long-term sense of trust and learning within the supply chain, but rather by a strategy that focuses exclusively upon longstanding requirements, demands and rules. Sector Procurement Collaboratives also need to qualify suppliers based on such prerequisites to mitigate the risk of operating in an unsafe way and putting the public at risk. Although the need for regulation is clear, it is also clear that there is a significant lack of focus upon the long-term effects of trust and transparency, particularly as these relate to transaction velocity, supplier coordination and inter-process communication.

Particularly in industries where the public good is at issue, these are extremely important issues to consider and optimize. These examples suggest that quality affects trust, which has been research to quite some extent. What has however not been studied at great length is the fact that trust also affects the quality and other supply chain deliverables.

Johnston et al. (2003, p. 24) for example note that there are three critical components to a supply chain management strategy; the first of which is information flows, the second product flow, and the third relationship management. The third, according to the authors, have received the least critical and committed attention, as it is both "fragile and tenuous." Nonetheless, this does not detract from the necessity or importance of cultivating a long-term trusting relationship with the partners within the supply chain.

Johnston et al. suggest a model for trust building that consists of three construct groups: the supplier's level of trust in the buyer, the level of cooperative buyer-supplier behaviors, while the third concerns the buyer's perspective. The supplier's level of trust is based upon observation regarding the dependability and benevolence of the buyer. The model suggests that a mutual level of trust must be maintained between buyer and supplier in order to optimize the rest of the operations within the supply chain. This correlates with the concept of maturity models as applied to the long-term effectiveness of consortia-based exchanges and Sector Procurement Collaboratives (Sislian, Satir, 2000). These have followed a process-centric approach over time. Such an approach seeks to define process capability and maturities from a systematic approach vs. one that capitalizes on minimizing strategic risk by optimizing inter-process coordination.

Additional frameworks and maturity models concentrate on creating causal relationships to the process workflow level and seek to define it as the enabler of process efficiency (Scott, 2007). This defined role of it as the inter-process enabler is also consistent with previous consortia-based exchanges and Sector Procurement Collaborative frameworks, yet the lack of empirical research as to the long-term effects of a quantification of trust contributing to more efficient process performance and Procurement Collaborative performance is significant.

This translates to some very specific factors in the supply chain relationship. Nyage, Whipple and Lynch (2009, p. 101) for example relate the lack of research to the collaboration process itself. Because parties within a supply chain who attempt to form collaborations cannot do so on the basis of specific research, there is some difficulty in achieving the desired trust level. According to the authors, this is because specific factors such as partner selection, interorganizational needs and capabilities, as well as clearly defined goals or not sufficiently addressed. This corroborates with the above assertion that trust and inter-organizational processes are a two-way process, each influencing the other. In other words, a lack of trust would translate to a lack of clearly defined goals and communication, whereas the lack of sufficient information would cumulatively influence the perpetuation of the trust problem. This in turn leads to one or all of the parties involved experiencing some inequity in the business relationship -- leading to further trust-eroding sentiments such as resentment.

A further lack in the literature is the problem of defining the specific concepts surrounding the supply chain relationship. The issue of trust as opposed to commitment appears to inspire different views in various authors. Some for example regard the two concepts as exclusive of each other, each with its own influencing factors, while others regard them as continual influences upon each other as well as upon the rest of the relationships within the supply chain.

Kwon and Suh (2004, p. 4) for example note that trust fosters commitment. They also note that there is a significant lack of empirical study that addresses the relationship between trust and commitment within the supply chain, whereas theoretical writing on the topic is numerous. Once again, these issues cannot be separated from the logistics of the supply chain, and the authors indicate that asset investments positively correlate with the level of trust in a supply chain partner.

Indeed, Johnston et al. also note that trust cannot and does not occur in isolation. It is itself influenced by several factors an in turn influences other factors within the supply chain relationship. Autry and Colicic (2009: 87) corroborate that there is only limited literature available that addresses the specific supply chain relationship among the various parties operating within it. This shortcoming must be addressed in the interest of better business practices within the supply chain management sector.

This study intends to devise methods to more fully understand the significant gaps in the literature, as surrounding supply chain issues and the specific problems related to it. While the it field has received some investigation in terms of its contribution to process efficiency, its link to transaction velocity and accuracy, as well as the quantification of trust remains problematic (Kishore, Agrawal, Rao, 2005). It is not difficult to understand why this is so, particularly in the case of trust. Trust, being an interpersonal paradigm, defies quantification as an operational variable (Yeh, 2008).

However, it does remain crucial to develop a framework for defining the interrelationships of supplier performance in conjunction with accumulated process maturity. The need for the quick deployment of contract management, pricing, catalogs and the rapid deployment of customer segment specific content is rather the merit of an agile supply chain integration strategy than of the structure of contracts and Service Level Agreements (Le, Rao, Truong, 2004).

Thus, consortia exchanges…[continue]

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