More and more organisations are showing interest in how purchasing strategy and structures may support their overall business strategies. More and more, therefore, the question prevails how to get organised at a corporate level to capture the potential purchasing synergies. The challenge is to generate knowledge regarding how to structure and manage effectively purchasing synergies between business units. This paper deals with the concept of purchasing synergy or more specifically: the management of value-adding linkages in the area of purchasing between different business units in a multi-business company. It summarises the intermediate results from Ph.D. research currently conducted at Eindhoven University of Technology. Based on the findings derived from in-depth case studies at three large multinational companies, we propose a model, which may support management by formulating the right strategy and designing the right structure aimed at capturing the potential synergies.
It appears that during the past few years purchasing has begun to play an ever more important role in the strategy of the firm than was true in the past (Carter and Narasimhan, 1996; Spekman et al., 1994; Tully, 1995; Ellram and Carr, 1994; Brandes, 1994; Gadde and Hakansson, 1994). This trend cannot be viewed in isolation, but is related to the competitive challenges going on in the international business environment (Weele and Rozemeijer, 1996). In order to survive, managers rethink their competitive priorities and rethink their value chain. As they do this, they cannot but rethink the current role and position of their purchasing and supply operations and strategies. As the scope and importance of purchasing increases, firms increasingly recognise the necessity of co-ordination of their overall purchasing efforts. Driven by the competitive pressures and the importance of purchasing, especially in the Retail, Automotive, Computer, and Electronics sectors companies have implemented strategies and structures aimed at capturing purchasing synergies (Keough, 1993).
This paper concentrates on the initiatives taken to capture potential synergies in the area of purchasing. Capturing these synergies is a way of getting extra performance, or creating extra (shareholder) value, from an existing situation (e.g. `doing more with less'). Purchasing synergies can yield significant benefits and even play a vital role in some companies’ corporate strategies (see the example of DaimlerChrysler below).
“The DaimlerChrysler merger is considered to have great potential for synergy. By spreading Chrysler's production expertise to Daimler operations and merging both product development forces, the new company could cut costs by up to $3 billion annually — including $1.1 billion in purchasing costs, analysts say. Apart from increased negotiation power due to the bundling of demands, they can share their best-practices in the area of purchasing. Chrysler, for its part, has the industry's best supplier relations, while Daimler still relies on strong-arm techniques to get lower prices from its suppliers (Anonymous, 1998).”
Although it is generally recognised as one of the key issues today, the debate about the organisation and management of corporate purchasing synergy is somewhat neglected in current purchasing literature. Strategies and structures aimed at capturing synergies, as currently implemented in several large companies (Weele and Rozemeijer, 1996), have not yet been the topic of scientific research.
Our paper presents in a coherent way some of the insights derived from our (field) research. Firstly, the three companies show us a wide variety in approaches to capture purchasing synergy. Approaches range from informal and based on voluntary co-operation (Pharmaceuticals), to formal (managed) structures integrated in the business (Electronics). Secondly, there seems to be a correlation between the approach used to capture purchasing synergy and the four context factors: developments in the business context, strategic focus, organisational context and the level of purchasing maturity in the business units. This hypothesis will be worked out in more detail and tested with a large survey. Based on literature and research we suggest a model indicating that the type of approach seems related to the level of purchasing maturity in the business units and the level of business-unit homogeneity. Finally, we presented an assessment diagram, which can be helpful to determine the role and responsibility of the key players in managing purchasing synergy. At this moment we can only present the insights from three cases. The models outlined will be tested in the coming year in two more in-depth cases, and a large survey.
