SRM Series: #9 Revisiting Buyer-Supplier Power

The current horse meat scandal is one of those regular events in British life that confirms the prejudices of all manner of people. The usual suspects have (inevitably) seen this as the latest reason to bash the EU. Other usual suspects have bashed the ‘free market’ and the scandal has provided yet another opportunity for vegetarians to look smug. What it has also done is bring into question again the buying power of the big retailers – and the use of power in business to business markets in general.

In 1997, a series of articles on buyer-supplier power by procurement academics (started by my former colleague, Andrew Cox) appeared in Supply Management, followed by letters from practitioners. Given that Supply Management faced fewer competitors in those days, we can say that for a short while buyer-supplier power took centre-stage in the procurement domain.

While there is still discussion from time to time on power, when, for example, people are talking about category management, negotiation practice or indeed the big retailers, it hasn’t really had the same high profile since. So, given the on-going horse meat scandal, I thought, having been kindly invited to contribute to this blog, that it might be a good time to revisit the issue of buyer-supplier power.

The starting point is to make clear what we mean by the term power – much else flows from being clear on this. Many people assume that if you talk about power in relation to procurement then you are advocating aggressive procurement practices and are against ideas that promote the idea of buyer-supplier co-operation. This is not necessarily the case for four reasons.

First, power is a concept not a practice. It is defined as the ability of one party to make another party act in way that they would not otherwise have done. Sometimes an organisation will possess that ability in an exchange with a buyer or supplier, sometimes it won’t.

Second, and following on from this, even if a buyer is in a dominant power position with regard to a supplier (or vice-versa), there is nothing about the concept of power that states that dominance must be aggressively utilised or even utilised at all. It often isn’t, either for reasons of ethics or, more commonly, enlightened self-interest. In terms of enlightened self-interest, organisations are often aware that power positions can change, that goodwill in relationships is valuable and that an over-enthusiastic use of dominance can adversely affect all concerned.

All this doesn’t mean however that there is no value to knowing what the power relation is in an exchange. To say that you don’t wish to utilise your dominance when you have it (or not very much) is not to say that you don’t care whether the other party in an exchange is dominant.

Third, even if a dominant power position is utilised by one party, if the utilisation is reasonable then buyer-supplier co-operation is still possible. Of course, the utilisation of power is not always reasonable and attempts by buying organisations to develop a mutually-beneficial partnering arrangement with an aggressively dominant supplier can often be something of a struggle.

Fourth, one of the reasons why co-operation is by no means incompatible with the reasonable exercise of power is that organisations will often have a realistic view of the strength of their commercial position in an exchange. For example, I have seen many suppliers in cut throat markets more than happy to take the junior role in a relationship with a dominant buyer that provides regular revenue and business assistance. As the aforementioned Andrew Cox pointed out, ‘win-win’ does not always mean 50-50.

Over the next few weeks, in a series of posts, I explore these points, provide some case examples and, in a final post, offer some comments on the implications of power for procurement training and education. There is no question that there is a risk that when you teach people about power you, albeit unintentionally, legitimise the irresponsible use of power. On the other hand, is that an argument for educators (whoever they may be) to simply ignore buyer-supplier power?

By Chris Lonsdale

Guest blogger Chris Londale is a Reader in Procurement and Supply Management at Birmingham Business School’s Centre for Business Strategy and Procurement. See CBSP_brochure for details of the Centre’s research and renowned MBA programme.

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