Authors: Tutor: Examiner: Subject: Level and semester: PREFACE “Purchasing managers and their staff should question their present sourcing strategy” (Faes and Matthyssens, 2009, p. 253) 2 ACKNOWLEDGMENT First of all, the authors would like to show special appreciation to the case companies; Arcoma, Lasermax Roll Systems, Ljungby Maskin, SP Maskiner, Swepac, and to the pretesting company Svetruck. Special gratitude to the respondents at each company for their time and effort, this thesis would not have been possible without your participation. Additionally, the authors would like to thank the supervisor Ph.D. Hooshang Beheshti for tutoring and feedback. The authors would also like to thank the examiners, Ph.D. Pejvak Oghazi and Ph.D. Vinit Parida. Finally, a grateful thanks to all involved during this process that have contributed to this project in different ways. Thank you everyone for making this possible! Linnaeus University, Växjö, 2012-05-23 ________________ ________________ Vanja Melin Schalén Malin Lindén 3 ABSTRACT Titel: Competitive advantage through strategic sourcing: A SME perspective. SME: The size of an enterprise can be measured by its employment, sales, or profit (Tam et al, 2007). Small and medium sized enterprises range between 10 and 250 employees. Five Swedish SMEs was used for the multi case study. Background: The competitive market situation has created a shift in companies’ strategy thinking. Strategies focus increasingly on core activities and business development. One effect of this is that companies choose to outsource activities they don´t consider to be core business (Van Weele, 2010; Thrulogachantar and Zailani, 2011). Purpose: The purpose was to investigate strategic sourcing plans that SMEs can apply to increase their competitive advantage. Methodology: The research was conducted through a qualitative study with a deductive approach. A multi-case study was made on five SMEs in Kronobergslän, Sweden, with two semi-structured interviews at each company. Result and conclusion: The investigation resulted in a current view of SMEs sourcing and suitable recommendations for SMEs to direct their purchasing activities to strategic sourcing. The process of implementing a strategic plan for SMEs can be seen as relatively difficult but there are purchasing activities that can be improved by a strategic thinking. To keep in mind is that supplier’s performance matter, but it is the resources of suppliers that are the main competitive advantage and it is in this area where supplier development and sourcing strategies should focus. Further research: However further research could investigate strategic sourcing in a different approach, both from a supplier and customer perspective. Keywords: strategic purchasing, strategic sourcing, sourcing strategy, competitive advantage, information technology, SME 4 TABLE OF CONTENTS 1. INTRODUCTION ................................................................................................................................ 9 1.1 BACKGROUD ......................................................................................................................................................................... 10 1.2 PROBLEM DISCUSSION ....................................................................................................................................................... 11 1.3 PURPOSE ................................................................................................................................................................................. 13 1.4 RESEARCH QUESTIONS ....................................................................................................................................................... 13 1.5 DELIMITATIONS .................................................................................................................................................................... 13 1.6 DISPOSITIONS ........................................................................................................................................................................ 14 2. THORETHICAL FRAMEWORK ................................................................................................... 15 2.1 PURCHASING MANAGEMENT ............................................................................................................................................ 15 2.1.1 STRATEGIC PURCHASING ..................................................................................................................................... 16 2.2 STRATEGIC SOURCING ........................................................................................................................................................ 18 2.2.1 SOURCING STRATEGY ........................................................................................................................................... 20 2.2.1.1 SINGLE VS MULTI ................................................................................................................................................. 20 2.2.1.2 GLOBAL VS LOCAL .............................................................................................................................................. 21 2.2.1.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 22 2.2.1.3.1 SUPPLIER DEVELOPMENT ............................................................................................................................... 24 2.3. IMPACT OF STRATEGIC PURCHASING ON COMPETITIVE ADVANTAGE .................................................................. 24 2.4 INFORMATION TECHNOLOGY ........................................................................................................................................... 25 3. METHODOLOGY ............................................................................................................................. 29 3.1 RESERCH APPROCACH ........................................................................................................................................................ 29 3.1.1 INDUCTIVE VS. DEDUCTIVE RESEARCH ........................................................................................................... 29 3.1.2 QUALITATIVE VS. QUANTITATIVE RESEARCH ................................................................................................. 30 3.2 RESEARCH DESIGN .............................................................................................................................................................. 31 3.3 DATA SOURCES ..................................................................................................................................................................... 33 3.4 RESEARCH STRATEGY ........................................................................................................................................................ 34 3.5 DATA COLLECTION METHOD ............................................................................................................................................. 35 3.6 DATA COLLECTION INSTRUMENT .................................................................................................................................... 35 3.6.1 OPERATIONATIONALIZATION AND MEAUSUREMENT OF VARIABLES ....................................................... 36 3.6.2 INTERVIEW GUIDE .................................................................................................................................................. 39 3.6.3 PRETESTING ............................................................................................................................................................. 40 3.7 SAMPLING .............................................................................................................................................................................. 40 3.7.1 STUDY POPULATOIN............................................................................................................................................... 41 3.7.2 SAMPLING FRAME .................................................................................................................................................. 42 3.7.3 SAMPLE SELECTION AND DATA COLLECTION PROCEDURE ......................................................................... 42 3.8 DATA ANALYSIS METHOD FOR A QUALITATIVE APPROACH ...................................................................................... 44 3.9 QUALITY CRITERIA FOR A QUALITATIVE METHOD ..................................................................................................... 44 3.9.1 CONTENT VALIDITY ............................................................................................................................................... 44 3.9.2 CONSTRUCT VALIDITY .......................................................................................................................................... 45 3.9.3 EXTERNAL VALIDITY ............................................................................................................................................. 45 3.9.4 RELIABILITY ............................................................................................................................................................ 46 3.10 SUMMARY OF METHODOLOGY ....................................................................................................................................... 47 5 4. EMPIRICAL FINDINGS .................................................................................................................. 48 4.1 ARCOMA ................................................................................................................................................................................. 48 4.1.1 STRATEGIC PURCHASING ..................................................................................................................................... 48 4.1.2 STRATEGIC SOURCING .......................................................................................................................................... 49 4.1.2.1 SINGLE VS MULTI ................................................................................................................................................. 49 4.1.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 50 4.1.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 50 4.1.3 INFORMATION TECHNOLOGY .............................................................................................................................. 50 4.2 LASERMAX ROLL SYSTEM ................................................................................................................................................. 52 4.2.1 STRATEGIC PURCHASING ..................................................................................................................................... 52 4.2.2 STRATEGIC SOURCING .......................................................................................................................................... 54 4.2.2.1 SINGLE VS MULTY ............................................................................................................................................... 54 4.2.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 54 4.2.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 55 4.2.3 INFORMATION TECHNOLOGY .............................................................................................................................. 55 4.3 LJUNGBY MASKIN ................................................................................................................................................................ 56 4.3.1 STRATEGIC PURCHASING ..................................................................................................................................... 56 4.3.2 STRATEGIC SOURCING .......................................................................................................................................... 57 4.3.2.1 SINGLE VS MULTI ................................................................................................................................................. 57 4.3.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 57 4.3.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 58 4.3.3 INFORMATION TECHNOLOGY .............................................................................................................................. 58 4.4 SP MASKINER ........................................................................................................................................................................ 60 4.4.1 STRATEGIC PURCHASING ..................................................................................................................................... 60 4.4.2 STRATEGIC SOURCING .......................................................................................................................................... 61 4.4.2.1 SINGLE VS MULTI ................................................................................................................................................. 61 4.4.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 62 4.4.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 62 4.4.3 INFORMATION TECHNOLOGY .............................................................................................................................. 63 4.5 SWEPAC .................................................................................................................................................................................. 64 4.5.1 STRATEGIC PURCHASING ..................................................................................................................................... 64 4.5.2 STRATEGIC SOURCING .......................................................................................................................................... 65 4.5.2.1 SINGLE VS MULTI ................................................................................................................................................. 65 4.5.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 65 4.5.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 66 4.5.3 INFORMATION TECHNOLOGY .............................................................................................................................. 67 5. ANALYSIS .......................................................................................................................................... 70 5.1 INDIVIDUAL ANALYSIS FOR ARCOMA ............................................................................................................................ 70 5.1.1 STRATEGIC PURCHASING ..................................................................................................................................... 70 5.1.2 STRATEGIC SOURCING .......................................................................................................................................... 72 5.1.2.1 SINGLE VS MULTI ................................................................................................................................................. 72 5.1.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 72 5.1.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 73 5.1.3 INFORMATION TECHNOLOGY .............................................................................................................................. 73 5.2. INDIVIDUAL ANALYSIS FOR LASERMAX ROLL SYSTEM ........................................................................................... 74 5.2.1 STRATEGIC PURCHASING ..................................................................................................................................... 74 5.2.2 STRATEGIC SOURCING .......................................................................................................................................... 76 5.2.2.1 SINGLE VS MULTI ................................................................................................................................................. 76 5.2.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 76 6 5.2.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 77 5.2.3 INFORMATION TECHNOLOGY .............................................................................................................................. 77 5.3 INDIVIDUAL ANALYSIS FOR LJUNGBY MASKIN ........................................................................................................... 78 5.3.1 STRATEGIC PURCHASING ..................................................................................................................................... 78 5.3.2 STRATEGIC SOURCING .......................................................................................................................................... 80 5.3.2.1 SINGLE VS MULTI ................................................................................................................................................. 80 5.3.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 80 5.3.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 81 5.3.3 INFORMATION TECHNOLOGY .............................................................................................................................. 81 5.4 INDIVIDUAL ANALYSIS FOR SP MASKINER .................................................................................................................... 82 5.4.1 STRATEGIC PURCHASING ..................................................................................................................................... 82 5.4.2 STRATEGIC SOURCING .......................................................................................................................................... 85 5.4.2.1 SINGLE VS MULTI ................................................................................................................................................. 85 5.4.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 85 5.4.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 86 5.4.3 INFORMATION TECHNOLOGY .............................................................................................................................. 86 5.5 INDIVIDUAL ANALYSIS FOR SWEPAC .............................................................................................................................. 87 5.5.1 STRATEGIC PURCHASING ..................................................................................................................................... 87 5.5.2 STRATEGIC SOURCING .......................................................................................................................................... 89 5.5.1 SINGLE VS MULTI .................................................................................................................................................... 89 5.5.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 90 5.5.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 90 5.5.3 INFORMATION TECHNOLOGY .............................................................................................................................. 91 5.6 CROSS-CASE ANALYSIS ...................................................................................................................................................... 91 5.6.1 STRATEGIC PURCHASING ..................................................................................................................................... 92 5.6.2 STRATEGIC SOURCING .......................................................................................................................................... 93 5.6.2.1 SINGLE VS MULTI ................................................................................................................................................. 93 5.6.2.2 GLOBAL VS LOCAL .............................................................................................................................................. 95 5.6.2.3 PARTNERSHIP VS COMPETITIVE BIDDING ..................................................................................................... 96 5.6.3 INFORMATION TECHNOLOGY .............................................................................................................................. 98 6. CONCLUSIONS AND IMPLICATION......................................................................................... 100 6.1 CONCLUSIONS .................................................................................................................................................................... 100 6.1.1 RESEARCH QUESTION 1....................................................................................................................................... 100 6.1.2 RESEARCH QUESTION 2....................................................................................................................................... 101 6.1.3 RESEARCH QUESTION 3....................................................................................................................................... 103 6.1.4 SUMMARY OF CONCLUSIONS ........................................................................................................................... 104 6.2 MANAGERAL IMPLICATIONS ........................................................................................................................................... 105 6.3 ACADEMIC IMPLICATION ................................................................................................................................................. 106 6.4 LIMITATIONS ....................................................................................................................................................................... 106 6.5 SUGGESTIONS FOR FUTURE RESEARCH ....................................................................................................................... 106 REFERENCES ........................................................................................................................................................................... 108 APPENDIX 1 ................................................................................................................................................................................ 115 APPENDIX 2 ................................................................................................................................................................................ 116 APPENDIX 3 ................................................................................................................................................................................ 117 APPENDIX 4 ................................................................................................................................................................................ 119 APPENDIX 5 ............................................................................................................................................................................... 121 APPENDIX 6 ............................................................................................................................................................................... 122 APPENDIX 7 ............................................................................................................................................................................... 123 APPENDIX 8 ............................................................................................................................................................................... 124 7 APPENDIX 9 ............................................................................................................................................................................... 125 List of figures 1.1 DISPOSITION OF THESIS ........................................................................................................................................... 14 2.1 LEVELS OF PURCHASING ......................................................................................................................................... 16 2.2 RANGES OF BUYER-SUPPLIER RELATIONSHIPS ................................................................................................. 24 2.3 CONCEPTUAL MODEL OF THEORETICAL FRAMEWORK ................................................................................... 28 3.1 A GRAPHIC ILLUSTRATION OF THE DEDUCTIVE APPROACH .......................................................................... 30 3.2 RESEARCH DESIGN .................................................................................................................................................... 31 3.3 RESEARCH DESIGN .................................................................................................................................................... 32 3.4 OPERALIZATION MODEL .......................................................................................................................................... 36 3.5 PROCESS OF THE INTERVIEW GUIDE .................................................................................................................... 40 5.1 STRUCTURE OF ANALYSIS ....................................................................................................................................... 70 List of tables 3.1 RESEARCH STRATEGY .............................................................................................................................................. 34 3.2 DEFINITION OF SME .................................................................................................................................................. 41 3.3 DEFINITION FOR INVESTIGATED SMES ................................................................................................................ 41 3.4 INFORMATION ABOUT THE RESPONDENTS ......................................................................................................... 43 4.1 SUMMARY OF EMPIRICAL ....................................................................................................................................... 69 5.1 ANALYSIS OF ARCOMA ............................................................................................................................................ 71 5.2 ANALYSIS OF LASERMAX ROLL SYSTEM ............................................................................................................ 75 5.3 ANALYSIS OF LJUNGBY MASKIN ............................................................................................................................ 78 5.4 ANALYSIS OF SP MASKINER .................................................................................................................................... 83 5.5 ANALYSIS OF SWEPAC .............................................................................................................................................. 88 8 1. INTRODUCTION This chapter presents the background of this thesis. It begins with the introduction and background descriptions followed by problem discussion that pointing out the drivers behind this thesis. Further the purpose and detailed research discussions that motivate this thesis are defined. The last section in this chapter presents the delimitation and the disposition. Competitive conditions on markets have gone through changes in the last decades, which have led to a need for companies to adapt to new requirements imposed on them either by consumers or competition (Porter, 1985; Galbreath, 2002). Competition is affected by market changes and the requirements for companies to stay competitive in these markets (Galbreath, 2002). Conditions effecting the environment are changed buyer preferences, increased globalization, shorter product life cycles and technology changes (Pressey et al. 2007). Due to changed market situations companies are driven to give first priority to cost and cycle-time reduction, quality improvement and focus on core activities (Van Weele, 2010). It could also mean opportunities for companies to take advantage of new needs or minimize threats of competition. To do so they need to recognize these opportunities and develop effective strategies to ensure their success (Monczka et al. 2009; Van Weele, 2010; Thrulogachantarm and Zailani, 2011). The previous statement is in line with Porter’s, (1996) view that strategies are important for companies future competitiveness and that they can be used to benefit understanding about markets companies operates in. Strategies exist in different levels in an organization and are “the direction and scope of an organization over the long-term, which achieves advantages in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations” (Johnson et al. 2008, p. 3). The competitive market situation has created a shift in companies strategy thinking. Strategies focus increasingly on core activities and business development. One effect of this is that companies choose to outsource activities they don´t consider to be core business. This has made management more aware of purchasing functions growing influence in the business and its strategic role in the overall corporate strategy (Van Weele, 2010; Thrulogachantar and Zailani, 2011). A company’s purchasing strategy can be developed by analyzing supplier’s power and the principles of buyer selection. Companies then need to see to the stability and competitiveness 9 of the supply base, how they want to cooperate vertical with their suppliers and their distribution among suppliers (Porter, 2004). 1.1 Background There are three main stakeholders to consider in business strategy decisions; major competitors, primary customer groups or target groups and major suppliers (Van Weele, 2010), for illustration see Appendix 1. Porter, (1985) identified the relevance of this stakeholders in the competitive five forces model. The bargaining power of supplier’s effect the competitive positions in markets, the statement us is strengthen by Renko et al. (2011), and facing competition in markets need to be company priority to gain or keep a strong competitive advantage on the market. The purpose of purchasing actions is a determining factor of the level of strategic approach and strategic intent with involved stakeholders (Ho et al. 2011). Strategic implementation is a process with several aspects that consider strategic activities as internal competences which can lead to capability improvement and stronger competitiveness (Chiang et al. 2011). Strategic approach is defined in this thesis as an effort by the company to create long-term goals, objectives and strategies concerning management of supply base and purchasing functions. It is making decisions on a management level that affect activities on an operational level and making the purchasing department a central part of the information and material flow. Xu, (2010) define supply chain as a set of activities ranging companies functions from the ordering and receipt of raw material, manufacturing of products, through to the distribution and delivery to the customer. An objective of a Supply Chain Management (SCM) for the buying company is to achieve sustainable competitive advantages by, among others, reducing cost and lead time and enhance quality, delivery performance and effectiveness. Close relationships in the supply chain could be a determining factor for the competitive success. For the supply chain to operate efficiently all functions that are related need to operate in an integrated manner, including quality management. To enable a working relationship between the supply members the communication flow of SCM is vital (Chen et al, 2004) and information systems is growing in SCM context for strengthen communication (Xu, 2010). Knolmayer, (2009) indicate that SCM would not be possible without advances in information systems and technology (Achrol and Kotler, 1999; Knolmayer, 2009). Short-term objective of SCM is to increase productivity and reduce inventory and cycle times. The 10