Understanding Buyer and Supplier Power: A Framework for Procurement and Supply Competence.

This article outlines how the power perspective can enhance effective procurement and supply management. The first section outlines the current dominant view of competence in procurement and supply management and explains why it is incomplete. The second section explains why competence in procurement

and supply management must start from an understanding of the bases of supplier power and business strategy. This section also explains the critical role of buying as one of the two main competencies that all organizations require if they seek business success. The final section outlines the basic power matrix that is essential in understanding the exchange relationship between buyers and suppliers, so that buyers can understand the circumstance they are in and what scope exists for them to augment their power relative to suppliers.

THE DOMINANT VIEW IN PROCUREMENT AND SUPPLY MANAGEMENT

There has been a developing consensus in the last 10 years about what is the proper way to think about competence in procurement and supply management. This consensus can be labelled integrated supply chain management (ISCM), although it is sometimes referred to as lean thinking or supply (Hines 1994; Womack and Jones 1996; Handfield et al. 2000; Hines et al. 2000).

Figure 1 demonstrates what has become the dominant theme that practitioners, consultants, and many academics have presented as competence in procurement and supply management. The basic approach can be explained as follows. Organizations should concentrate on their core competencies and outsource all those aspects of their business that are non-core to suppliers. These suppliers will be selected on the basis that what is outsourced to them is, for them, their core competence.

Once the boundary of the firm decision has been made, the primary role of the procurement and supply manager is to end any internal fragmentation of similar categories of spend. The goal here is to ensure effective consolidation of spend in like categories across all areas of the business.

Once consolidation has been achieved, the key role is then to reduce the number of suppliers whenever multiple and redundant supply relationships exist. The aim here is to ensure that the procurement function has the time and resources to concentrate its efforts on selected preferred suppliers, in order to develop long-term performance improvement relationships.

This is the ultimate long-term goal of the core competence and outsourcing approach. The aim is to undertake improvements in the performance of first-tier suppliers through proactive supplier development programs. Ultimately, improvements in first-tier supply relationships are not the ultimate goal. Eventually, the key to competence is often seen as the ability of the procurement executive to be able to undertake proactive improvement in quality and cost. This is normally achieved by working with key suppliers at all stages in the extended network of dyadic buyer and supplier relationships that constitute what is commonly referred to as the supply chain.

There is little doubt that many writers have perceived this integrated supply chain management approach as the ultimate goal for all procurement and supply managers to test themselves against, and to which they ought to aspire. But is it? There have been a number of writers who have begun to question whether this approach is, in fact, the holy grail of competence for practitioners (Cox 1997; Watson and Sanderson 1997; Laseter 1998).

These writers have begun to recognize that the ISCM approach fails to take account of the many circumstances when the buyer is not in a position to create extended supply chain relationships to eradicate waste and inefficiency. This critique also questions why this approach has suddenly become so dominant. In particular, it is argued that the rise of the ISCM orthodoxy appears to be a response to the initial success of Japanese practices in the automotive sector. Unfortunately, it may represent nothing more than a poorly thought-out attempt to replicate what occurs in one particular circumstance and generalize it to many other nonreplicable circumstances (Cox and Thompson 1998).

Furthermore, deductive logic may help to cast doubt on the veracity of attempting to replicate this ISCM approach in all circumstances. The ISCM approach is based on the idea that it is possible for buyers to create lean and efficient supply chains for themselves in order to provide a competitive advantage as supply chains compete against one another. Unfortunately, while this may be a theoretically interesting and even desirable proposition, practically it may be an impossible goal for many buyers.

If one of the keys to success in business is the ability to acquire the lowest cost and highest quality of supply inputs relative to competitors, one can only argue that integrated supply chain management approaches are the ideal if they are always capable of achieving this goal. Logical reasoning demonstrates, however, that this benign environment is unlikely to occur in circumstances where the benefits of lower price and better quality arise as a result of economies of scale on the supply side. In such circumstances, any individual buyer can obtain the best value for money only if one supplier (or a limited number of them) is able to close the market to others.

However, in such circumstances, the buyer is not in a position to develop preferential supply relationships because the supplier has little interest in providing supply only to one buyer. This is a situation in which the exchange relationship between buyer and supplier is biased in favor of the supplier. It does not follow that all buyers will, as a result, obtain the same deal. On the contrary, a particular buyer may have a higher level of demand than another and this leverage will provide the buyer with a potential preferential price or quality of supply than other buyers.

The point is that all buyer and supplier (and extended supply chain) relationships operate in an environment of relative buyer and supplier power. So much of this is common sense. All buyers know intuitively that they operate in such complex leverage environments, yet when it comes to recent thinking about best practice in procurement and supply management, it is surprising that this intuitive understanding appears to have been lost by many practitioners and their advisors.

It is our view that if this common-sense way of thinking about power circumstances had been sustained over recent years, it would have led to a better understanding of the circumstances under which ISCM is possible and when it is not. By understanding the importance of the attributes that provide for effective leverage of buyers over suppliers (or vice versa), it becomes obvious that ISCM can only be properly implemented when the focal organization is in one of two power positions. The first is when the focal organization is in a position of structural dominance over its extended network of suppliers. The second is when there is an interdependence with the extended network of suppliers that results in power being shared willingly by both sides in these exchange relationships.

THE IMPORTANCE OF POWER FOR BUSINESS STRATEGY AND OPERATIONAL PERFORMANCE

To begin to understand how competence should be understood in procurement and supply management, it is best not to start from inductive logic but to commence with deductive thinking. The problem with the ISCM thinking is that it has been derived from false logic and a poor empirical understanding of causality.

First, there is little doubt that the development of the core competence and outsourcing trend, and its linkage with Japanese supply chain management practices, has been the result of analysis by Western academics and consultants of Japanese superior performance in manufacturing in the 1970s and 1980s. The problem with much of this thinking is that it is culturally specific (Japanese) and historically contingent (based on particular socioeconomic circumstances operating in the 1970s and 1980s). Furthermore, the analysis undertaken may have been based on a faulty inductive benchmarking methodology.

Westerners visiting Japan are often guilty of misperceiving what they see with their eyes. This is the old problem that Sherlock Holmes criticized Dr. Watson for when he said, "You see, but you do not observe." As a result, Western analysts visiting Japan often notice things that they did not see in their own countries and assume that they need only to replicate these practices in order to achieve similar improvements in their own business performance. Unfortunately, when doing so, Western observers of Japanese practices may be confusing cause and effect, means and ends. What are the Japanese practices that Western observers have most often pinpointed as different from Western business practice?

First, Japanese manufacturing companies do not place (nor have they historically placed) a high value on vertical integration of their supply chains. Second, they have been able to outsource non-core activities to sup pliers, while still obtaining the benefits of vertical integration -- namely, effective control and leverage over their supply chain partners. Furthermore, they have also been more likely to have longer-term and more highly collaborative relationships with their suppliers than is commonly the case in the West.

As a result of this empirical observation of what is clearly different about Japanese practice, it is simple logic for Western observers to conclude that all one has to do is to replicate these practices in the West in order to achieve similar improvements in performance. Unfortunately, many Western organizations have found that this is not the case, and although there has been some success in the automotive sector in particular, there has been much less success elsewhere (Handfield et al. 2000).

Why should this be so? The answer is clear enough. Most of the writers on Japanese management practices have significantly failed to understand what the ghost in the machine is when it comes to effective ISCM. The ghost in the machine is the fact that most historic Japanese business relationships -- and especially their supply chain relationships -- have nearly always been predicated on buyers' dominance over their supply chain partners. The fact that there are long-term and highly collaborative relationships does not imply that Japanese buyers base their relationships primarily on trust or work in a nonadversarial fashion with their suppliers. On the contrary, Japanese buyers are working to create hierarchies of structural dominance with their suppliers, in which the supplier values the relationship (sees it as a win-win), but in which the buyer retains effective leverage over the supplier relationship wherever possible. This is a power relationship of buyer dominance.

Why is this emphasis on the need to understand the objective power circumstance embedded within the close, collaborative working relationships that characterize Japanese business relationships essential for an understanding of competence in procurement and supply? The reason is simple enough. Power is at the heart of all business-to-business relationships. This point can be made quite simply by reference to the fundamental causes of business success.

In 1776, Adam Smith wrote a book called The Wealth of Nations. In this book, Smith argued that the best defense of a buyer's (consumer's) interest was to ensure that suppliers are forced to operate in highly contested markets, with perfect information for the buyer about the suppliers' respective offerings. In such circumstances, Smith argued, the supplier can only stay in business by constantly innovating vis-a-vis other competitors to pass value to the buyer.

Smith was arguing that, while suppliers must earn a profit to stay in business, only perfectly competitive markets defend the buyer against the natural desire by suppliers to close markets to their competitors, so that they can earn above-normal returns. Interestingly enough, today all financial investors are only interested in investing in organizations that are capable of earning above-normal returns.

If investors are only interested in organizations that can earn double-digit returns (or rents), it follows logically that business success can only occur if organizations are able to close markets to their competitors. In this way, sellers create the power to make above-normal returns by exploiting those to whom they sell. Furthermore, since investors want permanent returns above the normal, it follows logically that investors must be interested in investing in organizations that are able to have permanent positions of power vis-a-vis their respective customers and competitors.

Thus, one can argue that on the downstream side of their supply chains, organizations want to be in positions of power over buyers. To achieve this, as economists have known for centuries (Smith 1985; Marshall 1997; Porter 1980; Rumelt 1987), it is essential that organizations find "isolating mechanisms." As Figure 2 demonstrates, isolating mechanisms are supply resources that close markets to competitors (whether permanently or temporarily) and provide opportunities for suppliers to effectively leverage their customers (buyers).

It is through an understanding of how suppliers achieve and sustain situations of power and leverage over buyers that the keys to business success are acquired. It can be argued that there are only two strategic routes to the achievement of sustainable, above-normal returns. The first occurs by the closure of markets to other competitors, so that supplier power is created against buyers. The second occurs when suppliers find ways to operate in opaque supply markets. These are highly contested markets in which the buyer lacks the information or resources to successfully leverage any supplier that may be selected (for further discussion of this, see Cox et al. 2001, forthcoming).

Suppliers that are unable to achieve these two benign states that allow them to sustain above-normal returns are forced to operate in supply chains and markets that can be regarded as "treadmills to oblivion." These are Adam Smith's ideal contested supply chains and markets in which the supplier must always strive to innovate and pass value to the buyer, while earning only normal returns. In such markets, the only strategies that can be made to work for the supplier are to seek short-term opportunities to win a large share of the current market volume by constant innovation, or to seek opportunities for market closure through merger and acquisition activity.

Ironically, such low-margin, high-volume markets are traditionally seen as commoditized and mature industries in which investors do not wish to invest. These are the very markets in which the buyer has relative power over the supplier and in which the supplier must pass value to the buyer at all times. This must be the ideal market environment in which all procurement and supply practitioners must strive to force their suppliers to operate. But what does this mean for the best-practice ISCM model that relies on reducing the number of suppliers and developing long-term supply relationships with only a few of them?

To understand why and how the ISCM approach has often failed to augment buyer leverage over supply inputs and has often led inadvertently to an increase in supplier dominance over buyers, it is necessary to focus first on the Janus-faced nature of all business relationships. By Janus-faced, one simply means that all organizations have downstream supply relationships with their customers, as well as buying relationships with their upstream suppliers. In order to understand competence in procurement and supply management, it is essential to understand these two sides of the coin of business strategy.

If augmenting supplier power is one face of successful strategy it is clear that ensuring the quality of supply inputs at the lowest possible total cost of ownership must be the second key competence required by all entrepreneurial organizations. This is because business can be reduced to the simple dictum that success can only occur if it is possible "to buy cheap and to sell dear." This implies that buying and selling are the two key competencies for all businesses, even though most organizations have historically ignored the importance strategically and operationally of the buying competence.

It is clear, therefore, that procurement and supply competence is perhaps the most misunderstood competence in the armory of business success. As Figure 3 demonstrates, there are generally three key genetic competencies that are required in business.

Few people would disagree that demand management (marketing and sales) is a competence that is critical to business success. But would everyone agree that transformation (the turning of supply inputs into more valuable supply outputs through a value-adding process) and procurement and supply (acquiring and managing supply chain resources to achieve the highest quality of supply at the lowest total cost of ownership possible) are key competencies required by all organizations?

The answer is, surely, no. The reason for this is that it is only some organizations that need to transform supply inputs into more valuable supply outputs. Many organizations (supermarkets, travel agents, financial advisors, and intermediaries of all kinds) do not transform supply inputs into more valuable supply outputs. Supermarkets, for example, merely provide distribution points sup ported by logistical transmission services for their customers. They do not transform supply inputs into more valuable supply outputs. Thus, while it follows that transformation may be a critical competence for many manufacturing and service firms (i.e., automotive, aerospace, chemical processing, software producers, etc.), it does not follow that organizations need to transform anything in order to be successful in business. Many organizations are highly successful as intermediaries without transformation.

If one accepts this logic, then it is difficult to argue that transformation is a competence that is always of the same significance to business success as demand management. Of course, it may be as significant in some organizations, but it is clear that not every organization requires this competence for success. But what of procurement and supply competence? By this competence, one means the ability to acquire the necessary supply chain resources to allow an organization to be successful.

Clearly, if one begins to think carefully about the meaning of procurement and supply competence, it must subsume within its ambit all supply inputs necessary for the organization to achieve business success. Logically, this will include all of those supply resources that must be held internally within the organization and managed through internal contracts, as well as all of those resources that can be safely outsourced and managed through external contracts.

Clearly, therefore, as Figure 4 reveals, transformation is logically a subset (and not a superior or co-equal competence) of procurement and supply competence. Indeed, procurement and supply competence -- arguably the most poorly understood competence in modem business management -- must include at its heart the make-buy decision. Only through the use of a robust and iterative make-buy methodology is an organization able to decide which of the potential supply chain resources that could be owned internally should be, and which are safe to be outsourced and managed through external supply relationships.

As Figure 4 demonstrates, procurement and supply competence is one of the two premier business competencies for effective strategic decisionmaking, in which the make-buy decision is the key to understanding where, and how, supply inputs should be managed. It follows from this that when organizations are thinking about procurement and supply competence, what they should be addressing first is which supply chain resources should be insourced within the organization in order to augment supplier power vis-a-vis their customers and competitors.

Once this has been achieved, it is then essential that the organization decide what is the most effective way to manage those external supply chain inputs that can or must be managed through external contracts. In defining what practices should be adopted, it is essential that practitioners eschew any desire to believe that one particular practice -- like ISCM -- is any more valuable than another.

On the contrary, practitioners must focus their attention on the concept of appropriateness (Cox 1997). By appropriateness, one simply means that the ideal goal for any organization is to achieve Janus-faced dominance over its supply chain and market relationships. This is illustrated in Figure 5.

As Figure 5 reveals, it is essential for organizations to augment their own power as suppliers against both their competitors and their customers. It is also essential -- if above-normal returns are to be made -- that the profits generated from supply dominance over customers are not dissipated through inefficient procurement of internal or external supply inputs. In managing internal supply inputs, therefore, it is essential that organizations work to ensure the most efficient and effective transformation processes. Similarly, when undertaking external supply management, practitioners must focus not on any one specific practice but choose wisely from all of those practices that will allow them to improve their leverage vis-a vis their actual or potential suppliers.

BUYER COMPETENCE THROUGH POSITIONING AND REPOSITIONING IN THE POWER MATRIX

It follows that the development of a robust and iterative make-buy process that is linked strategically and operationally across all business functions is critical to an understanding of how procurement and supply competence is achieved in organizations. Linked to any robust make-buy process must be an understanding of the fact that exchange relationships exist between buyers and suppliers once a buy decision has been made. This implies that a robust make-buy methodology must involve an understanding of pre- and post-contractual power in buyer and supplier exchange relationships.

The way in which the power of buyers and suppliers can be understood is outlined below. The Power Matrix is explained in more detail elsewhere, but it is basically constructed around the idea that all buyer and supplier relationships are predicated on the relative utility and the relative scarcity of the resources that are exchanged between the two parties (Cox, Sanderson, and Watson 2000; Cox et al. 2001 forthcoming).

As Figure 6 reveals, a buyer can be located in any one of four basic power positions. In the buyer dominance box, the buyer has power attributes relative to the supplier that provide the basis for the buyer to leverage the supplier's performance on quality and/or cost improvement, and ensure that the supplier receives only normal returns.

In the interdependence box, both the buyer and the supplier possess resources that require the two parties to the exchange to work closely together, since neither party to the exchange can force the other to do what it does not wish to do. In this circumstance, the supplier may achieve above-normal returns but must also pass some value to the buyer in the form of less-than-ideal returns, as well as some degree of innovation.

In the independence box, neither the buyer nor the supplier has significant leverage opportunities over the other party, and the buyer and the supplier must accept the current prevailing price and quality levels. Fortunately for the buyer, this price and quality level is often not that advantageous for the supplier because the supplier has few leverage opportunities (other than buyer ignorance and incompetence) and may be forced to operate at only normal returns.

In the supplier dominance box, the supplier has all of the levers of power. It is in this box that one would expect the supplier to possess many of the isolating mechanisms that close markets to competitors and many of the barriers to market entry that allow above-normal returns to be sustained. In such an environment, the buyer is likely to be both a price and quality receiver.

Figure 7 provides a description of some of the key attributes that one might expect to find if one were trying to position buyer and supplier relationships using The Power Matrix. As will be discussed in the final article in this collection, the key to procurement and supply competence is twofold. First, it is the ability to define one's objective position in The Power Matrix. This is a necessary condition of competence and one that many practitioners do not appear to possess. But more importantly, once practitioners are able to position themselves correctly, the second, and sufficient, condition of success is the ability to find ways to move from the current position of power to other more favorable positions.

CONCLUSIONS

The ideal situation for buyers is logically (as Adam Smith argued long ago) to force all of their suppliers into the buyer dominance box. This box must be the preferred location from which supplier relationships should be managed. In part, procurement and supply competence must involve the buyer seeking ways to eradicate those "isolating mechanisms" that augment the power of the supplier over the buyer, as well as seeking at all times to ensure that its suppliers operate only in highly contested markets and earn only normal returns.

The problem for the buyer is that it is not always possible to achieve this desired goal of structural leverage. If it were possible to achieve this, then few suppliers would ever have the luxury of operating in either the interdependence or the supplier dominance box. This ideal circumstance for the buyer is not always possible in the real world because of the counterveiling power resources (attributes) available to the supplier.

As a result, buyers should not be judged only on their ability to move all of their supply relationships into the buyer dominance box. On the contrary, competence resides in the ability of the buyer to shift the current supply relationships from where they currently lie either into the buyer dominance box or, if this is not possible, into an alternative location that provides for a more effective leverage of quality and cost. How this can be achieved is discussed in more detail in the final article in this collection.

It is important to understand that the power attributes that may be available to buyers and suppliers can be double-edged. This means that the objective analysis of the impact of particular power attributes requires care since practitioners sometimes misunderstand the power attributes available to themselves and their suppliers in some resources. This is because a power attribute may favor the buyer and sometimes it may favor the supplier. The article that follows explains how regulation can be an attribute that augments the power of both the buyer and the supplier.

The third article explains why so much of recent outsourcing and ISCM thinking has not worked as successfully as practitioners expected. In short, this is because while buyers are trying to reposition in The Power Matrix to augment their power resources vis-a-vis their suppliers, suppliers are also working to reposition themselves out of the buyer dominance quadrant to move as close to the supplier dominance quadrant as they are able. In this way, suppliers seek to create above-normal returns by creating dependent buyers.

Andrew Cox

is Chairman of Robertson Cox Ltd, in the UK and USA.

REFERENCES

Cox, A. Business Success, Earlsgate Press, Boston, United Kingdom, 1997.

Cox, A. "On Power, Appropriateness and Procurement Competence," Supply Management, 2nd ed., October 1997, pp. 24-27.

Cox, A. and I. Thompson. "On the Appropriateness of Bench marking," Journal of General Management, (23:3), Spring 1998, pp. 1-20.

Cox, A., et al. Supply Chains, Markets and Power, Routledge, London, England, 2001 forthcoming.

Cox, A., J. Sanderson, and G. Watson. Power Regimes: Mapping the DNA of Business and Supply Chain Relationships, Earlsgate Press, Boston, United Kingdom, 2000.

Handfield, R.B., et al. "Avoid the Pitfalls in Supplier Development," Sloan Management Review, Winter 2000, pp. 37-49.

Hines, P. Creating World Class Suppliers, Financial Times/ Pitman, London, England, 1994.

Hines, P., et al. Value Stream Management: Strategy and Excellence in the Supply Chain, Financial Times/Prentice Hall, 2000.

Laseter, T.M. Balanced Sourcing, Jossey-Bass Inc., San Francisco, CA, 1998.

Marshall, A. Principles of Economics, Prometheus Books, New York, NY, 1997.

Porter, M.E. Competitive Strategy, The Free Press, New York, NY, 1980.

Rumelt, R.P. "Theory, Strategy and Entrepreneurship." In D. Teece (Ed.), The Competitive Challenge, Harper & Row, New York, NY, 1987.

Smith, A. The Wealth of Nations, Penguin Books, Harmondsworth, United Kingdom, 1985.

Watson, G. and J. Sanderson. "Collective Goods versus Private Interest: Lean Enterprise and the Free Rider Problem." In A. Cox and P. Hines (Eds.), Advanced Supply Management: The Best Practice Debate, Earlsgate Press, Boston, United Kingdom, 1997.

Womack, J.P. and D.T. Jones. Lean Thinking, Simon & Schuster, New York, NY, 1996.

THE INTEGRATED SUPPLY CHAIN MANAGEMENT (ISCM) APPROACH

(1) Concentrate on core competencies

(2) Outsource all non-core competencies to suppliers

(3) Consolidate all supply inputs into categories of spend

(4) Concentrate resources on a limited number of preferred suppliers

(5) Improve supplier and supply chain performance through proactive supplier development activities

THE FUNDAMENTAL BASES OF SUPPLIER POWER OVER BUYERS
           12 SOURCES OF SUPPLIER POWER OVER
           COMPETITORS AND BUYERS
           * Legal property rights
           * Economies of scale
           * Information impactedness
THE BUYER  * Causal ambiguity
CORPORATE  * Reputation effects (brands)
OR         * Buyer switching costs
CONSUMERS  * Buyer search costs
           * Network effects
           * Collusive cartels
           * Lack of substitutes
           * Lack of threat of backward
             integration
           * Lack of disintermediation
             threat
THE THREE KEY GENERIC BUSINESS COMPETENCIES
       DEMAND                                PROCUREMENT
     MANAGEMENT        TRANSFORMATION         AND SUPPLY
     COMPETENCE          COMPETENCE           COMPETENCE
   The ability to      The ability to       The ability to
 understand current   create innovative    acquire required
 and future markets   supply offerings   supply inputs at the
and to sell existing   by adding value     quality required
and future products   to supply inputs   and with the lowest
and services within      and outputs        total cost of
        them                              ownership possible
THE TWO STRATEGIC BUSINESS COMPETENCIES
DEMAND MANAGEMENT COMPETENCE
         MARKETING                    SALES
         COMPETENCE                 COMPETENCE
       The ability to             The ability to
     understand future        sell existing products
     trends in markets             and services
       and to develop         effectively in current
     innovative supply           markets and find
     offerings to close         innovative ways to
          markets to             close markets to
     competitors and to         competitors and to
     leverage potential         leverage existing
     customers (buyers          customers (buyers
       and consumers)             and consumers)
DEMAND MANAGEMENT COMPETENCE  PROCUREMENT AND SUPPLY
                               MANAGEMENT COMPETENCE
         MARKETING                INTERNAL SUPPLY
         COMPETENCE                 COMPETENCE
       The ability to         A ROBUST AND ITERATIVE
     understand future            MAKE ----- BUY
     trends in markets              METHODOLOGY
       and to develop         The ability to acquire
     innovative supply         and manage requisite
     offerings to close           internally owned
          markets to               supply chain
     competitors and to        resources, to provide
     leverage potential            for effective
     customers (buyers            transformation
       and consumers)         differentiation against
                                  competitors and
                                 leverage against
                                 customers (buyers
                                  and consumers)
DEMAND MANAGEMENT COMPETENCE
         MARKETING               EXTERNAL SUPPLY
         COMPETENCE                 COMPETENCE
       The ability to
     understand future
     trends in markets
       and to develop         The ability to acquire
     innovative supply            and manage the
     offerings to close        requisite externally
          markets to            owned supply chain
     competitors and to        resources to provide
     leverage potential        effective inputs at
     customers (buyers          the lowest cost of
       and consumers)          ownership possible,
                                  by constraining
                                  supplier power
                                whenever possible
THE POWER MATRIX
BUYER POWER ATRRIBUTES
RELATIVE TO SUPPLIER
HIGH                             BUYER      INTERDEPENDENCE
                              DOMINANCE               =
                           [greater than]
LOW                         INDEPENDENCE       SUPPLIER
                                  0            DOMINANCE
                                              [less than]
SUPPLIER POWER ATTRIBUTES
RELATIVE TO BUYER
LOW                             BUYER        INDEPENDENCE
                              DOMINANCE            0
                           [greater than]
HIGH                       INTERDEPENDENCE     SUPPLIER
                                  =            DOMINANCE
                                              [less than]
Adapted from Cox, A., J. Sanderson, and G. Watson. Power Regimes,
www.earlsgatepress.com, 2000, p. 18.
THE ATTRIBUTES OF BUYER AND SUPPLIER POWER
ATTRIBUTES OF BUYER POWER
RELATIVE TO SUPPLIER
HIGH  BUYER DOMINANCE
      * Few buyers/many suppliers
      * Buyer has high % share of total
        market for supplier
      * Supplier is highly dependent on
        buyer for revenue with limited
        alternatives
      * Supplier switching costs are high
      * Buyers switching costs are low
      * Buyers account is attractive to
        supplier
      * Supplier offerings are
        commoditised and standardised
      * Buyer search costs are low
      * Supplier has no information
        asymmetry advantages over buyer
LOW   INDEPENDENCE
      * Many buyers/many suppliers
      * Buyer has relatively low % share
        of total market for supplier
      * Supplier is not dependent on
        buyer for revenue and has many
        alternatives
      * Supplier switching costs are low
      * Buyers switching costs are low
      * Buyers account is not
        particularly attractive to supplier
      * Supplier offerings are commoditised
        and standardised
      * Buyer search costs are relatively low
      * Supplier has only limited information
        asymmetry advantage over buyer
LOW   BUYER DOMINANCE
      * Few buyers/many suppliers
      * Buyer has high % share of total
        market for supplier
      * Supplier is highly dependent on
        buyer for revenue with limited
        alternatives
      * Supplier switching costs are
        high
      * Buyers switching costs are low
      * Buyers account is attractive to
        supplier
      * Supplier offerings are commoditised
        and standardised
      * Buyer search costs are low
      * Supplier has no information asymmetry
        advantages over buyer
HIGH  INTERDEPENDENCE
      * Few buyers/few suppliers
      * Buyer has relatively high % share of
        total market for supplier
      * Supplier is highly dependent on buyer
        for revenue with few alternatives
      * Suppliers swtiching costs are high
      * Buyer swtiching costs are high
      * Buyers account is attractive to
        supplier
      * Supplier offerings are not
        commoditised and customised
      * Buyer search costs are high
      * Supplier has significant information
        asymmetry advantages over buyer
HIGH  INTERDEPENDENCE
      * Few buyers/few suppliers
      * Buyer has relatively high %
        share of total market for supplier
      * Supplier is highly dependent on buyer
        for revenue with few
        alternatives
      * Suppliers switching costs are high
      * Buyer switching costs are high
      * Buyers account is attractive to
        supplier
      * Supplier offerings are not
        commoditised and customised
      * Buyer search Costs are high
      * Supplier has significant information
        asymmetry advantages over buyer
LOW   SUPPLIER DOMINANCE
      * Many buyers/few suppliers
      * Buyer has low % share of total
        market for supplier
      * Supplier is not at all dependent
        on the buyer for revenue and many
        alternatives
      * Supplier switching costs are low
      * Buyer switching costs are high
      * Buyers account is not attractive
        to the supplier
      * Supplier offerings are not
        commoditised and customised
      * Buyer search costs are very high
      * Supplier has high information
        asymmetry advantages over buyer
LOW   INDEPENDENCE
      * Many buyers/many suppliers
      * Buyer has relatively low %
        share of total market for supplier
      * Supplier is not dependent on buyer
        for revenue and has many alternatives
      * Supplier switching costs are low
      * Buyers switching costs are low
      * Buyers account is not particularly
        attrative to supplier
      * Supplier offering are commoditised
        and standardised
      * Buyer search costs are relatively low
      * Supplier has only limited information
        asymmetry advantage over buyer
HIGH  SUPPLIER DOMINANCE
      * Many buyers/few suppliers
      * Buyer has low % share of total
        market for supplier
      * Supplier is not at all dependent
        on the buyer for revenue and has
        many alternatives
      * Supplier switching costs are low
      * Buyer swtiching costs are high
      * Buyers account is not attrative to
        the supplier
      * Supplier offerings are not commoditised
        and customised
      * Buyer search costs are very high
      * Supplier has high information asymmetry
        advantages over buyer