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Buyer–supplier relationships and planning solutionsH.-H. Hvolby a , J. Trienekens b & K. Steger-Jensen aa Department of Production , Aalborg University , Denmarkb Department of Social Sciences , Wageningen University , The NetherlandsPublished online: 23 Aug 2007.

To cite this article: H.-H. Hvolby , J. Trienekens & K. Steger-Jensen (2007) Buyer–supplier relationships and planningsolutions, Production Planning & Control: The Management of Operations, 18:6, 487-496, DOI: 10.1080/09537280701520802

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Production Planning & Control,Vol. 18, No. 6, September 2007, 487–496

Buyer–supplier relationships and planning solutions

H.-H. HVOLBY*y, J. TRIENEKENSz and K. STEGER-JENSENy

yDepartment of Production, Aalborg University, Denmark

zDepartment of Social Sciences, Wageningen University, The Netherlands

The paper focuses on supply chain relationships and segmented planning and ICT concepts.Major supplier segments are distinguished based on literature: capacity suppliers, standardsuppliers, system suppliers and key suppliers. Next, current supply chain planning solutionsare distinguished: vendor managed inventories (VMI), supplier hubs, electronic markets andintegrated systems. A framework, with dimensions customisation and integration, linkingsupplier typologies with supply chain planning solutions is presented. Finally, the applicabilityof the framework is tested at a mid-size Danish manufacturer. The case shows that level ofcustomisation and level of integration between buyer and supplier define options for supplychain planning and related ICT solutions.

Keywords: Buyer–supplier relationships; Supplier typology; Supply chain planning scenarios

1. Introduction

In the last decade many companies have tried to adapt

their manufacturing planning and control system to

cope with the increased demands for customer oriented

manufacturing: shorter times of delivery, higher delivery

frequencies, demands for more customised products,

shorter product life cycles and increased product variety

(Kasarda and Rondinelli 1999, Towill 1999, Christopher

and Peck 2003, De Treville et al. 2004). At the same time

markets have changed rapidly, which has increased the

risk of investments in new technology, machinery and

other equipment.The Global Supply Chain Forum (Lambert and

Cooper 2000) defines supply chain management

(SCM) as: the integration of key business processes

from end user through original suppliers who provide

products, services, and information that add value for

customers and other stakeholders. Most companies take

part in different, inter-linked supply chains, which

makes balanced SCM one of the key issues. Important

supply chain issues that companies have to deal with are

information sharing and monitoring, coordination of

inventories, joint planning and reduction of supplier

bases (Slack et al. 2004). An important development inthis regard is that companies focus on core activities,leading to outsourcing of non-core activities to suppliers(Momme 2002).

This paper focuses on buyer–supplier relationships.Based on production philosophy of the buyer, level ofintegration of buyer and supplier and the role of ICT,the paper will develop a framework for supply chainplanning scenarios. The goal of the framework is toassess buyer–supplier relationships and support buyersin their definition of supplier relationships.

2. Aspects of inter-company relationships

Most authors distinguish between several forms of inter-company collaboration. For example, Lambert andCooper (2000) state that relationships between organi-sations can range from arm’s length relationships(consisting of either one-time exchanges or multipletransactions) to vertical integration. Cooper et al. (1997)use the concept of the value tree. Every company hasmultiple relationships with customers and suppliers.Every single relationship has its own characteristics andmay have its own design. This means that even inthe realm of one company, different types of vertical*Corresponding author. Email: hhh@production.aau.dk

Production Planning and ControlISSN 0953–7287 print/ISSN 1366–5871 online � 2007 Taylor & Francis

http://www.tandf.co.uk/journalsDOI: 10.1080/09537280701520802

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inter-enterprise relationships can be distinguished.Thoben and Jagdev (2001) define three types ofcollaboration between legally independent companies:

. Extended enterprise type of collaboration wheninformation and decision systems and respectiveproduction processes of chain participants areintegrated.

. Supply chain type of collaboration when nodes inthe chain must operate synchronously to meetcustomer demands.

. Virtual enterprise type of collaboration whenloosely related enterprises bundle their competen-cies with the help of ICT to meet customer demand.

The most integrated form of collaboration is theextended enterprise, in which information systems andproduction processes are integrated. The supply chaintype of collaboration is also based on long-termcollaboration, however, with no or limited systemintegration. The virtual enterprise can be short-termcollaboration between participating companies withflexible system integration options.Some companies try to achieve a competitive position

through a lean production philosophy focusing onsmooth and fast materials flows, optimal use of capacityand minimal stock levels, while others focus onresponsiveness and flexibility, i.e. agile productionphilosophy, However, in current dynamic businessrelationships companies more and more should combineboth philosophies and be Le-agile (Mason-Jones et al.2000). An important tool for companies to deal with thechallenges of inter-company relationships is offered byICT based systems such as ERP (enterprise resourceplanning) and APS (advanced planning systems), CRPsystems (customer relationships planning), EDI (elec-tronic data interchange), Internet applications, etc.Since the 1990s the Internet has played a prominentrole in the discussion. Lancioni et al. (2000, 2003),amongst others, describe several Internet-specific oppor-tunities for (vertical) collaboration between companies:

. On-line vendor catalogues, from which buyers canselect and procure items from suppliers.

. The tracking of shipments of the various modes oftransportation, including truck, rail and air.

. The use of the Internet in processing customerqueries, complaints, and handling technical issues.

. The timely receipt of orders from internationalcustomers.

. Communicating with suppliers regarding deliveries,stock availability, etc.

The use of modern ICT not only has the potential toimprove firm performances and bilateral relationshipsbetween companies, but it also has led to changes in

industry structure. One example, already referred to, isthe increase in outsourcing of activities which companieshave experienced in the last years; activities previouslyperformed within the firm due to high transaction riskmay be shifted to third-party providers, allowing thefirm to benefit from the providers’ superior productioneconomics. Another example is the opportunity toincrease diversification given by new ICT opportunities.Relationships with other firms which were previouslynot possible due to high coordination costs or hightransaction risks may thus become feasible (Hvolby andTrienekens 2002).

3. Categorisation of suppliers from a buyers’ perspective

With regard to supplier relationships many decisionshave to be taken (Erenguc et al. 1999; Boer et al. 2005):How are suppliers selected? What kind of collaborationis possible (e.g. based on trust and power)? How manysuppliers for each category or set of materials shouldthere be? What kind of relationship should be estab-lished with each supplier? What is the volume andfrequency of shipments from each supplier? How shouldinformation be shared between suppliers and buyers?,etc. Most companies will have different types ofrelationships with different suppliers. In this section wewill introduce a categorisation of suppliers based onportfolio models.

Portfolio models are used in various fields anddisciplines and have their roots in financial investmentin the early 1950s. The work of Markowitz (1952) is theorigin of modern portfolio theory for investmentpurposes. Balancing the objectives of high yield andlow risk, this portfolio approach focuses on the efficientallocation of limited resources. In the 1970s and 1980s agreat number of portfolio models were developed inother areas of business administration, notably strategicmanagement, marketing management, and ultimatelypurchasing management. Four different portfoliomodels for strategic segmentation of suppliers havebeen considered as illustrated in table 1.

All four-portfolio models are based on Kraljic’smodel from 1983. The two most used models in industryare those made by Kraljic and Bensaou (Dubois andPedersen 2001) both focusing on optimising the buyer–supplier relations by assigning segmented solutions.Bensaou was chosen for the present study. This model isbased on an in-depth study of car manufacturers inJapan and USA aiming to examine (1) relationshipsbetween companies under different external contingen-cies and (2) the appropriate way to manage each type ofrelationship. The result was a buyer–supplier typologywith four profiles: market-exchange, captive-buyer,

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strategic-partnership and captive-supplier. Seen from abuyer perspective we have titled the four profiles asstandard suppliers, capacity suppliers, key suppliers andsystem suppliers, respectively. The profiles are specifiedin the following.Standard suppliers deliver standard products which

can easily be purchased elsewhere. The products areoften technically simple, lead time is short and the costsrelated to shift of supplier are low. Focal points are,beside proper quality, timely delivery, low price and lowcosts for ordering and storage. To obtain this there isa need to minimise the supplier base and to automateordering. In total, the need for information sharing isrelatively low. In these relationships buyers will aim at alean/efficient production philosophy and choose asupply chain type of collaboration.Capacity suppliers deliver customised products which

can easily be purchased elsewhere, as the used technol-ogy is well known. As the products are customised,however, the cost of shifting supplier is relatively high.Focal points are, beside proper quality, low costs andflexible delivery to support changed customer orderspecifications and rush orders. To obtain this, informa-tion sharing is needed partly to reduce ordering costsat both manufacturer and suppliers, and partly to allowthe supplier to optimise his resource utilisation in theproduction. In this relationship the production philoso-phy will be lean/efficient production philosophy with asupply chain type of relationship.Key suppliers deliver complex, non-customised pro-

ducts which are difficult to purchase elsewhere, as theproducts are technically complex. Often there is alimited number of available suppliers, and the manu-facturer is relatively dependent on the supplier(s). Leadtimes are relatively long because stock is needed to

handle fluctuating demand. Focal points are, besideproper quality, short lead time and low costs. Frequentinformation sharing is needed to adjust deliveries withcustomer requirements. With key suppliers the relation-ship will evolve towards the more integrated extendedenterprise type with a leagile production philosophy.

System suppliers deliver highly customised productswhich are difficult to purchase elsewhere. The develop-ment of products and processes are, for specificimportant areas, carried out in close collaborationbetween the supplier and the manufacturer. Focalpoints are, beside proper quality, flexible delivery tosupport changed customer order specifications and rushorders, and low manufacturing costs. To obtain this,information sharing is needed to support joint develop-ment and to synchronise production plans. Theextended enterprise or even virtual enterprise type ofrelationship may exist with these types of suppliers.Agility is the production philosophy chosen in theserelationships.

The main characteristics of the supplier segments areillustrated in table 2.

So far we have described different types and aspects ofsupplier relationships. In the next section we will give anoverview of different planning solutions and relate theseto the types of suppliers described above.

4. Supply chain planning solutions

In literature various supply chain planning solutions arediscussed. In this section we will discuss four majorsolutions - vendor managed inventory, supplier hubs,electronic markets and integrated systems.

Table 1. The most commonly used portfolio models and their supplier segmentation criteria and possible segment categories(Dubois and Pedersen 2001; Steger-Jensen and Hvolby 2003, Olsen 1997).

Reference and segmentation criteria Segment categories

(Kraljic 1983) Materials/Components

Importance of purchasing and complexityof supply market

Non-critical Leverage Bottleneck Strategic

(Olsen and Ellram 1997) Difficultyof managing thepurchase situation/Strategic importanceof the purchase

Purchases

Non-critical Leverage Bottleneck Strategic

(Bensaou 1999) Relationships

Company and supplier specific investment Market exchange Captive buyer Captive supplier Strategic partnership

(Geldermann and van Weele, 2000) Supply strategies

Supplier’s and buyer’s dependence Efficient processing Exploit power Volume insurance Balanced relationship

Buyer–supplier relationships and planning solutions 489

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4.1 Vendor managed inventory (VMI)

A way to simplify the supply chain planning process isto use VMI (Barrat 2004, Barrat and Oliveira, 2001,Subramani 2004). Basically the responsibility of stockmanagement is handed over to the supplier. To supportthe supplier in managing its stock, the retailer provides

him with information on orders/sales. In an examplefrom the Netherlands (Trienekens 1999, Vorst 2000) theretailer aggregates sales information of its outlets, splitsit up into sales information related to specific suppliersand sends this information to the respective suppliers onan hourly basis. This makes it possible for the supplierto adjust production and distribution planning tochanges in consumer demand. Vendor managed inven-

tory is becoming a more widely applied initiative forsupply chain planning. Pilot projects in the food sectorin the Netherlands showed a decrease of stock level atfood processing industries and also product qualityimprovements. Higher stock turn-over and lower stocklevel lead to fresher food products — in a pilot projectup to three days were cut from the lead-time (Vorst et al.

2000).Another interesting example of decreasing complexity

in supplier relationships from Denmark is Bang &Olufsen’s use of the expression ‘on-line suppliers’ forsuppliers who do not receive purchase orders but whoinstead are responsible for delivery of parts according toBang & Olufsen’s needs. The suppliers are able to accessBang & Olufsen’s information system to view stocklevels and future requirements, thus being able to better

adjust their production and distribution planning toactual demand.VMI implies that the relationship only involves

standard parts, as the coordination point between thesupplier and the manufacturer are the actual andexpected stock levels. A simple setup could be used innon-agile environments (candy man type), whereas agile

environments would require a more close exchange ofinformation regarding current and future demand.

4.2 Supplier hubs

Another interesting approach is the use of supplier hubsas a possible solution to reduce the number of actors inthe supply chain planning procedure. Supplier hubsprovide logistic service by storing components deliveredby suppliers and forward these on to the respectivemanufacturers.

For example, within the Scottish electronics industry itis most common for OEMs (original equipment manu-facturers) to receive their supplies from various first-tiersuppliers by the use of supply hubs (Cieminski and Carrie2000). The supply hubs also act as a link between first-tiersuppliers and lower-tier sub-suppliers. On receipt of firmcustomer orders, the OEMs pull, in compliance with justin time (JIT) principles, material or component suppliesfrom stock short time before the scheduled order ismanufactured. Component stocks are not held by theOEMs themselves.Most commonly used components arepulled from prescribed inventory levels which thesuppliers are required to hold in the warehouses of thesupply hubs. The supply hubs inform suppliers of anycomponent pulls so that stocks can be replenished. TheOEMs’ demand forecasts are filtered down the supplychain, but the suppliers also provide their own aggre-gated and disaggregated MRPs to the sub-suppliers.Some of the OEMs require their suppliers to adopt forelectronic communication through EDI as a pre-condi-tion to business cooperation. In cases of less stringentcommunication requirements, EDI interchanges aregenerally in place, but are used in a less coherent fashion.The signals transferred by EDI include demand forecasts,aggregated and dynamic material requirements, pullsignals, purchase order documentation, current inven-tory level data, or breaches of minimum stock levels.

Table 2. Main characteristics of supplier segments. Adapted from Bensaou (1999).

Capacity suppliers System suppliers

Customised products Highly customised productsHigh costs related to switch of supplier Joint technology/product developmentHigh need of information sharing High need of information sharingSupply chain type relationship Extended or virtual enterprise typeLean production philosophy Relationships

Agile production philosophy

Standard suppliers Key suppliers

Standard products Complex productsLow costs related to switch of supplier Manufacturers dependent on suppliersLow need of information sharing Frequent need of information sharing(Loose) supply chain type relationship Extended enterprise type relationshipAim for lean production Le-agile production philosophy

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Supplier hubs are most suitable for mass customisedparts (typically assembly to order) as the main functionof the hub is to unite a number of suppliers within aspecial functional area of the manufacturer. If the parts

are standard, the hub would simply be a standardsupplier, whereas the coordination of highly customisedparts would require a much higher integration among

the suppliers of the hub.

4.3 Electronic markets

The major emerging technology of the 1990s is the

Internet. Internet-based communication has alreadyled to an exponential growth of electronic commerceand to the creation of large numbers of Internet-based

companies throughout the world (Porter 2001).Electronic commerce facilitates supply chain commer-cial transactions and thereby new opportunities for

inter-company collaboration and access to new marketsare created. An electronic market is defined byCloudhury et al. (1998) as ‘an inter-organisationalinformation system through which multiple buyers and

sellers interact to accomplish one or more of thefollowing market-making activities: (1) identifyingpotential trading partners, (2) selecting a specific

partner, and (3) executing the transaction’.Although most electronic markets are so far devel-

oped for the services (e.g. airline reservation system) andthe retail sector, current developments into the directionof other product/market combinations look promising

such as the electronic auctioning of vegetables and fruitin the Netherlands. Product information (quantities,quality grades, delivery schemes) is put on an electronic

auction place where buyers can bid without beingphysically near the products. Also products don’t haveto be transported to an auction building to be sold

anymore, but can directly be shipped to the buyer viathe shortest route. Benefits for companies of buying orselling products through electronic markets are reduc-tion of transaction costs, easy access to a large number

of buyers and suppliers respectively, and supportingsearch mechanism (Alter 2001). According to Kim andShunk (2004) electronic marketplaces can create value

by two fundamentally different transaction mechanisms:aggregation (e.g. catalogues with pre-negotiated prices)and matching (e.g. auction, bid and one-to-one negotia-

tion). Even though electronic markets provide impor-tant opportunities for many companies, their use islimited to specific exchange environments with thefollowing characteristics (Kaplan and Sawhney 2000):

. Products are commodities or near-commoditiesand can be traced ‘sight unseen’.

. Trading volumes are massive relative to transactioncosts.

. Buyers and sellers are sophisticated enough to dealwith dynamic prices.

. Companies use spot purchasing to smooth thepeaks and valleys of supply and demand.

. Logistics and fulfilment can be conducted by thirdparties, often without revealing the identity of thebuyer or seller.

. Demand and prices are volatile.

The electronic markets addressed in this paper areopen, spot-market like, which are appropriate forbuying and selling of standard parts where low cost isin focus. Private markets are not the focal area of thispaper, as they are the preserve of large companies suchas car and computer manufacturers and could addressboth standard and customised parts.

4.4 Integrated Systems

These solutions include advanced planning systems(APS) and partner-specific application integration,e.g. a specific (customised) integration between twoERP-systems (or an ERP and a CAD system) of a buyerand a supplier. APS systems support collaborativeplanning among several (close connected) partners ina network by shared access to information about knownand expected material requirements and resources.In the last decade there has been a large increase infunctions and applicability of ERP systems. Startingfrom relatively simple MRP based systems in the 1980s,these systems have developed towards company-widemanagement systems, covering and integrating themajor administrative functions in companies (Hvolbyand Trienekens 1999): integration of sales, productionplanning, shop floor control; manufacturing execution,fine-tuning of related order conditions and customerpriorities; and the ability to make simultaneous planningof materials and capacities.

Recent versions of ERP systems and advancedplanning systems make it possible to include supplierand customer relations in the planning procedure andthereby optimise a whole supply chain on a real-timebasis (Kennerly and Neely 2001, Akkermans et al. 2003,Vollman et al. 2005). These systems aim to supportfunctions, such as:

. Allocation of production capacity to differentproduction locations.

. Allocation of materials to different productionlocations and planning and optimisation of inter-enterprise goods flows.

. Integrated stock management.

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The complexity of many supply chains and the manyuncertainties regarding demand and supply of productsslow down the use of integrated supply chain/networkplanning systems. APS solutions must be able to dealwith inter-company planning problems aiming at thefabrication of customised products. However, integratedsupply chain planning indeed implies informationsystems which can handle large varieties in lead timesand product quality combined with all the uncertaintiesin supply and demand that characterises most supplychains/networks. In this respect APS systems have onlybeen successful in large organisations and so far areprimarily applied in fine-tuning production and dis-tribution planning between production facilities belong-ing to the same organisation or company (i.e. highlyintegrated business environment). To allow individualdecision-making, each partner needs to have relevantinformation from the entire supply chain, and theinformation should be provided in a seamless wayusing the least resources when exchanging data in thesupply chain. This will be difficult to obtain by using thepresent ERP systems as most of these do not supportinformation sharing among companies in the supplynetwork (Parry 2004). In these situations partner-specific application integration is needed.Figure 1 shows typical chain and network configura-

tions related to the four solutions described above. VMIand integrated systems are used in integrated businessenvironments, implying information system integrationin the case of VMI and information system and organi-sational integration in the case of integrated systems. Onthe other hand, electronic market solutions and supplierhubs are often found in network environments.In the following we integrate our typology of supplier

relationships with the supply chain planning solutions.

In line with the discussion in section 3, the dimensions of

customisation (customer specific versus standards parts)

and simple versus complex supplier-relationships (use of

ICT, degree of integration) are proposed. These are also

key elements in various supplier segment descriptions in

literature and in our view being an indication of typical

demands of companies to their suppliers (Hvolby and

Trienekens 2002):

. Low customisation with simple/competitive sup-

plier relationships indicate that many suppliers are

able to deliver. Cost, quality and reliability are the

major criteria for supplier choice.. Low customisation with complex/collaborative

supplier relationships indicate that one or few

suppliers are controlling the market. The supplier

choice is limited and primarily based on the

suppliers’ ability to deliver.. High customisation with simple/competitive sup-

plier relationships indicate that either the manu-

facturer is in control or the customisation is

limited. Flexibility, cost, quality and reliability are

the major criteria for supplier choice.. High customisation with complex/collaborative

supplier relationships indicate that the manufactur-

ing process is long, either caused by a high degree of

customisation or by long lead-times from sub-

suppliers. Flexibility (planning and product specifi-

cations), quality and delivery precision are in focus.

Portfolio models have through time generally been

criticised for containing dimensions which are either too

complex for practical use or too simple in cases where

important elements are neglected (Olsen 1997). Bensaou

has chosen buyer and supplier investment as the two

dimensions of his segmentation matrix, but based on the

discussion above we find that customisation and buyer–

supplier relationship are more informative than invest-

ment. Nevertheless there is no doubt that the investment

in supply chain integration solutions are increasing the

more customised products or integrated solutions

dealt with. Figure 2 shows the four planning solutions

described above in the context of (systems) integration

Supplier hubs

External network

Integrated systems

Closed network

Electronic markets

Open network

Vendor managed inventory

Dyadic relationship

Figure 1. Typical chain and network configurations related tothe four planning solutions.

Cus

tom

isat

ion

Integration

Vendor managed

Integrated systems

Supplier

Electronic

Figure 2. Supply chain planning solutions.

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and customisation. Electronic markets offer solutionsfor less-integrated business environments in whichsupply of standard parts takes place. VMI is used inenvironments in which information systems of suppliersand customers are highly integrated, with a regular (tobe forecasted) flow of standard parts. Hubs can be usedas a solution for more customised parts to be exchangedin both more and less integrated business environments.Finally integrated systems (especially APS) are, at leastuntil now, only used in highly integrated businessenvironments, typically within the borders of oneorganisation, to integrate and fine tune planning ofhighly customised products.

5. Case study example

The company involved in the case study is a mid-rangeDanish manufacturer. The company has productionfacilities in Europe, North and South America andFar East and in turnover and technology is among theleading companies in their manufacturing segment.They agreed to participate in the research to investigatepossible opportunities and benefits of entering newsupply chain planning solutions with suppliers.

5.1 Supplier segmentation

At the starting point the company had 251 suppliers.During this project the company had a major task inreducing the supplier base before (and along) thedevelopment of IT-solutions.Forty one major suppliers (16% of the total supplier

base) were selected for the project, responsible forsupplying 83% of the total purchased value. The selectedsuppliers were placed into the four segments of theprevious presented framework—standard suppliers,capacity suppliers, key suppliers and system suppliers,see table 3. This was done in close cooperation with thepurchase department of the case company.The ungrouped suppliers (84%) were responsible for a

purchased value of only 17%. These suppliers were not

taken into account in the company’s new approach ofstructuring its supplier base, due to their low purchasevolume. It can of course be debated which suppliers toinclude in such a study as this, as some suppliers mightbe worthwhile to consider even though the value of thepurchase is small. One area to further analyse could bethe frequency of orders between the company andits suppliers, as this indirectly illustrates the number ofman-hours used in communication. At the time of theanalysis, all orders was exchanged by fax or mail.The analysis shown in table 4 is based on one year’stotal number of orders among the 41 selected suppliers.The analysis illustrates that even though only threesystem suppliers have been identified, they are onaverage the most important seen from a resourceperspective.

5.2 Supplier types in the case

In spite of the apparently distinct segmentation intable 2 or 3 many companies were difficult to place inone specific segment; in several cases companiessupplied different types of products to different seg-ments. Especially the demands of key and systemsuppliers were very close. The reason for this was that

. many of the components from key suppliers (suchas valves and pumps) in reality were not exchange-able as customers demanded specific brands

. many components that used to be standardcomponents have become more or less (mass)customised as suppliers aim to reduce their stockof finished goods

During the work on discussing suitable suppliercollaboration, a new structure appeared as illustratedin table 5 and further discussed in section 5.3:

5.3 System solutions chosen

5.3.1 Standard suppliers. A combination of a supplierhub and an E-marketplace was selected. One of the majorsuppliers offered to act as hub and developed specific

Table 4. Number of orders per supplier group.

Numberof orders

Percentageshare

Averageorders persupplier no.

Standard suppliers 2533 28 253Capacity suppliers 1318 14 101Key suppliers 3799 42 253System suppliers 1431 16 477Total 9081 100

Table 3. Segmentation of suppliers at the case company.

Suppliers

Number Per centPurchasedvalue (%)

Standard suppliers 10 4 16Capacity suppliers 13 5 18Key suppliers 15 6 34System suppliers 3 1 15Ungrouped suppliers 210 84 17Total 251 100 100

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software to handle the supply on a VMI-like basis.By combining this with an E-marketplace, supplyof components in this segment could be obtainedadequately. The E-marketplace used in this study wasdesigned as an exchange able to link to both companiesand E-marketplaces through a portal. This reduces theneed for companies to change to or implement otherconnections, as the exchange is able to handle allbusiness transactions between the case company andits suppliers including requests, orders and workflows.The components of this segment signal less integra-

ted relations, but as one supplier hub and oneE-marketplace are selected a close (integrated) relation(with the hub and the E-marketplace) is needed to fullyexploit the collaboration.

5.3.2 Key and system suppliers. Simple IT-integrationhad already been made with system suppliers (exchangeof spreadsheet and drawings via email) but a closerintegration was requested both by the purchasingdepartment and the technical departments. Most impor-tant was exchange of information regarding orderspecifications, lead-times and order status. Based on adetailed analysis between the case company and aselected supplier it was decided to develop a test portalusing Java Server Pages (JSP), Portlets and XML. JSP isa new technology combining the well known HTMLtechnology with Java code and database connectivity.Since JSP uses Java, the technology is not restricted toany specific platform. XML is preferred instead of EDIas it is platform independent like JSP and has moreflexible mapping utilities (Lim et al. 2003). JSP issuitable for programming dynamic web pages for one ortwo way communication and was selected although itrequired the case company to develop the program fromscratch compared to using, for example, portal or

exchange software. The main reason for this wasprimarily the low initial costs.

5.3.3 Capacity suppliers. A wide range of supplierswere found within this segment, of which many werecraftsmen with little IT experience, and it was decided toleave this segment out of the development process at thistime. Purchasing in this segment is therefore done in thetraditional way.

5.4 Costs and results. The calculated costs and savingsof implementing the segmented solutions are illustratedin table 6. The calculations are based on cost statementsfrom an application service provider (ASP) and expectedcost reductions by 3% for standard suppliers (van Weele2002).

The technology consolidations are for standard andcapacity suppliers on E-marketplaces, where catalogueis used for buying from standard suppliers and buyingfrom capacity suppliers is based on auction and bid. Fora temporary time the E-marketplace is supported withan E-procurement solution for one supplier of MRO-items. The technology consolidations are for Key andSystem suppliers on partly and fully integrated JSP.

The solution leads to a much more rational control ofboth planning and control processes for the companyand the suppliers. Organisationally, the solution causesthat purchase related tasks are more often placed in thefunction where the actual demand is, which supports thefact that competence as well as responsibility are united.According to resource requirements, two employees,who handle the purchase orders in the purchasefunction, can be saved.

The authors believe that a generic strategic segmenta-tion of the supplier base and an integration of thelogistic operations is possible with this approach.The main problem with the consolidation on the specific

Table 6. Estimated costs and savings (in euros) for the suggested solutions.

Segments Solutions Savings (E) Costs (E) Payback Comments

Standard suppliers E-procurement 39,000 11,000 3–4 month Reduced manpowerE-marketplace 144,000 17,000 1–2 month Price reduction

Key and System suppliers JSP-solution 95,000 104,000 12 month Reduced manpowerTotal 708,000 350,000

Table 5. Supplier collaboration.

Simple/competitive(less integrated) relations

Complex/collaborative(more integrated) relations

Customer specific components Capacity suppliers Traditional purchasing Key & System suppliersStandard components Standard suppliers Supplier hub and E-marketplace Information integration

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E-marketplace is that there are only about 250companies connected to the marketplace and none ofthese are suppliers to the company today. Many

suppliers knows that competition becomes harderwhen using the exchange, since the performance of the

supplier and the price become transparent for all.For key suppliers and system suppliers the consolida-

tion is on JSP. It is possible to integrate JSP with the

exchange, but basic technology and functionality in thecompany must be set up before using exchange methodsand technology.

6. Conclusion

The paper shows that level of standardisation and levelof integration between buyer and supplier definesoptions for supply chain planning and related ICT

solutions.The presented supply chain planning solutions—

supplier hubs, vendor managed inventory, electronic

markets and integrated systems—all aim at an improvedexchange of information between buyers and suppliers

and/or a reduction of complexity in supplier relation-ships. Reduction of the supplier base, e.g. by choosing

preferred suppliers or by supplier hubs, will lead toreduction of supply network complexity. VMI leads toimproved information exchange and also to reduction of

planning complexity. The same holds for electronicmarkets. Whereas, for example, integrated systems

imply ICT solutions that focus on handling, notreducing complexity. As we have seen in the case a

company can also choose different solutions alongsideeach other.The framework of Bensaou and the concepts derived

from it in this article proved to be a useful step in the

process of selecting supply chain planning solutions.The case indicates that each supplier segment needs

specific supply chain planning and/or system solutions,although, as the case shows, a supplier can belong to

different segments at the same time. Supplier hubs andVMI have already proven their value in many practical

cases, which also is supported by this case. Supply hubsand VMI together with electronic markets are based ongeneric IT solutions, whilst the more integrated IT

solutions, based on portal and internet technology, arecustom made.More specifically, from the case we learn:

. Although we see increasing collaboration betweenbuyers and suppliers on different levels and withdifferent systems, traditional purchasing will

remain an important function for many companies.

. Capacity suppliers consist for many companies of awide range of small and medium sized companies.It proves to be difficult to find one-way solutionsfor such a diverse group.

. It proves to be difficult to design a supplierframework with strictly distinct categories.However, the case shows that the framework isa useful tool to design supplier relationshipportfolios.

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Hans-Henrik Hvolby has a MSc. degree in Industrial Management from Aalborg University in 1984and a PhD. degree in MRP/ERP Information Systems at Alborg University in 1989. He has beenProfessor of Supply Chain Integration at Aalborg University since 2001. His primary research area isintegration in the supply chain involving supplier-manufacturer collaboration, order management,supply chain planning, supply chain management, information technology and manufacturingsystems. Since 1992, he has published more than 80 peer-reviewed papers in academic journals andconferences, supervised seven Ph.D. students and reviewed ten PhD projects. In 2001 he organisedthe SMESME International Conference in Aalborg, Denmark. He is visiting professor at theUniversity of South Australia, associate editor of an international journal, member of the editorialboard of four international journals and member of the programme committee of three internationalorganisations. Since 1995 he has been directly involved in raising national research grants to a valueof E 1.9 million and European funding to a value of E 0.9 million.

Dr. Jacques H. Trienekens (PhD in food chain management, 1999, Wageningen University) isassociate professor at Management Studies Group at Wageningen University. He is editor andassociate editor of the Journal on Chain and Network Science and International Food and AgribusinessManagement Review respectively, and has published in a variety of peer reviewed internationaljournals such as International Journal for Production Economics, Production Planning & Control,Computers in Industry, Food and Agribusiness Management Review, Journal on Chain and NetworkScience. He has extensive experience in international research programs and is also director of theWageningen Expertise Centre for Chain and Network Studies, an expertise centre that bundlesresearch and education on food chains and networks of Wageningen University and ResearchCentre.

Kenn Steger-Jensen gained a PhD in ERP and APS Information Systems at Alborg University in2004 and a MSc degree in Industrial Management from Aalborg University in 2000. He has beenAssociate Professor of Supply Chain Integration since 2004. His research interests are modelling andsolving inter-organiational decisions, APS and ERP systems, planning and scheduling optimizationproblems; production and inventory control; information systems; business and managementscience. He has published in a variety of peer reviewed conference proceedings and internationaljournals.

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