Managing raw material in supply chains

• Manuscript focuses on the effect of raw material procurement.
• Three case studies of firms are detailed explaining their different raw material sourcing strategies.
• Analytic models of these three raw material scenarios encountered in the empirical work are presented.
• Overall, results show that active management of raw material sourcing can add value to supply chains.

In this paper, we explore how firms can manage their raw material sourcing better by developing appropriate sourcing relationships with their raw material suppliers. We detail three empirical case studies of firms explaining their different raw material sourcing strategies: (a) firms can adopt a hands-off approach to raw material management, (b) firms can supply raw material directly to their suppliers, and this may be beneficial for some agents in the supply chain, and (c) firms can bring their component suppliers together, and the resulting cooperation between suppliers can be beneficial for supply chain. We then analytically model the three raw material scenarios encountered in our empirical work, examine the resulting profits along the supply chain, and extend the results to a competitive buyer scenario. Overall, our results show that active management of raw material sourcing can add value to supply chains.