Linking procurement operations to power-influence in a supply chain

This paper examines procurement dynamics when there is a power imbalance between a supplier and a buyer. The importance of considering relative power when sharing profit with suppliers is investigated. We also compare this power-based profit sharing with the benefit of a quantity discount on bulk purchases. The underlying micro-model is the classical single-period (Newsvendor) problem. Our objective is to maximize the benefit from a procurement operation in a two-stage single product N-supplier supply chain. This paper develops a relationship matrix for supply chain relations under different levels of power between supplier-manufacturer and then proposes the use of Power Stream Mapping (PSM) to quantify power of the supply chain players. An indicator named Agile Vulnerable (AV) link is developed to identify the weakest relation in the supply chain due to power asymmetry. The proposed model is illustrated with an example taken from the consumer electronics market.