Strategic Supplier Segmentation: The Next “Best Practice” in Supply Chain Management

uring the past decade, there has been an increasing emphasis on alliances, networks, and supply chain management as vehicles through which firms can achieve competitive advantage.Indeed, the typical industrial firm spends more than one half of every sales dollar on purchased products-and this percentage has been increasing with recent moves towards downsizing and outsourcing.lConsequently, supply chain management and purchasing performance is increasingly recognized as an important determinant of a firm's competitiveness.Two widely differing supplier management models have emerged from both practice as well as academic research on the issue of how to optimally manage suppliers.The traditional view, or the arm 's-length model of supplier management, advocates mhimhing dependence on suppliers and maximizin g bargaining power.Michael Porter describes this view of supplier management as follows:M purchasing them the goal is to find mechanisms to offset or surmount these sources of suppliers' power. . .Purchases of an item can be spread among alternate suppliers in such a way as to improve the lirm's bargaining power.2The key implication of this model for purchasing strategy is for buyers to deliberately keep suppliers at "arm's-length" and to avoid any form of commitment.The arm's-length model was widely accepted as the most effective way to mamge supplier relationships in the United States until the success of Japanese