Risk Minimization in Global Sourcing by Managing the Bargaining Power in Buyer-Supplier Relationships

Global sourcing opened up many opportunities for European companies, but also carries its risks. One of these risks is the continuing loss of bargaining power towards the suppliers over time. This article presents tools and processes to manage the bargaining power in global sourcing. The process consists of the three steps of a) description and analysis of the sourcing situation, b) assessment of the sourcing situation and c) decision on measures to defend or improve the bargaining power as customer. The tools presented include a model of dependence and power model to describe and analyse the current distribution of the bargaining power. It is based on the judgment of 12 factors describing the mutual dependence of buyer and supplier. Using the same model, the dynamic development and its phases of the bargaining power is shown for typical cases of global sourcing, which allows the companies to assess the current standing and options for future development. A collection of 32 measures to improve the bargaining power is presented according to the company’s current position, offering concrete and actionable advice. The cases conducted as part of the research verified that many buying companies from Western Europe are dominated by their Asian suppliers after several years. This paper offers practical advice on how to improve the buyer’s position and reach a long term, mutually beneficial cooperation.