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Supplier Perspectives: The Dutch Windmill Model versus the Supplier View Matrix

6. Analysis

6.5 Supplier Perspectives: The Dutch Windmill Model versus the Supplier View Matrix

low, CT is incentivized to pursue the usage of fixed price contracts for a significant period of time.

However, the supplier in question will most likely not be inclined to enter such an arrangement and thus a compromise of three to six month open-end contracts, which can be changed will mostly likely be agreed upon (Interview 2, pg. 9).

Overall, CT mainly relies on the sourcing approaches of tendering, e-auctions, alliances and partnerships, short-term and long-term contracts, as well as open end and fixed-price contracts.

Deviating from the theoretical framework, CT does not seem to be utilizing the spot market and cost-based contracts when sourcing agricultural commodities. It can be argued that CT does not rely on the spot market because it sources products that are intended for its private label brands. This requires a certain degree of negotiation on especially quality requirements and in terms of product descriptions. This is especially important in order to conform to customer preferences, which can differ from country to country and in attempting to harmonize these differences in order to benefit from volume bundling and production economies of scale on the part of suppliers.

Open end contracts are also commonly used and such contracts can be changed either on a three, six, or twelve-month basis, depending on what CT and the supplier agrees upon. However, the buyer argues that three-month open end contracts are not particularly useful, since changes are rarely integrated before re-negotiations must be done again. In general, open end contracts require awareness of market developments on the part of both CT and the supplier in question and this can sometimes be challenging especially with products situated in the routine quadrant. Lastly, cost-based contracts are not used by CT due to reasons related to competitiveness.

6.5 Supplier Perspectives: The Dutch Windmill Model versus the

how CT should deal with its suppliers now and in the future. The supplier view matrix enables CT to realize where to place additional efforts with its suppliers and take actions to nurture relationships by for instance increasing the number of supplier visits, interaction, or information sharing.

In both cases the matrix is based upon the dimensions of relative value and company attractiveness forming the four positions of core, exploitable, nuisance, and development. For CT the reasoning behind positioning suppliers in the matrix is generic and applies for the category of frozen potatoes as well as the category of dairy. According to the strategic buyer, the position of core is where CT is searching for the perfect relationship (CT Interview 2, pg. 3). Both the supplier and CT are benefitting from such a relationship and “it is an open collaboration where you try to find common ground to work towards your goals” (CT Interview 2, pg. 3).

With regards to the position of exploitable, the strategic buyer explains that this is where one big supplier is dominant and representing a big spend by supplying CT with a lot of products (CT Interview 2, pg. 3). However, with exploitable suppliers CT often experiences some imbalances in terms of for instance service levels, relationship, or delivery of campaigns and the suppliers “might have issues understanding the way you work and they don’t really want to accept it” (CT Interview 2, pg. 3). As a result, the company attractiveness is low in the exploitable quadrant and this is well aligned with what theory dictates.

According to the strategic buyer, the position of nuisance “is where is doesn’t really matter”

and it is emphasized that the main goal in this quadrant is to try to move suppliers to another position if possible by giving the suppliers more orders or new products and thus increasing their workload (CT Interview 2, pg. 3). Lastly, the position of “development is about growing and seeing possibilities” (CT Interview 2, pg. 4) and the aim is to move towards the core quadrant, however such actions can be very time consuming. Even though the positions within the matrix are well aligned with theory as well as generically applicable for both categories, the conditions for positioning suppliers are evidently different for each category and these will be elaborated separately in the section below.

For the category of frozen potatoes, CT is currently not on good terms with its core supplier Clarebout and does not feel that Clarebout views CT as attractively as it once did (CT Interview 1,

pg. 16). Consequently, the strategic buyer deems that Clarebout might be moved down to

exploitable or nuisance if the disagreement persists. However, the buyer realizes that “I have put too many eggs in that basket” and that if the relationship ends, CT will have to find new suppliers that can compensate for the supply that Clarebout has been providing (CT Interview 1, pg. 17). Another important consideration to make is that Clarebout is able to produce a large volume of standard french fries at the price and quality, which CT needs, whereas for instance Weston produces more customized fries such as twisters (CT Interview 1, pg. 17). As a result, the buyer deems that “if I need to find new suppliers to cover that volume I can pretty much expect a price increase and it take a lot of effort and resources internally” (CT Interview 1, pg. 17).

Nonetheless, CT is not able to share information with Clarebout as it once did, since trust between the two parties is simply not there anymore (CT Interview 1, pg. 16). CT does however, share strategic information with Weston, as it deems that Weston will not utilize the information given to its own advantage. The rest of the suppliers in the category of frozen potatoes are more or less positioned in the development quadrant in the supplier view matrix and this implies that there are many options available for substituting Clarebout. These suppliers all find CT attractive and at the same time they are not representing high value to CT. This means that with the right amount of time and effort there is significant potential for development in order to make these suppliers more competitive and able to match Clarebout. On the other hand, what characterizes the suppliers for frozen potatoes is that they are each specialized in one or two segments (CT Interview 2, pg. 1) which can impose some limitations in terms of capabilities when trying to find a substitute for Clarebout.

For the category of dairy, Arla is a dominant supplier representing half of CT’s total spend.

The buyer accordingly expresses that “Arla is definitely up in exploitable for me - 50% and they are definitely taking advantage of it” (CT Interview 2, pg. 8). Currently, Arla is the only supplier that can provide CT with Danish milk meaning that they have monopoly in the market and consequently CT aims to find new suppliers that can add to the competition. However, the strategic buyer elaborates that the problem with adding in new suppliers from other countries is that the demand is not compatible because Danes prefer to drink milk from Danish suppliers. Furthermore, supplying from for instance Germany will increase the lead times and thus decrease the shelf life of products.

The main problem with the suppliers for dairy is that even though they are more or less all able to produce the same types of products, they do not have the capacity to produce the same volumes as Arla. As a result, reaching the overall strategy of harmonization is a challenge, which is highly expressed in the strategic buyer’s frustration when it comes to developing a homogeneous strategy for the entire category of dairy products.

DMK and Osterhusumer are both core suppliers of dairy products representing high relative value to CT as well as high company attractiveness. In the second interview the strategic buyer explicitly expresses that especially DMK, a German supplier, assumes a core position for CT. This is because DMK is currently in the limelight for substituting Arla as they are able to supply similar products, except milk that at least for Denmark has to be from Danish suppliers. Tere and Mona are placed in the nuisance quadrant because they have little interest in engaging with CT and at the same time they are not representing much value to CT. Lastly, Karwendel and Nöm are placed in the development quadrant in the supplier view matrix because they find CT attractive and are interested in working with them.

It can be argued that the supplier view matrix is more or less comparable to the Dutch Windmill model presented in theory, especially in terms of purpose and objectives. According to theory, the objective of the Dutch Windmill model is to enable buyers to mirror their views with respect to the views of the suppliers involved and this can lead to more realistic expectations and plans with regard to future buyer-seller relationships. These objectives are well aligned with the objectives of the supplier view matrix as it is in fact based on the CT’s attractiveness to its suppliers and the relative value that the supplier represents. As mentioned above, the procedure of implementing the suppliers view matrix in practice is based upon the product portfolio and this is also well aligned with how theory suggests to implement the Dutch Windmill model.

However, the practical application of the supplier view matrix deviates from theory in one critical matter. In the supplier view matrix CT considers the entire pool of suppliers enrolled in each category at once instead of focusing explicitly on the suppliers relative to each specific quadrant in the product portfolio matrix (leverage, strategic, bottleneck, and routine). Adapting the suppliers view matrix to encompass such specifications derived from theory could possibly enable CT to get a

more accurate and realistic perception of their suppliers’ positions as well as the future actions that should be taken in order to continuously nurture and maintain the relationships with important suppliers.