Jose' Ignacio Lopez De Arriortua (1999, March) Moffett, M. & Youngdahl W

Jose' Ignacio Lopez de Arriortua (1999, March) Moffett, M. & Youngdahl, W.

Over the past couple of decades, we have seen an increased 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. Consequently, supply chain management and purchasing performance is increasingly recognized as an important determinant of a firm's competitiveness. The traditional view, or the arms-length model of supplier management,

advocates minimizing dependence on suppliers and maximizing bargaining power. Michael

Porter (1980: 123) describes this view of supplier management as follows:

In purchasing, then, 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 firm's bargaining power.

The 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. Note, the arms-length model

was widely accepted as the most effective way to manage supplier relationships in the United

States. The practical application of this model can be found in the automotive industry where General Motors has historically used an arms-length model as a strategic model. It has been well documented that particularly during the much publicized reign of Jose Ignacio Lopez de Arriortua, General Motors attempted to generate cost savings by fostering vigorous supplier competition and maintaining arms-length relationships. Mr. Lopez pushed suppliers to reduce prices by renegotiating contracts and opening up parts to competitive bidding. Jose