| Line | In corporate purchasing, competitive scrutiny |
| is typically limited to suppliers of items that are directly | |
| related to end products. With “indirect” purchases | |
| (such as computers, advertising, and legal services), | |
| (5) | which are not directly related to production, |
| corporations often favor “supplier partnerships” | |
| (arrangements in which the purchaser forgoes the | |
| right to pursue alternative suppliers), which can | |
| inappropriately shelter suppliers from rigorous | |
| (10) | competitive scrutiny that might afford the purchaser |
| economic leverage. There are two independent | |
| variables—availability of alternatives and ease of | |
| changing suppliers—that companies should use | |
| to evaluate the feasibility of subjecting suppliers of | |
| (15) | indirect purchases to competitive scrutiny. This can |
| create four possible situations. | |
| In Type 1 situations, there are many alternatives | |
| and change is relatively easy. Open pursuit of | |
| alternatives—by frequent competitive bidding, if | |
| (20) | possible—will likely yield the best results. In Type 2 |
| situations, where there are many alternatives but | |
| change is difficult—as for providers of employee | |
| health-care benefits—it is important to continuously | |
| test the market and use the results to secure | |
| (25) | concessions from existing suppliers. Alternatives |
| provide a credible threat to suppliers, even if the | |
| ability to switch is constrained. In Type 3 situations, | |
| there are few alternatives, but the ability to switch | |
| without difficulty creates a threat that companies | |
| (30) | can use to negotiate concessions from existing |
| suppliers. In Type 4 situations, where there are few | |
| alternatives and change is difficult, partnerships may | |
| be unavoidable. |