The tyranny of buy-class relationships hinders innovation. Buy-classes are a part of the Buy Grid that also considers Buy Phases. The Buy-Grid is an old model of looking at buying decisions in the supply chain. Robinson, Faris and Wind in 1967 (here is a nice summary) came up with the buy-grid to say that organizations have different processes depending on whether the B2B buy was a straight rebuy, modified rebuy or a new buy.
- A straight rebuy is stuff that is bought as components for an existing product line. Imagine that there is a particular model of an appliance that has a lot of product life-cycle left and components are needed for this product line. Would you take a chance with a new supplier ? Probably no, going by the risk aversion of supply chain folks particularly for big volume items. A straight rebuy, almost by definition, does not involve radical innovation.
- A modified rebuy is when you modify existing supplies. For example, a component from one to another capacity. Think of a camera memory card that goes from 8 GB memory to 16GB memory for the same slot. Would you look for a new supplier? Not really, because you will deal with the same suppliers who were already supplying the earlier memory card. A modified rebuy can improve the bought item and involves incremental innovation in many cases.
- A new-buy is something that has never been bought before. Like an App for your product to be put out on an iPhone or Android phone. Would you try a new supplier? Probably yes because no production line is at risk and this is fairly a stand-alone buy. A new buy has potential for innovation that can be both incremental and radical.
At the time the above model was developed, buyer-seller relationship thinking was still twenty years away. And this is how the buy-class model and B2B relationships get locked into a tyranny against innovation:
|
Buy Class |
B2B Relationships |
Innovation type |
|
Straight Re-buy |
Existing Suppliers |
Incremental |
|
Modified Re-buy |
Mostly Existing Suppliers |
Incremental |
|
New Buy |
Ask Existing Suppliers first /Try New Suppliers? |
Incremental/Radical |
Organizations are comfortable with existing suppliers including managing their problems which are familiar ground for the supply chain folks and more importantly, the businesses that are at the user end. But all of this hinders innovation, that organizational leaders crave for.
Acknowledgement: This post is inspired in part by some great comments at a GNEMSDC meeting (2012) by several Directors of GNEMSDC including incoming Chair Lawrence Wooten, Director Bill Boodry,MBEIC Chair Gary Stiffler and GNEMSDC President Dr. Fred McKinney.