The importance of being a preferred customer in order achieve competitive advantages from the supply base

University of Twente
School of Management and Governance
Chair of Technology Management
Prof. Dr. Holger Schiele

Term paper for the IBA Supply Management seminar
Quartile 3rd and 4th, 2010

Topic 3:

The importance of being a preferred customer in order achieve competitive advantages from the supply base Number of pages/words: 15/ 6790
Bibliography program used: Endnote

Enschede, 24th of April, 2013

Table of Contents

1. The importance of being a preferred customer
In the past decade, a shift occurred from closed innovation to open innovation. With traditional closed innovation, organisations heavily invested in R&D to create innovation internally. The change started when small companies were challenging multinationals with new innovations developed through open innovation. It became clear that involving external parties had a positive effect on the innovation capabilities of firms, and open innovation became increasingly important.1 In an environment characterised by open innovation, the focus of innovation is moving out of the laboratory of a single, self-contained firm and into a network of collaborating partners. Suppliers play an increasing role in such a network.2
Developments in recent decades have emphasized supplier consolidation and supply base rationalisation.3 This has led to supply markets with a limited number of suppliers, shifting the power balance toward the suppliers. This makes traditional price-oriented purchasing strategies unsuccessful, especially when critical or scarce components are involved.4 Coupled with the movement towards open innovation and supplier involvement to strengthen a firm’s innovation capacity, a new frontier of rivalry is opened. Resulting from the open innovation paradigm, competitors who have access to the best suppliers will be the best performers, and this makes the impact of preferential treatment strategic in nature.
“Preferred customer status” can be described as a

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