HTML Preview Procurement Commodity Strategy page number 1.
Journal of Food Distribution Research 38(3)36 November 2007
Commodity-Procurement Strategies of Food Companies:
A Case Study
Kraig Jones, Kellie Curry Raper, Judith M. Whipple, Diane Mollenkopf, and
H. Christopher Peterson
This research evaluates the main characteristics considered in commodity-procurement decisions made by food
manufacturers. Procurement characteristics are examined and a framework is developed which classies procurement
characteristics into three categories: product constraints, company constraints, and service constraints. A case-study
approach is used to determine the importance of various procurement characteristics and their impact on the buyer’s
procurement-mechanism choice. The research also examines the strategic role that a commodity-procurement department
plays within a corporation and how that role relates to the three commodity-procurement decision classications.
Jones is a commodity buyer, North American Trading and
Logistics. Raper is an assistant professor, Oklahoma State
University, Stillwater. Whipple is an associate professor
and Peterson is a professor and Nowlin Chair of Consumer-
Responsive Agriculture, Michigan State University, East
Lansing. Mollenkopf is an assistant professor, University of
Tennessee, Knoxville.
The authors of this article would like to thank the
participants of this research. This research project was partially
supported by the Innovation and Organization Change (IOC)
Program of the National Science Foundation, Grant #0122173,
and the Michigan Agricultural Experiment Station, located in
East Lansing, Michigan.
Today’s dynamic food industry generates a highly
competitive environment for food manufacturers
and food retailers alike. Part of this ever-changing
environment includes consolidation, new retail for-
mats, and globalization. Food manufacturers must
also contend with power shifts in the channel that
favor retailers and create pressure on manufactur-
ers to increase service while reducing costs. Food
manufacturers therefore face a challenging prospect
where service level, quality, and price expectations
from retail customers and end consumers are high
and continue to rise—while pressure exists to keep
prices stable or even to reduce them. Purchasing, if
managed effectively, offers opportunities for better
cost control while improving service levels (Koca-
basoglu and Suresh 2006).
Many food manufacturers concentrate on devel-
oping effective procurement strategies in efforts
to remain competitive. An effective purchasing
strategy is “one that ts the needs of the business
and strives for consistency between the rm’s in-
ternal capabilities and the competitive advantage
being sought, as dened in the overall business
strategy” (Monczka, Trent, and Handeld 1998,
p. 183). Since an average manufacturer spends
“55 cents out of every dollar of revenues on goods
and services,” the impact of an effective procure-
ment strategy on company performance is easily
observed (Monczka, Trent, and Handeld 1998, p.
2). Furthermore, companies have increased the use
of outsourcing considerably over the last decade,
thereby increasing the need for procured materials
and services (Leenders et al. 2006, p. 7).
A food manufacturer typically procures two
types of goods: commodity and non-commodity
goods. Seitz (1994) denes commodity goods as
“widely traded raw materials and agricultural
products such as wheat, corn, and rice” (p. 435).
Commodities must meet minimum quality stan-
dards to be classied in a certain grade or standard
category of that commodity, e.g., #2 yellow corn
(Seitz 1994). However, there is no differentiation
between a commodity that just reaches the mini-
mum standard within a grade and a commodity
that just misses the next higher grade. Conversely,
non-commodity goods are highly differentiated,
branded, and/or have value-added characteristics.
For example, marinated chicken breasts may be
differentiated by avor and/or have added value
provided by pre-cooking.
While both commodity and non-commodity
goods are important to manufacturers, the pro-
curement literature focuses on non-commodity
procurement since its costs are relatively high for
most manufacturing rms. Further, non-commod-
ity procurement is usually contract-based and can
include highly specic requirements. Non-com-