Verizon Uses Advanced Analytics to Rationalize Its Tail Spend Suppliers

The Verizon Global Supply Chain organization currently manages thousands of active supplier contracts. These contracts account for several billion dollars of annualized Verizon spend. Managing thousands of suppliers, controlling spend, and achieving the best price per unit (PPU) through negotiations are costly and labor-intensive tasks handled by Verizon strategic sourcing teams. Verizon engages thousands of suppliers for many reasons—best price, diversity, short-term requirements, and so forth. Whereas managing a few larger spend suppliers can be done manually by dedicated sourcing managers, managing thousands of smaller suppliers at the tail spend is challenging, can often introduce risk, and can be expensive. At Verizon, a unique blend of descriptive, predictive, and prescriptive analytics, as well as Verizon-specific sourcing acumen was leveraged to tackle this problem and rationalize Verizon’s tail spend suppliers. Through the creative application of operations research, machine learning, text mining, natural language processing, and artificial intelligence, Verizon reduced spend by millions of dollars and acquired the lowest PPU for the sourced products and services. Other benefits Verizon realized were centralized and transparent contract and supplier relationship management, overhead cost reduction, decreased contract execution lead time, and service quality improvement for Verizon’s strategic sourcing teams.

Types of cooperation and networks

Chapter 5 reviews the traditional forms of strategic alliance and network. It shows that there are many different types, ranging from supplier contracts to equity joint ventures, and all have different levels of interaction and independence. Networks are another well-established form of cooperation; these can embrace several, sometimes many, firms and other partners. This chapter discusses dominated, equal partner, and coordinated networks. This chapter also describes a variety of taxonomies proposed for classifying alliances. It notes that Yoshino and Rangan (1995) and Dussauge and Garrette (1999) have perhaps the most attractive typologies of alliance forms among the many on offer. Yoshino and Rangan categorize alliances into non-traditional contracts, equity alliances, and joint ventures. Dussauge and Garrette identify international expansion joint ventures, vertical partnerships, diversification alliances, complementary alliances, shared supply alliances, and quasi-concentration alliances. The chapter concludes with some suggestions as to which forms may be most appropriate for which situations.

A transaction cost economics model for estimating performance effectiveness of relational and contractual governance

Purpose As outsourcing continues to grow, supplier management becomes critical to the success of manufacturing firms. Transaction cost economics (TCE) suggests that firms should choose supplier governance mechanisms to ensure fulfillment of contractual obligations and safeguard against opportunism for their outsourcing activities. Accordingly, the purpose of this paper is to examine how buying organizations govern supplier contracts to improve manufacturing competitiveness and financial performance. The relative effectiveness of two primary governance mechanisms, contractual governance (CG), and relational governance, are examined. Design/methodology/approach Expanding upon previous studies, this study delineates three relational governance mechanisms (negotiation efficiency (NE), problem solving relations, and information sharing (IS)) that are conceptually, statistically and pragmatically different. Based on the TCE literature, a conceptual model is developed to decipher the relationships between pre-contract conditions (supplier asset specificity and environmental uncertainty (EU)), governance mechanisms, performance ambiguity (PA), and performance. Using the data collected from 987 firms, the statistical results present several important findings that would advance current theory and practice in outsourcing. Findings The authors find empirical support for the effects of contractual and relational governance in improving manufacturing and financial performance. The governance of supplier contracts clearly facilitates manufacturers’ ability to leverage their resources to improve performance. The relative effectiveness of these two governance mechanisms is related to the levels of EU and supplier asset specificity. Relational governance displays greater influence on performance than CG does. However, CG appears to be complementary to relational governance. Research limitations/implications The interplays between supplier asset specificity and EU should be examined in the future. The relationships among NE, IS, and problem solving should also be examined to facilitate the development of relational governance. Practical implications Managers should be aware of the situational performance of governance mechanisms. Moreover, it is important to realize how differently each of the three relational governance mechanisms and CG contribute to performance. Originality/value This study extends the academic discussion of supplier governance by investigating the alignment of governance mechanisms (relational governance and CG) with pre-contract conditions to reduce PA and, thereby, enhance manufacturing performance. Under the theoretical framework of TCE, the direct and indirect effects of pre-contract conditions and governance variables are fully examined and discussed. Moreover, relational governance involves multiple mechanisms that are conceptually and pragmatically different, and future studies should not treat it as one single construct.