In Type 1 situations, there are many alternatives and change is relatively easy.
Open pursuit of alternatives—by frequent competitive bidding, if 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 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 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.
E.
The degree of importance of the purchased item in the purchasing company’s business operations
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