Lifan Wang Cost savings through supplier relationship management in indirect procurement in a Finnish MNC Vaasa 2025 School of Management Master’s thesis in International Business 2 UNIVERSITY OF VAASA School of Management Author: Lifan Wang Title of the thesis: Cost savings through supplier relationship management in indirect procurement in a Finnish MNC Degree: Master of Science in Economics and Business Administration Degree Programme: Master’s Degree Programme in International Business Supervisor: William Degbey Year: 2025 Pages: 98 ABSTRACT: This thesis examines how Supplier Relationship Management (SRM) contributes to cost savings in indirect procurement within a multinational corporation (MNC). While SRM has been widely studied in direct procurement, its role in indirect categories is less explored. Indirect procurement is usually characterized by fragmented spend, a large supplier base, and a high proportion of services, which makes traditional cost-reduction approaches less effective. Given these complexities, this study investigates how SRM practices are implemented in indirect procurement and how they support both measurable and long-term cost efficiency. A qualitative case study was conducted using Wärtsilä, a Finnish MNC operating in the marine and energy sectors. Data were collected through semi-structured interviews with procurement professionals, suppliers, and internal stakeholders, complemented by internal company reports. The analysis followed a thematic approach and was guided by the Actors-Resources-Activities (ARA) model. The findings show that SRM contributes to cost savings through three main mechanisms: improved process efficiency, better use of organizational and supplier resources, and stronger relational outcomes. SRM practices are most mature with strategic and leverage suppliers, where spend concentration and business dependence justify deeper collaboration. For routine suppliers, efficiency comes from standardization, automation, and supplier consolidation. Bottleneck suppliers require relationship-based risk mitigation rather than cost-focused negotiations. Trust, transparency, and long-term collaboration are central drivers for sustainable cost benefits, especially where innovation or service improvements influence indirect costs. The study concludes that SRM creates value in indirect procurement not only through price reductions but also by enabling long-term efficiency, reduced complexity, and operational resilience. Its effectiveness depends on structured supplier segmentation, digital enablement, and the relational competence of procurement teams. The results highlight the need for differentiated SRM strategies that reflect supplier roles within indirect spend instead of uniform relationship management across the supplier base. KEYWORDS: procurement, indirect procurement, ARA model-actors, resources and activities, supplier relationship management, MNC 3 Contents 1 Introduction 7 1.1 Background of the study 7 1.2 Research questions and delimitations 10 1.3 Key concepts 11 1.4 The structure of the study 13 2 The pursuit of cost savings in indirect procurement within MNCs 15 2.1 The role of procurement in MNCs 15 2.2 The nature of indirect procurement and its categories 21 2.2.1 The nature of indirect procurement 21 2.2.2 The categories in indirect procurement 23 2.3 Cost savings in indirect procurement within MNCs: opportunities and challenges 26 2.3.1 Cost savings in indirect procurement 26 2.3.2 Cost savings opportunities and challenges in MNCs 28 3 Relationships in business networks and supplier relationship management 31 3.1 Relationship in business networks 31 3.2 Supplier relationship management 32 4 Activities-Resources-Actors in SRM in MNCs 34 4.1 ARA-based SRM 35 4.1.1 Activities in SRM 35 4.1.2 Resources in SRM 39 4.1.3 Actors in SRM 41 4.2 Summary of the theoretical framework 42 5 Methodology 46 5.1 Research design 46 5.2 Data collection and sample 48 5.3 Data analysis 50 5.4 Reliability and validity 51 4 6 Findings 53 6.1 Current implementation of SRM in indirect procurement 53 6.1.1 SRM activities 54 6.1.2 SRM resources 57 6.1.3 SRM actors 57 6.2 Benefits of SRM in indirect procurement in MNCs 59 6.3 Challenges of SRM in indirect procurement in MNCs 62 6.4 Future development for SRM in indirect procurement in MNCs 63 6.5 Breakdown of case company indirect spending by category 64 6.5.1 Indirect procurement in Wärtsilä 64 6.5.2 Indirect procurement spending per item category 65 6.5.3 Geographical distribution of suppliers 68 7 Discussion 70 7.1 SRM implementation in indirect procurement 70 7.1.1 ARA-based SRM activities 71 7.1.2 ARA-based SRM resources 73 7.1.3 ARA-based SRM actors 75 7.2 Benefits of SRM in indirect procurement in MNCs 78 7.3 Challenges of SRM in indirect procurement in MNCs 79 7.4 Future development for SRM in indirect procurement in MNCs 81 7.5 Updated theoretical framework 82 8 Conclusions 84 8.1 Key findings 84 8.2 Theoretical contributions and managerial implications 86 8.3 Limitations and future research 87 9 Declaration of artificial intelligence assistance 88 References 89 Appendices 97 Appendix 1. Interview Guide 97 5 Figures Figure 1. Reprinted from Saarela (2022, p.14), based on González-Benito (2007). 16 Figure 2. Extended purchasing process model adapted from Weele (2018, p.33). 17 Figure 3. Key differences between the purchase processes of domestic companies and MNCs. 18 Figure 4. Different levels of international purchasing and global sourcing between domestic companies and MNCs (Adapted from Handfield et. al, 2009, p.369). 21 Figure 5. Purchasing product portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) 25 Figure 6. Supplier portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) 25 Figure 7. Supplier portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) 27 Figure 8. ARA model for value co-creation in business networks (based on Håkansson & Snehota, 1995; Ford, Gadde, Håkansson & Snehota, 2003) 32 Figure 9. ARA model for SRM in indirect procurement (adapted from Håkansson & Snehota,1995; Ford, Gadde,Håkansson & Snehota,2003; Benton,2021) 34 Figure 10. Indirect procurement product portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) 36 Figure 11. Indirect procurement supplier portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) 37 Figure 12. Theoretical framework for the thesis 43 Figure 13. Supplier qty per each supplier segmentation (Wärtsilä company report,2025) 66 Figure 14. Supplier qty and percentage per item category (Wärtsilä company report,2025) 66 Figure 15. Spending data per item category in percentage, 2025 YTD (Wärtsilä company report,2025) 67 6 Figure 16. Supplier qty per item category in percentage, 2025 YTD (Wärtsilä company report, 2025) 67 Figure 17. Indirect spending, Global, 2025 YTD (Wärtsilä company report, 2025) 68 Figure 18. Top 20 countries spending in percentage, 2025 YTD (Wärtsilä company report, 2025) 69 Figure 19. Supplier segmentation as per item category 72 Figure 20. Actors involvement as per category 77 Figure 21. Updated theoretical framework 83 Tables Table 1. Overview of interviewees. 50 Table 2. Perceived benefits of SRM in indirect procurement based on interview findings 61 Table 3. Perceived challenges of SRM in indirect procurement based on interview findings 63 Abbreviations IB=International Business MNC=Multinational Company/Corporation MNCs=Multinational Companies/Corporations ARA=Actors, Resources and Activities IMP=Industrial Marketing and Purchasing SRM=Supplier Relationship Management RONA=Return on Net Assets TCO=Total Cost of Ownership MRO =Maintenance, Repair, Operations SLA= Service-level Agreements 7 1 Introduction This chapter provides an overview of the study by first outlining the background, motivation, and research relevance. It highlights how procurement has evolved from an operational task to a strategic lever for cost savings and value creation. The chapter then presents the research aim, research questions, delimitations, and key concepts that frame the study. Finally, it introduces thesis structure. 1.1 Background of the study The role of procurement has transformed significantly over the past decades. Earlier definitions primarily emphasized its operational nature, focusing on continuity of supply (Lysons, 1981; Burt et al., 2003). Later, scholars such as Weele (2018) reframed procurement as a managerial process with strategic implications, and more recent contributions highlight how digitalization and supply network integration further strengthen its role in resilience and value creation (Benton,2021). Building on this strategic shift, Esan et al. (2022) highlighted a more recent model shaped by technological advancements. Contemporary procurement practices, they argue, increasingly integrate artificial intelligence (AI), data analytics, and supplier relationship management (SRM) to enhance efficiency, resilience, and co-created value with suppliers. In the business-to-business context, a firm’s ability to manage both upstream (supplier) and downstream (customer) relationships is widely considered central to achieving and sustaining competitive advantage (Flint et al., 2002). When treated as a strategic partnership rather than a transactional function, supplier relationships directly influence procurement performance by driving cost efficiency, enhancing reliability, and reinforcing long-term competitiveness (Moeller et al., 2006). 8 The ARA model (Håkansson & Snehota, 1995) offers a relational perspective by conceptualizing interactions in terms of activities, resources, and actors. This framework is particularly relevant for understanding Supplier Relationship Management (SRM), since SRM can be seen as the managerial practice that operationalizes these relational dimensions in procurement. When SRM strategies are aligned with the ARA layers—such as integrating supplier activities, adapting resources, and strengthening actor bonds— firms are better positioned to achieve collaborative cost reductions. On the other hand, as procurement continues to evolve into a strategic function, it is also essential to distinguish between its two primary categories: direct and indirect procurement. Understanding this distinction is critical for effective cost control and value generation across the supply chain. According to Weele (2018), direct procurement refers to the acquisition of goods and services that are directly incorporated into a company's final product. In contrast, indirect procurement includes purchases that facilitate business operations but do not form part of the final product. Indirect procurement typically involves low-value, non-critical purchases that are often managed with minimal strategic oversight. This fragmented spend and limited market data making it difficult to analyse total costs(Payne et al., 2021). However, a growing body of literature highlights that indirect procurement is not merely low-value administrative support but can be a strategic lever for cost savings and value creation when managed properly. For instance, Tassabehji and Moorhouse (2008) point out that procurement functions—including indirect categories—have evolved into core organizational components characterized by “strategic partnerships, cooperative alliances and supply network management” (p. 55). Payne et al. (2021) emphasize that indirect spend represents a critical yet often neglected domain of procurement. As they note, organizations can “reduce costs with a strong focus on the often-overlooked area of indirect spend” (Preface, p. 14). Their argument highlights the potential of strategic sourcing in these categories to unlock significant profitability improvements. A case study by Saarela (2022) further illustrates this point, showing that indirect procurement 9 strategy development should align with overall corporate strategy to effectively “improve efficiency and minimize costs” (p. 67). SRM is the systematic management of an enterprise’s interactions with the organizations that supply the goods and services it uses (Moeller, Fassnacht, & Klose, 2006). Håkansson and Snehota (1995) emphasize that relationships constitute resources that must be deliberately invested in and allocated to the most value-creating activities. This perspective raises a critical question: how can SRM generate measurable cost savings and sustained value creation in the context of indirect procurement, where the supplier base is often diverse, fragmented, and service-intensive (Payne et al., 2021; Saarela, 2022)? This thesis begins by formulating the central research question: How does Supplier Relationship Management (SRM) contribute to cost savings in indirect procurement? A literature review will follow, addressing core concepts such as procurement, indirect procurement, the ARA model, SRM, category management and cost optimization. To explore these themes empirically, the author uses a qualitative research methodology, specifically semi-structured interviews for in-depth insights. Participants are selected through purposive sampling to ensure relevance and diversity, including representatives from suppliers, procurement professionals, and internal stakeholders (Palinkas et al., 2015). This thesis employs a case study of Wärtsilä, a Finnish Multinational Corporation (MNC) and a global leader in smart technologies and lifecycle solutions for the marine and energy sectors (Wärtslä,2024). The company's indirect procurement function, manages over 7,000 suppliers across 70 countries, presenting the typical challenge for large MNCs: operating in a complex global landscape of diverse regulations, infrastructures, and cultures (Ghemawat, 2001; Hofstede, 2001). Wärtsilä's scale and scope make it an ideal setting to explore: how Supplier Relationship Management (SRM) practices are implemented in indirect procurement and how they drive cost savings and strategic 10 value (Yin, 2012). This focus directly informs the study's research questions and delimitations. 1.2 Research questions and delimitations This thesis investigates how Supplier Relationship Management (SRM) contributes to cost savings in indirect procurement within the context of a Finnish multinational corporation (MNC). The study focuses on examining the implementation of key SRM practices and their interaction with organizational structures. Wärtsilä—a Finnish MNC operating in the marine and energy sectors—serves as the case company (Wärtsilä, 2024). By applying the ARA model (Håkansson & Snehota, 1995), the research aims to uncover the relational and operational mechanisms through which SRM practices generate cost efficiency in the complex setting of a global organization. As Bryman and Bell (2015, p. 10) state, “A research question provides an explicit statement of what it is the researcher wants to know about.” Accordingly, the main research question guiding this thesis is: • How does Supplier Relationship Management (SRM) contribute to cost savings in indirect procurement? To address this question, the study investigates two sub-questions: • How are SRM practices implemented in the context of indirect procurement in a multinational organization? • How do these SRM practices contribute to cost efficiency in indirect procurement? This study focuses on indirect procurement and how SRM contributes to cost savings. The ARA model is the primary theoretical lens for analysing SRM implementation and its effects. The Kraljic Portfolio Purchasing Model (Kraljic, 1983) defines suppliers into four categories: strategic, leverage, bottleneck, and routine. Other procurement strategies, 11 such as outsourcing, e-sourcing, or contract lifecycle management, are outside the scope of this research. To position and benchmark Wärtsilä’s practices in a broader industry context, this study includes interviews with indirect procurement professionals and suppliers from both Wärtsilä and other multinational corporations (MNCs). The comparative approach aims to evaluate the relative maturity and distinctiveness of Wärtsilä’s supplier relationship management practices, and ultimately generate actionable recommendations for further improvement. In addition, this study draws upon a variety of internal and external data sources, including Wärtsilä’s procurement strategy, company documents. Integrating these with interview insights provides a comprehensive analysis of supplier relationship management practices and supports well-founded conclusions. 1.3 Key concepts Procurement refers to all activities required to obtain goods and services from suppliers and deliver them to their final point of use, encompassing need identification, sourcing, contracting, and supplier management (Weele,2018). Direct procurement refers to the purchase of goods and services that are directly incorporated into an organization’s products or production processes, such as raw materials and components (Weele, 2018). Indirect procurement is “procurement of all materials, components and services that are used to support the company’s infrastructure and back-office activities (Weele, 2018, p.6). 12 Cost savings in procurement refer to the measurable reduction in expenditure achieved by improving purchasing practices, processes, or supplier arrangements, compared with a defined baseline or historical spend, while maintaining or enhancing the required quality, quantity, and service levels (Ellram, 1995; Weele, 2018). MNCs: Multinational Corporation (MNC), also commonly referred to in academic literature as a 'Multinational Enterprise' (MNE), is “an enterprise that engages in foreign direct investment (FDI) and owns or, in some way, controls value-added activities in more than one country” (Dunning, J. H., & Lundan, S. M., 2008, p.3). Global Sourcing: “Proactively integrating and coordinating common items and materials, processes, designs, technologies and suppliers across worldwide procurement, engineering and operating locations (Weele,2018, p.17). Total cost of ownership (TCO): “Relates to the total costs that the company will incur over the lifetime of the product that is purchased” (Weele,2018, p.9). Kraljic’s purchasing portfolio: “A matrix indicating four quadrants, represented four basic supply strategies, based upon financial impact and supply risk represented by a specific product category” (Weele, 2018, p.175). The Actors-Resources-Activities (ARA) model describes business relationships as networks of actors linked through activities and tied together by shared or exchanged resources. The model describes how these three layers—actors, resources, and activities—interact and evolve over time, to shape the structure and dynamics of interorganizational networks (Håkansson & Snehota, 1995). Supplier Relationship Management (SRM) is the “process of engaging in activities of setting up, developing, stabilizing and dissolving relationships with in-suppliers as well 13 as the observation of out-suppliers to create and enhance value within relationships” (Moeller et al.,2006, p.73). Routine products: “These products produce few technical or commercial problems from a purchasing point of view. They usually have a small value per item and there are many alternative suppliers” (Weele, 2018, p.24). Bottleneck products: “These items represent a relatively limited value in terms of money but they are vulnerable with regard to their supply. They are hard to source and can only obtained from one supplier” (Weele, 2018, p.25). Strategic products: “These are high-tech, high-volume products, which are often sup- plied at customer specification” (Weele, 2018, p174). Leverage products: “These are the products that can be obtained from various suppliers at standard quality grades. They represent a relatively large share of the end products’ cost price and are bought at large volumes” (Weele, 2018, p.177). 1.4 The structure of the study This thesis is structured into nine chapters. Chapter 1 introduces the research by outlining the background, research questions, delimitations and key concepts, and ends with a brief overview of how the study is organised. Chapter 2 focuses on indirect procurement in multinational companies and examines its role, characteristics and category structure, followed by a discussion on cost-saving opportunities and challenges. Chapter 3 introduces business relationships in network settings and outlines the foundations of Supplier Relationship Management (SRM). Chapter 4 presents SRM through the ARA model by examining the activities, resources and actors involved, and concludes with a summary of the theoretical framework. 14 Chapter 5 explains the research methodology, including the research design, data collection and analysis, and considerations related to reliability and validity. Chapter 6 presents the empirical findings from the case company, Wärtsilä, covering the current state of SRM in indirect procurement, perceived benefits and challenges, future development themes, and supporting spend data. Chapter 7 discusses the findings in relation to the theoretical framework and existing literature. This includes an analysis of SRM implementation using the ARA perspective, as well as observations on benefits, challenges and development directions. The updated theoretical framework is presented at the end of this chapter. Finally, Chapter 8 concludes the thesis by summarising the key findings, answering the research questions, and reflecting on theoretical and managerial implications, limitations and suggestions for future research. Chapter 9 provides the declaration of artificial intelligence assistance. 15 2 The pursuit of cost savings in indirect procurement within MNCs This chapter develops the theoretical foundations for examining procurement in a multinational context, with particular attention to indirect categories. 2.1 The role of procurement in MNCs Procurement is broadly defined as “all the activities required to get the product from the supplier to its final destination” (Weele, 2018, p. 9). Beyond this operational view, procurement can be more specifically defined as the strategic management of external resources to secure all goods, services, and capabilities necessary for its operations under the most favorable conditions. This function oversees the entire flow of materials, information, and finances, ensuring the needs of both primary and support activities are met efficiently. The strategic dimension of procurement lies in its alignment with the overall corporate strategy. As González-Benito (2007) outlines, procurement strategy is derived from the firm’s business objectives, translated into category-specific strategies, and operationalized through procurement levers and supplier strategies, and ultimately to enhance procurement performance. Saarela (2022) illustrates this cascading process in a five-level framework (Figure 1), emphasizing that the closer procurement strategy is aligned with corporate strategy, the greater its impact on organization performance. 16 Figure 1. Reprinted from Saarela (2022, p.14), based on González-Benito (2007). The financial relevance of this alignment is underscored by Weele (2018), who demonstrates that even a modest 2 percent reduction in procurement costs can lead to a 20 percent improvement in return on net assets (RONA), highlighting procurement as a critical driver of financial outcomes. Extended purchasing process model Weele (2018) introduces the extended purchasing process model, as shown in Figure 2, which drafts a ten-step process containing sourcing, purchasing, and payment (p.33). • The first stage, Sourcing, includes spend and demand analysis, supply market analysis, developing a sourcing strategy, tendering and choosing suppliers, and setting up contracts and implementation. • After Sourcing, the Purchase stage involves searching for products or services, getting approval, submitting purchase orders, and handling order fulfilment and logistics. • Next, the Pay stage covers processing invoices and making payments. 17 Supplier Relationship Management (SRM) plays an essential role throughout the Source– Purchase–Pay cycle by coordinating each stage. In Sourcing, SRM helps assess suppliers, set expectations, and lay the groundwork for long-term partnerships. During the Purchase stage, SRM manages communication, solves delivery or quality issues, and makes sure suppliers meet performance standards. In the Pay stage, SRM helps resolve disputes and builds trust through clear financial processes. Figure 2. Extended purchasing process model adapted from Weele (2018, p.33). Purchasing in domestic companies vs in MNCs Multinational corporations (MNCs), also known as multinational enterprises (MNEs), are defined as “enterprises that engage in foreign direct investment (FDI) and own or, in some way, control value-added activities in more than one country” (Dunning & Lundan, 2008, p. 3). Based on the extended purchasing process model described above, Figure 3 summarizes the differences between the purchase processes of domestic companies 18 and MNCs. For example, for Spend and demand analysis, Domestic companies performs at a local or departmental level. They have limited geographical scope and relatively simple organizational structures. In contrast, MNCs do this spending and demand analysis on a global scale. On the one hand, this results in MNCs facing additional coordination challenges compared to domestic companies, because domestic ones benefit from more direct control and faster decision-making. On the other hand, this offers MNCs more buying power because global spending makes them a bigger customer for the supplier. The supply market for domestic companies mainly depends on local resources. Even when importing goods from international markets, their overall operational complexity remains lower than that of multinational corporations, as their activities are limited to a single country. A company’s sourcing strategy identifies whether to source a particular category locally, regionally, or globally (Weele,2018). Purchasing from local suppliers with minimized transportation distances and fast delivery helps domestic companies remain competitive in the local market. However, for MNCs, their approach is global sourcing. Their competitive position is directly linked to the competitiveness of their supply base (Weele, 2018), which large organizations source from foreign countries, particularly low-cost countries, to increase competitiveness through economies of scale. Figure 3. Key differences between the purchase processes of domestic companies and MNCs. 19 A domestic company may purchase internationally, rather than domestically, if no suitable local supplier is available or if it seeks more cost-competitive resources (Handfield et. al, 2009). However, there are barriers to worldwide sourcing that are particularly noticeable for companies with limited international experience. These obstacles include a lack of knowledge and skills related to global sourcing, resistance to change, longer lead times, and currency fluctuations (Handfield et. al, 2009). For domestic companies, these challenges tend to be more pronounced because their limited geographical scope makes them more likely to encounter such barriers when they begin sourcing internationally (Handfield et. al, 2009). In contrast, MNCs naturally have more resources to overcome these obstacles. MNCs often have established international networks and broader experience (Dunning & Lundan, 2008). They can invest in education and training to build the necessary capabilities. Furthermore, because MNCs operate across multiple countries, global sourcing is naturally embedded in their supply chains. Nevertheless, despite these advantages, MNCs face their own challenges. One of the most significant barriers for them is cultural understanding. Cultural values—shared beliefs or group norms that shape how people think and behave—can strongly influence supplier relationships and negotiation processes (Handfield, et. al, 2009). In addition, MNCs must manage language and communication differences, logistical complexities across regions, and diverse legal requirements (Handfield et. al, 2009). From organizational perspective, MNCs normally are large firms that have international purchasing offices (IPOs) or global procurement teams (Handfield, et. al, 2009). These IPOs provide operational support through activities such as managing global contracts, facilitating import and export requirements, addressing quality and delivery issues, and monitoring supplier performance. Maintaining central control and leadership over the strategic factors of the sourcing program increases the possibility of achieving better outcomes (Handfield et. al, 2009). At the same time, operational activities can remain 20 decentralized. While divisional or business-unit purchasing departments handle domestic procurement, a centralized international purchasing office coordinates and supports the global sourcing needs of different business units (Handfield et. al, 2009). These structural and organizational capabilities reflect advantages that MNCs possess and that domestic companies generally lack. Therefore, the role of procurement becomes more pronounced in the context of MNCs. When a company operates solely as a domestic firm, its procurement activities are generally less complex. For MNCs, globalization has widened sourcing opportunities but also increased complexity (Turner & Johnson, 2010). Handfield et al (2009) define five levels of international purchasing and global sourcing. Based on this framework, Figure 4 shows that domestic companies and MNCs operate at different levels of international purchasing and global sourcing. Both domestic companies and MNCs can manage domestic purchasing, international purchasing as needed, and strategic sourcing, but only MNCs are able to integrate and coordinate global sourcing strategies across worldwide business units and with other functional groups. 21 Figure 4. Different levels of international purchasing and global sourcing between domestic companies and MNCs (Adapted from Handfield et. al, 2009, p.369). 2.2 The nature of indirect procurement and its categories This section examines the nature of indirect procurement and its categories, outlining its defining characteristics, strategic potential, and inherent challenges, while also considering how spend segmentation provides a foundation for more effective supplier relationship management (SRM). 2.2.1 The nature of indirect procurement Indirect procurement refers to the acquisition of goods and services that are not directly incorporated into a company’s final products but are essential for supporting daily operations, such as office supplies, IT services, marketing activities, facility management, and travel arrangements (Payne et al., 2021). Although it does not contribute directly to 22 the final product, it plays a critical role in supporting operations and controlling organizational costs. Compared to direct procurement, it is characterized by a broad assortment of low value sourced from a large and fragmented supplier base, typically involving small purchase volumes per supplier but a high number of orders of relatively low value (Weele, 2018). This complexity makes spend visibility and process standardization challenging, which has historically led organizations to perceive indirect procurement as an administrative rather than a strategic function. (Weele, 2018; Harland & Knight, 2005). Another challenge is that, unlike physical materials, purchasing services is inherently more complex—especially in areas such as total cost determination and writing service specifications (Smeltzer & Ogden,2002). These complexities suggest that specialized training, adapted procurement procedures, and even changes to the organizational purchasing infrastructure may be necessary. Additionally, Smeltzer and Ogden (2002) state that for service purchases often bypass the procurement department, further emphasizing the need for structured involvement of qualified professionals. Overall, they are emphasizing buying services as a form of indirect spending presents distinct challenges compared to material purchases, underscoring the need for targeted strategies, training, and further research to support effective service procurement. While historically perceived as an administrative function, emerging research positions that indirect procurement holds potential as a strategic lever for enhancing organizational performance and achieving cost efficiency (Tassabehji & Moorhouse, 2008; Schiele, 2007). Building on this debate, a growing body of research suggests that when managed strategically, indirect procurement can deliver significant cost savings (Payne et al., 2021; Saarela, 2022). For example, Tassabehji and Moorhouse (2008) emphasize its evolution into a core organizational function characterized by strategic partnerships and value creation. Similarly, Schiele (2007) demonstrates that higher procurement maturity—including within non-production categories—is positively correlated with improved cost efficiency and supplier performance. 23 Nevertheless, some authors caution that the strategic impact of indirect procurement is not uniform and may depend on factors such as spending category characteristics and the organization’s ability to consolidate demand across units (Gelderman & Van Weele, 2003). This variation is particularly evident when supply chains span different operational domains, where complexity amplifies the challenges of governance and cost control. For instance, de Haan-Hoek et al. (2020) argue that when supply chains involve both services and physical goods, firms must deploy tailored governance mechanisms, with implications for performance measurement and cost control. Additionally, the inherent complexity of service and indirect procurement, difficulties in cost analysis, and challenges in evaluating performance which undermine procurement authority and reduce the ability to capture potential cost savings if not managed with dedicated strategies (Smeltzer & Ogden, 2002). 2.2.2 The categories in indirect procurement Indirect procurement can be broadly classified into several groups, often aligned with established procurement frameworks such as the Kraljic Portfolio Purchasing Model (Kraljic, 1983). A comprehensive review of indirect spend categories across multiple academic and professional sources (Kapoor & Gupta, 1997) reveals a consistent yet varied set of classifications. Common categories include: • Marketing and Advertising • Technology (e.g., software, hardware, telecommunications) • Facility and Office Management • Human Resources (e.g., recruitment, training, healthcare services) • MRO (Maintenance, Repair, and Operations) • Travel and Events • Professional Services (e.g., legal, consultancy, auditing) • Consumables • Capital Goods • Transportation and Fleet 24 • Insurance • Laboratory Equipment These categories are not mutually exclusive and often overlap, reflecting the diverse nature of indirect spend, which encompasses goods and services not directly used in production but essential for maintaining operations and supporting core functions (Jayanth & Curkovic, 2018). The proportion of indirect spend varies by industry; in manufacturing, it typically accounts for about 25% of total spend, while in service sectors, it can be significantly higher (Kapoor & Gupta, 1997). Building on this perspective, Benton (2021) further distinguishes between two types of indirect purchasing: Operating Resource Management (ORM) and Maintenance, Repair, and Operations (MRO). ORM covers office-related expenditures such as equipment, furniture, and consumables, which are often low-value and routine in nature. MRO, by contrast, relates to maintenance and replacement parts that are critical to production continuity and therefore carry higher strategic importance. Nevertheless, traditional category-based classification has important limitations. Such taxonomies typically segment spend solely by product or service type, often neglecting critical factors like total spend value, supply market dynamics, and supplier power (González-Benito, 2007). Consequently, they may fall short in guiding sourcing strategies that seek holistic cost optimization and risk mitigation. By combining the transparency offered by category management with the strategic insights of the Kraljic Portfolio Purchasing Model (Kraljic, 1983; Van & Weele, 2003), organizations can establish a strong framework for overseeing indirect procurement. Weele (2018, p. 176) demonstrates that product and supplier portfolios can be segmented into four categories—leverage, strategic, routine, and bottleneck—according to financial significance and supply risk (see Figures 5 and 6). These classifications help clarify spending priorities and assist companies in deciding where to focus intensive Supplier Relationship Management (SRM) efforts versus where transactional 25 management is sufficient. Thus, the portfolio model underpins the customization of supplier engagement strategies to fit the unique demands of indirect procurement. Figure 5. Purchasing product portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) Figure 6. Supplier portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) 26 2.3 Cost savings in indirect procurement within MNCs: opportunities and challenges 2.3.1 Cost savings in indirect procurement Caniato et al. (2012) identify cost as one of the core key performance indicators (KPIs) in purchasing, alongside time, quality, flexibility, innovation and sustainability. Within this context, cost savings represent a critical dimension of procurement performance, reflecting the organization’s ability to reduce expenditure without compromising other performance objectives. Cost savings in procurement can be defined as a measurable reduction in expenditure achieved through improved purchasing practices, processes, or supplier arrangements, compared with a defined baseline or historical spend, while maintaining or enhancing the required quality, quantity, and service levels (Ellram, 1995; Weele, 2018). However, there is no universal agreement on the precise scope and measurement of cost savings. Broadly, two traditions can be distinguished. A price‑based view focuses on purchase price variance and budget/cash‑releasing reductions, whereas a total‑cost view evaluates savings across the full lifecycle—acquisition, usage, quality, risk, and end‑of‑life—through the Total Cost Ownership approach (Ellram, 1995; Weele, 2018). TCO highlights that procurement costs extend beyond the visible purchasing price to include not only the visible purchasing price but also a wide range of invisible costs as- sociated with activities across the supply chain, such as logistics, warehousing, supplier management, data handling, error management, and financial settlement. (Ellram & Siferd, 1998; Milligan, 1999; Wouters, Anderson & Wynstra, 2005) While visible costs are relatively easy to track, invisible costs often remain underestimated, despite their significant impact on overall expenditure. This issue is particularly relevant in indirect procurement, where fragmented spend categories and service-intensive purchases make measurement more complex (Saarela, 2022). As shown in Figure 7, the purchasing 27 price is only the visible “tip of the iceberg”, while the majority of procurement costs remain hidden, emphasizing the need to manage both visible and invisible cost drivers (Saarela, 2022; Corlido Group, 2022). Figure 7. Supplier portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) Building on this perspective, the literature also distinguishes between hard and soft savings. Hard savings refer to direct, quantifiable reductions, such as negotiated price decreases, volume discounts, or process efficiencies that can be immediately reflected in financial statements. In contrast, soft savings capture fewer tangible benefits, including improved supplier performance, reduced lead times, enhanced service levels, or risk avoidance, which contribute to long-term efficiency but are often excluded from official savings reports (Ellram, 1995; Hesping & Schiele, 2016; Schuh & Perez, 2008). While widely accepted, this binary distinction has been criticized for undervaluing the strategic significance of soft savings, which can include quality improvements, innovation gains, and resilience (Tassabehji & Moorhouse, 2008; Lindgreen et al., 2010; Lindgreen et al., 2012). A related debate concerns cost avoidance, defined as preventing future cost increases through contractual mechanisms, specification changes, or market intelligence (John- son et al., 2019). Some authors include it within soft savings (Hesping & Schiele, 2016), while others exclude it on the grounds that it does not represent actual budget reduction. 28 This definitional divergence complicates cross-study comparisons and underscores the need for contextual clarity. Overall, while the principles of cost savings apply across procurement, indirect procurement presents unique challenges due to fragmented spend patterns, multiple internal stakeholders, and heterogeneous supplier markets (Payne et al., 2021; Saarela, 2022). Savings often derive less from direct price reductions and more from process improvements such as supplier consolidation, specification standardization, and automation (Tassabehji & Moorhouse, 2008). These improvements highlight the growing relevance of soft savings in delivering sustainable, long-term value in indirect procurement. 2.3.2 Cost savings opportunities and challenges in MNCs The general mechanisms outlined above apply to most firms, but the multinational nature of MNCs introduces a paradoxical situation in indirect procurement: scale and global reach offer significant opportunities for cost savings, yet the diversity of operations and contexts often limits the realization of such benefits. While MNCs have the size and reach to chase big cost savings, things are rarely that simple in practice (Spiller et al., 2013). Having operations in lots of countries means MNCs can often try for global deals and standard ways of working, but local differences— like regulations, business habits, and market needs—often get in the way. Spiller et al. (2013) shows that MNCs are always balancing the benefits of doing things the same way everywhere against the reality that local teams need flexibility. It’s not just about getting better deals through bigger contracts; it’s about managing constant trade-offs between what’s best for the whole company and what actually works on the ground. By consolidating spend across multiple countries and business units, MNCs can negoti- ate global or regional framework agreements that yield favorable terms and volume- based discounts (Robert &Trent,2005). Beyond purchasing power, the networked 29 structure of MNCs facilities for cross-border learning of best practices. Centralized procurement functions can identify effective supplier management practices, replicate them across subsidiaries (di Norcia, Bartlett & Ghoshal, 1991). This reduces redundancy and accelerates procurement maturity across the organization. Despite these advantages, global supply chains present significant complexities for multinational corporations. While they serve as essential networks for value creation and resource allocation, they also introduce higher levels of systemic uncertainty stemming from cross-border dependencies, political and economic volatility, and diverse cultural and regulatory environments. Effectively navigating these challenges requires firms to implement structured risk management processes that include risk identification, assessment, and the formulation of mitigation strategies aligned with both corporate and supply chain goals (Manuj & Mentzer, 2008). According to Manuj and Mentzer (2008), global supply chain risks fall into three main categories: supply risk, operational risk, and demand risk. In indirect procurement, these risks are particularly linked to supplier reliability and compliance, coordination of internal processes, and challenges such as demand fluctuations and information distortion. On the other hand, the liabilities of multinationality present challenges for procurement in MNCs. One of the most frequently cited issues is the coordination dilemmas between global standardization and local autonomy. Subsidiaries may resist central contracts in favor of local suppliers, leading to maverick spending and fragmented spend structures (Karjalainen, Kemppainen, & van Raaij, 2009). Such behaviour undermines global agreements and erodes negotiated savings. Increased complexity and transaction costs. Managing a geographically dispersed supplier base involves navigating diverse legal, tax, and regulatory environments. These complexities raise administrative overhead and transaction costs, which can offset initial savings from price reductions (Ghemawat, 2001; Ellram & Siferd, 1998). Furthermore, cultural differences shape negotiation styles, trust- building, and communication, while institutional variations in business laws and ethical norms complicate the implementation of standardized SRM policies (Hofstede, 2001; 30 Kaufmann & Carter, 2002). These factors can lead to misunderstandings, contract failures, or underutilized supplier relationships, limiting the potential benefits of multinational procurement. While the challenges of multinationality highlight the risks, the literature increasingly emphasizes that evaluating indirect procurement in MNCs requires a broader perspective than cost reduction alone. As Saarela (2022) demonstrates in a case study of a multinational mining and tunnelling company, an effective indirect procurement strategy requires alignment with corporate goals, tailored category management, investment in digitalization, and strong top management support. Ultimately, the true challenge lies in balancing efficiency with flexibility, standardization with localization, and central control with subsidiary empowerment. Taken together, the advantages and challenges outlined above suggest that the complexities of indirect procurement in MNCs cannot be understood solely from a cost perspective. Instead, procurement is embedded in networks of relationships among suppliers, subsidiaries, and other stakeholders, where relational dynamics play a central role in shaping outcomes. Building on this view, the next chapter turns to the literature on business networks and supplier relationship management (SRM), which provides the theoretical lens for analyzing how firms interact with and manage their suppliers. 31 3 Relationships in business networks and supplier relationship management 3.1 Relationship in business networks Håkansson and Snehota (1995) emphasize that business relationships should be regarded as strategic resources within a firm’s overall resource base. Rather than passive assets, they demand ongoing investment—internally, through roles, systems, and processes that build relational capabilities, and externally, through joint initiatives and partner-specific commitments that enhance stability and strategic value. To analyse systematically how such relationships are structured and leveraged, Håkansson and Snehota (1995) introduced the ARA model, which conceptualizes inter- organizational relationships across three interdependent layers—activities, resources, and actors—and highlights their embeddedness in broader networks. Rooted in the Industrial Marketing and Purchasing (IMP) research tradition, this model shifts attention from isolated transactions toward networks of interdependent relationships. In this study, the ARA model serves as the key framework for examining how SRM practices contribute to cost savings in indirect procurement. ARA models explain the processes and outcomes of business interactions. Figure 8: The figure illustrates how activities, resources, and actors interact to enable value co- creation in business networks. 32 Figure 8. ARA model for value co-creation in business networks (based on Håkansson & Snehota, 1995; Ford, Gadde, Håkansson & Snehota, 2003) 3.2 Supplier relationship management Supplier Relationship Management (SRM) is a strategic and systematic approach to managing an organization’s supplier interactions, aimed at maximizing value, reducing risk, and building long-term collaboration (Moeller et al., 2026). Grounded in network interaction theory (Håkansson & Snehota, 1995), SRM emphasizes the dynamic and interdependent nature of buyer-supplier relationships, where mutual value is created through shared activities and resource integration. Rather than a transactional process, SRM is an ongoing relational effort involving supplier segmentation, performance monitoring, and proactive planning (Fynes et al., 2008). It also includes portfolio development, trust-building, and strategic alignment (Wagner & Johnson, 2004; Giannakis & Damian, 2012). Importantly, SRM not only supports supply chain resilience and competitiveness, but also acts as a catalyst for innovation. Yang et al. (2023) demonstrates that SRM enhances suppliers’ innovation contributions by fostering trust, commitment, and information sharing, enabling them to participate in co-development and contribute novel ideas that generate mutual competitive advantage. 33 The key activities commonly associated with Supplier Relationship Management (SRM) are outlined below: • Supplier segmentation – classifying suppliers according to their strategic im- portance and category (e.g., strategic suppliers, leverage suppliers, bottleneck suppliers and routine suppliers), it allows firms to allocate resources more effectively and tailor relationship strategies accordingly (Kraljic, 1983; Weele 2018). • Performance management – using scorecards, service-level agreements (SLAs), and regular review meetings to track and improve supplier outcomes (Benton, 2021) • Joint planning - collaborating on business planning, innovation roadmaps, and sustainability initiatives, which recognized as a key activity for fostering trust, aligning objectives, and driving joint value creation in supplier relationships (Krause, Handfield, & Tyler, 2007; Krause, 1998). • Governance structures – set rules and guidelines within a company that arrange for the ownership, management, accountability, reporting, penalties and incentives to manage complexity (Weele 2018). Effective SRM activities can consolidate suppliers, standardize service levels, and create transparency across categories, thereby enabling both hard and soft cost savings. 34 4 Activities-Resources-Actors in SRM in MNCs This chapter applies the ARA model as an analytical lens to examine how Supplier Relationship Management (SRM) in indirect procurement contributes to cost savings in multinational corporations (MNCs). As illustrated in Figure 9, the framework links SRM activities within the ARA model to cost-saving outcomes. Figure 9. ARA model for SRM in indirect procurement (adapted from Håkansson & Snehota,1995; Ford, Gadde,Håkansson & Snehota,2003; Benton,2021) Håkansson and Snehota (1995) highlight that buyer–supplier relationships involve re- source sharing and joint activities within interconnected networks, which implies that managing such relationships is itself an investment. Building on this perspective, SRM can be understood as a systematic approach to maximize value, reduce risks, and foster long-term collaboration (Moeller et al., 2006). However, the depth of these relationships requires significant managerial effort and cost. As Benton (2021) notes, relationship management may require substantial resources, citing Deloitte’s outsourcing study 35 where 62% of respondents reported higher management time than expected, and estimating that such efforts can cost at least 3% and sometimes more than 10% of annual contract value. Consequently, when applying SRM in indirect procurement, firms must carefully evaluate the cost–benefit balance of their engagement strategies to ensure that investments in relationship management translate into sustainable value creation. This consideration is particularly relevant for the activities, resources, and actors outlined in the ARA model, which together shape the outcomes of SRM in indirect procurement. 4.1 ARA-based SRM This chapter examines Supplier Relationship Management (SRM) in the context of indirect procurement within multinational corporations. It outlines key SRM activities and the use of E-procurement systems. Supplier segmentation, based on frameworks highlights the need for differentiated strategies. This chapter also discusses the role of organizational resources—both tangible and intangible—in shaping supplier relationships, alongside the growing importance of digital procurement tools in improving efficiency and transparency. Finally, it considers the actors involved in SRM and emphasizes the relational, cultural, and communication dimensions that influence long-term collaboration and performance. 4.1.1 Activities in SRM Supplier segmentation is a key activity within SRM and is equally applicable in the context of indirect procurement. By classifying suppliers according to the strategic positioning of procurement categories, organizations can determine the most suitable engagement and management approaches for each supplier group. This segmentation ensures that resources and relationship strategies are aligned with the specific risks and value contributions associated with different supplier categories, forming a foundation step in effective SRM design. As outlined in the previous chapter, Weele’s (2018) product and supplier portfolios identify four key categories based on their financial significance and supply risk. Building on this, indirect procurement categories can be positioned 36 across four quadrants accordingly. As shown in Figure 10 and Figure 11, strategic products included technology and capital goods, reflecting their high spend and dependence on few capable suppliers. Bottleneck products, such as marketing services, laboratory equipment, and MRO, represent high supply risk but limited financial leverage. Leverage products, including facilities management, professional services, insurance, and transportation, offer opportunities for competitive bidding and cost efficiency due to multiple supplier alternatives. Finally routine products, such as HR services, travel, and consumables, are low-value, low-risk categories where process efficiency and standardization are the primary focus. Figure 10. Indirect procurement product portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) 37 Figure 11. Indirect procurement supplier portfolio (Adapted from Purchasing and Supply Chain Management Weele,2018, p.176) The main SRM activities are aligned with supplier segmentation based on Weele (2018) and the Kraljic Portfolio Model (Kraljic, 1983), categorizing suppliers into four groups: strategic, leverage, bottleneck, and routine suppliers. This categorization highlights that indirect procurement requires tailored SRM strategies, where supplier engagement models are aligned with the specific characteristics of each procurement category. Since buyer–supplier relationships differ across segments, management activities must also vary accordingly. To achieve effectiveness, a “strategic match” is essential, ensuring that activities are aligned and coordinated. Hence, units and departments should clearly understand supplier strategies so that they can complement and reinforce the firm’s overall strategic execution (Benton, 2021, p.207). Performance management in supplier relationships varies across segments. According to Benton (2021), performance review is instrumental in setting expectations and metrics for managing long-term relationships, particularly with strategic suppliers 38 through high-value contract negotiations. Likewise, Weele (2018) emphasizes that performance management with strategic suppliers focuses on performance-based partnerships and long-term collaboration that create mutual value for both parties. For leverage suppliers, which typically operate in buyer-dominated markets, performance evaluation is often driven by competitive bidding, with the primary objective of securing price reductions. In this segment, the buyer’s strong negotiating position al-lows procurement to emphasize cost efficiency (Weele, 2018). For routine products, performance management focuses on system contracting and category management to simplify and standardize procurement processes. Weele (2018) argues that reducing the number of suppliers in these categories can enhance performance by lowering transaction costs and creating additional value. This view is reinforced by Benton (2021), who notes that although supply disruptions could financially damage operations, a reduced supplier base is still recommended when the efficiency gains outweigh the risks. Finally, for bottleneck products, performance management prioritizes supply security and the mitigation of dependency-related risks. Since this segment is supplier dominated, the focus lies in ensuring continuity of supply. Weele (2018) also highlights the importance of sourcing alternative suppliers to strengthen supply resilience. However, as sourcing new suppliers is not the main focus of this study, this aspect will not be elaborated further. Joint planning refers to the collaborative process in which buyers and suppliers co- develop plans to achieve shared objectives. Krause et al. (1998) emphasize that firms operating in markets characterized by rapid technological change or intense global competition are more likely to engage in strategic supplier development, rather than reactive initiatives which aimed at improving the performance of lagging suppliers. Such strategic efforts frequently include joint planning, where buyers and suppliers not only 39 collaboratively design and plan, but also align production and service processes to integrate new technologies and enhance competitiveness (Krause et al., 1998). Within this strategic approach, firms may rely on suppliers to share the responsibility of designing and producing products that incorporate the latest technological advances, as well as the associated production capabilities (Monczka & Trent, 1995; Harrigan & Nishiguchi, 1996). Procurement governance refers to a coherent set of company-wide rules and guidelines that define the ownership, management, accountability, and control of all purchasing activities (Benton, 2021). As part of Supplier Relationship Management (SRM), governance ensures transparency and compliance throughout the procurement process. Key elements include the principle that no invoice is paid without a corresponding purchase order number, and that ordering, delivery inspection, and payment authorization must be performed by different individuals to prevent fraud. In addition, supplier selection should be based on competitive bidding to ensure fair- ness and cost efficiency; however, the extent and form of competition depend on the value and nature of the procurement project. Higher-value or strategically significant contracts may require formal tenders among multiple suppliers, while smaller or rou- tine purchases can be handled through simplified sourcing procedures. These govern- ance mechanisms apply equally to indirect procurement and are essential for maintaining control, minimizing risk, and ensuring integrity in supplier relationships. 4.1.2 Resources in SRM Within the resource layer, both tangible and intangible resources play a crucial role in shaping supplier relationships. Tangible resources refer to physical assets such as plant, equipment, and infrastructure, while intangible resources include knowledge, technical expertise, and organizational capabilities (Weele 2018). The interaction and utilization of these resources differ across supplier categories. 40 For strategic suppliers, the exchange typically involves high-value technical expertise and specialized knowledge. Given the nature of multinational corporations (MNCs), such relationships are supported by globally integrated resources, including engineering competence centres, IT support units, procurement specialists, and legal experts who facilitate cross-border collaboration. In contrast, bottleneck suppliers require dedicated supplier development teams to identify alternative sources and ensure supply continuity, thereby mitigating operational risks (Weele 2018). For routine suppliers, both Weele (2018) and Benton (2021) emphasize the importance of reducing the supplier base and simplifying procurement processes to lower administrative costs. Supplier management itself constitutes a significant resource investment—large procurement teams, management systems, and coordination efforts all represent organizational expenditures. Therefore, aligning resource allocation with supplier criticality is essential to maximize value and cost efficiency in SRM. E-procurement refers to digital purchasing systems that enable authorized users within organizations to order goods and services directly from electronic catalogues without involving the purchasing department (Weele 2018). Similar to consumer web shops such as Amazon or Alibaba, these platforms streamline and automate the entire order-to-pay cycle—covering order placement, acknowledgment, tracking, and invoicing—thereby simplifying and accelerating procurement processes. However, unlike consumer web- shops, B2B E-procurement solutions must integrate with company-specific systems, which often limits their functionality (Weele 2018; Croom & Brandon-Jones, 2007). As Croom and Brandon-Jones (2007) state, the success of E-procurement does not only rely on solely on technology; more importantly, it depends on the alignment between the system, organizational processes, culture, and the quality of internal service. Building on this, recent studies have explored how E-procurement systems are applied across different purchasing categories and how they improve indirect procurement efficiency (Benton, 2021). E-procurement has significantly transformed the management 41 of indirect purchasing for office related material categories by reducing paperwork, delays, and errors, thereby enhancing efficiency and cost control. Weele (2018) identifies three main types of E-procurement: (1) Electronic marketplaces, where B2B transactions take place via internet-based platforms; (2) Electronic auctions(e-auctions), which allow suppliers to bid simultaneously based on predefined specifications; and (3) Order-to-pay solutions, which manage the end-to-end process from requisitioning to supplier payment. Overall, E-procurement strengthens transparency, efficiency, and cost-effectiveness in managing the diverse and fragmented nature of indirect procurement (Davila, Gupta & Palmer, 2003; Knudsen, 2003; Presutti, 2003). 4.1.3 Actors in SRM Håkansson et al. (2009) state that actors do not exist in isolation but are recognized as such by others, highlighting the interconnected nature of business networks. A notable feature of actors is their diversity; the interactive business landscape comprises a wide range of actors performing various roles. In the context of SRM activities, the principal actors include senior leadership, such as the Chief Procurement Officer (CPO), Global Procurement Head, Category Managers, supplier account managers, and operational buyers. These actors pursue a range of tasks, from routine operational activities to highly complex strategic decisions. The CPO and Global Procurement Head are responsible for defining procurement strategies in alignment with the company's overall business strategy, while category managers execute procurement strategies and develop supplier strategies. Operational buyers are tasked with day-to-day procurement activities, ensuring the smooth implementation of SRM initiatives. Additionally, these actors—whatever they do and try to accomplish—directly draw on and affect the actions of other actors within the network. Håkansson et al. (2009) highlight the concept of "social exchange" (p. 135), emphasizing that interactions between individuals from two companies are essential for developing long-term 42 relationships. Clearly, the history of collaboration and prior experiences between members of two organizations is crucial for the formation and development of effective business relationships. This principle is equally applicable in SRM, where the history of cooperation between supplier owners or senior executives and their corresponding procurement managers can significantly influence subsequent collaboration with suppliers. Moreover, Håkansson et al. (2009) also highlight the influence of language on inter- personal interactions, noting that language, together with atmosphere, forms a critical part of the “actor dimension” (p. 135) in business relationships. These elements are essential for trust building and commitment, both of which are fundamental in the development and maintenance of effective business relationships. This is particularly relevant to SRM in indirect procurement, where the diversity of both procurement managers and suppliers—especially within multinational corporations (MNCs)—can introduce linguistic and cultural complexity. Such diversity may present challenges for communication and mutual understanding, thereby affecting the quality of supplier relationship management. Recognizing and addressing these factors is crucial for fostering trust and commitment in cross-cultural supplier relationships and for ensuring the long-term success of SRM initiatives. 4.2 Summary of the theoretical framework The purpose of the theoretical framework in this thesis is to synthesize the insights from the literature review into a coherent structure that addresses the main research question: How does SRM contribute to cost savings in indirect procurement? —as well as the two sub-questions. It clarifies (1) how SRM practices are implemented in the indirect procurement context of an MNC and (2) how these practices lead to improvements in cost efficiency. 43 Figure 12. Theoretical framework for the thesis Håkansson and Snehota (1995) state that “the purpose of developing an analytical framework with respect to a phenomenon is to provide guidance for acting on it” (p.24). In line with this perspective, the framework developed in this study clarifies how Supplier Relationship Management (SRM) can be structured and implemented to achieve cost savings in indirect procurement. It serves as a conceptual foundation that guides the empirical analysis by which SRM contributes to cost efficiency within multinational corporations (MNCs). Figure 12 illustrates how relationships between an MNC and its suppliers operate with- in interconnected networks rather than as isolated dynamic transactions. At the MNC headquarters, they set targets to business objectives. Based on the business objectives, the global procurement defines its procurement strategy. Based on the importance of the supplier to the company’s business impact, they have category strategies for different supplier categories. The theoretical framework presents SRM in indirect procurement based on the ARA perspective, which explains how activities, resources, and actors interact to generate performance outcomes in the context of MNCs. The SRM activities layer includes supplier segmentation, performance management, joint 44 planning, and governance structures. Based on the different supplier categories, the key activities vary significantly. Therefore, the operational purchasing processes that link buyers and suppliers also differ. The resources layer refers to the tangible and intangible assets leveraged in SRM, for example. The actors layer includes the key organizational participants driving collaboration—such as the global procurement team, category managers, regional purchasing managers, and buyers internally, and externally, the supplier’s key account manager, sales and quality—who work together across functions and regions. All these elements explain how SRM practices contribute to cost efficiency and strategic value creation in indirect procurement. Tailored SRM strategies for each supplier’s category, ensuring that activities, resources, and actors are aligned with the category’s strategic profile. They enable organizations to achieve cost savings and efficiency in indirect procurement by aligning SRM approaches with the characteristics of each supplier segment. Collectively, these differentiated strategies ensure that relationship investments are proportional to supplier criticality, thereby enhancing both cost efficiency and strategic value in indirect procurement. Building trust for supply chain excellence: Trust represents a critical relational result that underpins long-term supply chain excellence. Since the late 2000s, scholars and practitioners have increasingly emphasized the importance of trust and integrity in business-to-business (B2B) relationships (Weele 2018). As organizations become more interdependent within complex supply networks, the role of trust, ethics, and business integrity has become central to achieving sustainable performance outcomes. Trust reflects the confidence that one party has in another’s willingness to act cooperatively, consistently, and honestly. It is built upon fairness, reliability, consistency, and goodwill, and develops through repeated interactions, shared experiences, and common history between exchange partners. According to Weele (2018), trust in supplier relationships is not created between organizations as abstract entities but through the ethical behavior, professional competence, and integrity of the individuals representing them. When purchasing professionals demonstrate accountability and ethical conduct, they enhance 45 credibility and strengthen inter-organizational collaboration. Such integrity-driven behavior fosters creativity, mutual commitment, and transparency, ultimately generating trust that translates into superior supply chain performance and long-term excellence. 46 5 Methodology This chapter outlines the methodological foundations of the study, including the re- search design, strategy, data collection methods, sampling technique, and data analysis procedures. Given the exploratory nature of the research question and the contextual focus on Wärtsilä, a qualitative case study approach was chosen to provide insights into how Supplier Relationship Management (SRM) contributes to cost savings and strategic value creation in indirect procurement. 5.1 Research design This study adopts a constructivist and an interpretivist epistemological and ontological stance (Eriksson & Kovalainen, 2016; Saunders et al., 2016). The research assumes that reality in Supplier Relationship Management (SRM) is socially constructed through three layers: Activities, Resources and Actors rather than existing as an objective and measurable entity (Saunders et al., 2016). Concepts such as trust and leadership in SRM are therefore understand as context-dependent and co-created within specific organizational and cultural settings (Saunders et al.,2016; Bryman & Bell,2015). Epistemologically this study aligns with interpretivism, which holds that knowledge is generated through understanding the subjective meanings and interpretations of individuals (Saunders et al.,2016). Instead of testing hypotheses or identifying universal causal relationships, this study seeks to explore how managers in MNCs interpret and practice SRM in ways that influence cost efficiency, knowledge is therefore produced through engagement with participants’ lived experiences and reflections, gathered via semi-structured interviews and analysed thematically (Eriksson & Kovalainen, 2016; Saunders et al., 2016). The study’s philosophical position acknowledges that SRM practices and their outcomes are contextually situated and shaped by social interactions. This interpretivist and constructivist position provide a suitable foundation for the qualitative research design 47 employed in this thesis, aiming to capture the complexity and richness of SRM dynamics in real MNCs context (Saunders et al., 2016). While research designs are commonly categorized as quantitative, qualitative, or mixed methods depending on the type of data collected and the analytical techniques employed (Saunders et al., 2016), this thesis primarily adopts a qualitative research approach to gain in-depth insights into Supplier Relationship Management (SRM) practices. The qualitative approach is well-suited to exploring complex organizational phenomena involving human relationships, strategic decisions, and contextual factors (Saunders, Lewis, & Thornhill, 2019). This approach aligns with the aim of understanding the SRM practices applied, how they are implemented, and why these practices contribute to organizational outcomes. At the same time, the study incorporates company data and internal documents, integrating quantitative elements to complement the qualitative findings. This combined approach provides a more comprehensive understanding of the research problem by merging rich, narrative data from interviews with objective, organizational data from internal records. This research adopts a case study strategy, focusing on Wärtsilä, a multinational corporation renowned for its operations in the marine and energy sectors. According to Yin (2012), case studies are especially well-suited for investigating contemporary phenomena within their real-life contexts. Wärtsilä serves as an exemplary case due to its extensive global supplier network, mature SRM practices, and strong commitment to sustainability and innovation in procurement. Employing a single-case design enables an in-depth exploration of how SRM is implemented and its effects on indirect procurement, while also accounting for contextual factors such as cross-border collaboration, internal procurement structures, and organizational culture. 48 5.2 Data collection and sample Data will be collected through a combination of semi-structured interviews and internal company data analysis. Semi-structured interviews offer the advantage of guided yet flexible dialogue (Saunders, Lewis, & Thornhill, 2019), enabling the collection of rich and detailed insights into the perceptions and practices of individuals involved in indirect procurement and SRM within the context of a multinational corporation (MNC). Interviews were conducted with a diverse range of stakeholders, including procurement professionals at Wärtsilä, indirect suppliers, internal stakeholders from various business functions, and third-party professionals. This diversity among participants ensures a comprehensive and well-rounded understanding of SRM from multiple perspectives, both within and outside the organization. This approach strengthens the validity of the findings, as perspectives were collected across different roles, regions, and organizational levels. This variety helps reduce the risk of data saturation bias and supports a more comprehensive and balanced interpretation of the research topic (Bryman & Bell,2015). However, semi-structured interviews also present certain challenges. Interviewers may become overly focused on following the question list, potentially overlooking opportunities for meaningful interaction or failing to actively listen to the unique insights offered by interviewees, which are often shaped by their specific organizational contexts. Such limitations can affect the extent to which interview findings objectively reflect the complexities of the business environment (Eriksson & Kovalainen, 2016). Recognizing these challenges, the interview approach was designed to balance structure with openness, encouraging interviewers to remain attentive and responsive to participants’ perspectives throughout the process. Both purposive and snowball sampling techniques were employed in this study. Purposive sampling was used to identify participants with relevant knowledge and experience in indirect procurement and SRM, ensuring the selection of individuals capable of providing information-rich cases (Palinkas et al., 2015). Additionally, snowball 49 sampling was utilized as some interviewees recommended other potential participants, facilitating access to a broader network of relevant experts. The final sample was designed to capture diversity in roles, business functions, and geographic locations, thereby enabling a holistic understanding of SRM practices within the company. The interview questions (see Appendix 1) were developed based on the study’s theoretical framework (see Figure 12) and are organized into seven sections. The first section explores interviewees’ understanding of SRM in the context of indirect procurement. The second section examines the role of leadership and trust in supplier relationships, specifically how organizational leadership influences supplier relationship management. Sections three to five focus on the three recognized SRM layers—activities, resources, and actors—and how these elements support SRM outcomes. Section six addresses SRM outcomes related to cost and performance improvement. Finally, section seven investigates the anticipated evolution of SRM and its future role in indirect procurement. This structured approach ensures comprehensive coverage of both conceptual and practical dimensions relevant to the research objectives. An overview of the interview participants is provided below (see Table 1). The sample comprised six individuals representing five different companies. The selected case companies—Honeywell, Valmet, QT Group, Harbor Freight Tools—and one domestic Chinese supplier form a relevant sample of MNCs operating in technology-driven and globally distributed environments. Similar to Wärtsilä, these companies depend on indirect procurement to support operational continuity and geographically dispersed business units. The inclusion of the Chinese supplier, who is an indirect supplier to both Valmet and Wärtsilä, adds an important dimension to the study by representing the supplier perspective within the same procurement ecosystem. This combination of buyer and supplier perspectives strengthens the comparative value of the findings and supports the development of transferable insights relevant to indirect procurement and SRM in multinational corporations. 50 Table 1. Overview of interviewees. Interviewee Code Company Country MNCs Duration 1 1A A the U. S No 1hr34m 2 2B B the U. S Yes 1hr56m 3 3C C Finland Yes 1hr17m 4 4D D Finland Yes 1hr16m 5 5D D Finland Yes 54m 6 6E E China No 58m In addition to interviews, the study incorporated internal procurement data and reports provided by Wärtsilä. There are benefits to using secondary data because it offers the prospect of having access to good quality data (Bryman & Bell,2015). This means that organizational data enable cross-national comparison, and the degree of geographical spend and sample size would be impossible for the author to collect alone. In addition, the data were generated by highly experienced professionals in the company and de- rived from the large dataset (Bryman & Bell, 2015). This secondary supplementary data, specific to Wärtsilä, was integrated with the interview findings and enriched the analysis by providing additional context and nuance. This enabled a triangulated approach, enhancing the study’s trustworthiness and analytical depth (Bryman & Bell,2015; Saunders et al., 2016). 5.3 Data analysis All interviews were conducted in a one-on-one format, either face-to-face, via Microsoft Teams, or via Zoom. This individualized approach facilitated comprehensive coverage of the interview protocol while enabling deeper exploration of the interviewees’ individual experiences and the specific contexts in which they operate. This approach is widely recognized in qualitative research for its ability to elicit rich, contextually grounded insights (Kvale & Brinkmann, 2009). 51 Interview transcripts were analysed using thematic analysis (Braun & Clarke, 2006) to identify patterns and relationships across the data, aligned with the research questions. Themes emerging from the qualitative interviews were cross-referenced with quantitative insights derived from Wärtsilä’s internal procurement data. This triangulated approach enhanced the internal validity of the study by integrating narrative perspectives with objective organizational data, thereby strengthening the credibility and analytical depth of the research findings. Interview data were coded manually using Excel. For each transcript, key excerpts were extracted and assigned initial codes. Related codes were then grouped into overarching themes, following a thematic analysis approach (Braun & Clarke, 2006). Each participant was anonymized using identifiers (1A-6E) and coding was iteratively refined to ensure consistency and depth of analysis. 5.4 Reliability and validity In qualitative research, the quality of a study is often evaluated based on its trustworthiness, which can be assessed through four criteria: credibility, transferability, dependability, and confirmability (Lincoln & Guba, 1985). Credibility, which relates to internal validity, concerns whether the study measures what it intends to measure (Shenton, 2004). It depends on the authenticity of findings from primary data, such as interviews with different informants. For this research, participants were selected for their involvement in SRM activities and relevant experience. Company characteristics were considered to ensure participants had sufficient knowledge of the research objectives. Interviewees either owned companies serving as key indirect suppliers to a multinational corporation or had more than ten years of experience with a multinational organization. This selection strategy strengthened the credibility of the research (Sauders et al., 2016). Secondary data from the case company were also used 52 as complementary evidence to ensure the findings accurately reflected the organizational reality, further enhancing consistency (Shenton, 2004). Transferability refers to the extent to which the findings can be applied to other contexts (Lincoln & Guba, 1985). The study incorporated written documents, recorded Microsoft Teams interviews, and transcripts to provide rich descriptions of the organizational environment. These details allow other researchers to evaluate the relevance of the findings to their own settings. Dependability focuses on the consistency and replicability of the research process (Lincoln & Guba, 1985). To ensure dependability, the research procedures—including data collection and analysis—were thoroughly documented and reported. This transparency increases replicability and strengthens the overall dependability of the study (Eriksson & Kovalainen, 2016; Ahmed, 2024). Confirmability in qualitative research concerns the objectivity and neutrality of the study. It evaluates whether the findings are shaped by the participants’ experiences rather than by researcher bias, assumptions, or preferences (Karkar et al., 2023; Bryman & Bell, 2015; Lincoln & Guba, 1985). To enhance confirmability in this study, interview transcripts and recordings were shared with participants for verification, ensuring that the interpreted data accurately reflected their intended meaning. This member-checking process helped reduce researcher influence and strengthened the trustworthiness of the results. In addition, secondary data were incorporated as an objective source of evidence to support and validate the primary findings, further reinforcing confirmability (Bryman & Bell, 2015). 53 6 Findings This chapter presents the key findings derived from the research. The structure follows the main themes that emerged from the interviews, complemented by insights from secondary data and internal company documentation. First, the implementation of Supplier Relationship Management (SRM) practices in the context of indirect procurement is examined. This is followed by an analysis of how these practices contribute to cost efficiency. In addition to the interview findings, the chapter integrates evidence from internal reports, including a spending analysis that highlights the company’s procurement patterns and supports the interpretation of the results. 6.1 Current implementation of SRM in indirect procurement To understand how SRM contributes to cost savings in indirect procurement in multi- national companies, it is first necessary to examine how SRM practices are currently implemented. To gain insight into the status of SRM implementation, interviewees were initially asked to describe supplier relationships within their organizations. Most interviewees agreed on the importance of SRM and emphasized its value. How- ever, their responses showed differences in whether SRM tools are actually implemented and how they are applied. Some interviewees noted that although they recognize SRM as a useful approach for achieving cost efficiency, it is not directly used in cost-saving projects. I see SRM as something closely linked to a company's competitive advantage. In my view, a mature organization should treat SRM as a strategic capability rather than simply an administrative task. (3C) The most advanced companies use SRM to strengthen their position in the market by building long-term partnerships, improving supplier performance, and enabling joint development. Now working on the sales side in a Finnish technology company and interacting daily with technology category managers and buyers, I also see SRM from the opposite perspective. From this viewpoint, SRM is essentially about 54 creating mutual value, maintaining open communication, and ensuring that both sides can contribute to improved performance and long-term competitiveness. (3C) SRM should be transparent and win-win. You cannot force a supplier to give you a discount, but with effective SRM and by building trust with the vendor, they are willing to support. (4D) Most interviewees pointed out that SRM is more challenging in indirect procurement because the spend levels are lower compared with direct procurement, and the large number of suppliers each account for only a small amount of purchasing value. There are far fewer suppliers that fall into the strategic or leverage categories, which makes it more difficult to achieve SRM-type cost savings. (3C) When asked about the main objectives of SRM in indirect procurement, interviewees expressed different views. Overall, two main perspectives emerged. Some interviewees stated that SRM is primarily a long-term collaboration approach and does not directly influence cost efficiency. Others argued that the organization should invest its resources in selected key suppliers, and that with higher purchasing volumes and stronger relationships, cost reductions become a natural outcome of effective SRM. Supplier base is essential, the company should maximize spending with good or selected suppliers, because by doing so, we become a bigger customer with more buying power which eventually helps secure more competitive costs. (4D) In our organization, I consider Supplier Relationship Management (SRM) highly important, as it directly influences the benefits we can obtain from suppliers, including discounts and other cost advantages. To me, SRM is essential for maintaining effective communication, supporting collaboration, and ensuring continuity and reliability in supply. (5D) 6.1.1 SRM activities Performance Management 55 When interviewees were asked about the main activities in supplier relationship management, several of them mentioned Quarterly Business Reviews (QBR), indicating that performance review is considered a critical component of SRM. For indirect procurement, we do not have a mature supplier relationship management framework in place. Instead, Quarterly Business Reviews (QBRs) and regular follow-ups with key suppliers are used to replace a more formal SRM structure. (2B) Performance management is a critical element in our supplier relationship management activities. The focus may vary at times, but it ultimately comes down to price, quality, delivery, and legal compliance. These are generally the most important factors in indirect procurement. (4D) Customer satisfaction and supplier business performance, and HR performance are also considered when evaluating supplier performance. (2B) For us, supplier performance management goes beyond price. Customer satisfaction is used for service-related categories, while the focus is on quality for physical goods. (2B) A supplier’s business performance is one of the criteria used when evaluating supplier performance. For example, we look at their financial performance, including revenue growth, cash flow, and supply chain responsiveness. Finally, the supplier’s organizational and HR performance is another important area. The most critical indicator for us is the supplier’s employee turnover rate. (2B) Supplier segmentation Supplier segmentation was consistently mentioned as a key practice. One interviewee mentioned that supplier segmentation in their organization is based directly on spending, following the 20/80 principle, meaning that 20% of suppliers account for 80% of the total purchase volume. We follow the 20/80 principle, meaning that from a spending perspective, 20% of the suppliers account for 80% of the company’s total expenditure. Based on this principle, we align internally on how to collaborate with different suppliers. (2B) However, other interviewees explained that supplier segmentation is not based solely on spending. Instead, it considers both spending and the supplier’s relevance to core 56 business activities, resulting in categories such as strategic suppliers and leverage suppliers. These suppliers were identified as the priority groups, and most interviewees emphasized their importance because these suppliers are considered the most cost- effective targets for SRM efforts. My SRM activities mainly focus on strategic and leverage suppliers, as these are the groups where SRM practices can be applied most effectively. (3C) The most relevant supplier categories to our work are our strategic and tier-one suppliers, who contribute significantly to our core products and market share. (1A) For strategic suppliers, SRM is diverse and highly intensive. It extends beyond performance management or other basic activities. Several interviewees noted that collaboration with these suppliers is deeper and oriented toward the long term. We involve strategic suppliers at an early stage, and in some cases, we develop new products together with them. (1A) For selected suppliers, we allocate orders to help secure their production capacity. This supports them in maintaining stable operations and is also beneficial for us, as it ensures timely availability of materials and effective cost control. Our objective is to achieve highly competitive pricing—ideally lower than the prices offered to other clients or competitors. (1A) Nevertheless, low spending or routine suppliers still play an important role, as smooth operational continuity is essential for multinational companies. The focus should not be only on spending value but also on ensuring and securing the business. Managing low-spend suppliers is never easy, especially because our company operates in locations such as Pakistan and the UAE, where the business environment differs significantly. (4D) Other activities strengthen SRM Financial support to strengthen supplier relationships was also mentioned by several interviewees. 57 I know payment terms are related to capacity efficiency. However, they can also be used as a tool to strengthen relationships with suppliers. For key or top suppliers that have a strategic partnership with us, we can offer very favorable payment terms to support their cash flow. In this way, the price level becomes very competitive. (1A) 6.1.2 SRM resources In this section, the author asked how the interviewee’s organization ensures that teams have the right knowledge and capabilities for effective SRM. The answer shows that technology platforms provide access to information and supporting elements that enable effective supplier relationship management. These resources act as organizational enablers, making collaboration more structured, transparent, and measurable. It is very important to share information with suppliers and ensure good data quality. A good SRM should be transparent and supported by accurate and reliable data. (4D) We provide access to technology, such as platforms for suppliers, to help drive standardization and support their efficiency. These tools also make collaboration easier. (3C) Internal expertise is involved when a project is strategically important, and knowledge exchange with suppliers often leads to strong outcomes. We have access to internal experts. If a project is strategically important, we involve people who have the relevant knowledge in-house. Connecting these experts with suppliers often leads to strong results. (3C) 6.1.3 SRM actors The interviewees agreed that SRM actors are not limited to procurement managers and the supplier’s key account managers. R&D, and in some cases finance or process managers, can also be part of the SRM process. It is a dynamic concept, and the actors 58 involved may vary depending on the project, the timing, and the specific business needs of the company. Although SRM is understood as a strategic concept, in practice it is currently more connected to operational purchasing activities. The operational teams are more actively involved in day-to-day supplier interactions and relationship maintenance. However, I believe SRM should sit more firmly within strategic purchasing, where long-term planning, alignment, and negotiation take place. (5D) SRM is a responsibility for the whole company, including executives. It is quite common that our executives enjoy meeting customers and spending time with them, but they also need to understand the supplier side. They should know who the key suppliers are and maintain relationships with them. In the same way, technology or R&D experts need to interact with key suppliers; otherwise, they become isolated from what is happening in the market and may miss important innovations. Still, the day-to-day work usually falls to Category Managers and Buyers, depending on how the sourcing or procurement organization is structured. (3C) The interview findings indicate that Supplier Relationship Management (SRM) is s seen as essential for indirect procurement in multinational companies. However, SRM practices vary. Some companies use informal and operational approaches, even though SRM can help reduce costs, improve supplier performance, and create long-term value. A key finding is that SRM is harder in indirect procurement than in direct categories, mainly due to lower spending and a more scattered supplier base. Because of this, companies focus their SRM efforts on a few important suppliers where they expect the most value. For these suppliers, SRM includes early involvement, joint planning, and long-term commitments, not just monitoring. Three main elements shape how SRM is put into practice: activities, resources, and people. Performance is measured using several criteria, not just price. Segmenting suppliers is important for deciding how to engage with them, but companies do this differently. Some focus on how much they spend, while others look at strategic importance. The main resources for SRM are digital platforms, in-house expertise, and clear data. Interviewees said that sharing accurate information and using digital systems help standardize processes, support teamwork, and make it easier to measure results. Still, the maturity of SRM depends not just on tools, but also on the skills of the organization and involvement from different teams. 59 Finally, the interviews show that SRM involves