University of Twente Initiative for Purchasing Studies (UTIPS) 1/16

PresenterFredo Schotanus

Co-authorsJan TelgenLuitzen de Boer

University of Twente Initiative for Purchasing Studies (UTIPS) 2/16

Definitions

Buyer Buyer Buyer

Supplier

ver

tic

al

alli

an

ce

horizontal purchasing group

SupplierSupplier

Introduction 1 / 19

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An example of a purchasing group

Buyer B Buyer CBuyer A

x 4

Introduction 2 / 19

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Sounds nice, but problems may occur (‘bears on the road’)

Small and intensive groups do not always flourish

It’d help if we know what factors influence success

Introduction 3 / 19

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Earlier work

General– A lot of literature on (forming) alliances

– No comprehensive theory exists– Some study success factors, but hardly any study a broad set

(Hoffmann & Schlosser, 2001)

Specifically– 1 study deals with quite a broad set for purchasing groups (Hendrick, 1997)

– Not fully consistent with the general literature

Introduction 4 / 19

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Identify success factors formanaging purchasing groups

Contributes by a broad empiricalinvestigation into success factors for

purchasing groups

Agenda

Objective & contribution

Introduction 5 / 19

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– Allocation of savings

– Member influence

– Enforcement of cooperation

– Member cooperation

– Commitment & support

Potential success factors

Several theories explain cooperation We build on

– TCE (general rationale)

– Social exchange theory (individual fair rationale)

19 success factors categorized by– Trust

– Formality

– Member uniformity

– Common goals

– Communication

Literature review 6 / 19

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Perhaps the most discussed success factor (e.g., Bakker et al., 2006; Polychronakis and Syntetos, 2007;Vangen and Huxham, 2003)

Several empirical studies confirm its importance

Reasoning from TCE– costs are lower when there is trust

– as less monitoring & agreements are necessary

Potential success factors– Members are honest and loyal

– Members like each other personally

– Members meet one's commitments

Category: Interorganizational trust

Literature review 7 / 19

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1. Perceived importance of factors (Hendrick, 1997)

2. Compare differences between (un)successful groups (Hoffmann & Schlosser, 2001)

Method 2– Not yet used for studying purchasing groups

– Need to define ‘success’ (no consensus in the literature)

– We measure it as the perceived success of the group

Two methods

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Activities

Group with x members

O1 …

Properties:……

Overall performance

Advantages Disadvantages

Scores:……

Potential success factors

Scores:……

Ox

Method

The survey

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NEVI newsletter (797 org.)

Ovia newsletter (620 org.)

active

not active (low response)

Sampling

Method

The numbers– 16% ‘worst case’ response rate– 224 respondents– 115 groups – 74 small and intensive groups (81% successful)

Early & late response almost the same (p < .05)

We knew most responding groups Data seems to be representative

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Data analysis (based on Hoffmann & Schlosser; 2001)

Method

1. T-tests to identify potential success factors

2. Discriminant analysis to the factors identified in step 1

All assumptions are met Assumptions tested with

– QQ-plots for normality

– Levene’s (1960) test (p ≤ .05) and the variance ratio for equality of variances (< 2.5)

– Box’s (1950) test (p ≤ .05) for equality of covariance matrices

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Identified potential success factors (t-tests; p ≤ .05; discriminant analysis; 89.3% classified correctly)

Findings and discussion

Enforcement of cooperation1. No enforced participation

Member cooperation2. Members contribute unique knowledge

3. Sufficient total contribution of efforts

Commitment and support4. Members rarely change representatives

5. Members have internal support Communication

6. Communication (current projects)7. Communication (new projects)

Member influence 8. Members have similar influence

Common objectives9. Members have similar objectives

Allocation of savings10.Fair allocation of savings

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Categories without success factors

Findings and discussion

Trust and formality (consistent with Hoffmann & Schlosser, 2001)

– Inconsistent with a.o. Schotanus (2005)

– Important when establishing, but prerequisites for managing a group

– Explanation by awareness and the methods used

Member uniformity– Inconsistent with a.o. Hendrick (1997)

– Groups with member with (dis)similar cultures and procedures can be (un)successful

– Similar explanations as for trust plus the specific context

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Categories with success factors (1/3)

Findings and discussion

Enforcement of cooperation (consistent with Brockhoff, 1992)

– Participation should bring savings and attract without enforcement

– Still, if a member cooperates, it needs to commit

– Enforcement & influence problems are typical for BU groups

Member cooperation (consistent with Hoffmann & Schlosser (2001) and communication (consistent with Laing & Cotton, 1997)

– Factors such as sufficient total contribution of efforts show that success doesn’t occur as a matter of course

– Some knowledge and efforts are necessary to coordinate, communicate, etc.

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Categories with success factors (2/3)

Findings and discussion

Commitment (consistent with Doucette, 1997) and support– If members often change representatives, this may hamper learning

effects + not a sign of commitment– If a member isn’t committed, then the others may also reduce their

commitment (Doucette, 1997)

Common objectives (consistent with Laing and Cotton, 1997) and influence of the group members– Factors identified are similar goals & all have a similar influence

– Without similar goals, it costs more to synchronize

– Without influence, members’ interests may be ‘forgotten’

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Categories with success factors (3/3)

Findings and discussion

Allocation of savings– Fair allocation is important, but difficult for purchasing groups

– It may prevent conflicts and members leaving the group

Allocation of gains– 87% uses Equal Price

– 13% uses methods that are more beneficial to large members

Allocation of costs– 30% uses no formal method

– 29% uses a proportional method

– 29% uses Equal Amount or a fixed membership fee

What’s a fair and successful combination?

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Combinations of allocation methods

Equal Price (EP) + no formal cost method

EP + Proportional cost method

EP + Equal Amount cost method

total %uniformity of contr.uniformity of vol.

successful %

27%2,72,5

76%

24%2,31,9

79%

26%2,72,2

90%

Findings and discussion 17 / 19

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Limitations and further research

Focus on small and intensive groups Difficult to assess ‘success’ Low response rate No distinction between (very) successful Not enough data for method combinations

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Quantitative empirical evidence using TCE and SET Found no success factors related to trust, formality, and uniformity Inconsistencies explained by method or context differences Main success factors are

– No enforcement– Sufficient total contribution of efforts– All contribute unique knowledge– All rarely change representatives – Fair allocation of savings– Communication– (No large differences in motives & efforts)

Prediction value of the discrimination analysis is 89.3%

Conclusions on managing purchasing groups

Fredo Schotanusf.schotanus@utwente.nlhttp://www.utips.eu

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