Organizational Buying Behaviour

Contents

1. Objectives
2. 1 Introduction
3. 2 The organizational-buying-behaviour process
4. 2.1 Buying decision phases
5. 2.2 The buying centre
6. 2.3 Decisions at each phase of the buying process
7. 2.4 A global model
8. Bringing multiple buying influences together
9. 3 Risk and uncertainty—the driving forces of organizational buying behaviour
10. 3.1 The importance of the risk factor in organizational buying behaviour
11. 3.2 A typology of risks
12. 4 Factors influencing organizational buying behaviour
13. 4.1 Types of buying situations and situational factors
14. Who buys the notepaper?
15. 4.2 Geographic factors/cultural factors
16. 4.3 Time factors
17. Box 7.3 The project-buying process
18. Box 7.4 The project buying behaviour
19. Changes in the US OBB
20. 5 Purchasing strategy
21. 5.1 Development of the purchasing strategy
22. 5.3 The nature of the relationship developed with suppliers
23. 5.4 Organizing the buying activities
24. 5.5 Procedures established to work with suppliers
25. Box 7.5 Alpha
26. A tougher game of musical chairs
27. 6 The future
28. 7 Summary
29. Further reading
30. Discussion questions
31. Mini Case: Internet Supplies Ltd.
32. Discussion question

Section: Understanding and Assessing Buyer Behaviour Objectives

The objectives of this chapter are:

1. to describe the organizational buring process and some models of this process;
2. to identify the main influences on organizational buying behaviour;
3. to distinguish the factors influencing organizational buying behaviour;
4. to consider the role of the purchasing function in modern organizations.
1 Introduction

FACED with the challenges presented by competition, the business practices of industrial firms
have developed a great deal since 1980. The intervening period of time has seen many changes,
among which the following have been of particular importance: the growth of outsourcing, the
increasing power enjoyed by purchasing departments within companies, and the importance
given to developing partnerships with suppliers. These three factors are sufficient to point out
how important it is for a company to understand the decision-making process of industrial
organizations in order to define and undertake the relevant marketing actions.

2 The organizational-buying-behaviour process

BUSINESS-TO-BUSINESS marketing is based on the understanding of organizational buying

behaviour. Researchers and experts have invested a great deal of effort in this study and they
have tried and developed an organizational-buying-behaviour model with the intention of
structuring marketing approach. As early as the end of the 1960s and the beginning of the 1970s,
various models were developed in the USA (Robinson et al. 1967; Webster and Wind 1972;
Sheth 1973). They are at the core of the founding models of organizational buying behaviour.
They usually include the various phases of the buying process, the members involved, and the
decisions made in each phase. These founding models are explained in detail in many marketing
textbooks, but their relevance seems to have decreased over time (Cova and Salle 1992). We
have, therefore, chosen to refer to them briefly and to point out the recent developments of the
organizational buying behaviour.

2.1 Buying decision phases

The founding models (of the 1970s) vary in complexity, but they are nevertheless similar in that
they break down the buying process into the five following main phases:

• need recognition;
• specifications definition;
• search for suppliers;
• proposals evaluation;
• supplier selection.

However, these phases no longer seem to express exactly how rich and complex the
organizational buying behaviour process has become. The innovations and changes brought by
other models developed in the 1980s and 1990s need to be taken into account.

The supplier choice model developed by Woodside and Vyas (1987), based on an analysis of six
American factories' buying behaviour with regard to raw materials and components, breaks down
the buying process into five updated phases:

• preparation of the request for quotations (RFQJ;

• search for potential suppliers;
• evaluation and selection of approved vendors for bidding products;
 • analysis of quotes received;
• evaluation and selection of supplier(s).

This model adds the phase, ‘Evaluation and selection of approved vendors for bidding products’,
which leads to the setting-up of the ‘approved vendors' list’. This phase has been the focus of
many researchers' attention during the 1990s. Thus Jackson and Pride (1986), with a sample of
333 buyers members of the US National Association of Purchasing Management (NAPM),
showed that a majority (63.4 per cent) used a bidders' list (also called an approved vendors' list,
an approved bidders' list, or an accepted producers' list). Descriptive research both in the USA
and in Europe shows that the search for suppliers leads to the development of a shortlist of
suitable sources, from which a quotation should be requested.

The Matbuy model (Möller 1986), with a sample of six Finnish computer firms, is based on a
survey of the process of selecting components suppliers. It includes the eight following phases:

• purchase initiation;
• evaluation criteria development;
• information search;
• supplier definition for RFQ;
• evaluation of quotations;
• negotiation;
• supplier choice;
• choice implementation.

This model confirms the first phases of the buying process suggested by the supplier choice
model and introduces the fourth phase, ‘supplier definition for RFQ’, which results in the
creation of the ‘accepted producers' list’. Additionally, it introduces the phase ‘negotiation’ with
the selected suppliers after an evaluation of their proposal. By emphasizing that the final
selection is not based solely on the submitted proposals but involves negotiating with one or
more tenderers, the Matbuy model confirms Dale and Powley's study (1985). Four out of the five
British firms they studied negotiated all the proposals received; the fifth one, a public-sector
firm, based its choice only on the written proposals. Likewise, a study based on a sample of fifty-
eight buyers, members of the Compagnie des Dirigeants d'Approvisionnements et Acheteurs de
France (the Company of Purchasing Managers and Buyers of France), showed that many of them
(84 per cent) negotiated after receiving the tenders (Cova and Salle 1992).

The founding models developed in the 1970s can be compared with the updated ones of the
1980s on the basis of their breaking-up the buying process into various phases (Box 7.1).

2.2 The buying centre

Industrial marketers have long been aware that some buying decisions are not made by the
purchasing agent alone but occur with the involvement of other members of the customer's
organization. Industrial sellers are sometimes informed when such instances occur, or it may
become obvious from the actions of the purchasing agent. Often, however, the problem is in
knowing when such decisions will be the result of group consensus, the make-up of the group,
and whom to target within the group to maximize the effectiveness of the offer (see Insert). The
understanding of such group-procurement decisions is the study of buying centres.

The buying centre consists of those people in the organization who are involved either directly or
indirectly in the buying process. In the founding models, the roles of the members of the buying
centre are those of user, buyer influencer, decider, and gatekeeper (Webster and Wind 1972).

• Users are defined as members of the organization who use the purchased products and
services.
• Buyers are those with formal responsibility and authority for contracting with suppliers.
• Influencers are those who influence the decision process directly or indirectly by
providing information and criteria to evaluate alternative buying options.
• Deciders are those with authority to choose among alternative buying options.
• Gatekeepers are those who control the flow of information and materials into the buying
centre.

Some researchers, however, now add the role of ‘initiators’ to the previously mentioned ones.
The initiator does not always belong to the buying organization, since the organization may not
be aware that it has a problem or may be unsure of how to solve it. Companies often rely on the
technical knowledge of their suppliers, and, when this is the case, a member of the supplier's
organization may initiate the buying process by pointing out a current problem.

This is often the case in project activities. The supplier creates the concept of the project, carries
out the feasibility study, gathers the financing package, and identifies the actor that will later
become its customer. All this takes place over an extended period of time and includes various
actors in a logic of involvement. The project then clearly becomes a technical and social
construct initiated by the supplier and raising the interest of the various parties involved inside
and outside the buying centre. The buying centre for projects can, therefore, often include
participants from outside the organization such as consultants, engineering firms, government
officials, etc., that make up a network of actors around the buying organization.

Typically though, participants in the buying process, regardless of their role (user, buyer,
influencer, decider, gatekeeper, or initiator), perform their activities as employees of the buying
organization. Their actions will therefore be evaluated, and part of all their formal compensation
will depend on the outcome of this evaluation process. Purchasing activities are also likely to
account for at least some of the informal rewards of the buying-centre participants (Anderson
and Chambers 1985). The fact that each individual (especially when they come from different
organizational levels) may be evaluated and rewarded according to different performance criteria
is a key issue to the functioning of the buying centre. It should be interpreted by a supplier as a
major opportunity to use various scenarios to influence the buying centre. Each scenario will
depend on the agenda, potential risk, and rewards of the members of the buying centre acting as
individuals with sometimes contradictory motives but linked by the same group dynamic of
solving a buying problem (Anderson and Chambers 1985).

2.3 Decisions at each phase of the buying process

Organizational buyers are subject to a wide variety and complexity of buying motives and rules
of selection. The work of Woodside and Vyas (1987) reveals that the following buying pattern
was used by US companies during the 1980s:

• A relatively stable set of selection rules applies, regardless of the product being bought or
the firms involved.
• A conjunctive rule is used by the buyer to disqualify any unsuitable supplier at the
beginning of the buying process.
• Then, price becomes a major criteria and candidates are disqualified on the basis of a
disjunctive rule. The remaining suppliers are typically those whose prices do not exceed
the best price offered by more than 6 per cent.
• The number of accepted tenders varies greatly but is always higher than three. It may go
up to sixteen.
• Most of the time, the final selection is made just after the analysis of the submitted
tenders. Some times, however, a negotiation will take place with the suppliers (between
two and four candidates) in order to reach the final decision.

Möller (1986) presents the results of a study of the buying pattern used by European companies
in the 1980s:

• Buyers try to use stable supplier evaluation criteria. This drive for the use of constant
evaluation criteria does not lead through to their mechanistic or uncreative application.
Depending on the buying market situation, the application forms and the relative
importance of the criteria used can vary considerably.
• In the early phases of the buying process, the technical dimension and quality are critical
criteria. They are used in a typically conjunctive sense to divide up potential suppliers
into acceptable/non-acceptable sets. A compensatory approach dominates the final
supplier choice, so, if other criteria are clearly above the threshold levels, price will be
weighted more heavily.
• The buying process is almost always initiated through routinized internal channels.
Because of external turbulence, the process is sometimes initiated during the contract
term.
• The primary information source is the company buying records and other sources are
considerably less important.
• Whenever possible, a testing sample is requested from a new supplier being considered.
• Requests for quotation are seldom sent to more than six potential suppliers, based on the
assumption that the evaluation costs would exceed the marginal benefits of a greater
group of candidates. Active search for new suppliers is a rare occurrence.

The buying decision-making process appears to be a heuristic exercise in programming. It

applies a series of rules to reduce the alternatives to a number the buyer can cope with, and to
minimize the element of uncertainty inherent in making a buying decision.

2.4 A global model

The main contribution of the Matbuy model is the dynamic combination of the various phases
with the different participants in the decision-making process and with the different criteria and
selection rules used in the process (see Box 7.2). In each phase, the Matbuy model includes:

• the type of decision to be made;

• the different departments of the buying firm involved;
• the problems faced and the tasks involved.

This model tries to cover the main problems and conflicts that can potentially emerge during
each phase.

It gives marketers a way to focus their efforts on the critical phases knowing who is making what
decisions based on which criteria.

Bringing multiple buying influences together

When Klix tried to sell their new drinks dispensing trolley to hospitals, they found that to have it
accepted it was necessary to deal with three distinct buying influences in the hospital. First, there
were the hospital catering managers, who calculated that it cost 3p to provide a cup of tea from
the traditional teapot while Klix's own figures costed a cup ot tea from their trolley at 4.5p.
However, the manager in charge of domestic staff, who was responsible for the payroll cost of
porters, tea ladies, cleaning staff, etc., found the Klix drinks trolley attractive. This was because
using the Klix trolley would reduce costs, as dispensing tea from the trolley was quicker than
using a teapot. Finally, the nurses showed some dislike of disposable plastic cups, seeing the
traditional teacup as more ‘homely’ and friendly.

3 Risk and uncertainty—the driving forces of organizational buying behaviour

MANY studies have pointed out that the level of risk or uncertainty associated with a given
buying situation is a factor explaining organizational buying behaviour.

In these studies, two different points of view have been adopted successively. The first one is
focused on understanding how a customer comes to a decision and behaves through the concepts
of uncertainty or risk. The second one is centred on the actions undertaken by the supplier given
the customer's behaviour.

3.1 The importance of the risk factor in organizational buying behaviour

The risk level depends on the characteristics of the buying situation faced by the customer.
According to Johnston and Lewin (1994), when the risk level associated with the buying
situation faced by a customer increases, the following occurs:

• The buying centre becomes larger and more complex. Participants from a larger number
of different departments become involved. They tend to be more experienced and to
come from a more senior organizational level.
• Price becomes a relatively less important criterion in the decision-making.
 • Members of the buying centre conduct a more extensive information search (especially
during the initial phases of the decision-making process).
• The probability of conflicts occurring between the members of the buying centre
increases. The greater importance of the outcomes and the conflict between many
participants each with their own motives explain this greater potential for conflict.
• The negotiation between supplier and customer is collaborative and orientated towards
problemsolving. The existence of a relationship between supplier and customer facilitates
this problemsolving approach.

In their study, Hakansson, Johanson, and Wootz (1976) focus on the relationship between a
decision and the uncertainty associated with it from the customer's point of view. The buying
situation faced by a customer can be characterized by the following three combined dimensions
of uncertainty:

• The need uncertainty relates to the difficulty that customers find in expressing exactly the
nature of their need. When this type of uncertainty is high, the customers interact with
suppliers they know and with which they feel comfortable. They are more involved in
their relationship with the supplier and include internal and external experts and
specialists in the decision-making process.
• The market uncertainty results from the existence and nature of the alternative supply
sources available to the customer. This type of uncertainty depends on the characteristics
of the supply market: the differences between suppliers (market heterogeneity) and the
evolution of these differences over time (market dynamic). Faced with a high market
uncertainty, the buying firm will have contact with a greater number of suppliers.
Decision-makers can also specialize in function of these markets.
• The transaction uncertainty depends on the customer's ability to anticipate how the
transaction will work, mainly the product delivery and the mode of resolution. Different
languages, technologies, and cultures in each organization and the existence or not of
standardized procedures allowing faster action influence this mode of resolution. When
transaction uncertainty is high, the buying firm uses several suppliers, is more sensitive to
delivery questions, and more involved with the suppliers before making the final
decision.

The supplier can influence the degree of perceived uncertainty by the buyer along the three
abovedescribed dimensions and cause certain desired behavioural reactions. The supplier can use
the information transmitted to the customer and implement certain actions in order to increase or
decrease the degree of uncertainty depending on the chosen tactic.

In order to function, an organization needs to gain access to resources from suppliers. The degree
of risk perceived by this organization will depend on the impact of these resources on its activity,
and their characteristics, accessibility, and availability on the supply market in the short,
medium, and long term. The organization will implement short-, medium-, and long-term actions
to control or decrease these risks. The risk perceived by the customer in the short, medium, and
long term is, therefore, considered as a driving force of his buying behaviour. By understanding
the sources of the perceived risks and how they are reflected in the actions implemented by a
customer, a supplier can adapt his own actions (Salle and Silvestre 1992).
3.2 A typology of risks

The risks perceived by the customer result from a combination of the characteristics of various
factors: the transaction he is involved in, his relationships with the supplier, and his position vis-
à-vis the supply market (Fig. 7.1).

A distinction can be made between three kinds of risks. First, there are the risks associated with
the characteristics of the transactions. The level of risk perceived by the customer depends on the
complexity and potential outcomes of the problem to be solved during these transactions. This
type of risk includes various dimensions: the technical risks, the risks resulting from the
availability of the products and services purchased, the risks depending on the customer's ability
to use the products and services purchased properly, and the financial risks.

Secondly, the risks associated with the characteristics of the relationship between the customer
and the supplier that results from the successive transactions between both parties condition the
climate of current and future exchanges between the customer and the supplier and therefore the
behaviour of the customer during the transactions. These risks reflect the customer's questions
regarding the supplier's ability and willingness to follow up on his offer (products, services,
price, logistic) and to adapt it to the changing needs of the customer without infringing on his
independence. Some organizations perceive the existence of a tight relationship between
customers and suppliers as a situation of dependence, while others see in it a source of security
and of progress. There are, therefore, two kinds of risks resulting from the characteristics of the
relationship between a customer and a supplier: the risk of becoming dependent and the risk
resulting from the supplier's involvement in the relationship.

Thirdly, there are the risks resulting from the customer's position vis-&agrave-vis the supply
market. The customer will seek to establish, maintain, or improve his position through his
purchasing strategy. The customer's objective is to secure and improve his performance vis-
&agrave-vis the supply market. In order to do so, he will manage in a medium- and long-term
perspective relationships with his current and potential suppliers to secure various supply
alternatives. The customer's buying behaviour during any transaction will, therefore, be
influenced by his purchasing strategy.

The members of the buying centre are aware of the risks associated with the characteristics of the
transactions, with the relationship with the supplier, and with the customer's position vis-à-vis
the supply market. Their perceptions of these risks, though, will depend on their individual
characteristics, their position in the organization, their relationships with the other members of
the buying centre, the functioning mode of the organization (for example, types of mission
impacted, reward system in place), and the information available to them to reach a decision. The
various perceptions of the members of the buying centre affect the type and level of risks they
perceive and together make up the customer's buying behaviour.

An outside observer who would ideally have access to all the information associated with the
decision (characteristics of the problem to be solved, context of the choice, various alternatives
available) could judge this behaviour as lacking rationality and the subsequent decision as not
optimized. We refer here again to the idea of the bounded rationality of the actors (Simon 1952).
The rationality of a decision-maker depends both on the position effect and on the disposition
effect. The position effect of the decision-maker depends on the organizational and social
characteristics (rules and procedures in place, balance of power and alliances within an
organization) that condition his access to information and therefore his perception and the
rationality of his decision. The disposition effect of the decision-maker depends on his mental,
cognitive, and affective characteristics, which condition his preferences and perceptions. This
explains why, depending on the participants' individual characteristics and on the nature of their
involvement in the buying centre, the level and types of risk perceived by the various participants
can differ from what the abovementioned outside observer could ideally identify and evaluate.
We, therefore, introduce the idea of risk incurred by the customer. The difference between the
incurred risks and perceived risks results from the characteristics and functioning mode of the
buying centre.

In order to understand the customer's buying behaviour, a supplier must do two things:

• On the one hand, he must investigate the characteristics of the transactions, of the
customer's relationships with his supplier, and of the customer's position vis-à-vis the
supply market. This analysis can allow the supplier to assess the level and nature of the
risks incurred by the customer. This is particularly true if the supplier has access to
extensive information either through the experience accumulated while solving similar
problems with other customers or through a longlasting relationship with the customer.
• On the other hand, a supplier must also analyse the functioning mode of the customer's
organization and, more specifically, of the buying centre. This analysis enables the
supplier both to define the targets of his actions and to detect possible gaps between
incurred and perceived risks.

The existence of these gaps gives the supplier opportunities to develop actions targeted to the
members of the customer's buying centre. These actions can have different objectives. They can
stimulate the risks incurred by the customer in order subsequently to reduce them, directly
reduce the risks, or do nothing that could generate risks. The supplier can therefore ‘play with the
risks’.

‘&hellip the role of price in the purchasing process may differ, depending upon the type of
product, the repetitive nature of the purchase, and the parties involved (buying group versus
individual professional purchaser).’ (Chapter 10, p. 221)

4 Factors influencing organizational buying behaviour

MANY factors influence organizational buying behaviour. Those that research has shown to be
of particular significance are discussed in the next three sections, which consider types of buying
situations and situational factors; geographical and cultural factors; and time factors.

4.1 Types of buying situations and situational factors

In addition to identifying the buying activities, Robinson et al. (1967) in their founding BuyGrid
model discarded the traditional product classification, stated that certain buying situations were
far more significant and consistent in explaining buyer behaviour than product variables, and
developed a situational scheme called the ‘buyclass variable’. The buyclasses are ‘new task’,
‘modified rebuy’, and ‘straight rebuy’. They represent a continuum ranging from the purchase of
items the firm has not previously purchased to items the firm buys routinely:

• a new task is defined as the purchase of items not previously purchased by the firm;
• a modified rebuy is the purchase of items purchased in the past but not recently nor
regularly;
• a straight rebuy is defined as the purchase of an item that is purchased frequently and
regularly.

This Buygrid model has been widely disseminated in marketing textbooks by Kotler and other
authors. In fact, the buyclass model has been, and still is, presented in most textbooks as an
excellent predictor of organizational buying behaviour, especially as far as the number, the
quality, and the influence of the members of the buying centre are concerned. This assumption is
based on the work of several researchers (Robinson et al. 1967; Doyle et al. 1979). They
emphasize the relevance of the buyclass in predicting:

• the time invested in the organizational-buyingbehaviour process (ranging from long for a
new task to short for a straight rebuy);
• the size of the buying centre (ranging from large for a new task to small for a straight
rebuy);
• the role of the purchasing agent in initiating the need to buy (ranging from small for a
new task to major in straight rebuy).

This positive conclusion is not always corroborated by practical examples. A study conducted by
Bellizzi and McVey (1983) in the construction business shows an overall absence of significance
of the buyclass variable as a predictor of organizational buying behaviour. There may be a
relationship though between the buyclass and the amount of information sought by a buyer, as
well as the number of alternatives a buyer will consider when making his purchase decision.

The marketing literature may, therefore, have overemphasized the role of the buyclass variable in
organizational buying behaviour. In their previously mentioned study, Bellizzi and McVey
(1983) conclude that the product type (operating supplies, major material, accessory equipment,
and capital equipment as far as their study is concerned) is a better predictor of organizational
buying behaviour than the buyclass (see Insert). They observe that the influence of top managers
increases as the product purchased changes from inexpensive operating supplies to expensive
capital goods. They also notice that the involvement of architects and, engineering consultants is
greater when purchasing capital goods.

Today, the trend in industrial marketing practices is, therefore, to combine the approach of the
buyclass model with others focusing on the product types. Note that the concept of product types
is here much larger than tangible products and includes on a continuum: tangible products,
services, systems, and projects. Using this larger definition, Jennings and Plank (1995) have
recently proposed an interesting analysis underlining the relationship between the product
complexity and the risk perceived by each member of the buying centre. They define complexity
along four dimensions: functional complexity, specification complexity, commercial complexity,
and political complexity.

A product is functionally complex when it is made up of a large number of parts or systems. The
specifications of a product are complex when it requires extensive testing to ensure that the
design requirements are met (see Box 7.3). A product is commercially complex when the product
transactions involve complicated procedures such as progress payment, penalty clause, and so
on. Finally, a product is politically complex when the purchases involve differing factions that
could impact the deal.

Most departments in an organization are affected by one or more of the above-described

dimensions. Jennings and Plank (1995) recommend formulating the marketing strategy to target
the members of the buying centre and offer the following guidelines:

• address the functional-complexity issues with the purchasing agent alone;

• address the specification-complexity issues with the purchasing and manufacturing
departments;
• address the commercial-complexity issues with the manufacturing and engineering
departments;
• finally, address the political-complexity issues with top management and the engineering
departments.

At the extreme of the continuum previously mentioned, a project is an interesting product type,
since it is so specific and complex that it implies a level of sophistication of the organizational
buying behaviour not included in the previous models defining the average process (Möller
1986).

The project buying behaviour has the following particularities (Cova and Holstius 1993):

• a long-lasting, negotiated and interactive process (see Box 7.4)

• a request for intercompany links;
• an enlargement of both the buying and the selling centres;
• a coming-into-play of interpersonal relationships between, on the one hand, the buyers
and their networks, and, on the other hand, the suppliers and their networks;
• a great importance given to the quality of these interpersonal relationships;
• a large set of choice criteria used during each phase.

Who buys the notepaper?

Most types of business stationery are purchased by somebody fairly junior in the hierarchy and
are bought, as likely as not, on price. However, a senior member of the management team
(perhaps even the Managing Director) will choose the company's stationery with its letterhead.
Such a person will usually choose from a number of alternative types of paper and letterhead
designs and these will usually have been prepared by a graphic designer, who will determine the
quality and perhaps even the brand of the paper that should be used for the stationery. Another
group who may have some influence are the printers, whose recommendation may be influenced
by the paper that they currently have in stock.

4.2 Geographic factors/cultural factors

While European companies use the act of negotiating extensively as an opportunity to interact
with their customers or their suppliers throughout the buying process, North American ones
avoid it as much as possible, since they dislike the idea of an interaction between a customer and
a supplier (Cova and Salle 1991). These are, of course, only generalizations, but research tends
to confirm them rather than to disprove them, even if these behaviours tended to become more
homogeneous in the late 1990s (see Section 4.3).

Referring to the European surveys quoted above (Dale and Powley 1985; Möller 1986; Cova and
Salle 1992), one may wonder if the existence or not of negotiations between suppliers and
customers does not depend on the business practices and culture of each region. Europeans, on
the whole, seem to negotiate after tenders have been submitted. This negotiation is considered as
a phase before the final choice takes place. During this phase, more detailed information about
the suppliers' proposals and/or the suppliers themselves is exchanged. This phase seems to be
used rarely by North American companies. Johnston and Bonoma (1981) showed that the request
for bids is sometimes used to identify the lowest bidders, with whom subsequent negotiations
will be conducted. More generally, though, negotiations take place only after and not before a
supplier has been chosen, with the objective of finalizing certain points of the contract. In the
light of the research carried out by Woodside and Vyas (1987), it appears that North American
buyers seem more influenced by a competitive ideology, which leads them to reduce the use of
negotiation.

The core of the North American approach to organizational buying is the invitation to bid, not
according to the European style with negotiation, leading to the final selection (Möller 1986), but
according to the American style, with the final selection occurring as soon as the bids have been
received by the buyer. According to Woodside and Vyas (1987), North American buyers believe
that negotiating is against their company's policy for the following reasons:

• vendors quote high prices under negotiating conditions; they quote their best price when
price changes are disallowed after bids have been submitted;
• if suppliers are squeezed too much, their product quality and service will decline;
• during shortage, suppliers will drop customers whose prices and terms are least attractive;
with market competition so intense, suppliers have little room to negotiate and already
offer an attractive price.

Some explanations can be found to understand this kind of logic. North Americans seem to be
uncomfortable when entering the uncertain and imprecise world of personal relationships in
business exchanges. They like to predict the nature and the content of these exchanges. American
culture, therefore, favours well-defined contracts that allow customers to compare suppliers on
the same items and to negotiate more on price. As a consequence, US buyers do not favour
medium-term, single-partner, and long-term buyer-supplier relationships (Cova and Salle 1991).
4.3 Time factors

During the 1980s and the 1990s, deep changes took place in the relationships between industrial
customers and their suppliers initially in Japan and Europe and later in North America (see
Insert). The main reason behind these changes was the fact that, to be competitive in the 1990s, a
company had not only to obtain the best prices from its suppliers through systematic
competition, but also to develop long-term relationships with a limited number of suppliers able
to create value and reduce costs.

These changes have affected organizational structures and the characteristics of

interorganizational relationships. For example, large industrial companies tend to centralize and
coordinate their buying decisions further, pushing suppliers to adapt their approach by using,
among other things, key account management. In many areas, the development of new ways to
work together and to divide up the activities between the organizations has also increased the
complexity of the relationships between customers and suppliers. This has happened in the
following areas:

• Product development. New products are often codeveloped, which results in a very early
integration of the suppliers in the technical platforms of their customers. It is the case, for
example, when new models are developed in the automotive industry. In some industries,
customers transfer the entire management of the complete technical function to the
suppliers. They no longer buy components after having defined the required
specifications, but rather use sub-systems or systems already developed by their
suppliers.
• Delivery. Since 1990 time has become an obsession. A product delivery time is
considerably reduced by the just-in-time approach and even more so by the location of
suppliers on the customer's production site. The example of the new Mercedes plant
located in France to build and launch a new car called Smart in 1998 is very interesting.
In order to reduce the production time of this new car, seven suppliers are located on the
production site.
• Information. We could mention here all the recent technical developments that allow a
rapid information flow between organization and, more specifically, electronic data
interchange (EDI).

These factors result in a very high interdependence between organizations and in a major
modification of the customers' decision process, as illustrated by Fig. 7.2, which was presented
during a conference by a supplier in the automotive industry.

Fig. 7.2 compares the traditional system with the new system currently used in this industry. In
the traditional system, the design department defines the characteristics of the vehicle's
components, the engineering department defines the process, and the purchasing department
invites the suppliers to compete based on the specifications and forecast volume. Suppliers are
selected in the light of their ability to manufacture at a given cost. The supplier then builds the
prototype and the final price is agreed upon before production starts. In this system, the
purchasing department is the sole contact point between the manufacturer and the suppliers. The
negotiations are based on the most important criterion: pricing. The purchasing department
controls the characteristics of the incoming flows: consistency of the quality and degree of
commitment to deadlines. The design department is supposed to be knowledgeable about the
products and the technologies of the components. An anecdotal example would be the case of a
design department of a French automotive manufacturer in the 1980s, which specified the
composition of the rubber to be used for a windscreen wiper.

In the new system, suppliers are selected very early in the process. For example, the decision to
launch the Twingo project, a vehicle manufactured by the French automotive manufacturer
Renault, had not been finalized by top management when the suppliers had already been selected
(Midler 1993). Suppliers are selected, based on their ability to take into account the financial
parameters decided by the customer, on their ability to conceive and manufacture a product, on
their technological knowledge, and on their ability to become part of the project team managed
by the automotive manufacturer. The supplier and the customer work closely together during the
conception phase. As the project moves forward, new information is integrated and sub-systems
are modified, resulting in the need for various suppliers to adapt and adjust.

The major differences between the two systems are, therefore, the role of the supplier and the
characteristics of the interaction between the customer and the supplier throughout the process.
The traditional system focuses on the greater autonomy of the customer, while the new system
insists on cooperation between the customer and the supplier. Numerous studies underline these
changes in various industries. But, even though the managerial and scientific literature focuses
on many examples of partnership between suppliers and customers, the industrial buying
situation should not be limited to this type of relationship between suppliers and customers. In
fact, the variety of existing buying situations and the spectrum of the types of relationships
established between suppliers and customers have most probably widened since 1980. This is
acknowledged by several scholars (Webster 1992; Möller and Wilson 1995), who offer a
classification spreading from ‘market transactions’ to ‘long-term relational exchange’. In the
‘market-transactions’ situation, market forces determine the terms of the exchange that takes
place between independent parties in an atomized market. In the ‘long-term relational-exchange’
situation, the organizations involved have a long-term orientation and aim at developing the
relationship between them.

‘This change from “a competitive to a cooperative” relationship does not mean that buyers and
sellers did not have good personal relationships under the old model. … Nevertheless, the basic
atmosphere was one of adversarial negotiation when it came to price setting and to gaining
concessions on the size of orders and volume.’ (Chapter 23, pp. 534–5)

Box 7.3 The project-buying process

A buyer wishing to purchase seven locomotives that will serve on the Portuguese National
Railroad enquires about recent developments in technology. For this purpose, he contacts the
three European suppliers from whom he had already bought locomotives: one English, one
German, and one French. The combination of the data he receives allows him, in the space fo
four months, to set up a request for proposal. In order to avoid too much variety in his rolling
stock, the buyer decides to consult only these three suppliers. The call for tender is sent to all of
them with a three-month timespan for the answer. This time is used by each of the three-
suppliers to visit the buyer and to (re)-create social links with local subcontractors. Each of the
three suppliers responds to the bid and their respective offers are analysed by the buyer, who,
after two months, invites each of them to negotiate the bid. during the negotiations, the buyer
introduces a new demand that is imposed upon him by his State department: the locomotive
frames must be manufactured in Portugal by a small subcontractor under a foreign licence. The
three suppliers rewrite their respective offers to take account of this new counter-trade demand.
After the final round of negotiations, the French supplier wins the bid thanks to a better counter-
trade agreement, although quoting the highest price. His counter-trade offer is less risky and
more attractive for the buyer and his local network.

Box 7.4 The project buying behaviour

1. Need awareness
2. Search for suppliers (including contacts for recommendations)
3. Definition of specifications
4. Drawing-up of list of bidders
5. Request for proposals
6. Exchange of information
7. Analysis of proposals
8. Drawing-up of a short list
9. Negotiations
10. New proposals
11. Analysis of new proposals
12. Negotiations

Possible repeat of steps 9–12

• 13. Final assessment

• 14. Final selection
• 15. Contract

Source: Cova and Holstius (1993).

Changes in the US OBB

‘Ten years ago, the Japanese were considered as setting the standard reference when someone
spoke about the problem of car manufacturer/suppliers. Today, everyone is talking about
Chrysler. Many manufacturers analyse its approach in order either to borrow from it, or to adapt
or simply to copy it. Created under pressure—the American number three was fighting for its
survival, while its best engineers let it down and its R&D was disappearing—it is now a strategic
weapon, which has allowed the group to accelerate the renewal of its range of cars at much
reduced costs. Chrysler dramatically lowered its R&D costs, while transferring the major
responsibility for complete ranges of components to its suppliers, who had already become its
partners. These partnership agreements have implications for the very highest level of the
hierarchy—for example, one of the CEOs with true dialogues on strategies. Investments in R&D
are now up to 2.6 per cent of its turnover, while its competitors are up to 4 or 5 per cent.’
Source: Fran&ccdeil;ois Castaing, VP Chrysler, interviewed by Patrick Chabert, in Les Echos, 8
Oct. 1997.

5 Purchasing strategy

THE role played by the purchasing function in the competitiveness of the modern industrial firm
is critical for both economic and strategic reasons. The importance of its economic role stems
from the fact that it manages a buying volume amounting to between 50 and 80 per cent of the
turnover and that its actions impact on the organization's profitability. Its key position as an
inter-mediary between the organization and the supply market explains its strategic role.

5.1 Development of the purchasing strategy

The characteristics of current and future business lead the organization to secure resources from
suppliers for the short, medium, and long term. These resources must meet as closely as possible
the needs of the customer at the best price while offering the highest level of reliability. This
process is rendered more difficult by the fact that the various resources to be secured have a
different impact on an organization's business and that their availability on the supply market
differs greatly.

The objective of the methods used to develop a purchasing strategy is to evaluate and classify the
various items purchased in order to be able to choose and manage the suppliers accordingly. This
classification takes place along the following two dimensions:

• the economic importance of the items to be purchased and their impact on the current and
future business of the organization;
• the characteristics of the supply market—in other words, the degree of its technical and
commercial complexity (stemming from the number of substitute offers available and
from the degree of competitiveness of the market). All the product families are evaluated
according to both dimensions and presented in a matrix (see Fig. 7–3).
• Strategic items. These have a great impact and are important for the customer's business.
The complexity of the supply market causes the buying decision to be very risky.
Strategic items usually justify a lot of follow-up activities on the part of the purchasing
department and the development of partnerships with a limited number of suppliers.
• Critical items. These also have a great impact and are important for the customer's
business, but the level of complexity of the supply market is rather low. In this case, the
risk faced by the organization will depend on its ability to use the items purchased
properly.
• Bottleneck items. These have a low impact and are not very important for the customer's
business, but the supply market is complex. From the point of view of the purchasing
managers, such a situation is not acceptable. It exists, however, when buying energy
(electricity, for example, when the market is not yet deregulated) or raw materials, or
when suppliers dominate a market.
• Non-critical items. These have a low impact on the customer's business and the supply
market is not complex. Pricing is a key decision criterion.
A company's objective will be to move an item upwards or downwards and/or to the left when
possible, depending on the position originally occupied by this item in the matrix. If not possible,
the organization will have to manage the position originally occupied by the item by trying to
increase the accessibility and availability of the resources for its business. Sometimes an
organization can choose to limit its dependence on outside sources (make or buy decision).
However, over the 1990s the trend for most organizations located in the industrialized world was
to outsource heavily. To manage or evolve the position occupied on the matrix by its various
items, an organization can use various levers

• to influence the overall supply market by trying to modify its position vis-&agrave-vis all
the suppliers available for a given item;
• to influence a given supplier by trying to modify the characteristics of its relationship
with this supplier;
• to modify its own position vis-&agrave-vis the overall supply market or a given supplier
through the use of its technology, structure, and procedures.

Such an approach is interesting, since it takes into account the various possible situations and
allows differentiation between the types of relationship that can be developed with suppliers. On
the other hand, the partnership ‘craze’ and the tendency to generalize it to all the purchased items
can be criticized (Kapoor and Gupta 1997). Indirect purchases (e.g. main frames, advertising
frame, office equipment and supply) represent nearly 25 per cent of the expenses of a
manufacturing company and can justify aggressive approaches such as the ones suggested by the
proponents of ‘reverse marketing’ (Leenders and Blenkhorn 1988). This type of approach would
sometimes lead to a 10–15 per cent decrease in a company's expenses.

The example of Alpha (Box 7.5) will illustrate some of these approaches and the various paths
chosen. Note that it is a real case study, but the name of the organization has been changed to
ensure confidentiality. The Alpha example underlines the levers used and the manoeuvres
undertaken by the purchasing department to evolve or secure its position vis-à-vis the suppliers.

Four levers can be distinguished:

• the actions undertaken to influence the supply market;

• the nature of the relationship developed with suppliers;
• the organization of the buying activities;
• the procedures developed to work with the suppliers.
• 5.2 Actions undertaken to influence the supply market

The Alpha example illustrates a set of actions taken to influence the supply market. Given the
importance of the product purchased in its business, Alpha tries to acquire a greater control over
the resources available from a limited number of suppliers. Such a control can be achieved either
through actions aimed at motivating new suppliers to enter the market, or by threatening
suppliers if the market is overly concentrated. An example of the latter took place a few years
ago when Italian capital was successfully invested in Valéo, a French supplier. Concerned by the
potential power of this supplier, a French automotive manufacturer attempted to hinder the
process. The purchasing manager of this manufacturer commented that, ‘since we spend a few
billion French francs with Valéo each year, we would like to know the name of its major
shareholder’.

In order to modify its position vis-à-vis the supply market, the purchasing department can change
the definition of the size of the technological or geographical reference market considered. To
satisfy the same need, a company can consider either the use of a single technology or the use of
various technologies. The greater the number of technologies considered, the larger the
technological reference market and the weaker the power of a supplier in the overall market from
the customer's perspective.

The geographic location of the potential suppliers considered by a customer is another criterion
used to define the reference market. Many medium-size companies purchase their products on a
market located in a loo-kilometre radius around their production site. They, as a result, achieve
greater flexibility and control over their purchasing activities. At the opposite end of the
spectrum is the French upscale cosmetic and perfume industry. Packaging being a crucial
element of their marketing strategy, they look for supplies all over the world, hoping to find
packaging ideas that will differentiate their products from those of their competitors.

5.3 The nature of the relationship developed with suppliers

Based on the type of items purchased and on its position in the buying matrix (see Fig. 7.3), a
company will develop different relationships with its suppliers playing with the following
factors: the number of suppliers (sourcing), the suppliers' share, characteristics of selected
suppliers, and the nature of customer-supplier relationships.

Number of suppliers (sourcing). There is no ideal rule and the sourcing choices can differ greatly
from one company to the next in identical conditions. Through sourcing, the customer attempts
to achieve an acceptable level of dependence vis-à-vis the suppliers without losing the benefit of
their competencies and at a manageable cost. Today, many companies significantly reduce the
number of their suppliers without hesitating to work with a sole source (see Insert). In 1997, for
example, the US airline company Delta did not hesitate to sign an exclusive contract with Boeing
for the purchase of 644 planes over the next twenty years. The European purchasing manager for
Case, a US manufacturer of farming equipment and of roadconstruction material, indicated in
1998 that a sole source was used for the strategic components needing heavy investment costs.
The selected supplier benefits from an exclusive contract over a few years, sometimes even over
the product's entire lifetime.

Supplier's share. When companies use various sources, most of the time they have one leading
supplier covering over 50 per cent of the needs of a given product family. Very frequently a
supplier will meet 100 per cent of the needs of a subgroup of items, and the needs of the
remaining items are fulfilled by another one.

Characteristics of selected suppliers. Through such a choice, a company tries to achieve a few
objectives that are not always compatible: to control its relationship with the supplier, to
optimize the use of the resources and competencies of this supplier, and to keep a competitor
from developing a relationship with the best suppliers. In order to select its suppliers, a company
uses, among others, the following criteria: size, business, and reputation, as well as expertise.
They will condition the type of relationship to be established between a customer and its
suppliers. What type of business is the supplier in? Should the company choose a specialist in a
given product or a supplier offering a wide and varied product mix? The importance of a
supplier's reputation and expertise will depend on the items purchased and their impact on the
company business. In the aerospace industry, for example, a supplier has a greater chance of
being selected if he has experience in high tech. and aerospace, and if he has previously worked
with this customer.

Nature of customer-supplier relationships. The complexity of the supply market and the impact
of each item on the business will influence the way a customer manages his relationships with
the selected suppliers. If the supply market is not very complex and the impact of the product is
low (non-critical items), a customer may adopt an opportunistic approach focused on
competition. When the complexity of the supply market increases and the impact of the product
on the business is high (strategic items), a customer may choose a partnership approach with his
suppliers. Purchasing departments are, however, able to manage only a limited number of target
suppliers with this approach. A decrease in the number of suppliers used by the purchasing
department can, therefore, be interpreted as a willingness to give them a greater volume of
business, allowing a stronger collaboration to develop.

5.4 Organizing the buying activities

The organization of buying activities can support the purchasing strategy. Two elements are
interesting to mention from the point of view of the resulting actions: the degree of centralization
of the buying activities, and the missions and status of the buying function.

Degree of centralization of the buying activities. Industrial concerns often present a high level of
organizational complexity, and the decision to buy a given item can take place at different levels
within the buying organization: at the group, branch, company, or manufacturing-plant level. The
geographic dimension must also be added to these four levels: international, national, regional, or
local level. In every case, companies seek to locate the decision-making at the most effective
level, in other words at a given hierarchical and geographical level. This choice is based on the
following factors:

• usage characteristics of the items: will these items be used in one or more countries,
plants, companies, branches?
• geographic characteristics of the supply market: local, regional, national, or international;
• importance of the items in the company business: in some companies, the higher the
financial investment, the higher in the hierarchy will the decision be made.

Missions and status of the buying function. These vary considerably from one company to the
next. In most industrial groups, the purchasing function has a very important role. Its missions
are external and internal. It manages external resources. The purchasing department defines the
panel of selected suppliers, keeps it current, and monitors their performance. It manages the
relationships with the suppliers and helps them when they need to improve their quality and
reduce their costs. The buying department also conducts the commercial negotiations. In certain
industries, the purchasing department is involved in restructuring the suppliers' industries with
the objective of achieving the most competitive service level and costs internationally.

Internally, the purchasing department helps the technical departments by informing them as soon
as possible about the know-how of the selected suppliers, allowing the technical departments to
standardize as much as possible the parti and components to be purchased. It is also in volved in
the meetings dealing with product creation and evolution matters and with pricing quality, and
reliability decisions. In the case of a project-type situation involving suppliers, the role of the
purchasing function is more complex. Mul tiple contacts take place between the supplier; and the
project team of the customer, increasing the risk of incoherences and confusion. The pur chasing
department's role is, therefore, to synthe size the information, and it must look for information
whenever something happens.

5.5 Procedures established to work with suppliers

The company will adapt its procedures to the type of items purchased and these procedures will
exert an influence on the relationships with sup pliers. These procedures can encompass numer
ous dimensions:

• ISO standardization;
• quality insurance;
• need to work with a given CAD/CAM software, as far as the technical dimension is
concerned;
• JIT as far as the logistic dimension is concerned
• terms of payment as far as the financial dimension is concerned;
• types of contracts as far as the legal dimension is concerned;
• EDI as far as the information flow is concerned;
• systematic bidding process.

These procedures can either be specific to a com pany or common to an entire industry.

Box 7.5 Alpha

Alpha, a subsidiary of a large industrial group, purchases a special plastic film and integrates it in
practically all of its products. This film represents an average 30 per cent of the cost of the
finished products manufactured. Four suppliers make up the worldwide supply market:

• Filmus and Plastus are American companies and their market share is repectively 50 and
30 per cent;
• Japafilm is a Japanese company and has a 10 per cent market share;
• Filmeuro is a European company and has a 5 per cent market share.

Alpha is a major player in this film market and buys about 20 per cent of the worldwide
production. Given its needs, Alpha buys only from the two American suppliers, considering
Japafilm and Filmeuro to be too small. Various factors are nevertheless challenged by Alpha's
central purchasing department regarding the selection of Filmus and Plastus as suppliers:
 • Filmus and Plastus manufacturing plants are located in the USA;
• only a limited technical team is based in Europe;
• the extent of these supplier's collaboration with Alpha is correct but no more;
• the supply market being rather concentrated, Alpha is quite dependent on these two
American suppliers.

To reiterate, the plastic film can be considered a strategic item; it greatly impacts on Alpha's
business, and the supply market is complex given its degree of concentration.

Once it had been recognized that the plastic film was a strategic item, various manœuvres were
attempted in order to modify Alpha's position vis-à-vis the supply market:

• Alpha tried to develop a partnership—in other words, to become a key account of either
Filmus or Plastus because of the potential represented by Alpha. This approachh failed.
These US suppliers did not want to favour Alpha, in order to avoid similar requests from
their other major customers. The approach chosen by Alpha was to develop a tight
collaboration through the development of the customer-supplier relationship.
• Alpha then tried to find European suppliers capable of developing their ability to supply
this plastic film, given the potential represented by Alpha. Filmeuro had no interest in
further increasing the supply of this product, since it felt its relative size3 was too small
as compared to Filmus and Plastus. Alpha also contacted other companies, but they
declined, because they had not mastered the necessary know-how and wanted to avoid
impact on other4 markets. This manœuvre was meant by Alpha to attempt to decrease the
complexity of the supply market and change the balance of power through the entry of
additional suppliers.
• As a result, Alpha decided to study its ability to manufacture the film itself. The studie3s
took nearly ten years and enabled Alpha to cover a quarter of its needs, while acquiring
an extensive know-hoe.
• Faced with Alpha's production-capacity development the US suppliers (one of them has,
in the mean-time, started its own production plant in Europe) changed their attitude
towards Alpha and become more open to a potential collaboration. One of the reasons
motivating their interest in a collaboration with Alpha was the opportunity to have access
to the know-how developed by the latter through its applications.

A tougher game of musical chairs

Finding themselves in a more competitive environment, utilities are acutely concerned about
containing or even reducing costs. Some are looking for savings through sole-source purchasing.
Administrative costs are reduced by dealing with only one supplier, and the higher volume of
business given to a single suppler leverages lower prices.

’The situation can be likened to a game of musical chairs. The way the game used to be played, a
larger number of utilities spread their business among a larger number of suppliers with smaller
purchases and annual contracts. Suppliers that lost one customer could generally expect to gain
another. “When the music stopped there were always chairs to be grabbed,” says a utility's
purchasing manager. “Now there aren't as many chairs and they don't play the music as often
because they're going to three to five years. And the contracts are getting huge, making the
available chairs harder to fill.”’

Source: Interchange (June 1998)

6 The future

To answer the question as to how organizational buying behaviour will evolve in the twenty-firs
century, it is necessary to make some assessmen about the evolution of a number of activities.
Twoof these are the information technologies and the production technologies. For example, it is
being predicted that soon much more commercial activ ity will be conducted by electronic
exchanges in i relatively impersonal manner. What effect wil this have on the challenges that
new supplier; already face as they seek to win business? It is not obvious how companies will in
future be able to buy online from suppliers with whom they currently have no contact. As has
been commented, ‘Trust does not reside in integrated circuits or fiber optic cables. Although it
involves an interchange of information, trust is not reducible to information’ (Fukuyama 1995:
25), and so how will the confidence necessary for exchanges to occur be created?

The issue of production technologies is important, because developments since the mid-1980s
show that the size of the minimum economic batch size is falling very rapidly, which amongst
other things makes further moves towards segmentation of existing markets an economic
possibility. In addition, the size of production units is also decreasing in many industries, so that
small local manufacture becomes a possibility once again. Given the rising costs of congestion in
many countries, this may lead to a swing back from the large centralized production facilities of
the 1960–80 period and open up the possibilities of an increase in competition, perhaps resulting
in a strengthening of the purchasing organization's negotiating position.

7 Summary

THE organizational buying process is very complex. This complexity stems from the very large
number of factors internal to the organization and related to the market affecting the buying
decision.

Given this complexity and the major changes constantly affecting industrial markets,
understanding organizational buying behaviour is not easy. This understanding is, however, a
key element in an organization's ability to compete, since it is one of the pillars of the
development of a marketing strategy. This is why organizational buying behaviour is a source of
interest both in the business and in the academic world.

Further reading

Corey, E. R. (1978), The Organizational Context of Industrial Buyer Behavior (Cambridge,

Mass.: Marketing Science Institute).

Ford, D. (1997) (ed.), Understanding Business Markets (2nd edn., London: Dryden Press).
Johnston, W. J., and Lewin, J. E. (1996), ‘Organizational Buying Behavior: Toward an
Integrative Framework’, journal of Business Research, 35:1–15.

Monka, R. M., and Trent, R. J. (1995), Purchasing and Source Strategy: Trends and
Implications (Tempe, Ariz.: Center for Advanced Purchasing Studies).

Discussion questions

1. Is it a fair criticism that a weakness of model of organizational buying behaviour is its

failure to suggest criteria by which the identity of those individuals who exercise buying
influence can be established?
2. Consider two firms, one of which sells a frequently purchased component and the other
an item that is infrequently purchased. What are the challenges each faces with regard to
identifying and keeping in contact with members of its customers' buying groups?
3. Can a supplier really understand the risks that a customer perceives as being associated
with purchasing its product?
4. If the nature of a product is that its customers purchase it infrequently, is it more
appropriate to regard each purchase as ‘new task’, even in those cases where the
customer has purchased that item in the past?
5. Many suppliers develop new products in association with customers. This usually means
that they work closely with the customer's technical staff. As the product develops,
should they ensure that they have contact with other sections in the customer's
organization?

Mini Case: Internet Supplies Ltd.

Having worked in the IT Department of a large organization for many years, Fred is well aware
of the difficulty in maintaining an organization's hardware and software standards. The problem
is that individual departments can easily order many items of equipment or software without the
involvement of either the Purchasing or the IT Department. They can do this, because such items
are often relatively inexpensive and can therefore be bought using the department's discretionary
budget. Indeed, in some cases these purchases actually do not need to involve the IT Department,
as the item purchased would only be used within the department making the purchase. However,
there are many occasions when the item purchased needs to match the standards of the existing
systems (for example, the company's network), and it is therefore important to ensure that it is
compatible with the company's standards.

In addition to the difficulty mentioned above of controlling many of these purchases because
they are so inexpensive, there are additional difficulties in imposing company standards in this
area of activity. Most departments still seem to have at least one member of staff who considers
himself an ‘expert’ at computing, and frequently, as is so often the case with such people, he
creates an ‘ideal’ solution for his own situation which is unfortunately incompatible with the
company's standards. Such ‘experts’ then take delight in criticizing the IT Department for, in
their view, its inappropriate standards—ignoring the fact that IT has to deal with company-wide
issues and that sometimes it has to make trade-offs between the economies achievable by
working to a common standard and providing people with exactly what they require.
Fred is considering setting up in business as an Internetbased product distributor of computer
hardware and software. He recognizes that competition in this field is already quite intense, but
he plans to guarantee a twentyfour-hour delivery of any item from a catalogue that he believes is
as extensive as any currently available on the Internet. Moreover, he is formulating the idea of
providing an ordering system based on passwords that will mean that customers can only
purchase items that are on their own company's list of approved items. There seem to Fred to be
two approaches to creating such a system. The first would be to let potential purchasers only see
those items in the catalogue that their company had approved for purchase. The other would be
to let the potential purchasers see the whole catalogue but to inform them which items are
approved by their company.

His initial discussions with the IT and Purchasing Departments of a number of companies have
been encouraging. It seems that IT Departments would support any procedure that would enable
them to impose their standards throughout their company. The interest of the Purchasing
Departments was mainly in the possibility of achieving increased volume discounts, which Fred
said he would base on the totals of all items that he could identify as being purchased from a
company's approved list.

Discussion question

What advice would you give to Fred?

Oxford is a registered trade mark of Oxford University Press in the UK and in certain other
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Published in the United States by Oxford University Press Inc., New York

© Oxford University Press 2000

Box 7.1 Stages of organizational-buying-behaviour models: A

comparison
Original models Supplier choice model Matbuy model
(1960s-1970s) (1987) (1986)
Need recognition -- Purchase ini--
tiation
Specifications RFQ preparation Evaluations
criteria
formation
Supplier's Potential suppliers's Information
search
-- Evaluation and selection Supplier
of approved vendors for definition
bidding product for RFQ
Propsals Analysis of received Evalution of
evaluation quotes quotations
-- -- Negotiations
Supplier selection Evaluation and selection Supplier choice
of supplier(s)
-- -- Choice imple--
mentation
A detailed model of organizational buying behaviour
Purchase stage Type of decision Departments Problelm
involved faced and
tasks in--
volved
Purchase inti-- Whether or not a Any depart How to orga--
ation purchase is needed --ment in the nize for un--
to solve problem organization planned act--
may identify ion
a need for
purchase
Determination Choosing and wei Production; How to int--
of evaluation --ghting the Buying; grate the
criteria choice criteria Finance; R&D criteria cho
and setting th-- --sen and
reshold values resolve po--
values for each tential co--
nflicts bet
--ween cri--
teria
Information What source of Buying; Pro-- How to org--
search information to duction; R&D; anize the
use and when to Finance evalution
terminate the of informa--
search for more tion
Supplier How many potential Buying; Pro-- How to org--
definition suppliers to inv-- duction; R&D; anize the
for RFQ ite to quote Finance selection of
suppliers
from those
submitting
quotes
Evaluation Check quotations Buying; Pro-- Evaluating
of quotations against specifi-- duction; R&D; whether the
catioin and choose Finance choice cri--
supplier(s) with teria are
whom to open ne-- adequate
gotations
Negotiations Negotiation pro-- Buying How to or--
cedures and strat-- ganize the
egy. Who should negotiations
be involved and conflict
resolution
procedures
Supplier Select supplier(s) Buying; Pro-- How to org--
choice and determine qua-- duction; and anize the
ntity to be purch-- Finance application
ased from each of selection

supplier rules
Choice Inform those supp-- Buying Organize the
implementation liers not accepted monitoring
of the del--
ivery of the
product
~~~~~~~~

By Bernard Cova and Robert Salle

Edited by Keith Blois

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