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Int Entrep Manag J (2007) 3:171187 DOI 10.

1007/s11365-006-0022-z

An unsuccessful initiative to create a buying centre


Isabel Fernndez Quesada & Nazario Garca Fernndez & David de la Fuente

Published online: 20 October 2006 # Springer Science + Business Media, LLC 2006

Abstract An organizations effectiveness depends on its ability to adapt its structures to new situations. This holds crucially true for small companies, constrained by their resources and capacities. The interest of five small local companies for setting up a united buying centre with which respond to the everchanging market is described. Greater and better knowledge of the potential suppliers pool, improved purchasing prices, greater negotiating power, access to more appropriate technology and improved overall operations, all figured amongst the advantages of this initiative. However, despite the apparent importance of these advantages, the study pinpoints a number of obstacles and a range of behavioural traits amongst the members involved that would make the project unfeasible as a tool for achieving them. Keywords Small and medium-sized companies . Purchases . Integration . Strategy . Collaboration

Overview of the problem Any organization that aspires to efficiency must ensure that its structure and processes are compatible with its specific characteristics (or contingencies), as regards setting, size, technology, age and type of property (David, Hwang, Pei, & Reneau, 2002; Fernndez, 1986; Hrebiniak & Joyce, 1985; Woodward, 1965).
I. Fernndez Quesada (*) : N. Garca Fernndez : D. de la Fuente Department of Business Administration, High Polytechnic School of Engineers, University of Oviedo, Campus de Viesques, 33204 Gijn-Asturias, Spain e-mail: ifq@uniovi.es N. Garca Fernndez e-mail: ngarciaf@uniovi.es D. de la Fuente e-mail: david@uniovi.es

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The fulfilment of the above mentioned goal represents an important challenge. For instance, as far as the setting is concerned, there has been a flurry of major changes since the 1950s. The rules that regulate the market have been influenced by such phenomenon translating into new sales channels, increased competition, mergers, takeovers, globalization and more sophisticated consumer demands. This new, complex setting often works against small, local business structures, which are obliged to react and adapt if they are to avoid losing their market share. A minimum size requirement, which gradually increases and which is needed in order to maintain market position, is one example of this need for continuous adaptation; one of the ways to achieve this is by applying managerial formulas such as centralization, alliances, consortiums, buying centres, or joint ventures (Schmidt, 1995). These solutions can affect either the whole organization or functional parts of it. A buying/ purchasing centre is an example of this type of partial alliance. Interest in purchasing has been sparked by the dramatic development of the purchasing function over the last two decades, during which time it has shifted from being considered as merely operational/tactical in nature to being seen as having significant strategic importance (Humphreys, McIvor, & MvAleer, 2000; Sheth, 1996). Purchasing has a critical influence on the price of the end product, the more fsso if we take into consideration that the purchasing price can easily be the major cost factor in many industries (Leenders, Fearon, & England, 1989). The purchasing department also plays a key role in several aspects: in integrating the upstream members of the chain, in exchanging information and in improving distribution and/ or logistic efficiency, among other. In short, the performance of a purchasing department is generally crucial to maintaining the viability of the organisation (Stanley, 1993). Decision taking processes in the purchasing field are a focus of research interest (Venkatesh, Kholi, & Zaltman, 1995), and understanding their strategic role in the process of small, local firms adapting to a business environment with limited resources is of even greater interest. A small companys available resources and capabilities limit the range of possible strategies that it can have recourse to (Wernerfelt, 1984, 1985). In the field of purchasing, these limitations cannot only affect access to information on potential suppliers within the global market and the subsequent ability to negotiate with them under advantageous conditions but also the ability to pinpoint niche markets. Integrating small companies into a larger network ought to bring access to a wider range of resources within the organization (Bristor, 1993). This article will therefore describe and analyze the case of five small local companies that, a priori and in the light of such factors as their environment and organizational abilities, seemed to be ideal candidates to be involved in setting up a joint purchasing centre as a way to respond to evolving market conditions (Hrebiniak & Joyce, 1985; Porter, 1980). It will also describe how the centre never came into being, despite the potential benefits to the stakeholders, and explain the reasons for this outcome, for which there are two root causes: resistance to change and stakeholders unwillingness to collaborate. To explain these and other reasons the Technology Transfer research strategy (Reisman, 1988) was chosen, along with other approaches such as, the strategic thinkingResources and Capabilities Theory (Reed & Defillippi, 1990), organizational thinkingContingency Theory (Lawrence & Lorsch, 1967), and economic theoryTransactions-Cost Theory (Williamson, 1979).

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Furthermore, undertaking activities that provide added value is one of the domains of entrepreneurship. This has been the focus of much scientific research in recent years, as witnessed by studies on entrepreneurship such as doctorates by Brush et al. (2003), research into tendencies in entrepreneurship by Busenitz et al. (2003) and the seminal work of Shane and Venkataraman (2000) who assess that 20% of people have this capacity whereas Aldrich and Zimmer (1986) raise this figure to 50%. These pieces of work have sparked debate and led to new approaches such as that of Zahra and Dess (2001). The entrepreneurships field of research is marked by having open frontiers and a link with other fields of study, and serves to explain and help understand the reasons why certain actions such as those described in this paper fail to come to fruition despite initial optimism that they would. This study differs from previous studies in, at least, one aspect. Cases described in the literature tend to illustrate examples of innovative, successful approaches and/or policies that can then be extrapolated from to provide a set of guidelines for other stakeholders in the system. Failures, defined as those cases where objectives fail to be met, are far less frequently the focus of academic attention, although they do tend to be referred to in professional journals, where a different approach is used. It is our belief that failures can be as enlightening as success stories, providing that clear-cut conclusions as to why things went wrong are drawn, and providing that criteria and decisions to be avoided in particular contexts are pinpointed.

Buying centres In geographic terms, small and medium-sized companies are traditionally close to their consumers, who appreciate this fact and who are predisposed towards customer loyalty by it. Customer perspective, however, changes just as markets do, and this obliges companies to rethink their strategies (adapting to customer needs, offering quicker response, product variety, better service and more competitive prices) in order to maintain their position as leaders in niche markets that demand more specialised and efficient services. At the same time and in parallel, part of the expansion strategies of larger groups increasingly includes invading these local niche markets by creating specialized divisions with specific brand strategies, which are perceived by consumers as competing local companies. The only difference is that they are better supported than the already established local companies. It is only logical for small local companies to react to the above scenario by adopting various defence mechanisms. Focusing specifically on the buying functional area, one of those defence mechanisms is to set up sporadic organisations intended principally, though not exclusively, to provide the benefits of bulk buying. More advanced levels of collaboration lead to more complex initiatives, such as setting up professional structures to offer a wider range of services to stakeholders. One example of such a strategy is a service centre, which not only exploits the advantages of bulk buying but also offers other added value services to its members (marketing, publicity, sales promotions, training, technology and so on), capitalising in this way on the advantages of specialization and greater size. Incorporating the launch and running of such centres into a Project is a key factor for success, as a project provides commitment to a range of stages, each targeting

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specific objectives such as clearly defining a set of interconnected actions, times scales, tasks, leaders, costs and general indicators, one of the spin-offs of which will be good management of both the project and those involved in it. There now follows a list of some of the key points to be considered when launching a centre (and subsequently expanding the services it offers): 1. Various possible scenarios (optimistic, pessimistic, mixed). 2. Stages, deadlines, financing and set-up costs, as well as its subsequent maintenance and possible expansion. 3. The absolute minimum size and the largest acceptable size for each stage. Size matters because an oversized organization runs the risk of squandering the advantages of efficient procedures due to increased bureaucracy, greater difficulties in standardizing procedures, and so on. 4. Identification of the right indicators to evaluate whether the process is working. 5. Identification of indicators to evaluate whether the project is at a standstill. 6. The strategic initiative to be implemented. Other critical aspects to be considered when setting up a buying centre are: & Consideration of the level of operational uncertainty to the purchasing centres decision-making. This will affect the scope of the centres activity, the degree to which norms and procedures are formalized, and arbitration and control mechanisms in case of conflict. According to Contingency Theory, the more uncertain the setting, the greater the likelihood of the centre adopting a flexible, organic structure (Duncan, 1971; Galbraith, 1973; Lawrence & Lorsch, 1967; Spekman & Stern, 1979). However, other approaches, such as the constriction of authority approach (Cardozo, 1980; Corey, 1978; McCabe, 1987) claim that there is more centralization in such situations. To ensure the right decision-making balance in the centre. The organizations members must feel that they have the right amount of authority in the organisation; otherwise there is a risk of de-motivation and unfair practices (Morris, Berthon, & Pitt, 1999). The nature of influence and how it is distributed within purchasing groups has been a key issue in the literature. The need to minimize transaction costs by standardizing materials purchased as much as possible, by simplifying and/or reducing administration and by using technology intensively. A clear definition and information on incomes, costs and profits policy (Porter, 1980), so as to maximize transparency within the organisation. The policy on incomes and costs must provide details on each of the services offered by the centre. To ensure communication, coordination and control of the information amongst stakeholders (Stanley, 1993). Members are often competitors, so ensuring fluid communication between policy-makers and the confidentiality of all information held at the centre are basic to generating trust between members and the centre.

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Reasons for the study Small companies have not been a commonly focus upon in the literature on purchasing centres, even though their contribution to any countrys GDP, which stands at 42% in

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Spains case http://www.impuestum.como/noticias/1699.html), is large enough to merit proper attention. The aim of the present study is to contribute to current knowledge about purchasing centres and their role as a tool allowing small and medium size companies to adapt to changing circumstances and markets. This goal is accomplished by describing a real regional-level experience in the Spanish furniture sector. Some of the features of furniture companies that hallmark them as ideal candidates for being members of a purchasing centre are outlined below: 1. Purchasing is a critical feature not only of their management but also of the profitability of these types of companies. This is borne out by the fact that, as a national average for the sector, approximately 55% of turnover is reinvested in the purchase of materials for production, which is why a slight improvement in purchasing costs brought about by becoming part of a purchasing centre would have direct repercussions on bottom-line results. 2. One of the hallmarks of the sector is that there is a myriad of small manufacturers, which leaves them with limited negotiating powers. This usually goes hand in hand with low levels of implementation and use of information technologies (Kekle, Pirolt, & Falter, 2002). 3. One of the sectors major problems is that levels of staff specialization are limited. Training opportunities are scarce, and there is a notorious need for training in key management fields such as cost and profit control, quality control, planning and organizing, sales and distribution and computing management. Integrating such companies into an organisation such as a buying centre would lead to better access to more highly qualified human resources. 4. Lastly, there is little inclination in the sector to form associations, even when they could be a way to overcome some of the sectors limitations.

Profile of the studied companies All the companies in the study are located in a self-governing region in the north of Spain. They have been involved in the furniture manufacturing sector for 14 to 20 years. They are generally public limited societies. Staff numbers and annual turnover the first ranging between 34 and 45 workers, and the second between 2,000,000 and 3,400,000 both indicate their limited size. The companies manufacture classically styled, quality furniture, which is more expensive than its more functional counterpart, and target clients who want longlasting furniture and are willing to pay for it. Only one of the companies involved in the project combines this type of product with more functional furniture. The market as a whole is local and/or regional, due in large part to the degree of customisation to client demand. There is limited automation of manufacturing processes, with handcrafting combined with the use of machinery being the norm. The companies recently decided to purchase mostly semi-finished products customized to client tastes in an attempt to reduce costs, thereby gradually converting their manufacturing lines into assembly lines. Design was also outsourced. The greater variety of different semi-finished products in each of the companies generated by this decision has noticeably complicated the bills of materials.

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Use of information technologies can be similarly described as limited, with companies generally resorting to commercially available hardware and using only those selected modules from this hardware that make administrative procedures easier. Knowledge of how the remaining parts of the hardware work is in most cases basic or nonexistent. This also holds true for the purchasing management modules, which are only used as data bases to record operations carried out, products purchased, suppliers and prices. It was thus common practice to consult purchase orders in paper format and for them to be filed manually. Additionally, the companies used an array of different software, which was to lead to major difficulties in the development of the buying centre, since the whole system had to be standardised so as to facilitate communication between all parties. As it has previously been mentioned, one of the strategies implemented by these companies targeted reducing overall costs, given the nature of the market they were involved in, which explains why interest was shown in establishing a purchasing centre. A priori, setting up a joint purchasing centre seemed to be consistent with the literature (Fisher, 1997; Govindarajan, 1986), which suggests that companies who aspire to a leadership strategy in costs should opt for centralized buying management, so as to minimize inventory costs and maximize production efficiency throughout the entire line; on the other hand, companies with a differentiation strategy should choose a decentralized purchasing management system in view of a greater need for short response times and the enhanced flexibility demanded by the greater coordination requirements along the entire supply chain.

The different stages of the study The initiative to pursue the purchasing centre project arose from one of the five companies involved. As it happened, this company was the one that had been operating in the market for the least amount of time and that offered the widestranging catalogue, as it combined its classic furniture line with another more functional style. The appointment of a new manufacturing head who had new ideas about how to turn the company around, sparked the project off, the intention being that mutual collaboration would put companies on a better footing to handle market changes and also provide better purchasing costs without compromising product quality, in line with enhanced negotiating power when dealing with suppliers. The fact of the researchers from the University (also members of Asturian Foundation of Logistics) having close ties with the managers of one of the firms in the study, and also with the manufacturing manager of another firm led to accept the research proposal. Five companies initially joined the project, which meant that the purchasing centre would be a relatively small one. Nevertheless, the option of other manufacturers from the sector coming in at some future state was always left open. Completing the project, which ran from 1st October 2002 to 30th June 2003, first involved establishing a set of democratically agreed phases. A number of preliminary meetings were duly held and served to break down mutual mistrust caused by them being competitors and to clarify, inter alia, the shared goal for which the purchasing centre was to be established: to reduce costs.

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Researchers paid visit to the five purchasing departments, held meetings and interviews with their department heads and staff, and examined the purchasing orders from the last two years to collect the relevant information. All information was collected individually from each company. Then, as this information was processed according to the research progress, subsequent meetings were scheduled with the different managers not only to let them know the results that were arising, but also to insist upon the need for open collaboration, and to consider possibilities of standardizing merchandise in order to conform increased purchasing lots, thereby making the venture more attractive to the suppliers and thereby justifying having set up the centre. There now follows a description of the different phases of the project

Phase I: Identifying and classifying items to be purchased and evaluating existing suppliers In order to identify and classify the items to be purchased, a series of parameters, such as, (a) the physical nature of the raw material (wood, plastic, cardboard, iron, etc.), (b) the added value of the item to be purchased (expensive raw materials, impact on design and, therefore, on product differentiation and (c) the functional nature of each article (whether it was a structural part, a protective piece, a basic or a added value part, etc.) were all considered. The high level of customisation of all the master plan data was an important issue during this phase, and terminology had to be standardised so as to establish a single name in place of the variant terms for a single item. The purchasing managers and buyers from the different companies undertook this difficult task, and even though their attitudes towards providing the necessary information and documentation can only be described as completely open and collaborative, the job at hand took significantly longer and overran the initial deadlines. The causes of this delay were that (1) everything had to be done by hand, (2) there was a plethora of terms within each company to refer to things that had a single use, (3) the profuse terminology due to individualized naming by each company and (4) the impossibility to implement quick access to the information required as there was no computerized information storage facility and thus, the need to consult actual physical document. Another major stumbling block was that information did not flow dynamically among the participating companies. Constant management meetings had to be called for joint evaluation of the particular information provided by each of the companies. These meetings highlighted a certain lack of transparency among the participants; there was a reluctance to give honest opinion, and certain informationnew lines of activity with suppliers, new materials, problems with suppliers, etc.was initially held back, to be provided subsequently in the meeting to limited degrees depending on the willingness of the other participants to be equally open. The mistrust of some of the participants was underlined when they attempted to gain information about the rest of the participants from the research team. Another example of their uncooperative attitude was unexplained failure to attend meetings; the intention was to later receive information provided at the meetings and to use it to establish further courses of action.

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As a result of this phase of the project, several thousand different references that were core to the companies purchase orders were culled from the millions of possible combinations in the catalogues. Activities were concentrated around 150 suppliers, with an overall purchasing budget of 7 million euros, representing approximately 55% of the total yearly turnover of the companies. Phase II: Choosing the items to test and analyze the current purchasing situation Once the previous phase was completed, items that might be on a shared shopping list had to be determined so that they could be classified and individually coded, and estimated purchasing volumes to be handled by the future centre could be calculated. The main difficulty during this stage was pinpointing significant coincidences from amongst the items. It gradually began to become clear that it would be difficult for joint purchasing volumes to reach a critical buying mass and that current conditions would be difficult to improve on if the individual systems of each company were maintained. For the study to work, items had to be grouped at this stage into 11 families or groups (boards, glass, packaging, edgings, wood quarters, supplements, frames and trimmings, chemical products, accessories, bed bases and mattresses, and others), and research focused on the three that seemed to offer most potential according to the number of coincidences. A breakdown of turnover according to the 11 families can be seen in Fig. 1. Despite limiting the study to just three families, the underlying level of complexity should be noted, and is illustrated by the example of the board family. According to catalogue, this family covers a whole gamut of items because of the various combinations involving the base or makeup of the board (over 4 bases), the

PURCHASES BREAKDOWN
Frames & trimmings 10% Packaging 4% Wood quarters 1% Edgings 2% Supplements 5% Accesories 10% Glass 8% Chemical products 6% Bed bases & mattresses 1% Others 1%
Boards 52%

Fig. 1 A breakdown of purchases into product families

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finish (over 4 finishes), the type of wood (over 34 options), the texture or quality (over 15 types), sizes (in excess of 20) and thickness (also in excess of 20). As regards the purchasing situation at the outset, individual company purchasing behaviour was analyzed, and a list was also made of usual suppliers and amounts purchased from each of them. The differences in individual ways of managing supplies became clear because of the facts shown in Table 1. A study of distribution by purchases per supplier brought a significant feature to light: a high concentration of purchases among a small number of suppliers. This is shown in Fig. 2, where boards again provide an example; the data shows how 64% of the total turnover is in the hands of three main suppliers. Figure 2 also illustrates another equally significant feature: the remaining 36% is divided among a large number of suppliers that have a relatively low volume of purchases. A similar situation was observed in two other families (glass and packaging), as shown in Table 2. Phase III: Surveying Current suppliers were surveyed during this phase, and a nationwide search for alternative suppliers was also made so as to compare and evaluate offers. None of the companies worked with foreign suppliers, and they all explicitly wished to keep it so. The aim of the survey was (a) to determine changes in the companies negotiating power as a result of joint purchasing, (b) to analyze the ability to get better offers by jointly managing purchasing and, (c) to identify the most suitable suppliers. To achieve the above objectives, the five companies were first asked to provide and evaluation of the current suppliers behaviour; those suppliers who were evaluated positively and new suppliers who were obtained from other market information sources were then questioned directly via a survey sent to them requesting company information, the type and availability of the products supplied and general sales conditions. Special offers for certain quantities of products used by all of the companies over a given time period were requested in a later survey.

Table 1 Differences regarding supply management One point of view Stock levels High: companies could overcome problems caused by uncertainty or lack of planning No planning Reduced Rudimentary upkeep of records on purchases and suppliers Products are divided among several suppliers Price Another point of view Low: aware of the pressing need to lower inventory-caused costs Planning essential Broad No documentation, except for purchase orders Products are concentrated among a few suppliers Several (price, level of service, quality, etc.)

Planning orders Supplier portfolio Records Distribution of purchases Criteria for choosing a supplier

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Supplier D 8% Supplier E 8%

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Supplier F 7% Supplier G 6%
Supplier H

Supplier C 17%

Supplier I

Others 7%

64%

Supplier J Supplier K Supplier L Supplier M

Supplier B 18%

Supplier N Supplier O Supplier P Supplier Q Supplier R

Supplier A 29%

Supplier S

Fig. 2 Distribution by percentages of the turnover for board suppliers

Regardless of the product purchased, different supplier attitudes and behaviour, depending on whether they were usual suppliers or new suppliers with no commercial link with the companies, was observed. The attitude of usual suppliers was marked by an unwillingness to provide special offers, which at best were made dependent upon maintaining direct contact with the companies rather than the centre. The reasons given were: (a) the handling of precise technical information in order to satisfy its clients needs better, (b) the unlikelihood of improving the conditions already offered to each company individually and, (c) the short life-span of special prices as a result of them constantly changing. The supplier of the biggest purchase amount in the board family steadfastly refused to make an offer or to maintain future relationships with organisations such as purchasing centre, despite the amount of business which it generated. Awareness of his power within the sector and the possibility of the distribution of power changing as a result of the purchasing centre are unlikely explanations of this suppliers behaviour. The attitude of the new suppliers from the survey can be described as being very different, insofar as they demonstrated a desire to provide good service, willingness to participate in joint collaborative efforts, and an interest in establishing long-term
Table 2 The distribution of purchases per supplier Product family Distribution of purchases per supplier Percentage concentration and number of suppliers Boards Glass Packaging 64% 93% 86% 3 suppliers 1 supplier: 49%; 4 suppliers: 44% 1 supplier: 31%; 4 suppliers: 55% Remaining percentages and number of suppliers 36% 7% 14% 16 suppliers 12 suppliers 14 suppliers

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agreements and in meeting their clients needs, either individually or as a group, i.e., that they were predisposed towards forming supply chains that would be of benefit to everyone. Prices and conditions offered for joint purchases were better when compared with those obtained by the companies as single entities. However, it should be noted that small size and limited time in the sector were both typical characteristics of these new suppliers. A need to expand market share in a sector that is noted for being hermetic might explain this attitude. The attitude of the companies towards suppliers could also be described as conservative, i.e., they were reluctant to change, both for fear of the negotiating power that suppliers have, as well as ignorance, which came to light during the research stage, of the opportunities for improvement that the supplier market offers. Phase IV: Results analysis and recommendations The observed concentration of purchases around few providers, an unwillingness to change suppliers and the refusal to import are clear indications of the low negotiating power that these companies have at present with their suppliers. Establishing a critical mass by standardizing the products to be purchased was crucial to the success of the venture. The above mentioned barriers which will be further discussed below, jeopardized the viability of the purchasing centre.

Discussion The complexity of real systems is an outcome of the gamut of variables that control the behaviour of economic systems. The study presented in the previous section illustrates this complexity in the specific area of purchasing and provides a detailed description of the experiences of five small, local companies who attempted to adapt their purchasing organization to their environment. Though a positive outcome of establishing a purchasing centre seemed to be a certainty, the case did in fact come to a totally unexpected end that demands a review of the initial paradigms. The mere fact that the five companies in the study actually considered creating a buying centre might be seen as an example of Contingency Theory being applied, as setting up a purchasing centre highlights the companies intentions to adapt to the new conditions they work in. The so-called Aston Group (Pugh, Hickson, & Hinning, 1969) has already analyzed the influence of size on organizational structure. Size and type of environment are fundamental variables affecting organization design (Tena, 1992). The five companies in the study saw a purchasing centre as one of the possible courses of action to tackle the situation they found themselves in. The issue of organisational size was sidestepped. A purchasing centre can be seen as an example of centralized organisation and as an efficient way to handle purchasing transactions in the market. This kind of efficiency becomes more necessary, the fewer the resources and capabilities that a company disposes of, and resources and capabilities variables can be defined in the current market context according to the size of the company.

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Cooperation and coordination of its members (intra-cooperation) and the rest of the members of the chain (inter-cooperation) are however, absolutely necessary and a crucial condition in obtaining a degree of optimal use of these resources (Porter, 1985) and consequently, the achievement of a common objective (Barnard, 1938). These two aspects of cooperation are analyzed below: I. Cooperation among the centres own members. A priori, there seemed to be a certain alignment of the five companies, since differences did not seem to suggest that they had different organizational structures or different goals, either of which would have jeopardized the close collaboration needed in the field of joint purchases. Characteristics such as size, individual organizational structures, target market, design processes, sector of activity, individual level of implementation of information technologies and so forth marked the companies out as candidates for fruitful collaboration and integration into a buying centre. Thus, for example: & Given their limited size, merging purchasing processes could only lead to greater purchasing power and, in consequence, negotiating power. This would presumably lead to a reduction of inventory costs as a spin-off of both lower purchasing costs and simplified administration. Lower supply costs would result not only from enhanced negotiating power, due to larger purchasing volumes, but also from greater knowledge of market prices. Consolidation in the form of a purchasing centre would generate several ITrelated benefits. Not only would it drive forward the standardization of information processing (coding references, etc.), which for the most part did not exist, but it would also provide an enhanced capacity to survey a larger number of suppliers, thereby lowering transaction costs that are inherent to the buying process.

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Despite the previous remarks, a number of obstacles that hindered collaboration and jeopardized positive end results were observed. (1) The first major field in which unwillingness to cooperate was observed and one that largely determined the final outcome of this attempt to launch a purchasing centrewas resistance to accept the changes stemmed from a much-needed and feasible redesign of procedures; this redesign was intended to standardize the materials to be purchased and drive down costs. Limited standardization of items to be purchased endangered the initial theoretical possibility of achieving a significant global purchasing volume that would provide a high degree of negotiating power. Standardization could have also been achieved by adhering to a postponement policy for production procedures (Brown, Lee, & Petrakian, 2000; Feitzinger & Lee, 1997), i.e., the postponement policy might have been adopted in form, and design details that were moulded to customer tastes might have been incorporated at a later stage in the manufacturing process. Incorporating either of the two proposalsre-engineering or a postponement policywould have meant making major changes within the organization and required new approaches to both products and process design and supply

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chain management (Yang & Burns, 2003). If the two proposals had been applied, many different components with a common base, which the companies were purchasing as already assembled and customized to their own requirements, could have been bought jointly and in standard format; customizing could have been left till the final assembly stage of the process. Furthermore, the number of reference-numbered items could have been slashed, which would have sparked cuts not only in purchasing costs but also in inventory costs, and, therefore, end product costs. This would have been a major contribution to the initial goal consisting on achieving important reductions in costs. Finally, the enhanced flexibility that would have ensued from the more unit-oriented design approach propounded by a postponement policy should be noted. In line with Malone (1987), company management perception of the tradeoff between coordination costs brought about by the move towards centralized buying and production costs linked to the decentralized buying was probably in favour of the latter, which would explain the aforementioned reluctance to change observed in the study. However, taking such a view obscures the fact that attempts to customize products at an early stage tends to increase purchase management costs and other supporting activities (David et al., 2002), which clashes with the original aim of reducing costs. (2) Major differences between companies management of supplies was a second factor that marred inter-participant cooperation. These differences were related to issues such as how quantities and characteristics of the product to be purchased were calculated, the general conditions that regulated the suppliercompany relationship, how responsibilities were delegated, how suppliers were monitored and evaluated and frequencies and forms of payment. This disparity not only made it more difficult to identify and compare products and to achieve coincidences in stock, but also added another obstacle in the process of integration. (3) Technology was another stumbling block. Limited implementation of IT technologies was a hallmark of all the companies across departments but was particularly marked in purchasing. Yet technology is a basic driver of change, and affects the social structure in the productive setting (Garca, 1985; Tena, 1992). Moreover, technology exerts an even greater influence on the organizational structure of smaller-sized companies (Pugh et al., 1969). Technological improvement, particularly the computerization of management procedures, would have eased the transition towards the new purchasing centre model by guaranteeing the exchange and fluidity of communications that is so essential for good coordination, and also by providing both administrative and purchasing planning and control. Some of the obstacles to IT implementation that arise when different organisations try to collaborate described by Munvold (1999) are fully applicable to this case: the complexity in providing a technological solution to everybodys liking, resistance to change, fear of loss of power and control, and so on. (4) Lastly, it should be pointed out that direct observation during research highlighted the fact that companies resorted to explicit ex ante opportunism;

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participants covered up information that was relevant to the integration process, and a certain tendency towards self-interest was also observed in some members (e.g., the opportunity to access information provided by the other participants). Patchen (1974) claims that this would affect their level of participation in the process. It also indicates how the transfer of individual tacit knowledge and in-house capacities is more difficult to transfer to different companies than to members of those companies, as suggested by the theory of resources and dynamic capacities (Wernerfelt, 1985). II. Collaboration among the other members of the chain. Contrary to Hilliers (1975) propositions, the evidence gathered from this particular case suggests that the characteristics of the item being purchased do not influence the behaviour norms of either the companies or the suppliers. In general, the stance of the suppliers did not differ according to the type of item; their behaviour was highly concordant across the whole range of the 11 product families that were studied.Except for extremely specific cases, supplier reaction to the future purchasing centre can be described as one of indifferenceinsofar as they considered the purchasing volume to be lowand mistrust when providing information on new prices and conditions according to the new joint purchases. Mistrust on the part of suppliers sparked by the fear that their future negotiating power might be affected generated a negative attitude, which in turn manifested itself as a complete unwillingness to collaborate. The negative attitude of one of the contractual partiesthe supplierswas compounded by another equally unfavourable one amongst the other contractual partythe companies; not only were they reluctant to change suppliers but also they remained oblivious of the opportunities for improvement offered by a relationship with new suppliers. In our opinion, the companies ought to have snatched the opportunity to change suppliers, ought to have promoted initial periods of collaboration with them, and ought to have pursued longer-term relations with them in the context of a win-win scenario. The accumulation of the factors described above meant that the project would be ultimately unfeasible whilst the basic conditions remained unchanged.The confluence of the aforementioned factors led to the end result of unfeasibility as long as these conditions where maintained.

Conclusions Markets have always been in a perpetual state of fluctuation. However, change occurs nowadays at a much greater speed. The effectiveness of an organization depends on its ability to adapt its structures to new situations. Though this holds true for any organisation whatever its size, it is crucially true for smaller companies, where it can mark the difference between survival and failure. There is no single optimal structure; nor are all organizational structures equally effective (Galbraith, 1973). For this reason, this study has attempted to evaluate whether a central purchasing organisation is the alternative best suited to the specific conditions of five small companies. The key factors motivating creation of such an organisation were that the larger size that was a spin-off of the centre would lead to new, improved

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products and services, greater purchasing volume and negotiating power to achieve lower prices of materials, and the establishment of a range of different channels and access to technology. Despite these advantages, other concomitant variables that had a significant bearing on the end result came to light during research and analysis, thereby confirming the need for tailor-made analysis of each individual case (Kast & Rosenzweig, 1985). First, it should be noted that levels of differentiation and lack of affinity amongst members of an organization are directly proportional to levels of difficulty in achieving integration (Lawrence & Lorsch, 1967). This study highlights an a priori, unacknowledged lack of affinity and/or unwillingness to collaborate within the five companies. This claim is made on the basis of the mistrust shown surreptitiously by member companies and by the total discrepancies which throttled all attempts to unify purchasing management systems. The lack of trust could be imputed to certain degree of rivalry. A deeper analysis of this possibility surfaced, however, that the companies marketed distinct products, that is, each one of them addresses to a different objective segment of market. In this line, researchers could not detected coincidences when checking their lists of clients for the last three years. On the other hand, the analyzed companies belong to a furniture regional association that organizes specific formation courses and promotes contacts and meetings among them on periodic basis. This membership may well foster some kind of pact of non-aggression among their members rather than foment the rivalry related to share market. In fact, this mutual knowledge and periodic contact among the companies was one of the reasons to a priori believe on the success of a buying centre. Advantages already mentioned such as the need of building up a joint defence against more consolidated companies from other regions where the furniture sector is much more powerful, played more in favor of a collaborative attitude rather than in favor of maintaining a rival posture. Furthermore, several authors (for example, Woodward, 1965; Scott, 1998) point out that an organizations suitability depends on its own components and on the nature of the environment that the organization relates to. The results of this study seem to suggest that a central buying centre was probably not best suited to the five companies idiosyncrasies, despite the advantages that seemed to accrue in the a priori analysis of the companies involved. Resistance to changeboth in production procedures aimed at achieving the enhanced standardization that would create a critical purchasing mass and in supplier relationsand poor implementation of technology both figure amongst the in-house company characteristics that jeopardized the attainment of the benefits that were postulated. Externally, the lack of collaboration by the upstream members of the chain and the relatively greater negotiating power of suppliers proved to be concomitant factors that contributed to the end results. There is a dearth of literature on initiatives like the one described in this paper, which describes how small companies strive to adapt to new market conditions. Yet we should remember that small company form an important part of any countrys business fabric. The results of this study point towards future fields of analysis. More research effort should be applied to an in-depth study of the environmental factors that spawned mistrust and company perception of the risk involved in taking on board proposals such as the re-engineering of processes. One research line might

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also be to assess how cultural factors can obstruct the coordination and integration initiatives that the market situation demands. It would be similarly interesting to know more about other variables that spark reactions within companies and to understand how these factors interact with each other.

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