1. University of Twente Initiative for Purchasing Studies (UTIPS) 1/16 Presenter Fredo Schotanus Co-authors Jan Telgen Luitzen de Boer

2. University of Twente Initiative for Purchasing Studies (UTIPS) 2/16 Definitions Buyer Supplier vertical alliance horizontal purchasing group Supplier Introduction1 / 19

3. University of Twente Initiative for Purchasing Studies (UTIPS) 3/16 An example of a purchasing group Buyer B Buyer C Buyer A x 4 Introduction2 / 19

4. University of Twente Initiative for Purchasing Studies (UTIPS) 4/16 Sounds nice, but problems may occur (‘bears on the road’)  Small and intensive groups do not always flourish  It’d help if we know what factors influence success Introduction3 / 19

5. University of Twente Initiative for Purchasing Studies (UTIPS) 5/16 Earlier work  General –A lot of literature on (forming) alliances –No comprehensive theory exists –Some study success factors, but hardly any study a broad set (Hoffmann & Schlosser, 2001)  Specifically –1 study deals with quite a broad set for purchasing groups (Hendrick, 1997) –Not fully consistent with the general literature Introduction4 / 19

6. University of Twente Initiative for Purchasing Studies (UTIPS) 6/16 Identify success factors for managing purchasing groups Contributes by a broad empirical investigation into success factors for purchasing groups Agenda Objective & contribution Introduction5 / 19

7. University of Twente Initiative for Purchasing Studies (UTIPS) 7/16 –Allocation of savings –Member influence –Enforcement of cooperation –Member cooperation –Commitment & support Potential success factors  Several theories explain cooperation  We build on –TCE (general rationale) –Social exchange theory (individual fair rationale)  19 success factors categorized by –Trust –Formality –Member uniformity –Common goals –Communication Literature review6 / 19

8. University of Twente Initiative for Purchasing Studies (UTIPS) 8/16  Perhaps the most discussed success factor (e.g., Bakker et al., 2006; Polychronakis and Syntetos, 2007;Vangen and Huxham, 2003)  Several empirical studies confirm its importance  Reasoning from TCE –costs are lower when there is trust –as less monitoring & agreements are necessary  Potential success factors –Members are honest and loyal –Members like each other personally –Members meet one's commitments Category: Interorganizational trust Literature review7 / 19

9. University of Twente Initiative for Purchasing Studies (UTIPS) 9/16 1.Perceived importance of factors (Hendrick, 1997) 2.Compare differences between (un)successful groups (Hoffmann & Schlosser, 2001)  Method 2 –Not yet used for studying purchasing groups –Need to define ‘success’ (no consensus in the literature) –We measure it as the perceived success of the group Two methods Literature review8 / 19

10. University of Twente Initiative for Purchasing Studies (UTIPS) 10/16 Activities Group with x members O1O1 … Properties: … Overall performance AdvantagesDisadvantages Scores: … Potential success factors Scores: … OxOx Method The survey 9 / 19

11. University of Twente Initiative for Purchasing Studies (UTIPS) 11/16 NEVI newsletter (797 org.) Ovia newsletter (620 org.) activeactive not active (low response) Sampling Method  The numbers –16% ‘worst case’ response rate –224 respondents –115 groups –74 small and intensive groups (81% successful)  Early & late response almost the same (p <.05)  We knew most responding groups  Data seems to be representative 10 / 19

12. University of Twente Initiative for Purchasing Studies (UTIPS) 12/16 Data analysis (based on Hoffmann & Schlosser; 2001) Method 1.T-tests to identify potential success factors 2.Discriminant analysis to the factors identified in step 1  All assumptions are met  Assumptions tested with –QQ-plots for normality –Levene’s (1960) test (p ≤.05) and the variance ratio for equality of variances (< 2.5) –Box’s (1950) test (p ≤.05) for equality of covariance matrices 11 / 19

13. University of Twente Initiative for Purchasing Studies (UTIPS) 13/16 12 / 19 Identified potential success factors (t-tests; p ≤.05; discriminant analysis; 89.3% classified correctly) Findings and discussion  Enforcement of cooperation 1.No enforced participation  Member cooperation 2.Members contribute unique knowledge 3.Sufficient total contribution of efforts  Commitment and support 4.Members rarely change representatives 5.Members have internal support  Communication 6.Communication (current projects) 7.Communication (new projects)  Member influence 8.Members have similar influence  Common objectives 9.Members have similar objectives  Allocation of savings 10.Fair allocation of savings

14. University of Twente Initiative for Purchasing Studies (UTIPS) 14/16 Categories without success factors Findings and discussion  Trust and formality (consistent with Hoffmann & Schlosser, 2001) –Inconsistent with a.o. Schotanus (2005) –Important when establishing, but prerequisites for managing a group –Explanation by awareness and the methods used  Member uniformity –Inconsistent with a.o. Hendrick (1997) –Groups with member with (dis)similar cultures and procedures can be (un)successful –Similar explanations as for trust plus the specific context 13 / 19

15. University of Twente Initiative for Purchasing Studies (UTIPS) 15/16 Categories with success factors (1/3) Findings and discussion  Enforcement of cooperation (consistent with Brockhoff, 1992) –Participation should bring savings and attract without enforcement –Still, if a member cooperates, it needs to commit –Enforcement & influence problems are typical for BU groups  Member cooperation (consistent with Hoffmann & Schlosser (2001) and communication (consistent with Laing & Cotton, 1997) –Factors such as sufficient total contribution of efforts show that success doesn’t occur as a matter of course –Some knowledge and efforts are necessary to coordinate, communicate, etc. 14 / 19

16. University of Twente Initiative for Purchasing Studies (UTIPS) 16/16 Categories with success factors (2/3) Findings and discussion  Commitment (consistent with Doucette, 1997) and support –If members often change representatives, this may hamper learning effects + not a sign of commitment –If a member isn’t committed, then the others may also reduce their commitment (Doucette, 1997)  Common objectives (consistent with Laing and Cotton, 1997) and influence of the group members –Factors identified are similar goals & all have a similar influence –Without similar goals, it costs more to synchronize –Without influence, members’ interests may be ‘forgotten’ 15 / 19

17. University of Twente Initiative for Purchasing Studies (UTIPS) 17/16 Categories with success factors (3/3) Findings and discussion  Allocation of savings –Fair allocation is important, but difficult for purchasing groups –It may prevent conflicts and members leaving the group  Allocation of gains –87% uses Equal Price –13% uses methods that are more beneficial to large members  Allocation of costs –30% uses no formal method –29% uses a proportional method –29% uses Equal Amount or a fixed membership fee  What’s a fair and successful combination? 16 / 19

18. University of Twente Initiative for Purchasing Studies (UTIPS) 18/16 Combinations of allocation methods Equal Price (EP) + no formal cost method EP + Proportional cost method EP + Equal Amount cost method total % uniformity of contr. uniformity of vol. successful % 27% 2,7 2,5 76% 24% 2,3 1,9 79% 26% 2,7 2,2 90% Findings and discussion17 / 19

19. University of Twente Initiative for Purchasing Studies (UTIPS) 19/16 Limitations and further research  Focus on small and intensive groups  Difficult to assess ‘success’  Low response rate  No distinction between (very) successful  Not enough data for method combinations 18 / 19

20. University of Twente Initiative for Purchasing Studies (UTIPS) 20/16  Quantitative empirical evidence using TCE and SET  Found no success factors related to trust, formality, and uniformity  Inconsistencies explained by method or context differences  Main success factors are –No enforcement –Sufficient total contribution of efforts –All contribute unique knowledge –All rarely change representatives –Fair allocation of savings –Communication –(No large differences in motives & efforts)  Prediction value of the discrimination analysis is 89.3% Conclusions on managing purchasing groups Fredo Schotanus f.schotanus@utwente.nl http://www.utips.eu 19 / 19