Success factors for managing horizontal purchasing groups: an empirical survey

1. University of Twente Initiative of Purchasing Studies Success factors for managing horizontal purchasing groups: an empirical survey Presenter Fredo Schotanus Co-authors Jan Telgen Luitzen de Boer University of Twente Initiative for Purchasing Studies (UTIPS)

2. Definitions Supplier Supplier Supplier vertical alliance horizontal purchasing group Buyer Buyer Buyer Introduction 1 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

3. An example of a purchasing group Buyer A Buyer B Buyer C x 4 Introduction 2 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

4. Sounds nice, but problems may occur (‘bears on the road’) • Small and intensive groups do not always flourish • It’d help if we know what factors influence success Introduction 3 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

5. Earlier work • General • A lot of literature on (forming) alliances • No comprehensive theory exists • Some study success factors, but hardly any study a broad set (Hoffmann & Schlosser, 2001) • Specifically • 1 study deals with quite a broad set for purchasing groups (Hendrick, 1997) • Not fully consistent with the general literature Introduction 4 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

6. Objective & contribution Identify success factors for managing purchasing groups Contributes by a broad empirical investigation into success factors for purchasing groups Introduction 5 / 19 University of Twente Initiative for Purchasing Studies (UTIPS) Agenda

7. 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 • Allocation of savings • Member influence • Enforcement of cooperation • Member cooperation • Commitment & support Literature review 6 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

8. Category: Interorganizational trust • 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 Literature review 7 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

9. Two methods • Perceived importance of factors (Hendrick, 1997) • 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 Literature review 8 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

10. The survey Group with x members O1 … Ox Scores: … … Properties: … … Activities Potential success factors Overall performance Scores: … … Advantages Disadvantages Method 9 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

11. Sampling NEVI newsletter (797 org.) • 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 not active (low response) a c t i v e Ovia newsletter (620 org.) Method 10 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

12. Data analysis (based on Hoffmann & Schlosser; 2001) • T-tests to identify potential success factors • 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 Method 11 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

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

14. Categories without success factors • 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 Findings and discussion 13 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

15. Categories with success factors (1/3) • 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. Findings and discussion 14 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

16. Categories with success factors (2/3) • 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’ Findings and discussion 15 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

17. Categories with success factors (3/3) • 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? Findings and discussion 16 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

18. Equal Price (EP) + no formal cost method EP + Proportional cost method total % uniformity of contr. uniformity of vol. 27% 2,7 2,5 24% 2,3 1,9 26% 2,7 2,2 successful % 76% 79% 90% Combinations of allocation methods EP + Equal Amount cost method Findings and discussion 17 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)

19. 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 University of Twente Initiative for Purchasing Studies (UTIPS)

20. Conclusions on managing purchasing groups • 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% Fredo Schotanus f.schotanus@utwente.nl http://www.utips.eu 19 / 19 University of Twente Initiative for Purchasing Studies (UTIPS)