Towards an Improved Understanding of Industrial Buying Behavior: Determinants of the Number of Suppliers

Abstract

The article investigates determinants of the number of suppliers that a firm has for a given product in its purchasing portfolio. Based on economic arguments we hypothesize that this number is negatively influenced by the degree of complexity of the purchasing situation and positively influenced by the financial importance of the product. The hypotheses derived from the theoretical model are tested empirically by using cross-sectional data. Results confirm the model. From a theoretical point of view, the study reveals that economic reasoning is suitable for predicting outcomes of industrial buying behavior. At the end of the article, the model is used as a basis for developing a purchasing portfolio.

Interrelationships among key aspects of the organizational procurement process

“…within a specific industry), this research advances and simultaneously tests four new focal relationships. First, consistent with Homburg and Kuester (2001), we provide theoretical rationale and empirical evidence in support of the aforementioned positive relationship between a purchase importance and buyer power.…”

“…Thus, not only product differentiation within a product market-but also substitutability of products-is relevant to the extensiveness of choices in a procurement context. This is in contrast to the actual number of suppliers on a vendor list-which is an outcome rather than an antecedent of an organizational buying decision (Homburg & Kuester, 2001).…”

“…This direct relationship suggests that when the purchase is important to the organization, a clear incentive exists to work to increase buyer power. For example, there is empirical evidence that buyers spread important purchases among multiple suppliers-as a means to gain a power position (Homburg & Kuester, 2001). Moreover, when the dollar value of the purchase is significant, vendors are more eager for the sale.…”

“…Moreover, when the dollar value of the purchase is significant, vendors are more eager for the sale. This fosters competitiveness among suppliers, makes information more transparent, motivates the buyer toward tougher negotiations, and therefore gives the buyer more power over the outcomesespecially price (Homburg & Kuester, 2001). This hypothesis is therefore based on both normative logic and related research on organizational buying: H1.…”

“…Specifically, as shown in Table 4, allowing for an indirect effect of purchase importance through proactive focusing on search for information resulted in a path coefficient for the direct relationship between purchase importance and search for information that was somewhat smaller (0.28) but still statistically significant (p < 0.001). Cannon & Perreault, 1999;Homburg & Kuester, 2001;Newall, 1977;Sheth, 1973;Wilson et al, 1991 H 2 : Procedural control⇒Search for information (−) 0.03 (0.48) N/A Anderson et al, 1987;Bunn, 1993;Doney & Armstrong, 1996;Heide & Weiss, 1995;Lambe et al, 2000;Reve & Johansen, 1982;Robinson et al, 1967 H 3 : Procedural control⇒Proactive focusing (−) 0.00 (0.93) N/A Dobler & Burt, 1996;Frazier et al, 1988 H 4 : Search for information⇒Formal analysis (+) +0.28 (< 0.001) +0.26 (<0.001) Browning et al, 1983;Reve & Johansen, 1982 H 5 : Buyer power⇒Formal analysis (+) +0.16 (<0.01) +0.16 (<0.01) Clopton, 1984;Corey, 1978a;Porter, 1981Porter, , 1985Schwartz et al, 2001 H 6 : Proactive focusing⇒Formal analysis (+) +0.35 (< 0.001) +0.36 (<0.001) Doney & Armstrong, 1996;Feldman & Cardozo, 1969;Reve & Johansen, 1982;Robinson et al, 1967;Spekman et al, 1995;Staw, 1980 Control relationships (based on literature) Extensiveness of choice set⇒Buyer power (+) +0.46 (< 0.001) +0.46 (<0.001) Aldrich & Mindlin, 1978;Anderson & Narus, 1990;Cannon & Perreault, 1999;Iyer, 1996;…”