The Nature of Purchasing

The idea of this chapter is to identify and make use of findings in nature that have a specific relevance for purchasing and supply management. Most of the findings are observed or studied with wild animals such as in birds, wolves, fish, fireflies, bush crickets, chimpanzees, capuchin monkeys, and prairie voles. All of the research that I studied and cited is confirmed to fulfil ethical standards for the care of animals. Beyond learnings from animal behaviour, this chapter discusses characteristic elements of the human brain and concludes on cognition. Also here, all ethical standards are fulfilled. Learnings include findings on memory, memorizing, distraction, the wish for completion of incomplete tasks and pure task orientation. Furthermore, the relevance of contextual information to behaviour in purchasing and supply management tasks is explained. This has implications for observing and understanding the business partner. Other studied aspects are communication and reciprocal expectations. The decisive moment in purchasing is the supplier selection, which is brought into focus, while the understanding of buyer–supplier relationships on different personal levels, structures of trust and help are playing a crucial role for success. Staying healthy in buyer–supplier relationships, consequences of a good breakfast before negotiations and other physiological effects are analyzed. One further aspect is to develop a deeper understanding of cultures and here especially the culture of the business partner and again reciprocal effects on the culture of the discussed business itself. Before concluding, the chapter points out on tricks of our brain that is relevant to purchasing success.

This chapter gives an overview of how European automotive OEMs can master the future of purchasing with the right skill set. The chapter highlights the overall trends in purchasing in the automotive industry from the perspective of European OEMs. On the basis of these trends, the needed skills are described in detail which purchasers will need in the future in order to master their enhanced role. Moreover, a profile of a “well-rounded” purchaser is analyzed, which gives the reader a differentiated overview on concrete skill and mindset needs. The reader also gets insights with which method and strategic view future skill needs can be identified in advance in order to have enough time to upskill the workforce accordingly. As China plays a major role as a sourcing location for the automotive industry, the chapter also points out the special skill needs for purchasers of automotive OEMS in China and reflects on the basics of doing business in China.

In the industrial context, the zero-defect philosophy is the basis of all supplier quality improvement actions. To reach this imperative target, a measurement of parts per million is not expedient, instead measuring incidents shall make the supplier evaluation more effective. Supplier development of course is performed before the serial production processes start. Nevertheless, the yearly recalls, for example, in the automobile industry are increasing (Steinkamp and Reed, in Automotive warranty and recall report 2015, Stout Risius, Ross Global Financial Advisory Service 2016), and supplier development should merge with complaint management, whereas each incident is the start for improvement and optimization. The underlying dataset in this chapter has revealed that most complaints originate from wrongly performed production, logistics and packaging processes, human mistakes or defective machines. Developing a supplier by reducing the number of complaints should therefore be done in five steps: Identify critical suppliers, apply expertise in specific production processes, meet with supplier’s top management, improve the supplier’s processes on a technical level and finally create target agreements. To achieve the ultimate target of zero defects, complaint process handling inside the customer should be investigated and optimized together with a cross-functional team. As a result, the efficiency and effectiveness of the complaint processing can be improved by generating a positive effect on supplier quality improvement. Creating full transparency, addressing each and every failure and supported by the technically and cooperative externalization of a firm’s quality philosophy into the upstream supply chain, will be a success to achieve zero defect.

Being worlds apart at first sight, at a closer look épée fencing and purchase talks indeed seem to have much in common. In business negotiations as in a duel, two sides compete, two sides circle each other warily, trying to guess the other one’s next move, waiting for the right moment to take the offensive while always being prepared for defence—and finally: there will be only one winner. Therefore, from mental and physical preparation to tactics during a repartee, from assessing own and opposing capacities to considering appropriate timing for attack or defence: there are plenty of lessons to learn for a business negotiator from the experiences of a European, World and Olympic champion.

Many firms have an array of available approaches for reducing financial losses caused by commodity price changes. This chapter provides guidance for more accurately measuring the potential financial effects of commodity price risk mitigation approach selection. Based upon two prominent methodologies, namely total cost of ownership (TCO) and real options approach (ROA), this chapter illustrates how commodity price risk mitigation strategies can be analyzed with respect to their effect on costs and performance. A practical example is provided to illustrate how TCO and ROA can provide useful insight into measuring the costs and benefits related to mitigating the effects of commodity price volatility.

In this chapter, we explain why an auction can be a very efficient award mechanism. We start by comparing auctions to negotiations and discuss the possible advantages of both. We then investigate what is needed to make auctions work, i.e., which mechanisms contribute to the success of an auction. We highlight the advantages of committing to a set of clear rules that is used to determine the winner. Finally, we explain why the transparency and commitment to this specific rule set can lead to superior results compared to negotiation scenarios, where the process is less defined and not fully transparent to the bidders. We discuss various types of auctions and investigate what the right auction is for different situations.

These are powerful and impactful words this leader uttered sometime right before the D-Day landings and constitutes the essence of what it means to be a purchasing influencer. As purchasing seeks to drive value from the supply base, progressive purchasing organizations recognized that they can only accomplish such goals through internal alignment and buy-in of functions within their business organization. To solve business challenges, purchasing needs to work with a cross-functional team and ensure that all team members understand the business strategy and agree on the plan to achieve the strategy is going forward. A purchasing influencer, in the context of this chapter, is an individual who has developed the capabilities to significantly impact the direction of business strategy, through the presentation of market intelligence, documented facts, and by providing meaningful decision options to executive leaders.

The authors draw from key theoretical origins of purchasing influence and their practical experience in identifying the business objectives and structure required to build internal cross-functional coalitions to solve real business problems. Achieving success means that those invited to the team sincerely want to drive change. Purchasing develops from “command and control” structure, emphasizing that “purchasing owns the spend, and is calling the shots”, to a team member approach where “hearts and minds” are in it.

Traditionally, the focus in the supply chains has been on enabling the smooth material and information flows along the chain. However, in recent years, the potential of efficient financial flows and the inter-organizational perspective to working capital (WC) management have received increasing interest among companies as well as researchers. The purpose of this chapter is to illustrate the potential of financial collaboration by proposing a model for WC optimization in the supply chain via payment term adjustments. The model is tested with seven scenarios, which show that remarkable amounts of WC could be released by adjusting and harmonizing the payment terms in the supply chain. The introduced model provides a novel perspective on collaborative WC management in the supply chain by enabling win-win situations with a unique incentive system, sets the supply chain up in a financially lean way and saves capital for real investments. The chapter provides practical support for the optimization of WC at the supply chain level.

Using a supply chain experiment, this study investigates how individual self-confidence affects inventory management decisions. An empirical model of order quantity determination shows that high-confidence players do not keep current demand into account but prefer to work on a target stock. On the contrary, low-confidence players choose the order quantity by following observed demand closely, resulting in lower supply chain costs but also in lower service levels for the customer. Results have useful managerial implications. First, they imply that the self-confidence of the inventory manager is important in affecting the trade-off between guaranteeing the smooth flow of goods across the supply chain and cost containment. Second, by showing that self-confidence is a good proxy of chain performance, results suggest that its measurement may be useful to inform staffing decisions.

This contribution conceptualizes an evaluation model for data mining approaches for preventive quality assurance in purchasing. Future purchasing heavily relies on data analytics and purchasers need to be equipped with suitable tools and skills. A major prerequisite is to collect the respective data and to apply suitable algorithms to generate added value. This will free human capacity for more strategic initiatives and will provide an increase in flexibility and productivity within the company. To derive a valid evaluation model, data mining methods apt for preventive quality assurance being a binary classification problem are presented. Based on a seven steps data mining approach and a literature analysis, requirements for the data mining methods are derived. Subsequently, the criteria are aligned with exigencies in purchasing. This leads to a weighting of the respective criteria. The application of the evaluation model shows that support vector machines and k-nearest neighbors seem to be the best suitable data mining methods for preventive quality assurance in purchasing.

Why do only a few consumers buy fair-trade clothing despite many opposing to the unsustainable working conditions in the apparel industry, i.e., during the production and the retail of clothing? This paper assesses several hindering factors concerning their ability to explain the attitude–behaviour gap in fair-trade fashion purchasing. The attitude–behaviour gap describes the inconsistencies between individuals’ beliefs and values towards fashion consumption and their actual purchasing behaviour. Using regression analyses, the impact of different knowledge- and person-based inhibitors on this “say-do” relationship is studied. Results indicate that consumers have only limited knowledge about the existing supply of fair-trade clothing. In addition, traditional purchase criteria like price or quality as well as the personal need for self-expression through fashion choice take precedence over supporting the fair-trade movement.

In this chapter, we reframe and expand the buyer–supplier relationships beyond the conventional framework. We do that by disentangling and integrating the two theoretically orthogonal relationship aspects—relational posture (i.e., how two partners relate and behave toward each other) and relational intensity (i.e., how closely two partners are coupled in their operations and businesses). We propose four different buyer–supplier relationship archetypes—deep, sticky, transient and gracious. Each relationship type is unique in its own right, with distinctive strategic and managerial implications. We provide in-depth discussion of each archetype, along with some pertinent real-world examples, where we highlight both the bright and dark sides of respective buyer–supplier relationships.

In this chapter, our objective is twofold. First, we try to present a comprehensive vision of the evolutionary role of the purchasing function in regard to the offer creation process (OCP) of firms. We present three alternative organizational solutions enabling to effectively connect the purchasing actors to the OCP. Thereby, among the new roles emerging for the purchasing function, one is particularly specific to situations where top management is expecting a real contribution in innovation process: the role of innovation scouting. Therefore, the second objective of the paper is a conceptual contribution in order to shape what should be the specific content of scouting innovation from external resources. Our presentation takes into account two contingency factors: the degree of innovation maturity and the status of the target partners in the supply base (existing or new). As a synthesis, we propose a framework for choosing suitable organizing model for purchasing functions urged to increase their contribution to the OCP.