With a little help from your friends (and neighbors): A potentially faster way to accumulate knowledge in the field of purchasing and supply

Introduction Purchasing and supply management is a relatively young twig on the tree of management science. There are excellent empirical studies that explore key issues in this subdiscipline, that are well designed and executed, and have far-reaching conclusions for the research community and/ or practitioners. One excellent study that springs to mind is that of Paul Joskow, first published in 1987 in the American Economic Review and reprinted in 1996 in Scott Masten’s book ‘‘Case Studies in Contracting and Organization’’. Joskow’s study empirically tests the importance of relationship-specific investments in determining the duration of coal supply contracts. The important question at stake in this study is about the governance of relations between buyers and suppliers.Moreover, the study is based on a well-defined general theory from which the core hypothesis is derived; the ‘case’ (purchase and supply of coal) is well argued, and a sample of coal contracts provides an excellent opportunity for testing the core hypothesis. This is a study in which qualitative and quantitative methods come together. Masten’s book offers yet more interesting examples of such hybrid studies, such as Thomas Palay’s study on the governance of rail freight contracting (Palay, 1984/1996), and Victor Goldberg and John Erickson’s case study of long-term petroleum coke contracts (Goldberg and Erickson, 1987/1996). In the introduction to their contribution to this JPSM special issue on research methods, for one reason or the other Anna Dubois and Luis Araujo state that they do not wish to conclude with a plea for such hybrid or mixed studies. I was amazed by that point of view. In my opinion such studies offer an excellent opportunity for accelerated growth of knowledge in purchasing and supply management research, and we should emphasize that as often as we can. [...]

The myth of purchasing professionals' expertise. More evidence on whether computers can make better procurement decisions

In a previous experiment, we have shown that risk assessments of purchasing experts are certainly not better than that of subjects untrained in purchasing, and worse than the decisions made by formal models (J. Purchas. Supply Manage. 9 (2003) 191-198). Since both these results are rather counterintuitive, we conducted a series of experiments geared at replication and extension of these findings. These new experiments show that our previous results are robust, and reveal an additional finding that is both worrying and puzzling. It actually seems to be the case that for the purchasing decision tasks in our experiments, experts perform worse with growing experience. It therefore seems that, at least for the kinds of purchasing decisions under study, it does not make much sense to use expert judgments at all. However, we show that there is a way in which expert judgments can be used in combination with formal models to improve the predictive accuracy of purchasing predictions. In our case, superior predictions are made when we combine the prediction of a formal model with the prediction of the 'average expert', thereby combining the robust linear trends as encapsulated in the formal model with the more intuitive configural rules used by experts. We provide several explanations for this phenomenon

The myth of purchasing professionals’ expertise : More evidence on whether computers can make better procurement decisions

In a previous experiment, we have shown that risk assessments of purchasing experts are certainly not better than that of subjects untrained in purchasing, and worse than the decisions made by formal models (J. Purchas. Supply Manage. 9 (2003) 191–198). Since both these results are rather counterintuitive, we conducted a series of experiments geared at replication and extension of these findings. These new experiments show that our previous results are robust, and reveal an additional finding that is both worrying and puzzling. It actually seems to be the case that for the purchasing decision tasks in our experiments, experts perform worse with growing experience. It therefore seems that, at least for the kinds of purchasing decisions under study, it does not make much sense to use expert judgments at all. However, we show that there is a way in which expert judgments can be used in combination with formal models to improve the predictive accuracy of purchasing predictions. In our case, superior predictions are made when we combine the prediction of a formal model with the prediction of the ‘average expert’, thereby combining the robust linear trends as encapsulated in the formal model with the more intuitive configural rules used by experts. We provide several explanations for this phenomenon.

Five counterintuitive findings in IT-purchasing

Since 1995 we have been collecting quantitative data about the purchasing of IT-products and relations between buyers and ITsuppliers in The Netherlands, together with a team of colleagues. The data include the way in which buyers search and select their supplier, the way in which they negotiate with their chosen supplier, the kind and content of the contracting that is used, the kind and number of management staff involved, the importance of the IT-product or service to the buyer and supplier, the performance of the supplier, and the problems that were eventually encountered. Using our database of transactions in IT-purchasing, we present five empirical findings that we believe to be counterintuitive: (1) though the ability to deal with IT-purchases has increased over the years, the amount of problems experienced has not diminished, (2) the types of problems with IT-transactions that are encountered most, are not the ones managers expect to occur most often, (3) large investments in planning and contracting to prevent problems are not useful, (4) current rules and procedures concerning purchasing management within firms lead to larger management investments, while they do not lead to fewer problems, and (5) although large firms are more bureaucratic and deal with more complex transactions, they are not so different from SMEs as one might think.

A sociological view on hierarchical failure:The effect of organizational rules on exchange performance in buyer-supplier transactions

The classic Transaction Cost Economics view is that a key reason for firms to exist is that they offer a way to overcome problematic market transactions. If it is too complicated, expensive, or risky to buy a good on the market, consider hiring employees to make it in-house - especially if it is a good that you (and others) might need often. The implicit argument is that, for this reason, firms are a potentially rational response to less advantageous markets. However, firms are rational responses only when they themselves are organized in a way that is efficient enough to outperform the market. We consider firms’ hierarchical efficiency by analyzing the existence and consequences of rules and procedures, effectively testing two competing arguments. On the one hand, rules and procedures are one way in which firms can achieve efficiency, through specialization and formalization of what a firm has learned. On the other hand, rules can be imprecise and rigid, a nuisance to deal with, and just coincidental traces of what has gone wrong in the past. Using a database of more than 800 transactions in which German small and medium sized businesses buy ICT products and services, we consider the role of rules and procedures in a large-scale quantitative way. It turns out that rules show a pyramid-like structure where some firms have less and others have more codified rules. Our results furthermore suggest that rules might not be the clotted efficiency they have been argued to be. A high rule-density goes with increased investments in contracting (“thicker contracts”) and not with decreased ex post transaction problems, questioning the benefits of rules as a way to favor firms over markets