Academic journal article Journal of Small Business Management

Effects of Vendor Size on Industrial Purchases of Component Parts

Academic journal article Journal of Small Business Management

Effects of Vendor Size on Industrial Purchases of Component Parts

Article excerpt

EFFECTS OF VENDOR SIZE ON INDUSTRIAL PURCHASES OF COMPONENT PARTS

Industrial purchasing decisions generally are based on a variety of criteria. The relative importance of these criteria depends on the product under consideration. Several efforts have been made to determine the most significant variables considered in the purchase of different product categories, but most studies have addressed product-related attributes rather than supplier characteristics.1 One variable in particular has been neglected in previously reported research--the size of the supplier. When firm size has been considered, it has always referred to the size of the buyer, not the vendor.

1 G. W. Dickson, "An Analysis of Vendor Selection Systems and Decisions,' Journal of Purchasing, vol. 1, no. 1, (February 1966); Yoram Wind, Paul Green, and Patrick Robinson, "The Determinants of Vendor Selection: The Evaluation Function Approach,' Journal of Purchasing (August 1968), pp. 129-41; F. A Johne, "Supplier Evaluation Schemes within the Context of the Industrial Marketing Transaction,' Marketing Forum (January-February 1970); Donald Lehmann and John O'Shaughnessy, "Difference in Attribute Importance for Different Industrial Products,' Journal of Marketing, vol. 38 (April 1974), pp. 36-42; Phillip White, "Decision Making in the Purchasing Process: A Report,' American Marketing Association Management Briefing, 1977.

The purpose of this study is to report the results of a nationwide survey of purchasing managers designed to investigate the effects that the size of the supplier may have on selection decisions made by industrial purchasers. If purchasers do consider the size of vendors in making selection decisions, it may be that small business suppliers are at a disadvantage. If this is the case, small suppliers should become aware of the possible bias against them so that they can take action to gain competitive advantage.

Small businesses suffer from several competitive disadvantages including: a relatively heavy tax burden, the effects of inflation, and the need to comply with government regulations,-which are generally thought to cause greater difficulties for smaller businesses. Due to high interest rates, small businesses that depend on commercial bank credit have also been hurt, and SBA guaranteed loans are down 25-50 percent in many cities since 1979.2 If, in addition, small manufacturers receive a low share of orders for the manufacture of industrial products, the survival of the small manufacturing business is threatened.

2 Ann Reilly. "Small Businesses's Big Clout.' Dun's Review (March 1980). p. 70.

Since the nation's entrepreneurs are a prime source of innovations and new jobs (half of the major innovations from 1953 to 1973 came from firms with less than 1,000 employees3), policymakers looking for answers to the problems of productivity and unemployment have taken a special interest in the future of small business. As a result, small businesses have won recent legislative battles, and many bills favoring their interests are now pending in Congress. Some government regulations have been eased, and other forms of assistance have been provided, such as the small business procurement goals outlined for government agencies.

3 Ibid., p. 69.

Based on the Small Business Administration's definition (independent ownership; not dominant in the market), small businesses account for almost 97 percent of all non-farm businesses, 43 percent of the Gross National Product and 48 percent of the Gross Business Product.4 In a recent analysis by David Birch,5 it was found that 66 percent of the net new jobs between 1969 and 1976 were created by firms with twenty or fewer employees, and 87 percent by firms with five hundred or fewer. As a percentage of sales, tax revenues from small, innovative firms are three times that generated by large, mature ones.6

4 Ibid. …

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