Academic journal article Management Revue

Procurement and Governance Management - Development of a Conceptual Procurement Model Based on Different Types of Control**

Academic journal article Management Revue

Procurement and Governance Management - Development of a Conceptual Procurement Model Based on Different Types of Control**

Article excerpt

Due to the importance of external suppliers for most companies, procurement and governance management is of utmost relevance for achieving competitive advantage. Research in the field of industrial buying behaviour (IBB) has largely been influenced by transaction cost economics (TCE). However, some TCE research has been rather simplistic; not distinguishing between governance structures and mechanisms, while research in IBB has a surplus of descriptive empirical studies and a critical shortage of analytical and conceptual constructs. This paper aims to address these shortcomings by integrating IBB and TCE in a conceptual model regarding procurement and governance of transactions. The model regards the analytical choice of a suitable combination of governance mechanisms (price, trust and authority) for different types of transactions. Additionally, a procedure for facilitating the achievement of a suitable mechanism mix is developed. The procedure shows how decisions during the buying process, regarding different types of control, will affect the mechanisms' levels in the transaction relationship. The model together with its procedure can serve as a basis for analysing planned purchases, in order to tailor governance mechanisms to transaction characteristics.

Key words: Procurement, Governance, Control, Transaction Cost Economics

1. Introduction

Due to the importance of external suppliers for most companies, procurement is of utmost relevance for achieving competitive advantage (Noordewier et al. 1990), since it provides opportunities for cost reduction and profit enhancement (Anderson/Katz 1998). In recent years procurement and management of buyer-supplier relationships have received increased interest in research (e.g. Cox 1996; Anderson/Katz 1998; Artz 1999; Wathne/Heide 2004). Transaction costs are argued to be a key determinant of buyer-supplier exchange performance (Artz 1999) and empirical investigations have supported the assumptions and conceptual arguments raised by transaction cost economics (TCE) (Dyer 1996; Artz 1999). Since TCE is a predictive coordination theory, indicating how to organise different transactions (Williamson 1996), it is a suitable complement in literature regarding industrial buying behaviour (IBB) (Cox 1996; Sheth 1996) and a very powerful framework for guiding procurement decisions (Heide/John 1990; Noordewier et al. 1990).

Some research efforts within the TCE field have been rather simplistic, not distinguishing enough between governance structures and governance mechanisms. Hence, it is in need of a more profound analysis of the coordination problem (Pihl 2000). To enhance the understanding of individual firms, Williamson (1998) argues that TCE should move from analysing structures of industries to a more detailed and strategic firm level analysis. Also research in IBB has some weak spots. Sheth (1996) and Cox (1996) argue that it has an abundant surplus of empirical studies with a descriptive approach and a critical shortage of conceptual constructs with an analytical approach. Theoretical clarification is required to enhance the development of practical concepts and techniques, and to assess under which conditions they are 'fit for purpose' (Cox 1996).

This paper aims to address these weak spots suggested by Pihl, by distinguishing between structures and mechanisms, Williamson, by moving to a more strategic level, and Sheth and Cox, by having an analytical/conceptual approach. The purpose of the paper is twofold: first, a conceptual model, based on TCE, regarding the analytical choice of a suitable combination of governance mechanisms for different types of transactions will be developed. second, a procedure based on IBB will be developed for how to obtain the suitable mechanism mix through proper choices during the buying process, involving different types of control.

2. Review of transaction cost economics

TCE is the interdisciplinary field of law, economics, and organisation, dealing with governance of transactions, based on the assumptions of bounded rationality and opportunism. …

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