Purchasing Power and Purchasing Strategies - Insights From the Humanitarian Sector

Doctoral thesis, 2014

In this dissertation, we discuss how buyers practice purchasing strategies in an asymmetric power situation favoring suppliers, and how their purchasing strategies practiced impact their purchasing power and buyer-supplier relationships. Organizations enter exchange relationships to access required resources not produced internally, and are exposed to uncertainty from not being able to fully control or predict flow of resources. Consequently they become dependent on their partners. Their level of dependence indicates the influence, or leverage they might have on the partner. Thus, firms that are highly dependent on their supplier base have less leverage or lower purchasing power. This situation can be seen in several industries; e.g. in the airline industry, in purchase of oil/gas, in monopoly supply markets, or in several purchases made by humanitarian organizations. There are several forms of purchasing strategy practiced in such situations of low purchasing power. In an exploratory pre-study of vaccine procurement in the humanitarian sector, we observed that some weaker buyers had managed to influence their supply market for better purchase terms. Considering the predictions of previous research on constraint absorption of powerful partners, this influence was surprising. In general, the focus of research has been mostly on the stronger partner in an exchange relationship, and thus less is known about the weaker partners. Thus, in this dissertation, we set to understand the purchasing strategies practiced by weaker buyers, to understand how they can have more influence on their supply than perceived. To do so, first the interrelation between purchasing power and purchasing strategies was conceptualized, based on the study of multiple buyers of vaccines for developing countries. Observations from the same multiple case study were also used to explain how purchasing strategies practiced by weaker partners can impact the buyer’s purchasing power. The predictions from this study were extended to a single case study where the impact of one specific purchasing strategy (cooperative purchasing) found from the multiple case study, was studies on the buyers’ purchasing power. This dissertation adds to previous literature, by introducing a more complete understanding of ‘‘purchasing power’’ and its elements, by increasing the understanding of purchasing strategies by less-powerful buyers and their consequence, and by increasing the understanding of purchasing strategies and operations in the humanitarian sector.