The benefits that can be derived from effective purchasing have long been recognised in the management literature. Despite a growing body of research on purchasing practices in small- to medium-sized enterprises (SMEs), a number of key issues remain under-examined. We investigate SME purchasing practices in terms of (1) the degree to which purchasing is regarded as a ‘strategic’ activity by SMEs, (2) the use of supplier evaluation systems by SMEs and (3) the supplier capabilities emphasised by SME buyers. Through a survey of UK SME managers, we find that purchasing practices varied greatly across SMEs. Purchasing formality is generally low with limited evidence of purchasing being employed strategically and with many firms not undertaking formal supplier evaluations. In terms of supplier capabilities, we find that SMEs differ in the capabilities they prioritise, with three distinct groups evident. These groups are labelled ‘holistic’, ‘process’ and ‘logistics’ based on the supplier capabilities they emphasise. These three groups of firms also differed in terms of the emphasis they placed on strategic purchasing, supplier evaluation, technological focus and how they compete in their main markets, but not in terms of firm size or number of suppliers utilised. The implications of these findings are discussed and areas meriting future research are proposed.
The literature is replete with studies supporting the value that effective purchasing can add to the firm beyond that of an order-processing role (for example, Kraljic, 1983; Carr and Pearson, 1999; Cousins and Spekman, 2003). Several authors agree that small- to medium-sized enterprises (SMEs) would particularly benefit from effective purchasing (Dollinger and Kolchin, 1986; Gadde and Hakansson, 2001) since in order to be successful their own limited resources need to be complimented by external resources. Despite this importance, Ellegaard's (2006, p. 272) recent review of SME purchasing practice led him to conclude that although there is a growing body of research on SME purchasing, ‘research on purchasing in small companies is still limited, despite the recognised dependence of small companies on external resources.’ In addition, empirical evidence is somewhat contradictory, indicating SMEs should not be regarded as a homogenous group as purchasing practices vary (Morrissey and Pittaway, 2004).
As a consequence, it is relatively unclear whether the buying practices of many of the leading industrial firms have filtered down to SMEs. Our understanding of SMEs is crucial in today's business climate as they are a major source of innovation and an important catalyst for economic development, both in Europe and in the US (Homer, 1985; Ghobadian and Gallear, 1996). In the UK (the context for the present article) the Department for Trade and Industry estimates that of the 4.3 million enterprises that exist, 99.9% are small- to medium-sized, employing 58% of the private sector workforce and producing 51% of UK GDP (DTI, 2005). Against this background we aim to explore three issues that have attracted considerable scholarly interest, but, as we will argue later, have not yet received sufficient attention in academic research in an SME context, namely
(i)
the degree to which purchasing is regarded as a ‘strategic’ activity by SMEs,
(ii)
SMEs’ evaluation of existing supplier relationships and
(iii)
supplier capabilities emphasised by SME buyers.
We find that purchasing practices varied greatly across SMEs. Purchasing formality is generally low with limited evidence of purchasing being employed strategically and with many firms not undertaking formal supplier evaluations. In terms of supplier capabilities, we find that SMEs differ in the capabilities they prioritise. Three distinct groups were evident (labelled ‘holistic’, ‘process’ and ‘logistics’ based on the suppler capabilities they emphasise). These three groups of firms also differed in terms of the emphasis they placed on strategic purchasing and supplier evaluation. These findings contribute to the understanding of how purchasing is viewed in SMEs, the evaluation of suppliers, the abilities that SMEs expect their suppliers to possess and potential differences across SMEs. These issues are particularly important for SMEs owing to resource scarcity and a need to draw on the skills of suppliers to help ensure the long-term success of the firm (Park and Krishnan, 2001; Presutti, 1988; Mudambi et al., 2004).
This article is organised in the following way. Firstly, we discuss the literature concerning SME purchasing. Next, we examine the literature related to strategic purchasing, supplier evaluation systems and supplier capabilities. The remainder of the paper explains the research methodology and presents the results and implications of the study.
Although our understanding of SME purchasing practices has improved in recent years, there exist many notable gaps (Ellegaard, 2006). The present study found evidence of some progressive and highly varied purchasing practices amongst SMEs. There was limited evidence of strategic purchasing, mainly due to the lack of formal purchasing planning although supplier evaluations were more widespread, but again mostly on a less-formalised basis. Interestingly, there was considerable variance between SME buyers in terms of the capabilities they expect key suppliers to possess, with the largest group being highly demanding. These SMEs could arguably be described as successfully imitating the strategies of larger firms by desiring a comprehensive bundle of supplier capabilities (cf. Mudambi et al., 2004). This would seem important particularly as many large firms increasingly expect the SMEs they interact with to act co-operatively (Dyer and Nobeoka, 2000), regardless of disparities in size between SMEs and larger suppliers.
Our findings concur with Pearson and Ellram (1995) who argue that a lack of formalised approach to purchasing in many SMEs does not necessarily indicate limited management sophistication in the case of small firms. We have found that purchasing in the majority of SMEs appears to play an essential role, especially amongst SMEs offering high-tech products and operating in markets where competition is based on product characteristics. Instead of a highly formalised approach, SMEs appear to be in a position to promote the importance of suppliers and supply relationships internally by using the personality of the owner-manager/senior managers.
Before introducing suggestions for further research it is worthwhile noting the limitations of the study. One limitation is that a single informant was used in each SME making the assessment of informant bias impossible. Further, the findings of this article cannot be extended to all SMEs in general as data were collected from five – albeit broad – industries. The findings, however, offer an insight into SME purchasing across a broad range of manufacturing firms.
There is a real need for an improved understanding of the purchasing behaviour and competence of SMEs particularly in terms of its informal nature. This might also involve the re-evaluation of the relevancy of the current strategic purchasing measure to SMEs and its capacity to accurately represent the ‘strategic’ nature of purchasing behaviour in SMEs.
An extension of this article would be to identify how SMEs influence and interact with their suppliers and to explain the reasons for the variance in terms of supplier capabilities that are deemed important by SME buyers. For example, the strategic orientation of managers in SMEs might explain potential differences in desired supplier capabilities (cf. Park and Krishnan, 2001), as might market drivers such as product life cycles and competitive intensity.
Finally, one would expect that different stages of SME growth may require different types of suppliers and capabilities, relationships and supplier evaluation criteria, all of which point once again to the need for a more strategic approach to supply relationships by SMEs and therefore a better understanding of the firms that seem to have instilled a strategic orientation to purchasing.
