Buyers and Risk

Abstract

The case that the industrial buyer is a risk avoider is not difficult to sustain. Every buying organisation, to a greater or lesser degree, demonstrates symptoms of such behaviour every day. Among these symptoms, the most apparent to the observer is the tendency to retain established suppliers even when competitive alternatives are available. Clearly, to take on a new supplier involves some aspect of risk of failure—even if only of a “teething trouble” nature. A second symptom in production organisations is that which is implied in the statement “we must keep the line moving”. One consequence of this is the tendency to maintain raw material and component inventory levels which err on the high side. In flow production situations involving expensive capital equipment, for example, it is reasonably easy to defend such behaviour. As one Materials Manager put it: “If I stop the line for one hour it costs this company £x,000. There would need to be remarkable cost savings to interest me in changing our present level of stocks or our major suppliers”. Another symptom is a tendency to over‐specify, or to pay “a little more” to ensure that the supplier performs within the required parameters.

Citation

Farmer, D. (1981), "Buyers and Risk", International Journal of Physical Distribution & Materials Management, Vol. 11 No. 2/3, pp. 128-134. https://doi.org/10.1108/eb014500