The Three Buyer Purchasing Approaches

A Buyer is the lowest level of any Buyer or purchasing location that has the choice to purchase a product or service from more than one supplier. That definition is not as easy as it appears. The
complication comes due to Buyers with multiple locations.

To complete a product purchase the Supplier and the Buyer must agree on three key decisions: the amount of product to be purchased; the timing and location of the product delivery; and the price the Buyer will pay to the Supplier.

In reaching these decisions, Buyers and their purchasing locations fall into three groups depending on the degree of central control of the purchase process. The group with the least central involvement we call Independent Buyers. Here, the individual buying location makes all three of the decisions. This buying approach is characteristic of purchases of a product new to the Buyer.

Price negotiations break the Independent model. As Buyers realize the benefits of aggregating their purchases for lower prices and more attentive service, the negotiations over pricing and qualified suppliers move to a higher level of the buying organization. Buyer negotiations become Standardized or
Centralized. Standardized buying emerges as pricing and approved suppliers reach outside the buying locations, into a region or a country. With Standardized purchasing, a Buyer with control of a large purchase quantity of the product negotiates the price for the product. This Buyer then provides each buying location with an approved list of authorized suppliers of those products. The Buying location then determines its preferred authorized suppliers, and the volume of product purchases the location will make from each supplier. The lower-level Buyer location also arranges the timing and destination of product delivery. With Centralized buying, the Buyer organization negotiating the product pricing also determines the volume purchased from each supplier and makes the delivery arrangements. Most Buyers follow a Standardized model in their purchasing arrangements.