Doing business in today’s dynamic world has become much more complex and competitive. This is primarily due to the wide range of options available to a company in all aspects of conducting the business. This decision-making process becomes much more complex if the company is larger as the complexity increases with the size of the company.
Cost considerations and choosing options that are profitable are very important to ensure that the business is profitable. Even in terms of purchase, there are several parameters to consider before finalizing on the type of purchase by the decision-making authority of the company.
Recruitment, being an important aspect, must be decided on the requirements of the company in the most profitable way. The new shopping school classifies the purchase procedure in two: transactional purchase and purchase by relationship, according to the relationship and the terms between the buyer and the seller.
What is transactional buying?
Transactional buying, as the name suggests, is limited to buying one transaction at a time. In these types of purchases, purchasing managers are primarily concerned with the “today” purchase in which the buyer thinks and acts in the present. Prices and conditions of sale drive the buying process. The buyer aggressively negotiates with the service provider and tries to get a better deal for himself. The procurement team often demands more concessions and luxuries from the purchase. Once the transaction is completed, the contract between the seller and the buyer ends.
From the seller’s perspective, the only interesting thing is the limited length of the service period. However, this type of purchase is not lucrative for the seller, since the negotiation is difficult and the seller could end up giving many concessions than originally decided. In the case of a pure transactional purchase, complex / critical tasks should be avoided.
There is another type of transactional purchase called ‘Pseudo transactional purchase’. Here, the service provider extends the services of the sold product for a longer period of time. They maintain the product on an ad hoc basis according to the needs of the buyer. Here, the contract is limited to a single task, however, the buyer will use the services for a predetermined period of time.
What is relationship buying?
The goal of this type of purchase is to maintain a strong relationship with the seller for a long period of time. Buyer and seller tend to enjoy a mutually beneficial relationship. The seller is considered a business partner of the buyer. Buyer trust and confidence, along with delivery and demonstration of seller expertise, is the key to relationship buying success. Both parties seek a win-win situation before joining the partnership. As the relationship is longer term, the buyer should make sure that the seller also makes a good profit from the partnership and extend the help and support to the seller.
We have mentioned that a large company, with complex operations, should not carry out a transactional purchasing process. Does this mean that a large business or even a midsize business should opt for relationship buying and a small business should opt for transaction buying? No, the decision of the hiring process does not only depend on the size of the company. There are criteria to consider based on which such decisions are made.
Some of the criteria are as follows:
Purchase by relationship Transactional purchase
Nature of work Simple complex
Work volume High Low
Frequency of work Daily / Weekly / Monthly (periodic) Ad Hoc
Buyer involvement High Low
Transactional buying vs relationship: which is better?
In short, a company, whether large, medium or small, can choose between transactional buying or relationship buying or even pseudo transactional buying. Considering the hassles of the contract creation process, many companies generally prefer relationship buying. The frequency of contract creation is more in a transaction purchase process than in a relationship purchase process. However, due to constant pressure to cut costs, transactional buying is also being considered. This type of purchase comes to the rescue when there is a cost constraint. It is a boon for small or single owner businesses as it is easier for them to follow. Even large companies are not far behind in experiencing this type of shopping. Larger firms are floating a separate unit / company so they can take advantage of transactional buying. Transactional buying and relationship buying have their pros and cons. A good business manager should select the procurement process based on the requirements of the business. Considerations must be made depending on what product should be obtained, if it is periodic or not, how involved the company wants to be and if the maintenance is complex or simple.