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A literary review

Supply Chain Management

Is It considered Strategic ?

Submitted By: Nicola Raycraft 2600162

Submitted to: Dr Lindsay Redpath

Word count 14,783

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Table Of Contents

ABSTRACT ..................................................................................................................... 3

INTRODUCTION............................................................................................................. 4

RESEARCH PURPOSE.................................................................................................. 5

LITERATURE REVIEW AND RESEARCH QUESTIONS ............................................... 6

RESEARCH DESIGN AND INFORMATION ................................................................... 6

HISTORICAL BACKGROUND ........................................................................................ 7

WHAT IS STRATEGY?................................................................................................... 7

RESEARCH DESIGN.................................................................................................... 10

SUPPLY CHAIN RELATIONSHIPS .............................................................................. 13

COST MANAGEMENT.................................................................................................. 17

PARTENERSHIPS AND ALLIANCES........................................................................... 23

NEGOTIATION AND STRATEGIC PURCHASING....................................................... 25

CULTURE ..................................................................................................................... 27

MEASURING PERFORMANCE.................................................................................... 27

INFORMATION TECHNOLOGY................................................................................... 29

THE FUTURE ............................................................................................................... 32

SURVEY ....................................................................................................................... 33

ANALYSIS..................................................................................................................... 34

RECOMMONDATIONS................................................................................................. 35

BIBLOGRAPHY ............................................................................................................ 36

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ABSTRACT This paper is a broad literature review of the current research in the area of purchasing and supply chain management. The focus of the review is to look at research related to the functional areas of purchasing and the broader topic of supply chain management. The review is designed to specifically look at work related to research in the area of strategy or the strategic formation of business plans or practices with in modern North American business operations. The scope of the review was limited to the North American supply chain community and did not encompass research or publications in the field beyond the United States or Canada. The research findings, from our review, will make no claims regarding perceptions or beliefs in the European or any other major economies that have active supply chain academics. The reason to look at strategy was to identify if there was a real connection between supply chain management and strategy? The focus of the review was to address the broad issue of whether supply chain and its evolutionary relative, purchasing, are considered strategic by senior management or whether there is evidence to support the strategic performance of firms who engage in the defined supply chain management strategy.

The review will look at research directly related to the topic area but will also look at other areas of the research that address a firms performance or the firms belief on the contribution made by purchasing. The research in these areas will be indicators of the acceptance of purchasing as an element of vital importance to overall success and perhaps a willingness to look at the profession as part of the firms overall strategy. The idea that top performers might be engaging in this as a strategic option from a list of activities which support the firm's overall objectives is what we are hoping to see.

The goal is to determine whether current popular doctrine for the involvement of supply chain and purchasing professionals in the strategic process has actually been adopted by firms or whether it is just theory. The common belief in the power of partnerships and strategic alliances are related to those theories and we hope the benefit such practices can be shown and in turn communicated. The other goal is to provide direction to educators and other academics on the nature of further research but also in how we communicate the success of such theories in practice.

The findings from this discussion led to a mixed series of impressions. The academics believe firms will adopt the strategic approach but the senior practitioner sees less

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change from senior management in attitudes and beliefs. The hope of people in the field is to see change as the profession evolves. At present many are not seeing the changes that have been indicated by the academic research.

INTRODUCTION

The profession of purchasing and its transformation to the new field of supply chain management are markers on the transformation of business in general. For most organizations the two labels are in essence one and the same in many organizations. The change to supply chain management from a traditional purchasing role is the result of the evolution of the profession and how the scope of the role of the purchasing professional has changed. The use of the two handles to describe one individual or a team within an organization will be used interchangeably for the purposes of this research paper. This may not be a standard application of the titles but for the purposes of our study we believe the evolution from one to the other follows a distinct and explainable path that parallels the history of the changes in business development.

If we look to the present or the recent past we see the changes that happened in the purchasing supply chain realm were driven by significant changes in the economy. Post World War II saw a tremendous growth in wealth and manufacturing on the North American markets and this growth and development was unchallenged until the early seventies. The first oil embargo in 1973 changed the face of the North American marketplace. The US was once the single dominant economy driving the world’s consumer markets was now subject to outside influences and competition. The development of industrialized Japan and the growth of other economic markets meant a change in the way North American business had to respond and develop to the changing marketplace.

The arrival of the first Japanese cars was the start of competition in major consumer goods markets and an increase in the scarcity of resources. The supply chain function became important in securing the resources for the manufacture of many products and the efficient acquisition process was the difference. The growth of Materials Management as a science began in the 70’s and the first MRP systems appeared on the manufacturing floor. Supply chain management was really developing and the control and management of all resources especially inventories became a cornerstone of the lean manufacturing processes. The changes have continued to come to the overall science and the increased recognition of the importance of procurement and

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supply chain has been often discussed and touted as a key to more aggressive strategies for remaining competitive.

Supply chain management has been directly linked to global purchasing and control of low cost countries and markets. The whole broad based sourcing of the products beyond the normal boundaries of the North American markets has changed the way business looks at the profession. This change has happened quickly and in many cases the purchasing profession’s traditional tools are no longer applicable to global sourcing. There has been as part of the evolution a need for a more strategic focus to facilitate the firm’s growth and development into non-traditional sourcing markets

RESEARCH PURPOSE The objective of this paper and the subsequent literature review is to solidify the

practical experience of supply chain professionals against the current trends and theories in the profession. Our goal will be to explore if the current literature and research supports the current” belief” in the strategic value of a purchasing as an integral part of the supply chain strategy. Given my background, as a purchasing, supply chain professional and as an educator in the profession, I have interest in this area of study. I have seen over the past twenty years the constant push to increase the status and value of the procurement function as it as evolved. The drive has been primarily driven from within the profession itself and has been the focus of a changing philosophy on the value of the buying function. The changes in the roles played by purchasing professionals have been seen as significant and because of this purchasing and supply chain are part of a successful firm’s tool box. Supply Chain Management as a discipline directly affects not only the strategies we should be promoting at work but also the ideologies we should be addressing in training those new to the profession or those looking for more training in successful techniques and processes.

In “The Purchasing Machine” they refer to the traditional roles of purchasing and why these elements are symptoms of the basic problems in reaching a strategic level in the organization. These symptoms reflect the commonly held beliefs of the people involved in the senior management decisions .We will look to this reference as an understanding and perspective from the early 90’s on the direction of purchasing from the experts and from the firms considered leaders at that time in the approach to purchasing and supply chain management.

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LITERATURE REVIEW AND RESEARCH QUESTIONS

The approach will be to look at the most current research and some more historical reviews as well to help establish the context of our discussion and to incorporate some of the foundation theories used to describe strategy and see if there is a connection between supply chain and strategy. We may look to address the idea that there is no connection because further research in the area on the impact of supply chain management needs to be undertaken. If we look to all the research in the area to discuss success factors and what is actually working we will be able to determine the common traits of successful supply chain driven firms.

The basic question we link to this study is that if purchasing is strategic, is it a key to success for firms? Is there evidence that strategic alliances do actually lead to better quality and supplier performance or is it just theory or a common sense belief?

Do senior managers, who have had limited exposure to purchasing and supply chain training, believe in the value of a strategy which focuses on the higher value supply change theories? Does senior management believe in strategic alliances, the close working relationship and with the concept of shared information or conversely do they believe in the value of competitive bidding as a way to control costs and reduce overall total cost?

RESEARCH DESIGN AND INFORMATION

The real questions are linked to the historical changes in business leading to changes in the way supply chain management and procurement will be viewed or should be viewed by organizations. Clearly, if the evidence supports the idea that strong purchasing supply strategies create competitive advantage, then firms need to understand this and the professional associations need to market this to senior management as a method to develop and support the growth of the profession. This is a profession that, many years after the unscrupulous “purchasing agent” first arrived on the scene, struggles to gain support and credibility.

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HISTORICAL BACKGROUND The literature review will be focused on current research related to the supply

side of business and look at the research that explores the benefits of strategic alliances and reverse marketing and the link to firm’s performance. The research data will come from two primary sources such as the Journal of Supply Management that is the main publication for current research in the area of purchasing and supply chain management. The other sources will include current periodicals and magazines that have current trends and opinions from professionals. Inside Supply Management and Supply Management Executive magazine will be other sources that will be reviewed to support the study. I anticipate the literature will show that the belief in the strategic use of supply chain is not widespread and its success will not be well documented or supported by senior management

The hypothesis will be that the strategic significance of supply chain will be under utilized and that the traditional business methods of purchasing will still be in place as a primary method for the control of costs. Despite the evidence to support strategic partnering and value add strategies they will not be widely used. The belief this is driven by a number of factors including the lack of respect for the profession in all areas of business and the lack of skill within the profession to drive its own rightful place at the board table. We will see in our review there is a link to the performance of the firm and its overall belief in the benefits of purchasing but is this link part of the strategy of the firm. Mitzberg describes strategy as a series of linked decisions with a common thread that is tied to corporate philosophy and is evidenced by a series of similar based decisions regarding the firm’s direction. Purchasing and supply chain can have a significant impact on the financial performance of the firm but not on its sustainable competitive advantage. The only true sustainable long-term competitive advantage is culture. To overcome the status bias in the organization and be part of the developed strategy may be a stretch even for organizations that recognize the value of purchasing professional and their team in controlling costs.

WHAT IS STRATEGY? Any discussion on strategy and its importance to an organization must first look

at some of the key theories and beliefs attached to strategy. Is it a developed plan for the firm to follow or more of a description of what might work in various environments? Mintzberg (1998) describes one of the schools of thought on what we define as strategy .He describes deliberate and emergent strategies as the way of grouping what organizations may do. Deliberate strategies are things a firm makes a conscious effort to develop and put forward in the marketplace. These are driven by the firm’s belief these elements can be a source of competitive advantage and can lead to further direction. Is a supply chain strategy a deliberate attempt to differentiate or is it merely an

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effort to keep pace? This would be an area of research that could be assisted by the academic community in asking the senior managers of organizations: Is globalization a differentiation strategy or merely an effort to keep pace.

Strategies that emerge are ones that come to light but were not intended. Once they are realized they become a source of advantage or of potential growth despite the lack of original intent. The question then is do firms look to supply chain as a deliberate strategy, or are they emergent ones which rose out of necessity and became a cornerstone of the success of the firm? The leaders in the supply chain industry seem to follow both paths depending on the historical development of the firm and the need for the success of the supply chain to drive their organization. We will see this in a variety of examples throughout our study of the literature. The expectations for the value add of supply chain will be a driving factors for the supply chain professional to become more strategic in his or her thinking. The increasing emphasis on global sourcing will likely be a key element that impacts the development of strategies to support those goals.

A lot of the discussion on the benefits of strategy focuses on the aspects attributed to marketing as a science. The development of new products and new markets and the understanding of where the focus of a firm’s resources should lie are critical aspects for strategy theorists. The concept of supply chain effectiveness would often be linked into the concepts attached to cost management and cost reductions as part of the overall measurables of an organization and the day-to-day activities to keep the firm competitive. The purchasing department’s role has been always linked to the notion of the cost leader. The ability to be a cost leader has been directly related to the size and economies that the firm enjoys and its overall buying power. Porter clearly defines the power of buyer and seller as a key driving in his description of advantages a firm might enjoy. What is missing from Porter's discussion is the notion of supplier partnerships and leverage gain from common synergies. Firms rely less on the competitive market to find and develop costs. They design the cost right in and work with suppliers to remove the costs without a bid or tendering process.

The detailed use of supply chain integration is often overlooked as a driving force and more as a necessary evil. Is there a realistic place in supply chain management as a strategic force in a firm’s planning and development of strategies? If we look at the appearance of purchasing in the discussion of strategy one of the first places it appears is in the Porter model for the Five Forces which impacts competitiveness in an industry. In this model the Buyer and Supplier are opposing forces that through the use of leverage and power drive competitiveness. This model looks at the relationship in the most traditional sense and is based on a simple industry models or more traditional

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models which have a large number of firms and low costs to entry and the availability of substitutes.

What is most interesting is the wide use of this model and its commonly held belief system that may be a reason why the purchasing function is not seen as strategic. If the purchasing function is merely an element of simple market forces, then there is little value in it because market forces may be beyond the control on the management group. In other words, purchasing and supply chain are strictly driven by the volume and leverage effect of the firm. Beyond that there is little which can be done with these elements to influence competitive advantage. This thinking, while it has a place in the understanding of the markets and the influence of the forces of leverage and economies of scale, is limiting when supply chains and markets are more complex. If firms rely on high quality and high technology suppliers the forces and leverage points are less important and the ability to manage these suppliers becomes more and more critical to overall success of a firm. This is where the new global marketplace may need more strategic thinking to compete.

In the Purchasing Machine the various successful strategies developed by firms such as John Deere and Honda lead to very similar philosophies on how the organization should operate and the importance of the supply base in those development issues. John Deere was driven by innovation and leading edge technology from its very onset. The first self-scouring plough developed by John Deere himself was an example of better materials and innovation from a superior supplier of steel John Deere himself discovered. Honda on the other hand had always been a leader in the development of suppliers, not so much as a driver of technology and innovation but out of a necessity because of the lack of resources in Japan. Early reliance of the reduction of waste and cost was a key element, which led to the supplier always being a leader in supplier development initiatives.

The issues identified here show the breadth of what we might call or group as supply chain strategies. The use of the supply base to help develop products and leading edge technology and the whole concept of reverse marketing1 are aspects of a strategy that involves the supply chain. Reverse marketing is the use of our suppliers as direct connections to the market and as key partners in the development of new products. The link to the supply chain is not just the vertical integration of the logistics portion or the enhancement of the material management functions it is a broad area of involvement which can have a big impact on the organization.

1 Reverse Marketing need to incorporate this definition

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Strong purchasing and supply chain strategies drove the transformation of some key businesses from the brink. Gene Richter who had been the driving supply chain force in a number of businesses and drove the survival of IBM and its resurgence in the 90’s looked a various options. He centralized the procurement function gave it a platform to manage the business and increased the skill set within the group. The control of costs and information were the cornerstones to getting control of the IBM business.

The Chrysler turnaround in the late 90’s was also driven by supply chain .At the time Chrysler was a highly outsourced firm but seemed to not enjoy any cost advantage from being in that position. The development of ways to leverage the supply base to reduce costs and speed the product development process was a cornerstone for the development of tremendous cost reductions benefits from the supply base. This was an example of a deliberate strategy by the Chrysler group to build upon the current structure but really take it to a more strategic level. The “Extended Enterprise” models they developed where designed to use the improvements and measurables associated with cycle times and quality to drive improvements for both the parent firm and the supplier.

RESEARCH DESIGN

In order to take on the area of study we not only have to look at the research that specifically addresses the strategic area we also need to look at the research in the periphery. This means we have to look at a variety of topics related to the supply chain strategy. This will include discussion on the use of strategic alliances, benchmarking and reverse marketing as examples. There will be other performance studies that will also link the overall performance of the purchasing team to the firm’s overall performance. These may also have a strategic element depending on the focus. There will also be a number of studies that measure purchasing performance and the elements, which contribute to the success of and performance of the organization and how this can be linked to purchasing strategy.

The research in terms of customer service elements will also help to define if there are strategic elements within the confines of the research. Does customer service have a direct link to the logistics and supply chain performance of a firm. In many ways, yes! It is clear, inventory strategies and the ability to deliver product in a timely fashion impacts a firm’s overall performance. The review of this area of research may also provide us with some overview of the direction we need to be heading on future research projects. The other element to consider as part of the general view of the state of supply chain

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will include the various works by practioners and academics that are a compilation of research that forms texts used in teaching. The use of these will help to identify the popular beliefs and to look at the actual strategies and processes used by large corporations.

In the book called “the Purchasing Machine”, Dave Nelson, one of the leading purchasing professionals in the North American market, looks at best practices of the top ten firms in the country. His review will help to determine parameters and will also give us more of a historical perspective. His work will serve as a foundation for the connection between the research we have seen and real life examples of what leadership firms are doing and what was transpiring in the early part of this century. The vision and direction from the senior purchasing supply chain people will also be outlined in this work and from their beliefs we can see if the changes and direction the senior purchasing people outlined has actually come true.

The discussion on the purchasing profession and its impact needs to be put into historical context and parallel the evolution of business from the entrepreneurial start of the industrial revolution and in more recent times to the development of materials management as a science. In the early growth of business there was a need to appoint or give power to an individual to act as an agent of the corporation, The firm needed an person who could enter into contracts and hold the company in a limited way to future obligations for goods and services. This is where the evolution of the “purchasing agent” first began because of its link to the law of agency. The role in the early 1900’s was really one of a commodity manager because most firms consumed raw materials in the form of agricultural products and further processed these materials into semi finished goods and other consumables. Firms were highly vertically integrated and as a result the development of products and markets was limited by the ability of the early industrialist and entrepreneur to create markets and products themselves. The evolution of more complex products and consumer demand created a more complex and robust supply base and firms in the post Second World War period were faced with unprecedented demand for more and more consumer products.

Research in the 70’s actually described purchasing as an administrative function (Carter 1996) and that during the periods of shortages purchasing and supply chain management did little to improve a firm’s performance. The research at the time did show firms with centralized purchasing control out performed those that did not. It wasn’t until the 80’s that purchasing began to elevate itself and became a link to firms’ overall performance. The question for the research is has the overall status of the profession really changed or has the administrative and limited commercial value of

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purchasing remained? In the 1980’s suppliers became more complex and the ability to source and develop suppliers become an important skill. Improvements in manufacturing and technology lead to continuous improvements, the widespread use of MRP2 and other production systems. Further growth in the procurement field was to include production planning and master scheduling. While these disciplines often remained separate they were links to the supply base that basically lead to the development of the science of supply chain management.

Goebel (2003) showed there was an increasing “call” for a more strategic focus in the purchasing and supply chain arena but the reputation of the profession was holding it back from such active participation. The fact the reputation and status of the profession is considered poor needs to be addressed by researchers and the elements that lead to this lack of support for strategic involvement identified. A survey of top executives asking why they do not rely on senior supply chain professionals to help in determining strategy would be the focus of research which could help the development of the profession. This type of information could also foster the development of well-designed educational programs to support the needs of business at the supply chain end and help the profession to enhance its credibility.

Supply chain management is often described as the link to transportation and distribution but the whole chain and the breadth and scope of what firms do to survive means it incorporates all parts of the business process. Our review will see if the evolution of the profession has kept up with its strategic importance in terms of corporations and how they treat the business.

One of the best places to start a literature review is to look at previous literature reviews in the area of study. Ellram (1994) did an extensive review of the strategy of purchasing over a thirty-year period and it helps to provide a historical perspective and an overview of where the research should have headed from that period. The report discusses the three areas of strategy and this includes the purchasing strategies used internally and the role purchasing plays in other areas of the organization. The final area is the concern of our study and it encompasses the use of strategic purchasing as a key function of the firm’s strategy. In this review which is early in the evolution of the purchasing function into a supply chain function and even a force of the global supply requirements most of the discussion will be conceptual and theoretical rather than a recording of the actual results of the implementation of various strategies. This reflects a belief in the fact that the elevation of supply chain and purchasing is in its infancy. 2 Material Requirements Planning

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SUPPLY CHAIN RELATIONSHIPS

The focus of the early articles also shows an interest in the buyer supplier relationships, which exist as a key for the success of purchasing in a strategic context. This is a shift away from the more traditional adversarial relationship that existed between purchasing and the supply base. The studies do not reflect on why this might be a requirement for purchasing and why this has changed. Farmer in his study that Ellram mentions in her review stated based on his observations that as far as overall strategy was concerned he saw little evidence of purchasing actually being involved in the strategic planning of most organizations. The question for our study is has this changed? Is there evidence to support more of purchasing and in turn supply chains input into the direction firms should be headed. In later reviews (Trent 1998) and (Wisner 2000) discuss dramatic change in the profession as a result of its ability to directly impact costs and speed to market. This is an era in business dominated by the continuous improvement methodologies and purchasing and the overall reduction in cost was a key element in this time period. There was a belief that there could be significant benefits from a focus on material costs for most manufacturing operations.

The historical review also seems to discuss the trends; the belief purchasing was an overhead cost that could add little benefit but could be a huge negative was the predominant belief in the 60’s. The change, the researcher believes was in the increasing awareness of the impact suppliers had on overall costs and how important the relationships could be in terms of the impact to quality and total costs. The literature does say firms who first explored the global marketplace and understood there was important value to be gained from suppliers drove the changes in supply chain management. The adversarial relationships would no longer work in a global marketplace and you were competing for suppliers and their skills. The old methods only worked when everyone treated the supply base the same and this was the way business was done. The global marketplace changed this. If this is true why have we not seen more influence in the boardroom from supply chain management? Are we going to find it has changed and the influence and power from purchasing has continued to grow? The whole notion of supply chain management is an attempt to integrate all aspects of the distribution and logistics relationships and integrate them under one supplier focused title for the role. This means a significant change in status for purchasing and a change in skills for the management of this entity.

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In the Purchasing Machine, Nelson outlines one of the other key indicators of the status of purchasing in organizations: the actual level to which we see a senior executive with supply chain responsibility. In most organizations this struggle is on going even in the top organizations. Nelson and his team audited and reviewed there were varying degrees of compliance. This relegates purchasing to the transactional level and does not create a solid climate for any strategic discussions with suppliers at a senior level. The argument can also be made that the discussions are held with suppliers but often are with senior manufacturing and financial executives who may have little or no training in actual purchasing or supply chain initiatives.

The closer working relationships required to provide support to various functional areas by delivering on cost, customer service and efficiency is a key to the management of the supply chain and a change in focus for purchasing. Does this make it more strategic is the real issue. Does the growth in status warrant being a driver in the organization? Further data and literature review will be required to see if such evidence is there to support this theory. Wisner (2000) in his work on the relationship between purchasing and supply chain says the evolution of the supply partnership and alliance was driven by the need for firms to expand and compete globally .The need to do this in a quick manner meant the need for alliances. What is not clear is the effect these alliances have had on firms and their success. Have they achieved more than firms that grew through acquisition for example? The creation of a “virtual” organization without any legal boundaries but a close connection is strategic in that it is designed to increase profits and market share in the long term for all members of this organization. In this study Wisner clearly says there is little empirical research to support the concept and SCM3 and its impact on the firm and its trading partners.

The research shows despite the belief in the values of the SCM concept firms appear to be only working with Tier One Suppliers making sure quality and customer service are paramount. In the survey the success of the alliances from a measurables standpoint seemed to meet the majority of firm’s objectives. What is a little surprising is that given the belief in the value of such alliances that the number is not much higher than the 60 percent found in the Wisner study. In many other studies that focus on the reason alliances fail we can see there are significant hurdles to overcome to reach the objectives and perhaps the control and monitoring processes are not well established to support success. There is an ongoing belief consolidation of suppliers and long-term relationships will continue to grow (Trent 1998) because the need to foster global market places and suppliers who can compete will continue. While in the study we will look at trends, our real concern is does this trend actually lead to better performance

3 Supply Chain Management

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and do the senior management teams believe in procurement activities related to the supply chain as significant contributors to overall corporate effectiveness.

Ellram (2002) looked at the TRS4 for firms and the PSM5 or to see if there was a connection to the performance and the adoption of certain strategies. In the study various strategies such as TCO6 and strategic cost management practices were examined to see if they were present in average and above average performing organizations and if the link could then be established. The research was not conclusive in this case and may indicate firm’s perceptions are the real issue. Poor performing firms had a belief they were actually doing many strategic PSM related issues which could be a result of increased focus on it to improve costs and profits in the short term rather than a strategic commitment. Average performing firms did not show a high level of effort in this area and this may be a link to average performance or it may be a sign of the inability of PSM activities to have a strategic impact. The fact there was a link to cost reduction and poor performance may indicate that senior management has the limited view of the benefit of purchasing to an organizations long-term success. General Motors embarked on an aggressive cost reduction program demanding severe price cuts from suppliers on all parts and products. This lead to a weakening of the supply base and never addressed fundamental cost issues that in the long term only weakened the firm. The mistakes made by General Motors in the 1992 and 1993 time period cost the firms billions of dollars and a loss of trust with the supply base from which it never fully recovered.

The use of short term cost cutting practices under the guise of long term strategy is a key point of discussion from Wisner and could lead to further research in the area. In The Purchasing Machine there is a lot of discussion that focuses of the successful firms is not on short-term projects for cost reduction but on long-term investment. The best practices described include many elements such as the need for long-term focus on supplier development and relationships. The idea of a short term focus or the “flavour of the month” being considered a long term viable strategy is illustrated in the rapid cost cutting in the 80’s by many firms. The failures of these firms to reach sustainable benefits is an example of what can happen with a short term focus and a lack of clear direction.

4 Total Return to Shareholders

5 PSM = Purchasing and Supply Chain Strategies

6 Total Cost of Ownership

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Henry Mintzberg called strategy or defined it as a discernible pattern over a period of time in a stream of corporate strategies (Carter 1996). The goal of any strategy at a functional level, including purchasing is to create a sustainable competitive advantage. So the issue is not if the functional strategies exist or if there is evidence. The issue is: does the strategy lead to an improvement in corporate performance? One of the issues with any of the research in this area is what constitutes good performance for a firm. The limitations on this from the research can have a significant impact on the findings (Ellram2002).

The other key point to consider is whether best practices are transferable across industries. This is a key concern when one considers the transfer of knowledge across the purchasing and supply chain profession. While many activities are common and desirable across all industries many of the practices associated with best practices may not be. For example the use of strategic alliances and partnerships may not be suited to some industries and in fact may be detrimental to the firm’s performance. Carter’s research does not support this view and in fact states there is a correlation between not only the status of purchasing in the organization and the firm’s financial performance but there is a connection to the use of these partnership relationships and the firm’s well being. The research supports long held beliefs by purchasing professionals and academics and shows that purchasing strategies and activities are just as important in success of a firm as pricing, positioning and product design in achieving overall success.

The direction that managers need to take to achieve success in the purchasing and supply chain areas is outlined in the research. In the Carter (1996) review, he lists five critical principles

1. Linking Specific purchasing management goals with firm level strategy.

2. Emphasize the importance of Human Resource Management effectiveness.

3. Foster close relationships with key suppliers

4. Actively integrate purchasing with other functions

5. Create the right atmosphere within Purchasing.

These principles have been repeated in slightly different ways in a number of studies. These principles are transferable to any functional unit in an organization. The focus is on the elevation of purchasing status and on the skills and human resource issues in the department plus on going relationship building with internal customers and external suppliers. There has been a long-standing call for purchasing to participate at the highest levels in the organization as a member of the executive committee. Nelson

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(2001) lists the series of bad practices and a way to further identify good practices. One identified in his work is the notion that the highest ranking purchasing professional in the organization is a manager. What the research does not show is that the profession may not be ready for the seat at the senior management table despite the belief it should be. Other studies should be looked at to see if there is a correlation between the education and business experience of the senior purchasing executive and firm’s performance. The question this addresses is the purchasing strategy coming from the executives or the senior purchasing officer. This may be an indicator as to why the strategy and profession has not risen to the senior level of most organizations?

The research on reputation is driven by the questions raised regarding who is driving the strategy and in fact the actual involvement in many strategic discussions is rather low. Goebel (2003) discusses many of the various research findings in this area and says many functional units especially marketing perceives the purchasing function as clerical and administrative compared to their own functional area. The other factor attached to the strategic side of purchasing is the performance of the staff in the purchasing or supply chain function has a link to the belief system they possess. Those in the profession who believe the contributions made by purchasing are strategic will have more satisfaction and have higher performance if in fact they believe they are a being allowed to contribute at this level. The issue becomes for those in the profession who are not performing at this level is: how do we get there? This is beyond the scope of this review but the actual transformation of organizations to a more strategic focus in supply chain is an important area of discussion. The notion of where this transformation might be led from and who can make the change happen is a critical element in understanding the success of the profession and it ability to impact an organization. The satisfaction in one’s job and their overall performance are closely related in the supply chain arena. This would be something we would expect from most people in the workforce. It may be more of an issue in the supply chain area because the gap in beliefs between senior management and the actual professionals involved in the supply chain may lead to lower than normal job satisfaction. The true impact will come when more and more traditional management at the senior levels have exposure and training in supply chain and its overall benefits. Further research in this area would be required to support this theory of PSR7.

COST MANAGEMENT Other research that will be reviewed involves not only the fact that there can be

purchasing strategies but that the synergies and types of strategies chosen are important to achieve the desired results. The use of target costing (Ellram 2000) and cost management tools (Ellram 1996) plus the way we connect these tools can have a

7 PSR= Purchasing Strategic Reputation.

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significant impact on the success of purchasing in the supply chain strategies chosen. Supply chain has often talked about the concept of TCO8 as an important tool for making investment decisions in capital equipment and for making even smaller less capital intensive acquisitions (Degraeve 1999). The tools to actually determine TCO are not sophisticated in practice and don’t require complex and accurate cost models to help decision-making.

The supplier selection process is usually very simple and not supported by objective criteria and often does not lead to the implementation of supplier improvements. The selection process is often driven by price and a series of subjective opinions on the capabilities and capacity as well as overall “gut” feels to drive the final decision. Degraeve argues in his study that the use of management accounting tools can greatly aid in the process. The extension of ABC9 will help to define the selection process in terms of objective criteria and lead to reduced costs. The cost reductions may be significant but because of the complexity of the models and the time needed to gather information, the use of mathematical models is limited. The value from using costing models and reducing subjectivity in purchasing decision would add to the credibility of the purchasing profession.

The look at specific tools related to costing or arrival at a fair price such as “Cost Plus” based cost models showed there may be a disconnect between this costing practice or finance theory and what is actual practice in the supply chain field. Connor (1997) looked at the cost plus model and how the use of discounted cash flows was critical in establishing what was the profit margin used for capital projects when determining profits. The research indicates this tool is not widely used and may indicate a real gap in training and understanding of these financial tools. The real issue when we look at this is how can an element of the company's internal control and cost improvement picture be strategic when it does not use the financial tools it should to measure its own effectiveness?

The other side of the purchasing or supply chain measurable is not the cost and efficiency side but the value creations side of the decision process. This concept moves away from cost as a driver for our selection process and looks at the improvements and creation of “value add” in the process (Dumond 1994). If we look to our supply base as a partnership and an integral part of the supply chain then our concern is not always on

8 Total Cost of ownership

9 Activity Based Costing

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the pure, lowest cost. We may be looking to our suppliers to enhance our current products and help to create real or perceived value that we can transfer to the customer. The other element that is related to the product development is that purchasing adds value itself by providing the organization with such things as market information, sourcing, inventory control and negotiation tools to help drive competitive advantage. The interesting findings in the literature which helps to support the hypothesis that supply chain activities are not strategic or at least not perceived as strategic comes from the current study. While a large percentage of CEO’s understand the importance of purchasing in adding value the majority of performance systems do not support the concept of value added purchasing. In other words we are trapped into the transactional-based measurables such as cost reductions. The investment in training in all supply chain areas related to purchasing is often under- funded and not considered critical. Current business programs for traditional management training have limited exposure to operations and logistics. The traditional disciplines such as accounting, marketing and finance are always present but a strategic level supply chain option is not widely identified. In fact, it might be an area of future study to determine what percentage of MBA programs at the major business schools in North America has a broad focus or exposure to the supply chain elements.

Rozemeijer (2003) looked at the context under which various strategies were implemented to achieve competitive advantage by using purchasing. The concern of their study was given the large spend many organization have, how effective were large corporations in the structuring themselves to manage these spends effectively? In his survey and research review they introduce the notion of “purchasing maturity” as an important context. This context refers to the level of professionalism and the maturity of the processes used by organizations and the impact they will have on the level of their ability to contribute to the companies overall success and strategy.

Rozemeijer found that despite all the discussion on strategy the importance of short-term operational savings was a critical driver for most organizations’ purchasing policies and activities. Rozemeijer also found that synergies were a function of culture so organizations which had maturity in other functional areas and which had strong foundations seemed to be more likely to have strong purchasing or supply chain presence in the organization.

Culture was a critical element in determining the success of organizations to achieve synergies across the various business units. Culture represents the maturity of the organization and its driving principles, which could also have a lasting benefit to the effectiveness of the supply chain adaptations. Atkinson (2008) discussed the success of

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a transformation of an organization with a mature purchasing process. The Bell Canada example showed the framework for development of a revamped purchasing process within a 24-month period to achieve a targeted spend. The size of the spend was helped by the understanding of the spend itself. A well documented spend analysis was a critical element to identify the areas Bell needed to address in order to be successful. The nature of the success was not linked to partnerships or any visible supply chain strategy as discussed but more of focused procurement based assault on the needs of the organization to hit the 12.5% cost reduction target on the overall spend.

The other important finding we see is that transformation and change is driven by competition. The higher the competitive pressure the greater the investment in purchasing as a management function. The need to innovate and reduce costs is key in the strategies used by organizations when this pressure arises quickly. The Bell example is a great case study of how soon things can change and how quickly a firm might have to react. Bell was a natural monopoly for years and felt almost no competitive pressure. The maturity factor was an important issue; perhaps even a trap for a firm like Bell Canada when competition arrived on the scene. The maturity in the marketplace led to a feeling of complacency and a lack of support for the impact of competition on their industry.

Organizations used simplistic approaches when the skills and status of the purchasing group were low or perceived to be low. In other words less alliances and partnerships or collaborative supplier policies were in place where the purchasing organization showed little maturity. This raises an important issue for practitioners who are looking for senior management support. It is not going to come easily without a solid effort to improve skill sets and deliverables from the purchasing team. The ability to gain senior management support requires a higher level of professionalism than purchasing may be able to deliver depending on the culture and resources. Purchasing professionals need to be aware of the culture they are in and understand that the culture may be the limiting factor which is not easily changed with a long term vision or strategy. The lack of competitive pressures or higher than average margins from limited competition are all going to contribute to a weakened status for the purchasing team and less buy in for the advancement of strategic supply chain strategies. Once again the research should look at high margin industries to verify if this is the case.

The focus on short term cost reductions as a driver in supply chain strategies means the methodology for gathering and recording “what is a cost saving” can be a critical tool. Costing and target prices for suppliers have become a useful tool when a firm cannot easily identify costs and/or cost drivers. The use of target costing and other methods for

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achieving reductions become important tools in these arenas. The use of target costing is driven by cost management strategies that use the competitive positioning analysis, cost driver analysis, and value chain analysis as the three critical elements. These three different elements help to determine where a firm should look to reduce costs to meet the objectives of marketing and branding for example. Reducing costs through reduced features in a high end product may not be practical or sustainable for the support of the customers. It may change the perceived value of the product in the eyes of the consumer. Ellram (2000) highlights the limits of the research in this area because of the lack of widespread use of target costing and related methodology in organizations at this point.

The tool requires the use of a number of parties and a cross-functional effort will improve the success of such tools. The question that arises is how does the use of this tool lead to a more strategic view of purchasing? The answer may lie in the need to incorporate the use of ESI10 and the needs for a cross-functional approach and ownership of costs by various functional units besides the purchasing team. The use of ESI can help to identify costs in the design and manufacturing processes that could be eliminated without any impact on the customers’ perception of value. The creation of accountability for target costs for various functional areas such as product development, marketing and sales could be a key foundation for improvement of the status of purchasing in the organization and perhaps could lead to a more strategic role in the company’s longer term plans. The real benefit can come from the collaborative effect of these divisions working together to find real solutions when in fact there may be very little actual cost benefits that are traceable. The ability to share and speed products to market will also reduce costs and create advantages for a firm, which can do this quickly.

Ramsay (2001) looked at a resourced based model to understand how the use of resources leads to a competitive advantage. In this work he describes a process known as causal ambiguity. This is the lack of clarity around how a competitor actually performs and our own perceptions of the performance. The process exists in the purchasing arena when a firm believes the competition has achieved a sustainable advantage through purchasing and believes they have but is unsure how it is obtained. The fascination with this is that it is a common belief amongst many medium sized firms. I have experienced where the belief is that we do not have the leverage of the big players so our costs are always going to be higher because of the purchasing leverage. Actual research in this area does not show if this is true

10 Early Supplier Involvement

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The use of other cost reduction tools and models show where the expansion of the costing methodologies could extend well beyond the target costing. The development of other more advanced costing tools can be an indicator of the strategic value of the supply chain team in meeting corporate objectives. The literature review needs more focus on the purchasing process as a technical process not just a soft set of skills one driven by relationships and commercial transactions. The reason for the increased focus on technical tools is that the current trends in education have focused on the soft skills and never addressed the technical skills needed to be successful

The expansion of purchasing professionals into the realm of costing and finance could go a long way to increasing the opportunities for purchasing to be strategic. The discussion of cost and cost modelling to arrive at an accurate way of measuring suppliers and overall purchasing performance has been discussed for some time. Ellram (1996) outlined in her article on the “structured methods for applying purchasing cost management tools” that there was not a clear application of the tools and not a universal method for deciding which application was needed for which purchasing decision. The time elements associated with many purchasing decisions was a key in the application of methods used by purchasing professionals. The methodology she described was influenced by two key elements: the nature of the buy and the nature of the relationship sought from the buyer. This definition is a good one in that it parallels the evolution of purchasing from a commodity-driven, cost-only process to a more sophisticated relationship involving the management of complex suppliers and relationships. A complex supplier means one that has unique requirements for information and understanding to support our business.

Strategic buying involves the acquisition of items that foster competency and are important to the future of the organization. The techniques needed to support those transactions involve the use of open book policies and target costing and TCO11 analysis. These are the very elements or tools that supply chain professionals need to develop skills in to be more effective at the higher levels of an organization. In her follow up study, Ellram (2000) looked at the use of target costing specifically as a tool and where its application might have more impact. The interesting notion of this and other costing models is that there is very little discussion on the impact of the use of these models as an indicator of firms’ success or to even drive competitiveness

11 Total Cost of Ownership.

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PARTENERSHIPS AND ALLIANCES An extension of the literature into other areas of study that are linked to

performance and the outcomes from various purchasing strategies is another useful approach to understand the effectiveness of the supply chain function. Technology is a key area where there have been a number of studies that discuss the advent of new software programs and the ability to communicate information more effectively and how this has lead to improvements in the supply chain function. Along with costing and technology improvements the focus on partnerships and strategic alliances and their effectiveness will help us define whether the use of strategic purchasing supply chain strategies has any actual basis in fact. The literature in this area seems to provide a less than glowing endorsement of the success of such elements. Should the advances in technology go hand in hand with strategic alliances and partnerships? You would think so but the research in this area is lacking.

The area of study that is most indicative of the evolution of the supply chain function is strategic alliances and partnerships. The whole concept of modern supply chain management has been driven by a change away from traditional supply chain relationships to those that are based on longer-term reliance on each other and shared information. The Purchasing Machine looks at the top ten US firms supply chain strategies and identifies this as a key area of success. In the list of best practices there is a direct connection to the elements associated with these alliances, information sharing, supplier development, and early supplier involvement. In these areas we see the most strategic adoption has occurred in firms who have had the greatest turnarounds, which in itself maybe the best indicator of the positive effects of such strategies and policies. The leaders in strategic development of supply chain included Harley Davidson, Chrysler and IBM. All three of these firms were near economic collapse and lead their way out through strong supply chain strategies and a reliance on the supply base.

Hannon (2007) describes the benefits of not only partnering but the entire collaborations of various suppliers. The use of a conference for suppliers to have an opportunity to look at processes and issues together created a synergy that we would not have expected from the original intent of the supplier conference. The idea was to create a formalized approach to creative cost reduction ideas. The ability to do this in the supplier conference setting has to be accompanied by the entire concept of partnering and working closely with suppliers.

An interesting element on the discussion is that in the selection process, although it is not detailed, it is assumed that price did not lead to the selection of these suppliers

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through the competitive bid process. These are suppliers that the Kimball Corporation had a long-standing working relationship with to support the program. What we can draw from this case study is that the process of ongoing cost reduction and elaborate joint efforts is a direct result of close working relationships with our suppliers. It is true we may change or move from suppliers who cannot meet these objectives but the key is that the ones who are capable of doing what we need will solidify the long standing relationships.

The other successes mentioned came from small victories not a big single score. It was not a big investment in capital and technology that lead to improvements and cost reductions. The small simple process improvements and shared ideas generated the sustained successes. The only way this type of program is successful is when the costs and risks are shared and when the trust is built through the relationship. The article and case shows there may be more examples of the successes achieved. The other element that they touched upon was the discipline required to make these types of programs a success. Both sides need to follow a tight and regimented understanding of the deliverables and expectations. The record keeping and follow up is a key to the overall success and feedback and trust building needed.

In the review of the literature, Whipple (2000) identifies the success factors in the alliance build or partnership arrangements as such things as a trust between buyer and seller, senior management support, the ability to meet performance objectives for both sides and overall compatibility of the organizations. The linking of cultures is often seen as a key to the long-term success and is often blamed for the failure of the alliance after short-term gains are realized. This is much the same as what happens in mergers or takeovers when the firms have different operating cultures.

Others who study the effects on the alliances (Pearson 1998, Ramsay 1996, Stuart 1995) look at the various issues related to success and failures. Ramsay even argues against such relationships saying that the relationships are high risk and high cost and in many case lead to the loss of leverage or power for the buyer. The focus on the power of the buyer is a key element in any discussions surrounding the concept of partnerships. Stuart (1995) found the value of the relationship was not well understood and suppliers lacked a fundamental trust of the buyer, especially when there were significant differences in size between the firms. The value of the relationship seemed less clear to all those involved and expectations of the benefits were not well understood. There seems to be an underlying connection between increased volumes of business for a supplier and expectations of lower overall costs and information sharing. Firms need to be “philosophically matched” for non-transaction type

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relationships. There may be a joint need for development and shared resources when there is a complex or technical aspect to the business model.

Rognes (1995) discussed the planning process for actually making the partnership process work. His expertise is in the negotiation process and his argument is that the planning of the negotiation is a critical success factor. Rogne’s would concede this is important in all aspects of the negotiation process but how fundamental it is to the formation of long-term relationships is difficult to determine. This element is not often mentioned in the discussion of the success factors in long term partnerships yet it may easily link into the expectations. The importance of long term relationships in accessing markets and technologies that may not be able to be reached in competitive markets is part of the appeal of developing partnerships. Rognes maintains these relationships can only develop over time but other studies show there may be very little benefit to the partnership in the first three years. Do firms have the patience to wait for the development of payback after three years? Most partnerships have developed over time and through the normal competitive process and the relationship may have grown in to a type of informal partnership. The basis for dispute resolution and the ideas around “win-win” make these partnerships difficult to extend beyond a very informal process.

NEGOTIATION AND STRATEGIC PURCHASING

Research in negotiation patterns shows the elements of a partnership have specific elements which make it difficult for buyers trained in transactional business practices to understand the soft elements required to foster these relationships. This is an indicator that the specific skills that are needed in the purchasing professional are not being incorporated into the training. The study suggests negotiations after a contract is in place can actually lead to a more informal process but the solidification of this into a partnership can be difficult. How does a partnership and open market go hand in hand? The literature is not clear nor is the actual process and how it would actually evolve. The process described in Rogne’s study indicates a need for the focus to be on relationship issues. How do the relationship issues and need for financial security for an organization and real financial benefits turn into a relationship agreement? In order for any relationship agreement to be meaningful there is a need for the two parties to exchange consideration. There has to be a visible financial benefit. This soft part is hard to translate into dollars and cents.

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Smeltzer (2003) studied how the negotiation planning process is linked to strategic sourcing. His concern was with the link to the planning process and how it was incorporated into the strategy and whether the right process was used to support the strategic sourcing model. The issue is so closely linked to the previous research to be strategic and in fact how to apply these techniques to global sourcing. The research believed that the more complex and strategic a business was its supply chain initiative it would require a more integrated systematic approach for negotiation to take place. The actual findings showed this was not the case. In many cases the lack of a strategic process or a well-defined one for negotiations is a common practice. Once again this shows how the profession falls short to the deliverable they should provide to their organizations.

Supply chain professionals looking for a strategic place at the table of senior management are not using the tools we would expect them to use to deliver on the key elements of their area of responsibility. The supply chain professional did not see strategic sourcing and negotiation planning as having a key link to each other. The supply chain people involved in the survey argued that the process of negotiation with suppliers have been around for a long time and the process is relatively informal but is successful given that is has survived the test of time. The argument could be made that a more systematic and formal process could have improved outcomes or even helped to solidify relationships and reduced risk for business in a major way.

The other side of the partnering solution may not be to approach firms through bidding and negotiation it may involve building on an existing relationship and rely on the use of target pricing. Newman (1995) looked at target pricing as a way to reach cost objectives. At the time of the study, target pricing was seen as a controversial means to reduce costs and circumvent the open market and bidding processes. It has a direct link to process improvement and waste reduction so it has appeal. The use of target costs and the opportunities to reduce the costs in the short term could lead to improved relationships in the longer term.

The whole concept leads to a number of improved behaviours and really helps to solidify the concept of partnering because it really requires this type of relationship to share the information and costs that firms should share to reduce costs. This is especially true if a joint cost reduction target price is desired and required with both sides working and sharing information. The research by Newman does not extend to the effect on the organization and how it impacts on the existing partnerships and organization’s current suppliers. The use of target pricing indicates the need to have a

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well-developed cost system and a good understanding of the organization’s costs and markets in order to be an effective tool. Further study on this as viable tool to control costs and develop alliances could help understanding in this area.

Landeros (1995) goes beyond the basic elements to have a relationship and asks what is needed to maintain one. He, like others (Pearson 1998, Whipple 2000), shows the need for expectations to be clear up front for any success to take place. The development of the relationship between suppliers and buyers is linked by these expectations and limitations and also by a defined set of measurables to ensure compliance to the boundaries of the agreement. The success of any supplier relationship needs to have a clear understanding that differences will happen in interpretations and commitments and there needs to be a clearly defined methodology for the resolution of the conflicts. This may lead to a more formal legal relationship than is often intended but it may be the only way the relationship can be clearly enforced. This could lead to a contractual relationship that clearly defines the parameters of the relationship.

CULTURE

The success factors are often described in the research as cultural similarities between two firms and the willingness for the two firms to achieve success is paramount. The weakest link in the supply chain determines the strength of the entire chain and significant work on the selection of upstream and downstream partners is paramount to the workings of the alliance and its overall efficiency. (Whipple 2000).

The largest barrier to success according to the research remains the cultural differences between firms; and the costs associated with developing the people skills to manage these relationships is part of the barrier. Even firms who recognize the benefits to such a strategic relationship are often not well equipped to determine the next part of the success of such a relationship. Whipple states the “win-win” in an alliance comes from not only the soft people skills but also being able to translate those into meaningful performance measurables to monitor the success of the relationship.

MEASURING PERFORMANCE

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Any review of the changes in the strategy in supply chain needs to look at how the measures of supply chain and purchasing has changed. The most common measure of purchasing performance would come from the recording of cost savings and a measure of improvements against standard cost. This was seen as a simple process and for the most part relied on the open market and “bargaining” as the methodology that determined success. The measures of all parts of management have improved and the whole supply chain has a number of key measurables to manage the business and the performance. Measurables such as the cash-to-cash cycle are key indicators of a firm’s ability to compete. The other science that has evolved in recent management techniques has been benchmarking. Shah (2001) looked at the framework for the measurement of supply chain and focused on the internal movement of products.

The results of the case studies were the need to focus on production improvements, reduce WIP12 inventories and better coordination between logistics and distribution can lead to substantial improvements in customer service. The call for more flexible manufacturing to delay final form until orders are received is also an issue which seems beyond the scope of benchmarking .The Purchasing Machine is really a form of benchmarking where we look at the largest successful firms’ methodology and understand what it is doing to support that the firm is successful. The best benchmarking exercise might be to find a firm, which grew from small beginnings and used a supply chain as a core competency to grow and develop. There is no research to identify if any firm has grown its manufacturing and customer base solely on its supply chain. Perhaps the Dell computer model is an example, but has a manufacturing firm gained any competitive advantage from the focus on supply chain as a core competency? Most firms rely on the strength they have in marketing and product development and see the supply chain as merely a supporting role to these key elements.

In the review of the evolution of the supply chain we have hinted at the development of processes and the whole formation of materials management as a science rooted in the development of the industrial revolution and the growth of the production management sciences. In parallel to the development of the science of materials management has been the development of technology to support those sciences, e.g. the foray of IBM into the development of production support. IBM primarily supported the earliest MRP systems such as MAPICS13. The development of these systems created potential

12 Work In Process

13 Manufacturing Accounting and Production Information Control System) A comprehensive and widely used ERP system from MAPICS, Inc., Alpharetta, GA

(www.mapics.com) that includes more than 45 different software modules and runs on Windows clients and AS/400 servers. MAPICS was originally developed by

IBM in 1978, purchased by Marcam Corporation in 1993, and spun off in 1997.

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competitive advantages particularly as developing economies became able to compete into the 70’s and 80’s. The development of the PC14 and the availability of an open market for software have helped to facilitate the growth of technology to support supply chain systems. The main benefit from the technology improvements was a key to the supply chain system.

INFORMATION TECHNOLOGY

Information and communication are critical elements of supply chain management. It is as important an element as the movement of the actual materials through the chain. Larson (2000) looked at EDI15 and the Internet as a growing communication tool. While EDI has not lived up to its early billing, in the study and review by Larson, it is an indicator of the need for communication improvements as a driver for the technology changes. This is not a surprise given the supply chain is an information chain as much as it is a tool for the movement of products and services.

The link between these strong information connections and buyer and supplier relationship was a focus Larson noted in his review of the research and so it fits that the increasing need for strong buyer and supplier relationships stems from the need to have better and better information. The ability for both our supply base to mitigate duplication and respond to customer changes in needs is paramount to the success of the firms and the competitive climate they operate in. The research seems to conflict: what is more important the relationship or the technology and which comes first? Do we need to build and foster the relationship before the investment in the technology and the commitment is solidified or is the technology the element that forces the closer relationship? The interesting element is the personal nature of EDI and other Internet based interaction. While EDI is very well suited for the transactional-based dealings between suppliers and buyers it is not well suited nor does it facilitate the strategic communication elements. In other words while the speed and availability of data from the Internet and EDI is useful it does not help to develop the relationship side of this buyer supplier element.

14 Personal Computer

15 Electronic Data Interchange

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In many studies the one measure which was improved from cooperative relationships and information sharing was improved leadtime which in turn leads to better customer response and reduced overall costs to both parties. We would expect this from improvements in the transactional side of the information sharing. Quick and accurate data in ERP16 systems means the parties can plan and allocate resources to meet each others needs in a meaningful way and can respond to changes without incurring additional costs. The ability to reduce variability in the supply chain leads to reduced inventory and obsolescence costs and improved overall asset management for both firms. If firms believe in the traditional values of cooperation it would appear these cooperative relationships would make common sense and would be widespread.

Siram (1994) in his look at the impact on EDI and policies and procedures asked purchasing managers in a survey about the impact on EDI on their departments. In many cases he found the use of EDI was not widespread and it did not replace the manual paper based systems for transactions. In fact it was often a supplement to the use of manual systems and was lined more closely to the transactional speed of information flow. The use of EDI to move funds was seen as a huge benefit to organizations but most firms have stayed away for this as part of a strategy for the management of cash. The developments of these systems have been slow and it lends itself to more research on whether the development of standard EDI systems would have supported more growth and sustained buyer supplier relationships. Or, is the lack of EDI compliance driven by the need to not be so closely linked to a single source or supplier? Clearly more study in the area of technology and its impact on buyer supplier relationship could help to understand the motivating factor.

When we think of technology and its development in the supply chain world we tend to focus on the technology to speed transactions and to share information. Buvik (1998) looked at the overall adherence or dependency on technology for a firm and its relationship to how it structured its purchasing relationships. It is an interesting perspective that basically describes how firms with more structured technology driven manufacturing processes are more likely to develop more formalized purchasing relationships. So firms with large batch continuous flow manufacturing will rely on not only manufacturing technology but also supply chain software technology to drive their business.

Firms with a more flexible manufacturing set up which use batch processing and customized run sizes to meet customer needs; will require less manufacturing 16 Enterprise Resource Planning.

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technology and software. The other element to consider is: how does this correlate to the need for the development of buyer supplier relationships? It shows there must be a correlation between the complexity of the components and the technology to support our customers and the need for close interaction. This relationship is an interesting finding and is not always addressed when researchers or educators discuss the benefits of technology and close supplier relationships.

Larson (2005) looked at the size of the firm and how this had an impact on the technology in place and on the firms’ investment in EDI and other systems. The findings were such that the size of a firm really impacted not only the ability of the firm to invest in technology but also in the investment of long-term relationships. The researches showed smaller firms were less interested in the future and more concerned with day-to-day results and scarcity of resources. This means they are less committed to this technology and to longer-term relationships. One of the reasons could be the actual benefits from the use of EDI technology is hard for a smaller firms to see the return when compared to other investments

In other areas of research, we see a number of avenues where not only the performance of purchasing and technology improvements are being gauged but we also see the impact of supply chain on effectiveness is often questioned and not often validated. Firms believe in the value of supply chain management and global sourcing initiatives but in reality do not often address these concepts as part of the firm’s strategy. Elmuti (2002) looked at firms and asked what their activities were in the area of supply chain management and overall performance improvement. The Deloitte Consulting survey he referenced claims 91 percent of firms believed in the importance of supply chain strategy but only 2 percent of those firms thought their current processes were world class in this area. He also found 95 percent of Fortune 500 companies surveyed said their firms should be more focused on global supply chain strategies while only 45 percent of them had actual programs in place. This could be an indicator that the common sense belief is that this would be good but a real understanding of where to begin and how to make the investment in this area is complicated. I also think it could be an indicator of how poorly the profession itself markets its benefits to senior management to get a higher level of commitment. This is clearly a potential area of further analysis or an area to survey senior executives. Perhaps research into why more of these programs are not being implemented or supported by senior management is an interesting point to address.

The other key identifier in the projects which raised concerns or which may be considered part of the reasoning for lack of success was the time element. It was found

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in the studies listed that most partnership projects related to supply chain did not see full benefit for 3 years on average. In many business arenas firms may not have had the patience to wait for the projects to show benefits that far out and many would have been abandoned before they had the opportunity for success. The other conclusion reached from the study was lack of success was more an issue with the lack of clearly defined goals for the supply chain projects. Unclear goals or very high or unrealistic expectations could have had a major impact on determining if the project had a certain amount of success or not. Also when we look at goals such as “improving entry into new markets” it is hard to measure on a continuum which is meaningful to the business or which has an economic impact in the short term.

This research is limited in scope like most surveys but does raise a number of interesting issues related to the whole concept of partnerships and the need for further research in the entire area of strategic purchasing and its effect on the business community.

THE FUTURE

Carter (2000) looked at the future of purchasing and supply chain and from his review what is the most important areas where the profession will be headed and what will be the key drivers for this profession and what can we expect. The review is very broad and really talks in detail about the various elements in the entire spectrum of supply chain management beliefs and it really highlights many of the elements we have discussed throughout the research and literature review and talks about more supplier development and integrated relationships and global sourcing. The issue you might ask is what has changed? The predictions were based on traditional business models from 2000. The recent changes in the economic climate and the size of the global recession may have an impact on the belief as to the value of these system and forecasts. Certainly more research would be required to outline the changes given the current strength in the Chinese economy and the emergence of this economy as the dominant economic force that may change the North American landscape forever. If we review the possibilities in detail we see that there are important implications to the profession and the direction further research needs to take.

The research is this area needs to focus on how can supply chain be more strategic? Will the profession ever reach the level of importance of marketing and finance and have the same support from senior management? I believe the only way the profession will is if it continues to develop the skills at a technical level and transmits those hard

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financial skills into a strong systematic approach to business, supplier development and management. If we continue to under-train and educate in the areas linked to the supply chain we will continue to fall short.

SURVEY

The other way in which I would explore the beliefs of the profession and its support for buyer and supplier development would come from a small survey of leading academics and purchasing / supply chain professionals. The informal discussion is tbeyond the scope of this literature review. The development of a more formal survey will be part of the recommendations for further research. The goal is to foster further research and to continue to provide support to the supply chain management profession on what is the best approach to supplier relationships and development.

The information I would gather from colleagues will form an opinion on the direction of the profession and on the abilities of the membership to influence the strategic aspect of the profession. The more formal survey could use the base established through Dr Peter Carr’s survey on “Supply Chain Management Issues” conducted in May 2002. It would be interesting to see if we can get similar findings from the supply chain professionals in this current economic environment as were indicated in his research. In the 2002 study the findings were that most professionals believed there job was more important and that it would have a big impact on the organizations strategic plan in the next five years. This was true even though the respondents were not professionally designated in supply chain and did not have significant formal education in the areas of supply chain management.

For our group we would select colleagues from a variety of industries and those in the teaching and research area of Colleges and Universities who had an interest in Operations and Supply chain management. We would issue simple questionnaire as a guideline to discuss informally their own thoughts and experiences in the field. The primary group would be made up of senior and experienced purchasing and supply chain professionals who had been in the industry and public sector for a number of years to gauge their opinions. Our belief is that the" feeling" from the experienced practitioners would be that the profession has not evolved as far along as many had hoped. The senior management team, as seen by our professionals, in a variety of industries seem to believe less in the value of the strategic focus.

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ANALYSIS In conclusion, the research shows a number of differences in the view of

purchasing and supply chain management. The changes in the beliefs and perceptions from those within the profession, and the conflicting findings from the research, shows that perhaps the supply chain profession is not the strategic weapon that the profession wants it to be. I also believe the research would be supported by the findings of any general survey with senior professionals and that their impression would match those portrayed by the senior management people who direct the organizations.

The Purchasing Machine shows a lot of best practices in terms on effectiveness of some of the most successful supply chain firms but does not link the best practices with the strategic direction of the organization. Firms like John Deere and Honda do need to be efficient for supply chain reasons linked directly to profitability but do they do anything that is a differentiator from the competition? The answer is no not directly. These two firms are well established brands and the focus on quality of their product and on innovation are the keys to enduring success. It could be argued without best practices or strong supply chains they would be less profitable, but will their product be less desirable to the markets as a result?

The concept of supply chain as a strategic tool or as a way of differentiating firms from their competition is not evidenced when we look at the market leaders. The research may be better headed to look at how smaller nimble firms in the large markets respond and use their entrepreneurial skills to drive success in niche markets. These firms might be the real strategic supply chain entities that we are trying to find.

Competition drives efficiency and the need to control costs but the other issues that drive it are the need to manage assets, to fund marketing and research and development efforts. The need to be aware of emerging markets and opportunities can be a leadership role and may even be considered strategic. Ramsay states that a firm gains an advantage on the competition if they can prevent those in the market from knowing what the other firms are actually doing in emerging markets or under competitive pressures. The casual ambiguity concept is paramount to the whole idea of competitive advantage and it helps to understand why we may not really know if a firm uses supply chain as a strategic tool or not. If under this model the actual performance has to be based on imperfect information about the competition than this supports the models we see time and time again in the research. Carter (1996) was asking the question in a different competitive world: Is purchasing really strategic? It could be argued from his findings, given he found that purchasing did have an actual impact on the performance of a firm, that it also made up part of the strategy of the firms studied.

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Was it really a conscious effort to find a sustainable competitive advantage or was it merely following good sound business practices like all those in the market that leads to the behaviour? Further study in this area and in fact a duplication of this type of research in the new global economy may be a good indicator of the changes that have taken place. An interesting note was that the more decentralized a purchasing group’s control, the poorer the overall performance of the firm. This may be an indicator of the belief that when purchasing and in turn supply chain is considered important the firm has better performance. If we can show a direct effect we may be then able to sell the strategic concept.

RECOMMONDATIONS

In closing the research shows firms are very aware of the need to be successful in the acquisition of goods and services and the control of costs in the supply chain. What it does not show is that firms actually believe they can use the supply chain as a tool to gain competitive advantage. We believe that big firms enjoy significant economies of scale and as a result operate with lower costs. The theory is often just that because we also know large firms have significant disadvantages linked to communication and waste that can actually hurt their ability to be efficient. Further research needs to address what is the supply chain profession doing to contribute and can the perceptions of the value of supply chain be improved? Can we make supply chain a strategic tool; and if so, what are the elements necessary for an organization to create this toolbox?

What does this mean for the profession? It means more effort and energy needs to be invested in the development of adding value to the firm. The soft skills of relationship management need a hard set of numerically driven results to drive the process .The hard technical skills of the supply chain professional need to be developed so the supply chain professional is lumped together with the accountant and engineer for having technical skill in those areas.

My recommendations to the supply chain professional or the educator is to continue to design programs to support these skills in costing and other financial analysis areas so the profession can participate at the strategic level. The profession needs more skills in the "language of business" if it wants to participate at the strategic level and make progress towards the status it claims it wants and deserves otherwise this profession may always be tactical in nature and perception.

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