Strategic Supply Management Principles, Theories and Practces, 2008.
Chapter 1
The main tenet of this book is that supply needs to be
thought about as a dynamic strategic process and not as a
bureaucratc business functon. Through the efficient use
of this process firms can achieve significant value added.
The process of supply coordinates the method of input
and supports transformaton through the organizatonns
value system. In order to be able to achieve this, each part
of the strategic supply wheel should be understood and
also the efect that each element has on each other within
the supply wheel; we refer to this as the integratin if
the supply wheel.
Chapter 2
The Evolution of Purchasing
The 1940s–1960s Ligistcs: Initally focused on improving productvity within the four walls of the
factory, logistcs over tme was able to expand its scope and became the forerunner to formal purchasing
departments. Up to this point, producton and manufacturing received the atenton of senior
management, finished goods inventory was the responsibility of marketng, and order processing was an
accountng or sales responsibility. This fragmented approach to purchasing led to a great deal of fricton:
accountng wanted to minimize inventory,
producton wanted large stores of work-iin-i
process inventory ‘just in casen, while
marketng wanted finished goods inventories
to respond quickly to customers. Today, we
use the term logistcs to describe the entre
pricess if material and priducts miving inti,
thriugh, and iut if the firm.
o Inbound logistcs A term that covers the movement of material, components and products
received from suppliers.
o Materials management Describes the movement of components and materials within the
factory or firm.
o Physical distributon/Outbound logistcs The movement of finished goods outward from the
end of the assembly line, and through the shipping department to the end customer.
The 1970s Purchasing as an administratve functin: Throughout the 1970s the purchasing functon
contnued to be seen as more administratve than strategic. The functon operated in an isolated
environment, trying to optmize the ‘silon, rather than optmizing the enterprise-iwide supply chain. Firms
typically adopted multple siurcing strategies through compettve bids, and maintained armns-ilength
relatonships with suppliers. The view of purchasing as simply a service department performing
, Strategic Supply Management Principles, Theories and Practces, 2008.
predominantly a clerical role has been profoundly challenged by the pressures of the economic
environment.
The 1980s Purchasing as supply chain management: Porter (1980) emphasized the importance of
purchasing in his five forces model of compettve advantage. Within the profession, the thinking of
supply managers moved from one of efficiency towards efectveness. Purchasing strategy began to align
consciously with the overall corporate and business strategies of the firm. Advances in technology also
saw the increased applicaton of enterprise resiurce planning (ERP) systems, which made supply chains
sufcient. Wirld Class Manufacturing (WCM) required that the entre supply chain be world-iclass,
necessitatng a focus on just-in-tme (JIT) producton and supply, supported by tital quality management
(TQM) programs. A supply chain focus is vital for the long-iterm well-ibeing of any manufacturing firm.
The 1990s Supply management and strategic decisiin making: Supply chain management (SCM) had
moved away from disparate functons of logistcs, transportaton, purchasing and physical distributon.
Todayns supply chain management goes by many terms, including: supply network management, demand
chain management, pipeline management and value-inet integraton. Buyers have moved towards long-i
term, collaboratve relatonships with fewer suppliers. Terms such as supplier development, strategic cost
management, collaboratve relatonships, shared databases, product lifecycle sourcing and total cost of
ownership (TCO) have become commonplace. Further, once the organisaton accurately identfies what is
core to their business, supply strategy could then focus on these non-icore areas. Supply management
must translate the firm’s cirpirate strategy inti an appripriate supply strategy which is then manifested
in the supply base actvites if the firm.
o Purchasing operatons Deal with the day-ito-iday buying actvites of the firm.
o Purchasing strategy Refers to the specific actons of the functon to achieve its goals.
o Purchasing as a strategic functon Only when the actvites and strategies of the purchasing
functon are aligned with the overall strategies of the firm. As a strategic functon, purchasing can
contribute to shaping firm strategy and firm boundaries.
Drivers of Purchasing Evolution
The prime reason for purchasing
assuming a more strategic focus
stems from the many pressures
placed upon it from the
compettve environment. A
simple PEST (politcal, economic,
social and technological) model
illustrates this point.
The Role of the Purchasing Function
Ellram and Carr (1994) remind us, however, ‘It is critcal to understand that there is a diference between
purchasing strategy and purchasing performing as a strategic functon. When purchasing is viewed as a strategic
functon, it is included as a key decision maker and partcipant in the firmns strategic planning process.n Three
distnct types of ‘purchasing strategyn are proposed:
, Strategic Supply Management Principles, Theories and Practces, 2008.
Purchasing functon implements compettve strategy.
Purchasing functon suppirts strategy of other functons and those of the firm as a whole. This is
achieved by aligning purchasingns functonal strategies and actvites with the firmns overall strategy.
Purchasing functon drives strategy of the firm. Providing the firm with a long-iterm compettve
advantage. In this situaton, supply is the key driver of the firmns strategy.
Judging Purchasing’s Contribution to Strategy
One of the earliest typologies of purchasing functon development was a four-istage model developed by Reck and
Ling (1988), which evaluates the compettve role and contributon of purchasing to any type of company.
1) Stage 1 Passive: Purchasing functon has ni strategic directin and primarily reacts to requests from
other functons.
o High proporton of tme spent on quick-ifix routne operatons.
o Purchasing functon and individual performance based efficiency measures.
o Litle inter-ifunctonal communicaton due to purchasingns low visibility in the organisaton.
o Supplier selecton based on price and availability
2) Stage 2 Independent: Purchasing functon adipts the latest purchasing techniques and practces, but
its strategic directon is independent of the firmns compettve strategy.
o Performance primarily based on cost reducton and efficiency measures.
o Coordinaton links between purchasing and technical disciplines are established.
o Top management recognizes the importance of professional development.
o Top management recognizes the opportunites in purchasing for contributng to profitability
3) Stage 3 Supportive: Purchasing functon suppirts the firm’s cimpettve strategy by adoptng
purchasing techniques and products, which strengthen the firmns compettve positon
o Purchasers are included in sales proposal teams.
o Suppliers are considered a resource, which is carefully selected and motvated
o People are considered a resource, with emphasis on experience, motvaton and attude.
o Markets, products and suppliers are contnuously monitored and analyzed.
4) Stage 4 Integrative: Purchasingns strategy is fully integrated inti the firm’s cimpettve strategy and
consttutes part of an integrated efort among functonal peers to formulate and implement a strategic
plan.
o Cross-ifunctonal training of purchasing professionals and executves is made available.
o Permanent lines of communicaton with other functonal areas are established.
o Professional development focuses on strategic elements of the compettve strategy.
o Purchasing performance is measured in terms of contributons to the firmns success.
Empirical Taxonomies of Purchasing
Strategic purchasers Strategic
purchasers parallel Reck and Longns
‘integratven group where the purchasing
functon is highly regarded, tghtly
, Strategic Supply Management Principles, Theories and Practces, 2008.
integrated with the business and heavily involved in strategic decision making. They are heavily involved
in planning about strategic issues afectng the firm.
Celebrity purchasers Celebrity purchasers represent an interestng group, iutside if current
classificatin systems. The group has high levels of status in the eyes of top managers, yet lower skill
levels, involvement in strategic planning and internal integraton than any other group. May reflect a
purchasing functon that concentrates on hard negotatons with many suppliers and is assessed based on
the price savings achieved.
Undeveloped purchasers Undeveloped purchasers are akin to the ‘independentn phase where they are
a professional functon as shown by high levels of purchasing skills and knowledge, but reactve and
responding to the needs of the business. Undeveloped purchasers are the laggards of purchasing
functons. Despite high skill and knowledge levels, the group have low levels of organisatonal status, less
integraton with other functons and litle involvement in strategic planning.
Capable purchasers Capable purchasers reflect the ‘suppirtven phase where the functon is
contributng to strategy, though not as integrated internally nor held in the same esteem as strategic
purchasers.
The Scope of Strategic Supply Management
Dyadic linkages The relatonship between a single supplier and a single buyer, used in the late 1980s to
conceptualize supply as a chain (see New and Westbrook, 2004) or pipeline (Farmer and Van Amstel,
1991).
Supply structure as a netwirk Examining the interrelatonships across an entre industry sector where
frequently buyer and supplier roles are reversed multple tmes throughout the network structure.
Managing in the supply network is a complex task requiring criss-functinal ciiperatin.
Chapter 3
The make-buy decision
Managers must choose which items will be produced internally and which items will be purchased externally from
a supplier. This decision is among the most important facing managers because it defines the areas in which the
irganisatin will iperate and thise areas that it will leave ti ithers. Even individual make–buy decisions can have
a critcal bearing on areas such as employment, working capital and industry positoning. The aggregaton of these
individual make–buy decisions defines the boundaries of the firm. The boundaries of the firm are the combined
actvites that an organisaton performs in-ihouse rather than using external suppliers. Boundaries are therefore
concerned with both the scale if priductin (how many widgets are we going to produce?) and the scipe if
priductin (what widgets are we going to
produce?).
Scenario 1 The focal firm completes the
manufacturing porton of the
transformaton process, while buying raw
materials from an external supplier.
Scenario 2 The local firm takes the
strategic decision to contnue
manufacturing but also to integrate raw
materials producton.
Scenario 3 The focal firm makes the
decision to contnue manufacturing but also
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