Strategic Purchasing and Supply Management

Purchasing and Supply Management (PSM) is still not considered a strategic function in many companies although on average more than half of a company’s value proposition stems from its suppliers. In today’s economy, companies which neglect the strategic management of their supply base fall behind their competitors. In many boardrooms, PSM is currently on top of the agenda. However, PSM can only create the advantages necessary to stay ahead of the competition when a company’s supply base is managed according to its overall strategic objectives. Roger Moser analyses the relationships between business priorities and PSM strategy and shows in detail how business strategies influence PSM, in particular supplier selection. He shows how a strategy-based selection of suppliers can generate competitive advantages in PSM and for the company. His work contributes to a research stream which aims at integrating PSM more closely into strategic management. Furthermore, the author develops a PSM strategy concept which enables supply managers to break down strategic priorities from a business strategy level to a PSM level and to define appropriate actions when dealing with suppliers, supply markets and internal customers.


Leseprobe:

1 Problem situation and research approach (p. 1)

In the 1990s, the internal business processes of companies had been reengineered. Today, researchers and practitioners are predicting that the coming decades will be the era of reengineering the entire value chain – from the initiation of the customer request through design, manufacturing, logistics, and service to the final customer again. The winners in the future marketplace will be those linked companies which can combine their internal advantages with those of their suppliers to a powerful value chain that is faster, more agile and innovative, and ultimately more profitable than other competing value chains (Burt et al., 2002, Spekman et al., 1999).

With this erosion of competitive advantages of single companies over recent years, many capabilities of companies alone do no longer serve as a competitive weapon in the world market. Therefore, companies must find a new set of competitive advantages and purchasing and supply management (PSM1), along with its supply base, holds great potential for reaching the necessary improvements (Drucker, 1982, Hogan et al., 2001, Jap, 1999). Top-managers should recognize the critical role PSM can play in shaping the competitiveness of their companies together with their suppliers in the future in terms of both bottom and top line results (Monczka et al., 2002, Watts et al., 1995).

An illustrative example for the generation of competitive advantages with suppliers is Toyota which has made more profits in 2003 than its three largest competitors put together. In contrast to many other automotive companies, Toyota does not keep its suppliers at arm’s length guarding its internal knowledge. On the contrary, it embraces its suppliers and encourages knowledge sharing with them by establishing networks that facilitate the exchange of information. This provides Toyota with a significant competitive advantage over other automotive companies not integrating their suppliers (Dyer et al., 2004).

Another example of a successful buyer-supplier relationship is the computer systems company Dell Inc. where suppliers are the very lifeblood of the company’s business. At Dell Inc. effective knowledge sharing with its supply partners is crucial for the company’s success (Agrawal et al., 2001, Magretta, 1998). The experiences of Toyota or Dell strongly suggest that competitive advantages can be achieved and sustained through PSM and its supplier management. In the following two subchapters, the role of suppliers in generating competitive advantages is analyzed and the research approach of this doctoral thesis is presented.

1.1 The role of strategic suppliers in generating competitive advantages

Recent developments in the world’s economy foster a significant change in the strategic role of suppliers for companies. Firstly, competition has intensified on a global scale over the last twenty years. Important factors are deregulation, the emergence of new free trade zones such as ASEAN (Association of South-East Asian Nations), NAFTA (North American Free Trade Agreement) or EU (European Union), improved transportation possibilities, intercultural homogenization, and sophisticated information technology (van Weele et al., 1996, Vonderembse, 2002).

Exploiting the new information and logistics linkages, companies are relocating and reconfiguring their activities into global value chains based on least cost and greatest expertise. For instance, some companies have become global in the way their R&,D is networked in order to apply simultaneous engineering.