Supply Chain Frontiers issue #36.
Purchasing is becoming more strategic in nature, so it stands to reason that aligning the function with corporate strategy will improve its performance. In practice, however, the case for such an alignment is not straightforward, and it may even be ill advised in some instances. A research project that involves 14 academic partners, including the Zaragoza Logistics Center (ZLC), Zaragoza, Spain, will provide guidance to companies on how to set strategic goals for their purchasing departments.
The International Purchasing Study is being carried out on three strategic levels: corporate, purchasing, and category, which covers specific groups of purchased products such as raw materials. “We are looking at strategy on different levels, but also are examining purchasing function processes, capabilities and tools, as well as the function’s performance on both company and purchasing levels,” explains Desirée Knoppen, ZLC Assistant Research Professor, who heads up the project in Spain.
As part of the research, a survey of companies in Europe and North America has been completed. A total of 650 companies responded to the survey, and the results are now being analyzed. In addition, a case study of a large manufacturing company in Spain will provide a detailed profile of a well-established purchasing function. The case study analysis is scheduled for completion by the end of March 2010.
These projects add up to a comprehensive research effort that is unusual in the purchasing space. “We think we are rather unique. While there are many studies on general purchasing, we are specifying strategy formulation and alignment for different kinds of purchased products,” says Knoppen.
The work also engages the research interests of each academic partner. For example, ZLC’s contribution relates to work carried out at the center on inter-organizational issues, such as how to align strategy and foster learning between supply chain stakeholders, says Dr. María Jesús Sáenz, a professor at the MIT-Zaragoza International Logistics Program, Zaragoza, Spain, and Director of the scmLAB.
From a business point of view, the granular picture of purchasing that the researchers are creating should help companies calculate how much effort should be devoted to strategy alignment in order to improve the performance of the purchasing function. Simply advising senior executives to bring strategy in line at the corporate and operational levels is not enough; to achieve meaningful change, they need precise information. “In certain situations, it might be that companies should not bother with strategy alignment; but in other situations where there are certain kinds of markets or purchased products, they may need to address this issue,” says Knoppen.
Take, for example, a company that supplies complex equipment such as airport luggage-handling systems. Because these enterprises are traditionally driven by the engineering department, purchasing is not heavily involved in the buying decisions. Yet, better alignment between these disciplines can streamline projects and reduce delivery times, explains Knoppen.
From the supplier side of the table, the alignment issue takes on a different perspective, she says. Complex projects of this kind involve various types of purchases, such as maintenance services and standard components; and, in each case, the nature of the relationship with the supplier is different. Maintenance contracts are often long term and work best when there is alignment between the trading partners. On the other hand, for some standard components, the emphasis is more on price than on ensuring that respective strategic outlooks are in lock step.
Organizations also have to decide on the degree to which corporate strategy should influence the daily operational decisions that make the enterprise tick. “At the corporate level, there might be a lot of talk about social responsibility and innovation,” Knoppen says. In the purchasing trenches, however, price could well be the overriding consideration. Clearly, the key drivers of strategy differ on each level. A crucial question for companies is whether or not these drivers are coherent given the daily demands of the business.
Another important factor is the way strategic goals are communicated between managerial levels. In this respect, there are a number of issues that the research is taking into account, such as how often meetings occur, the level of formality involved, whether gatherings are cross-functional, and how important decisions such as supplier selection are reached.
“The strategic nature of purchasing, and how aligning it with corporate strategy can make the function more efficient, is only one side of the coin,” says Knoppen. The other side is a more nuanced view of purchasing and its strategic role within supply chains. The research results will provide valuable insights into this role.
For more information on the International Purchasing Study, contact Dr. Desirée Knoppen or Dr. María Jesús Sáenz, or visit the project website at www.ipsurvey.org.