The Role of Purchasing in the Agile Enterprise

39

IN BRIEF

Ronald L. Meier is Professor of IndustrialTechnology at Illinois State University. Heearned his Ph.D. degree from the University ofMissouri-Columbia. Dr. Meier is a formermember of the Agility Forum’s Agile/VirtualEnterprise Focus Group. As a businessconsultant and researcher for more than 15 years, he has also been active in thedevelopment of performance enhancementstrategies for small and midsize manufacturers.

Michael A. Humphreys is Assistant Professorof Marketing at Illinois State University. Heearned his Ph.D. degree from Oklahoma StateUniversity. His research interests include totalquality management, relationship marketing,and marketing for service and nonprofito r g a n i z a t i o n s .

Michael R. Williams is Associate Professor of Marketing at Illinois State University. Heearned his Ph.D. degree from Oklahoma StateUniversity. As a business consultant andresearcher, he has been active in the developmentof applied business research programs and thepresentation of seminars in customer-centeredmarketing, customer satisfaction, organizationalculture, and total quality management.

The Role of Purchasing in the Agile Enterprise

BY

Ronald L. Meier, Michael A. Humphreys, and Michael R. Williams

The article examines purchasing’s role in achieving agility and compet-itive advantage. Using a Delphi study, this research investigated andidentified buying behaviors that optimize a firm’s relationship withkey suppliers (Supplier-Oriented Purchasing Behaviors). Implicationsfor managing agile purchasing strategies are discussed.

BACKGROUND

A gile competitive strategies require a market-focused, total-systems,strategic orientation that results in the ability to rapidly respond tochanging customer demands and market conditions. Specifically,

four dimensions of agile competitive strategies have been identified: (1)being a solution producer; (2) having collaborative production systems;(3) being knowledge-driven; and (4) maintaining an adaptive organiza-t i o n .1 Successful implementation of these four dimensions allow firms to develop their people, information, processes, and management intocoupled and dynamic systems. The result is long-term value-added rela-tionships with key constituents characterized by shared trust, mutualcommitment, and long-term cooperation.

These long-term, value-added organizational relationships are viewedas a strategic source of competitive advantage and further recognized asa focal point of contemporary agile practice.2,3 For example, Texas Instru-ments’ “Two Up, Two Down Philosophy” focuses relationship effortsover five firms. These include the subject firm and two levels of interac-tions to the customer and the customer’s customer as well as the supplier and the supplier’s supplier.4 Along with traditional customerrelationships, supplier relationships and the technologies required tointegrate business processes are crucial to the overall process of creatingvalue for the firm and its customers.

THE “INTERPRISE” MODEL

The Interprise Relationship Model5 depicted in Figure 1 (see page 40) illus-trates the three dimensions of interorganizational relationships amongfirms and their suppliers and customers. The three axes in this model(Enrichment, Reward, and Linkage) identify key management decision-making areas for facilitating mutually profitable interorganizational

International Journal of Purchasing and MaterialsManagement © Copyright November 1998, by theNational Association of Purchasing Management, Inc.

International Journal of Purchasing and Materials Management, Fall 1998

40 The Role of Purchasing in the Agile Enterprise

relationships. A line at a forty-five degree angle rep-resents the ideal relationship between these threeaxes. Any growth or development on one axisshould be equalized by endeavors on the other twoaxes. Thus, optimal relationship developmentendeavors must be concurrent along all three axes toachieve enhanced levels of performance.

The Enrichment axis highlights value-addedactivities that enrich the customer. Comprehensivecustomer enrichment comprises both the technicalproduct quality and interpersonal process qualitya t t r i b u t e s .6 Technical product quality includes the technical/tangible product attributes such asphysical features, price, warranties, product per-formance, and reliability. Interpersonal processquality includes all buyer/seller interactionprocesses such as: using experience and know-ledge in responding to buyer requests; furnishinginformation; processing orders and invoices in atimely fashion; resolving problems and com-plaints; and collaborating with buyers to pursuemutually-beneficial goals (e.g., assisting buyers inthe development of production schedules andinventory control systems related to products sup-plied by the selling firms).

The Linkage axis depicts both technical andhuman resources that describe how — throughwhat means — organizations interact to enhancethe integration of business processes. This axis is ameans of describing the nature and number ofinterfirm linkages used for competitive advantage.Thus, firms can be described as relatively discon-nected, using only mail and fax communications,

to highly coupled, with electronic data interchangeand shared network resources.

The Reward axis represents a continuum of what the customer offers of perceived value to itssuppliers. Traditionally, this was the payment forproducts and services rendered. This basic form ofReward has evolved through value-based and vari-able pricing structures to the sharing of informationand risk associated with true strategic partneringand implementation of joint efforts. An example ofa higher level of Reward would be customer pro-viding specific information regarding productionschedules or materials specifications to assist a sup-plier’s strategic planning and management efforts.

THE REWARD AXIS: BUYER-SUPPLIERRELATIONSHIPS

While each of the three dimensions is critical to the suc-cess of relationship development, our understanding ofspecific methods and activities regarding how cus-tomers can create rewards for suppliers is minimal.7 T h i scondition exists because the area is under-researchedand because much of what is known is proprietary andnot in the public domain. The role of purchasing in afirm’s overall competitive strategy has changed and ourknowledge of this role has not kept up.

In the past, the buyer’s role was primarily tomaintain a large number of supply sources inorder to pit suppliers against one another andnegotiate the best deals.8 This unilateral approachcreated adversarial relationships in order to fosterintense competition among suppliers. In the shortterm, this could be an effective approach to lowerprices and enhanced quality. This was often aneffective approach to buying since it created valuefor the buying firm and its subsequent customers.

However, the changing competitive environmenthas provided the impetus for a different approachto purchasing. Many companies face rapidly changing technologies, shorter product life cycles,expanding off-shore competition, and betterinformed, more demanding customers.9 I nresponse, firms must gain efficiencies, eliminateinterfirm process redundancies, reduce cycle times,and bring innovative customer-defined products tomarket faster.1 0 To achieve these goals, buyers arerecognizing the need to compete for and collaboratewith carefully chosen suppliers. In fact, businessand purchasing managers are now recognizing thatin many industries contemporary purchasing willbe defined as the fight for good suppliers.1 1 B u y e r sare cutting their vendor lists and treating theremaining vendors as allies, sharing strategic infor-mation freely, and drawing on supplier expertise indeveloping new products to meet the marketplace’squality, cost, and delivery standards. To accomplishthis it is important that customers (buyers) under-stand and satisfy the needs of targeted suppliersand position the firm as a preferred customer.

INTERPRISE RELATIONSHIP MODELFIGURE 1

SUPPLIER-ORIENTED PURCHASINGBEHAVIOR

This article defines Supplier-Oriented PurchasingBehavior (SOPB) as purchasing strategies or practicesdesigned to establish a position as an attractive or pre -ferred customer relative to targeted suppliers. W h e napplying SOPB strategies, the focus of purchasingbecomes understanding and satisfying the needs oftargeted suppliers and the development of mutuallybeneficial buyer-seller relationships. The domain ofSOPB may include the following activities:

• Acquisition and use of technical knowledgeto benefit the supplier

• Buying across a broader range of goods andservices

• Collaborative communication• Strategic planning12

SOPB focuses on defining and identifying the rewardsdeemed important to key suppliers. Thus, SOPB targetsthe often neglected Y or Reward axis of the InterpriseRelationship Model and holds significant implicationsfor strategic planners and purchasing managers.

A recent study by the National Association of Pur-chasing Management supports the significance ofSOPB and continued development of the InterpriseRelationship Model’s Y-axis. This study identifiesthe 10 most important research topics in purchasing.“Fewer sources of supply” ranked first, “Purchasermanaged supplier relations” ranked third, and“Greater emphasis on purchasers managing theoverall supply chain” ranked fifth.1 3 As the applica-tion of purchaser-managed supply chains continuesto increase, a significant need for research on expli-cating, measuring, and implementing the conceptsof Supplier-Oriented Purchasing Behavior emerges.

Addressing this research deficit is the focus ofthis article. First, the results of an exploratorystudy that examines and delineates the SOPB con-cept is reported. This study is especially aimed atestablishing the foundation for a practical measureof SOPB. Then, the implications of the study formanagers of agile firms and for future research arediscussed.

DELPHI METHODOLOGY

A literature review was used to structure an initialpool of statements representing the domain ofSupplier-Oriented Purchasing Behavior. A Delphistudy was then conducted to maximize the contentvalidity of the item pool. For the Delphi exercise, theresearchers assembled a panel consisting of 16 indi-viduals based upon their expertise as practitioners,scholars, and consultants.

The statements constructed from the literaturesurvey were used to create a two-part paper andpencil Delphi questionnaire. In the first part, Likert-types scales were used to gather perceptions

regarding the degree of importance for each item.The second part consisted of open-ended questionsthat solicited the respondents’ suggested item revi-sions, and comments and clarifications related totheir responses.

In order to revise and reduce the initial itempool, the mean and standard deviation of Likertscale rankings for each item were calculated. Whenthe degree of importance for each component wasbelow the midpoint of the Likert scale, (1=stronglyagree, 4=strongly disagree) the component wasconfirmed as a key characteristic and retained.Conversely, items above the midpoint weredeleted. The responses from the open-ended ques-tions were analyzed and consensus opinions fromthe experts were used to further augment andrevise the item pool. T-tests were utilized to com-pare the variance and means of each survey roundresponse to examine the degree of consensus.

RESULTS OF EACH DELPHI ROUND

Three rounds of surveys were completed in theDelphi study before consensus was achieved. Thefollowing sections discuss specific results fromeach round.

Delphi Round OneThe first round of the Delphi study utilized a ques-tionnaire that contained the 46 items initially devel-oped through a literature review and interviewswith practitioners and researchers in the field. Thefirst part of the Delphi questionnaire requiredassessment of each item’s importance for achievingsupplier-oriented purchasing. A second part wasopen-ended and solicited input regarding revi-sions, item deletions, and new items to be added.As a result of round one, the initial item pool wasrevised for wording and meaning and 19 new state-ments were added. Round one yielded a 100 per-cent participation rate from the 16 panelists.

Delphi Round TwoThe 65 revised and new items from round one wereincluded in a questionnaire similar to the one usedin round one and distributed to the panel. As aresult of this round, 15 statements were retained intheir original form, 33 statements were revised orrephrased, and 17 statements were dropped. Roundtwo also yielded a 100 percent participation rate.

Delphi Round ThreeThe 48 items from round two were included in arevised questionnaire and distributed to the panel.Full consensus was achieved in this third round.Consistent with the statistical techniques discussedin the methodology section above, each of theremaining 48 items scored below the midpoint of2.5 on the four-point Likert scale (1 = stronglyagree, 4 = strongly disagree).


The Role of Purchasing in the Agile Enterprise 41

KEY FACETS OF SUPPLIER-ORIENTEDPURCHASING BEHAVIOR

This study provides initial support for Supplier-Oriented Purchasing Behavior as a multi-dimensionalconstruct. The 48 distinct behaviors identified as com-prising the domain of SOPB can be segmented intotwo categories of purchasing issues: (1) those relatedto organizational-level policies and procedures and(2) those related to individual-level activities andbehaviors (see Table I below and Table II on page 43).Each table lists statements from round three of theDelphi study with its corresponding mean and vari-ance. Statements are listed in increasing order of vari-ance reflecting the level of consensus achieved by the16 Delphi panelists.

Organizational Level Policies andProceduresThe items in Table I pertain to the buying firm’srelationship orientation toward suppliers. Theseitems identify the general policies and procedures

used when dealing with suppliers. The findingsreflect two basic groups: “openness and communi-cation between buyers and sellers” and “buyingand decision-making processes.”

Openness and communication between buyersand sellers. These include policies and proceduresthe buying firm adopts regarding communicationand the sharing of information with suppliers(Group A). For example, firms attempting toattract key suppliers will openly share informationabout their firm with suppliers and provide proce-dural training for supplier representatives.

Buying and decision-making processes. In addi-tion, organizational-level items include decision-making processes advocated by the buying firm(Group B). For example, reflecting the bilateralnature of supplier-oriented purchasing strategies,the buying firm will involve supplier representa-tives in the development of production schedulesand design specifications.



ORGANIZATIONAL POLICIES AND ACTIVITIESTABLE I

STATEMENTS (To attract targeted suppliers it is important for BUYERS to…)Group A - Openness and Communication Between Buyers and Sellers Mean VarianceEstablish open communication. 1.13 0.117

Communicate expectations about product/service quality to suppliers. 1.20 0.171

Keep suppliers informed of what is expected from them. 1.25 0.200

Assist supplier representatives in contacting appropriate people within the buying firm. 1.69 0.229

Provide suppliers with feedback about their performance. 1.50 0.267

Show a need for supplier’s ideas. 2.40 0.400

Help suppliers sell their ideas to other members of the buying firm. 2.00 0.500

Communicate with suppliers on an ongoing basis. 1.63 0.517

Offer training to suppliers. 1.93 0.533

Openly share information about the buying firm with suppliers. 2.00 0.769

Group B - Buying and Decision-Making Processes Mean VarianceMaintain a good credit rating with suppliers. 1.19 0.163

Pay suppliers promptly. 1.19 0.163

Be willing to support supplier’s ideas with other members of my organization. 1.93 0.210

Be consistent in the purchasing policies and procedures used with suppliers. 1.29 0.220

Not demand exceptions to the supplier’s policies. 2.36 0.247

Inform suppliers about the buying firm’s purchasing procedures. 1.38 0.250

Consider things other than price when evaluating products and services. 1.56 0.263

Consistently purchase from selected suppliers. 1.80 0.314

Keep purchasing policies simple for suppliers. 1.94 0.329

Display creativity and imagination in relation to solving buying needs. 1.79 0.335

Develop purchasing procedures in cooperation with suppliers. 1.79 0.335

Take into account supplier’s customer service/support policies when making purchasing decisions. 1.81 0.403

Consider all aspects of the supplier’s product offering before making a purchase decision. 1.57 0.571

1=strongly agree, 4=strongly disagree.



Individual Level Activities and BehaviorsThe items in Table II pertain to interpersonal activitiesand behaviors of individual employees. Three distinctgroups of items comprise the individual-level activitiesand behaviors of purchasing personnel: “professional-ism, reputation, trust, and ethics;” “knowledge of mar-kets, technology, products, and services;” and “relation-ship development/interaction, long-term orientation.”

Professionalism, reputation, trust, and ethics.Group C reflects personal characteristics of profession-alism, integrity, and ethical behavior. Topics in thisgroup pertain to providing supplier representativesample time and resources to do their job and treatingsuppliers with respect.

Knowledge of markets, technology, products,and services. Group D relates to the knowledge andexpertise developed and maintained by purchasing

personnel. Items assessing a purchaser’s awarenessof technology changes in their industry and know-ledge about supplier products and services reflecthow well a purchaser can assist and relate to sup-plier representatives.

Relationship development/interaction, long-term orientation. Group E items assess a pur-chaser’s long-term relationship orientation. Forexample, loyalty and responsiveness to the needs ofindividual supplier representatives are viewed asimportant determinants of long-term relationshipsbetween purchasing personnel and suppliers.

IMPLICATIONS

This study makes a significant contribution to pur-chasing professionals and business managers as

INDIVIDUAL LEVEL ACTIVITIES AND BEHAVIORTABLE II

STATEMENTS (To attract targeted suppliers it is important for BUYERS to…)

Group C - Professionalism, Reputation, Trust, and Ethics Mean VarianceInteract with suppliers in a professional manner 1.06 0.063

Follow through on promises made to the supplier. 1.13 0.124

Be prepared for scheduled meetings with supplier representatives. 1.81 0.163

Be reasonable when unexpected supplier problems arise. 1.80 0.171

Maintain a good working relationship with suppliers. 1.25 0.200

Treat suppliers and their products with respect. 1.27 0.210

Maintain a good reputation with suppliers. 1.31 0.229

Notify suppliers promptly when the firm will be unable to meet with them. 1.38 0.250

Give undivided attention to supplier representatives during their sales presentations. 1.57 0.418

Provide ample time for suppliers to present their products. 1.80 0.457

Establish a consistent record of business performance. 1.73 0.781

Ask the supplier questions during their presentations. 1.93 0.924

Group D - Knowledge of Market, Technology, Products, and Services Mean VarianceKeep the buying firm in a strong competitive position within its industry. 1.64 0.247

Maintain up-to-date knowledge about its industry. 1.57 0.264

Assist suppliers in testing of new products/technologies. 2.27 0.352

Be receptive to ideas from suppliers. 1.38 0.383

Be willing to change in response to supplier’s ideas. 1.69 0.397

Be aware of new technology. 1.87 0.410

Have a good knowledge of the supplier’s products. 2.00 0.571

Group E - Relationship Development/Interaction, Long-term Orientation Mean VarianceBe loyal to suppliers. 1.75 0.200

Maintain relationships with a limited pool of suppliers. 2.07 0.210

Be willing to establish relationships with suppliers. 1.31 0.229

Maintain good working relations with relevant departments within the supplier’s firm. 1.75 0.333

Be responsive to the needs of individual suppliers. 1.94 0.463

Practice continuous improvement in the purchasing area. 1.53 0.695

1=strongly agree, 4=strongly disagree.



they begin to establish and nurture their relation-ships with key suppliers. Specifically, this studybegins to delineate the domain of supplier-oriented purchasing strategies as they relate to theReward axis of the Interprise Relationship Model.As discussed earlier in this article, this area is char-acterized by limited knowledge and great potentialfor enhancing a firm’s competitive advantage.Thus, implications exist for both managers andresearchers.

Managerial ImplicationsThis study provides guidance for purchasing pro-fessionals and business managers by beginning todelineate how to create added value for the firmthrough managing supplier relationships. Impor-tantly, these strategic implications target the cre-ation of a synergy between organizational-levelpolicies and procedures and individual-levelbehavioral strategies. Either of these aspects ofpurchasing practice alone can enhance value andcompetitive advantage within the firm. But maxi-mum value can be achieved through the coordina-tion of these fundamental aspects of supplier relationships.

Information from this study can be used by professional buyers and sellers to identify prospec-tive business partnerships and as a tool for pre-qualified partnering practices. This informationwill also enhance buyers’ ability to understandtheir communication styles and to communicatemore effectively with suppliers. By enhancingcommunication effectiveness, buyers will be ableto engage in more meaningful, efficient, and prof-itable relationships with suppliers. Buyers will alsobe able to utilize this information as a tool for thedevelopment and establishment of other Supplier-Oriented Purchasing Behaviors.

There is a need for business professionals to con-sider the implementation and application of SOPBwithin buyer-seller relationships. Trust, honesty,integrity, ethics, professionalism, and communica-tion were seen by the panelists as being key char-acteristics of SOPB, and the foundation for strongbuyer/seller relationships.

Information from this study may enable businessprofessionals to practice pre-qualified partneringthrough the use of SOPB. Specifically, companiesmay recognize the benefits of SOPB as a set ofestablished guidelines in order to attract desireds u p p l i e r s .

The concept of SOPB will present new challengeswithin the area of training and development. Orga-nizations will need to train their management andsupport personnel on how to be supplier-oriented.Training will not only be required for purchasingprofessionals, but for all who have contact withs u p p l i e r s .

Research ImplicationsThe results of this study fill a void in research con-cerning Supplier-Oriented Purchasing Behavior.Previously there was little information availableregarding the domain and key characteristics ofSOPB. This research helped define the relationshipgap between supplier-oriented practices (buyerviewpoint) and customer-oriented practices (sellerviewpoint). Customer-oriented selling behavior,buyer trust in the seller, buyer commitment, andbuyer cooperation are interrelated and dependent.This relationship may be seen as leading to SOPB,which in turn results in sellers placing trust in thebuyer. (See Figure 1).

SOPB provides the “missing-link” within bilateralrelationships between buyers and sellers.

Utilizing the categories and statements devel-oped in this study, a scale could be developed tomeasure SOPB. The statements could be used bybuyers to measure, assess, and strengthen theirown SOPB.

THE EMERGING PERSPECTIVE

The transition to an agile environment is causingorganizations to examine and redefine the roles oftheir customers and suppliers as they affect sales,work processes, and value-added opportunitiesthat lead to competitive advantage. It has been rec-ognized that reengineering efforts and technicalproduct quality improvements are not enough.14 Inthe future, organizations will focus on how to addvalue through reward activities intended toenhance relationships among all partners. TheInterprise Relationship Model represents thisemerging perspective.

Based upon the outcomes of this study, SOPB isa promising area of investigation and practice formanaging value-added supplier relationships.SOPB includes a synergy of both organizationlevel policy and procedures and individual activi-ties and behaviors. As organizations begin imple-menting the Interprise Relationship Model, SOPBhelps explain what is required for success on theReward axis. Buyers as well as sellers need tofocus on their collaborative interpersonal interac-tions in order to develop strong and profitablebuyer/seller relationships. Furthermore, managersshould encourage and support the development andimplementation of Supplier-Oriented PurchasingBehaviors within buyer and seller relationships.

REFERENCES1. S.L. Goldman, R.N. Nagel, and K. Preiss, Agile Competi -

tors and Virtual Organizations: Strategies for Enriching theCustomer (New York: Van Nostrand Reinhold, 1995).

2. K. Preiss, “A Systems Perspective of Lean and AgileManufacturing,” Agility and Global Competition, vol. 1,no. 1 (1996), pp. 59-75.

3. R.F. Dwyer, P.H. Schurr, and S. Oh, “Developing Buyer-Seller Relationships,” Journal of Marketing, vol. 51 (April1987), pp. 11-27.

4. K. Preiss, S.L. Goldman, and R.N. Nagel, Cooperate toCompete: Building Agile Business Relationships (New York:Van Nostrand Reinhold, 1996).

5. Ibid.6. M.A. Humphreys, M.R. Williams, and R.L. Meier, “The

Nature and Role of Interpersonal Process Quality in theMarket-Drive Enterprise,” Proceedings of the 5th AnnualAgility Conference (1996).

7. Preiss et al., op. cit., 1996.8. K. Bertrand, “Crafting ‘Win-Win’ Situations in Buyer-

Supplier Relationships,” Business Marketing (June 1986),pp. 24-30.

9. R.L. Meier and H.F. Walker, “Agile Manufacturing,”Journal of Industrial Technology, vol. 10, no. 4 (1996).

10. M.U. Kalwani and N. Narayandas, “Long-Term Manufacturer-Supplier Relationships: Do They Pay Offfor Supplier Firms?” Journal of Marketing, vol. 59, no. 1(1995), pp. 1-16.

11. M.R. Leenders and A.E. Flynn, Value-Driven Purchasing:Managing the Key Steps in the Acquisition Process ( B u r rRidge, IL: Irwin Professional Publishing, 1995).

12. Ibid.13. K.K. Corcoran, L.K. Petersen, D.B. Baitch, and M.F.

Barrett, High Performance Sales Organizations: CreatingCompetitive Advantage in the Global Marketplace (Chicago:Irwin Professional Publishing, 1995).

14. Agility Forum, “Customer-Supplier Systems in the Ageof Agility,” Agility Reports, AR96-02.



Documents

The Role of Purchasing in the Agile Enterprise