Robert Gordon University

The Purchasing Function is Not Strategically Important

in Enabling Organisations to Gain Competitive Advantage

Dennis Bours - 1114091

BSM520 Strategic Purchasing (A)

Carol Air

March 25, 2013

Bours 2

Dennis Bours - 1114091

Carol Air

BSM520 Strategic Purchasing

March 25, 2013

The Purchasing Function is Not Strategically Important

in Enabling Organisations to Gain Competitive Advantage

Over the past 40 years the purchasing function has developed from a separate

function aimed merely at the successful procurement of goods and services for the successful

operation of an organization towards a more strategic role as one of the organization’s

boundary-spanning functions (Chen, Paulraj and Lado 505-09; Long 1-4; Paulraj, Chen and

Flynn 107; Quayle 1-19). The purchasing function and its competence gives access to external

markets and through its networks it can identify new materials, new suppliers, new markets

and changes in market conditions, which can in turn be used as valuable competitive

intelligence informing corporate strategic decisions (Chen, Paulraj and Lado 517-18;

Rodrigues, Fernandes and Martins 1-6). External relationship management as well as

relationships with other internal functions can make the purchasing function a spider in the

web of strategic decision making (Chen, Paulraj and Lado 514-19; Dubois and Wynstra 4-10).

But is the purchasing function directly adding value to the corporate mission and strategy, or

only to other functional areas within the organization? Is the purchasing function involved in

strategic decision making or is the function mainly involved in those decisions that affect

purchasing? While informing other functional areas, is the purchasing function equally well-

informed, and if so, is that to better support the need of other functional areas or to actually

inform strategic decisions to gain competitive advantage? How many senior purchasers are

taking part in top executive strategy meetings or top management market entry analyses?

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My goal in this essay is to provide evidence showing that the purchasing function has little to

no strategic importance in enabling organizations to gain competitive advantage, with the

exception of a limited number of big firms in which the purchasing function reached strategic

maturity and is strategically aligned with and informs the corporate strategy.

To further analyze the purchasing function and its role towards enabling

competitive advantage on the organizational macro-level, I have organized my essay into

three sections. In the first section I look at what we see as the purchasing strategy and the

strategic element of the purchasing function. In the second section, the purchasing function

and its role in corporate strategic decision making is being analyzed. I end my essay with a

third section that offers concluding remarks towards the importance of strategic alignment and

inclusion of the purchasing function in strategic decision making.

PURCHASING STRATEGY VS. STRATEGIC PURCHASING FUNCTION

When focusing on the purchasing function and its definitions it becomes clear

that these definitions do not yet embrace the strategy-element of the purchasing function.

Lysons and Farrington (4) define the purchasing function as “in a business context [the

purchasing function] involves acquiring raw materials, components, goods and services for

conversion, consumption or resale”. Van Weele (3) defines it as “[the purchasing function]

managing the company’s external resources in such a way that the supply of all goods,

services, capabilities and knowledge which are necessary for running, maintaining and

managing the company’s primary and support activities is secured at the most favourable

conditions”. Discussing the strategic element of purchasing Van Weele focuses on Porter’s

three basic business strategies (185) and mainly discusses how purchasing strategies should

be linked to overall business strategies by means of analyzing the purchasing portfolio and

developing supplier strategies in line with the overall business strategies (190-204), but he

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does not mention whether or how the purchasing function should inform the corporate

strategy development process. Lysons and Farrington do discuss “the strategic stages of the

development of a purchasing function” (11-12). Their focus is also mostly on the purchasing

strategy and how it connects with the firm’s corporate strategy and to a lesser extend on

whether and how the purchasing function is considered strategic as contributing to and

participating in the firm's strategic planning processes (Carr and Pearson 1032-35).

What is the difference between implementing a purchasing strategy (Thompson

6) and acting strategically as purchasing function? James Brian Quinn defines ‘strategy’ as

“the pattern or plan that integrates an organization’s major goals, policies, and action

sequences into a cohesive whole” (Ruiz de Lira, 14), while Carr and Smeltzer (200) define

‘purchasing strategy’ as comprehending “the specific actions the purchasing function may

take to achieve its objectives”. Implementing a purchasing strategy can be translated into

executing or putting into effect the actions needed for the purchasing function to achieve its

objectives. It should be pointed out that the definition of ‘purchasing strategy’ seems much

more operational than the definition of ‘strategy’, which perhaps comes down to the character

of the purchasing function. Acting strategically as purchasing function would mean to act in

line with the organization’s major goals, policies and action sequences on a macro level.

At this point it is important to clearly state the difference between ‘purchasing

strategy’ and ‘purchasing as strategic function’. The purchasing strategy comprehends the

specific actions the purchasing function may take to achieve its objectives, while purchasing

as strategic function refers to the purchasing function being “viewed as strategic, [being]

linked to and integrated in the firm's strategic planning process” (Carr and Smeltzer 201).

Paulraj, Chen and Flynn (114-16) define three stages of the strategic purchasing function,

exemplified in table 1 on the following page.

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Table 1 Stages of strategic purchasing

Stage 1:

The nascent stage of the

strategic purchasing

function

Purchasing personnel is cognizant of the firm’s strategic goals to a

certain extent, but the purchasing departments are not included or

trained in the corporate strategic planning process. Moreover, they

are considered to have a passive role in the business organization.

Accordingly, they do not necessarily have a long-term strategic

focus. In essence, the purchasing function is not considered on par

with the other strategic units of the firm such as marketing, finance

and production. Though considered an important partner, they do

not seem to have the support and power to pursue their strategic

initiatives, and are riddled with cost-based priorities.

Stage 2:

The tactical stage of the

strategic purchasing

function

The purchasing function is actively involved in the strategic

planning process and plays a very important role in formulating

and executing corporate strategy. Since the purchasing function is

seen as a key contributor to many corporate initiatives, the

purchasing professionals are trained in elements of competitive

strategy and the upper echelons have high visibility among top

management. Purchasing departments are highly evolved in the

elements of strategic involvement, and visibility/status. The

purchasing function, at this stage, cannot be considered inferior to

other functions within the firm. On the other hand, due to the

absence of long-term proactive actions, it cannot be considered as

highly strategic either.

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Stage 3:

Most evolved and

advanced strategic

purchasing function

Firms in this group are the only ones that have a true long-term

focus. Purchasing departments have evolved significantly in all

dimensions of strategic purchasing. Purchasing assumes more of a

proactive role in working with other functional departments in

formulating the competitive strategies for the firm. Rather than

being cost-based, the purchasing strategy is linked directly to

company-wide long-term strategies and goals. Thus purchasing

influences the competitive factors including quality, cost/price,

timely and reliable delivery, and cycle time reduction.

Purchasing functions operating in stage three can be seen as having a high level of strategic

importance and do enable organizations to gain competitive advantage. The question now is

whether there are actually that many companies whose strategic purchasing function is

operating in stage three.

STRATEGIC DECISION MAKING AND THE PURCHASING FUNCTION

In 2004 John Ramsay of Staffordshire University (Ramsay, “really a strategic

function?” 1) wrote the following in an open letter to Supply Management Magazine:

Almost 30 years ago [Supply Management Magazine] began efforts to raise the

status of the purchasing function within companies. The tactic selected back

then was to stress the contribution that purchasing can make to a firm's

strategic success. This tactic has been pursued to this day, and it is still

accompanied by lamentations about the failure of the higher management in

many companies to take the function seriously.

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This is in line with his earlier findings (Ramsay, “purchasing’s strategic irrelevance” 257-62)

concluding that the purchasing function is intrinsically operational in nature rather than

strategic, adding to its inability to play a significant strategic role. Trent and Monczka (25-26)

also conclude in their research that most corporations expect to progress towards more

advanced purchasing functions, but most lack the ability or even the need to operate at the

highest strategic level. Dubois, Gadde and Mattsson (409-16) similarly come to the

conclusion that the purchasing function is rarely proactive towards strategy development and

is more playing the role of an intermediate between suppliers and other functions in the

company.

A recent position paper of the Chartered Institute of Purchasing and Supply

(CIPS 1-4) started with the sentence “CIPS is expressing beliefs on linking purchasing and

strategy in order to encourage the development of the purchasing and supply management

contribution to corporate strategy”, clearly indicating with their hopes and beliefs that this

link between corporate strategy and the purchasing function is currently missing and needs to

be developed. In those rare circumstances in which the linkage between purchasing function

and corporate strategy development exists this is mainly the case in large global corporations

and not in the dominant form of companies in our economies, being small and medium-sized

enterprises (Ramsay “agenda for change” 567-69). González-Benito’s research (787-92) finds

that strategic purchasing objectives pursued can explain “a statistically significant portion of

business performance”, but at the same time he is clear that this positively depends on firm

size as control variable, ie. strategic purchasing objectives mainly have a positive relationship

with business performance in big firms. He is equally straightforward when stating that

business performance also depends on a vast number of other variables and the explanatory

power of the model and relationship is regarded as “quite low” (787). Trent and Monczka (26)

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also conclude that particularly small and medium-sized enterprises with limited geographical

reach have no need to move beyond the tactical strategic level of the purchasing function.

CONCLUSIONS

It becomes clear from the previous sections that the purchasing function in

small and medium-sized enterprises has limited to no strategic importance towards enabling

these firms to gain competitive advantage. And in Europe for example small and medium-

sized enterprises are the backbone of the economy, with 20.7 million small and medium-sized

firms accounting for more than 98 percent of all enterprises, 87 million jobs being 67 percent

of total employment and 58 percent of European gross value added (Wymenga et. al. 9-11).

Stage three of strategic importance of the purchasing function is mainly reached by

purchasing departments of big firms and even then mostly lacks the ability or even the need to

operate at the highest strategic level; the purchasing function mainly plays the role of

intermediary between suppliers and other functions in the company. Batenburg and

Versendaal conclude in their study titled “Alignment matters - improving business functions

using the procurement alignment framework” that (1) performance of the purchasing function

is positively related to five corporate business dimensions when aligned, but they also indicate

that (10) the “remarkably weak correlation between [corporate] ‘strategy & policy’ maturity

score and procurement performance” deserves future research, ie. the performance of the

purchasing function has a very weak correlation with corporate strategy and policy in

explaining competitive advantage. Alignment has been defined as the degree of maturity

reached within and between five business dimensions and their relation with procurement

performance. Ruiz de Lira (38) comes to the same conclusion as Batenburg and Versendaal,

and González-Benito, stating that there is a positive relationship between purchasing

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performance, strategic alignment and business performance, but the explanatory power of the

relationship is very low.

This guides me to the conclusion that the purchasing function is not

strategically important in enabling small and medium-size enterprises – being over 98 percent

of all firms in Europe – to gain competitive advantage. The results of González-Benito (787-

92), Paulraj, Chen and Flynn (116), Batenburg and Versendaal (1) and Ruiz de Lira (38) show

there is a positive relationship between the strategic purchasing function and it enabling big

firms to gain competitive advantage, as long as the purchasing function is strategically aligned

with the corporate strategy for it to have any influence towards the firm’s competitive factors.

But even then business performance also depends on a vast number of other variables and the

explanatory power of the relationship between the strategic purchasing function and it being

an enabling factor in gaining competitive advantage should be regarded as quite low.

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Works cited

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Functions Using the Procurement Alignment Framework” Part of the

Workshop Inkoop Onderzoek Nederland (WION) (2006). Web. 22 March 2013.

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March 13 2013.

Carr, Amelia S., and Larry R. Smeltzer, “An Empirically Based Operational Definition of

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Chen, Injazz J., Antony Paulraj, and Augustine A. Lado. “Strategic Purchasing, Supply

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supplier base: a case study of a manufacturing firm 1964-2002” Journal of

Customer Behaviour 2.3 (2003): 409-32. Web. March 14 2013.

Dubois, Anna, and Finn Wynstra. “Organising the Purchasing Function as an Interface

between Internal and External Networks” Paper Presented at the 21st

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