THE INFLUENCE OF PURCHASING STRATEGIES ON
MANUFACTURING PERFORMANCE: AN EMPIRICAL STUDY IN
MALAYSIA
P. Thrulogachantar
School of Management
Universiti Sains Malaysia,
11800, Penang,
Malaysia.
Tel: +6046577888
Fax: +604677448
Email: [email protected]
Suhaiza Zailani
School of Management
Universiti Sains Malaysia,
11800, Penang,
Malaysia.
Tel: +6046577888
Fax: +604677448
Email: [email protected]
1
THE INFLUENCE OF PURCHASING STRATEGIES ON
MANUFACTURING PERFORMANCE: AN EMPIRICAL STUDY IN
MALAYSIA
Purpose
This paper analyzes the importance of purchasing strategies contribution on manufacturing
performance realizing purchasing function as key component in organizations.
Design/methodology/approach
A total of 750 questionnaires been distributed via email and resulted with 158 questionnaires
or 21% been returned with complete information used for statistical analysis in order to study
the significant level of the constructed model among manufacturing firms located in major
industrial states at Malaysia.
Findings
The result obtained reveals that purchasing strategies creates significant positive impact on
manufacturing performance which comprises the competitive priorities of the firms in term of
quality, cost, cycle time, new product introduction time line, delivery speed and dependability
and finally customization responsiveness performance.
Research limitations/implications
Manufacturing firms should emphasize on focusing in purchasing strategies mainly effective
negotiation, supplier collaborative relationship and interaction; effective cost management
and supply base management as navigator for their excellence performance in this volatile
market condition.
Practical implications
Purchasing professional need to be strategically align with firms cooperate and business
strategic goal in gaining the knowledge about the company and industry future, obtain the
best product and services, analyzing the cost drivers on effective total cost management by
evaluating the rewards and risk associated in order for manufacturing performance
excellence.
Originality/value Purchasing strategies are vital for manufacturing firms in order to remain competitive and
relevant in the challenging and competitive business environment.
Key words: Purchasing strategies, manufacturing performance and Malaysia
Article Type: Research paper
References: 56 references
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1.0 INTRODUCTION
In current business environment, rapid changes and new avenue on cost control is crucial in
order to strive through global competition. This has driven manufacturing firms to response
to uncertainty more rapidly. Thus, emerging of world class competitors in domestic and
international business required organization to response revamp their processes to fulfill
market needs. Therefore, fundamental goal of organizations corporate and functional level
strategies is the development of sustainable competitive advantage (Hitt, Hoskisson & Ireland,
2007). Thus, shifting exploration from conventional way of thinking to strategic purchasing
as one of the core elements enable organization to equip well in order to wave through
competition (Giunipero, Handfield & Eltantawy, 2006).
Purchasing obtain considerable amount of attention in current uncertainty business
environment as key value adding function to support and sustain firm’s successful
performance (Cousins, 2005). As a result, it is important to adopt the purchasing function into
organization business strategy as every business striving hard to reduce its cost of delivering
most unique products and services to their customers and at meantime to protect the interest
of stake holders (Monczka, Trend & Handfield, 2004). Common understanding of many
researchers on supply chain is that new millennium competition will be center on firms
efficient and effective supply chains (Carter & Ellram, 2003). Purchasing is key support
activity in manufacturing process to create value through purchase of inputs, services and
facilities needed to produce a firm’s product and same time key up the maintenance of
manufacturing facilities.In past 150 years, purchasing function milestones can be divided into
seven golden periods in organizations from 1850’s up to beginning of 21st century (Monczka
et al., 2004). The evolution begins with emerging of purchasing as a separate cooperate
function, continue with development of basic purchasing procedures and ideas, recognition
purchasing function as determining sources of supply, sustaining purchasing role to reduce
overall product cost, revive of material management as solution to material problem inclusive
sourcing, followed by globalization era where its observed the development of supply chain
management and its effect on purchasing structure and behavior (Monczka et al., 2004).
Finally in new millennium, restructure and reformation of purchasing and supply
chain management (SCM) to face new era of challenges in global competition plays an
important role for organizations (Monczka et al., 2004). Thus, this synergizes purchasing
function through supply chain capabilities to come up as one of firm’s core competencies.
Furthermore, this leads organization to achieve manufacturing and business goals with
development of sustainable competitive advantage (Das & Narasimhan, 2000). The pathway
on evolution of purchasing exposed the way of purchasing function reshape from traditional
clerically based function to a strategically focal point in an organization by exchanging
information with top management concerning to attain best products and services through
total cost, value and risk analyzing (Cousins, Lawson & Squire, 2006; Giunipero et al., 2006).
Rajagopal and Bernard (1994) stressed that those who are ignoring and undervaluing
purchasing strategy contribution on its corporate and product strategy been labeled as
committing an error in the aspect of business management. Realizing this, world class
purchasing function has extremely shifted its goal which obtained reorganization as an active
and major contributor, vital for organization competitiveness (Cavinato, 1998).
Now, the role of purchasing not only limited in obtaining the right material, but been
extended in acquisition of product in the right quantities, with right delivery time and place,
from the right source and at the right market place which been encompass as purchasing
function. In addition, on average manufacturing firms expend about 50% of their sales dollar
in the purchase of raw materials, components, supplies and services (Janda & Seshadri, 2001).
This gives purchasing function tremendous potential to increase profits by contributing 50%
saving on every dollar expense. As a result, cost of purchase reduction has bigger impact in
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increasing the profit of an organization compare to other functional activities in an
organization (Arnold & Chapman, 2004). This creates purchasing role a strategic function in
a firm’s growth (Giunipero et al., 2006) and success which enhanced shareholder value (Das
& Narasimbhan, 2000). As cited by Janda and Seshadri, (2001) from Kiser (1976),
purchasing strategies been divided into six areas which focus on negotiation, sourcing,
developing and maintaining good relations with suppliers, developing suppliers, protecting
the cost structure of the company and minimizing costs. Development of these elements in
purchasing strategies creates path for manufacturing excellence performance through
manufacturing priorities with key focus on quality, cost, delivery, and innovation (Das &
Narasimbhan, 2000).
In recent years, various articles have noted the importance and competitive potential
of the purchasing strategies and even envisaged its increased importance in the future as a
strategic weapon. However, few papers theoretically or empirically analyze the contribution
of the purchasing strategies to manufacturing performance. The present study will inter-relate
the contribution of purchasing strategies towards manufacturing performance. As highlighted
by Brookshaw and Terziovski, (1997); Carter and Narasimhan, (1994), purchasing function
contribute significantly in manufacturing performance through interfaced in quality
improvement and innovation in new product development. Furthermore, Das and Narasimhan
(2000) added that purchasing contribute substantial impact on manufacturing quality,
delivery and cost beside research and development on new product introduction and
redesigning. Purchasing focus on business improvement and sustaining involved very
minimal investment as success depends on the professional skills of purchasing personal.
However, most organization give less attention on contribution of supply base management
and purchasing which traditionally viewed as clerical stuff (Giunipero et al., 2006). Therefore
no afford given in bring up alignment between purchasing strategies and cooperate strategy.
There are needs for organization to revisit, formulate and execute effective procurement
strategies in order to overcome challenges in the context of sustaining and developing
manufacturing performance. Focal point on purchasing strategies will provide guided path
for value creation in manufacturing performance. This paper analyzes the importance of
purchasing strategies contribution on manufacturing performance realizing purchasing
function as key component in organizations.
This study covers literature review focusing on theoretical issues and hypotheses
development in the following section. This will follow by analytical framework and research
procedures which illustrate the data and variable used for study together with finding and
interpretation. Implication, limitation of the study, suggestion for future research and
conclusion will be discussed in later part.
2.0 LITERATURE REVIEW
2.1 Purchasing Strategies
A model is suggested base on an organization conceptual approach to follow in strategizing
the purchasing function in addressing the manufacturing performance. Supplier partnership
and interaction, contract agreement, long term strategic factors correlate to core competences,
benchmarking, value chain analysis as well as cost issues been framework as fundamental for
organization purchasing strategies. On of that, other factors are such as delivery reliability,
supplier finance stability and cash position, cost capability, technical capability been essential
in firms buy decision which been translated in strategic position. In the past yields will only
focus on lowest cost position by neglecting the cost hidden factors mainly on quality and
delivery. However, firms are now aware and awake that more information is required from
suppliers before awarding the business.
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In general, purchasing in manufacturing make available raw materials, spare parts for
tools and factory maintenance as well as services for daily operation. Development of
manufacturing sector recognized the importance for firms to engage effective purchasing
strategies. Thus, in order to strive through the competitive and dynamic business environment,
purchasing strategies that focusing on formulating favorable business deal with suppliers
through identification and development of competitive sources for high quality as well as low
cost raw materials and spare parts plus excellent services is essential for world class
manufacturing firms. The present study employs four element of purchasing element which
been initiated by Kiser (1976) and later transformed by Janda and Seshadri (2001). Kiser
(1976) study offer six purchasing strategies such as negotiation, developing and maintaining
good relations with suppliers, sourcing, developing suppliers, protecting the cost structure of
company and minimizing cost (Janda & Seshadri, 2001, p. 294). The present research
adapted Kiser’s model on purchasing strategies into four elements of purchasing strategies.
Purchasing strategies in this study maintain effective negotiation and collaborative supplier
relationships and interaction, while supply base management strategy subsumes the sourcing
and developing suppliers in Kiser’s purchasing strategy. The effective cost management
includes Kiser’s latter two strategies which is protecting the cost structure of company and
minimizing cost. The study believed that the holistic integration of purchasing strategies
proposed by Kiser need to be investigated towards the manufacturing performance especially
in the context of Malaysia.
2.1.1 Effective Negotiation Strategy Hazeldine (2009) quoted “If you want to success in business…you have to learn how to
negotiate”. Firm needs to explore ways to compile resources in gaining bargaining power
with supplier as driver to sustainable competitive advantage. According to Giunipero and
Pearcy (2000), influencing and persuasion, understand business condition and customer focus
are fundamental for negotiation process. Good business relationship with supply chain
partners has been boost through effective negotiation and communication. Ramsay (2004)
stressed that negotiation process is key in managing differences of business relationships
between buyers and suppliers. There are two major approaches in negotiation. One of the
approaches had known as cooperative negotiation which stress on win-win formula between
both parties involve in negotiation process which believed to be value creating. Both parties
in cooperative negotiation assumes that all aspects of their interest been taken care well in
order to maximize their cooperative value and benefit (Ramsay, 2004; Dion & Banting, 1988).
This leads to problem solving through trust and mutual understanding environment
(Alexander, Schul & McCorkle, 1995). Another approach of negotiation called competitive
negotiation which is genuine distributive and adverse towards common understanding.
Emphasize given on individual interest whereby each party attempt to maximize self gain
through aggressive cost competition tactics, enforce time pressure, lack of flexibility and
threatening lost of business in order to gain advantage against the other party.
As examine by Janda and Seshadri (2001), cooperative negotiation cultivate win-win
formula which able to increase supplier loyalty and improve supplier relations as all parties
involved strongly believed, satisfied and agreed with mutual understanding and their common
interest well protected. Covey (2009), a writer for The 7 Habits of Highly Effective People
quoted “Win-win is a belief in the third alternative. It’s not your way or my way; it’s a better
way, a higher way. Win-win is base on paradigm that there is plenty for everybody, that one
person’s success is not achieved at the expense or exclusion of the success of others”. It is
important that both parties understand the goal of the deal and things need to be achieved
through the intended deal in order to create effective negotiation. Effective negotiation will
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create confidence to supplier that long term business opportunity is possible for them in order
to undertake new capital investment (Ashcroft, 2004).
Negotiation is critical element to execute in purchasing strategies that an organization
developed. Negotiation will be used to close the gaps between purchaser and supplier.
Negotiating strategic with tactics need to be developed as a foundation to support purchasing
deal. In cooperative negotiation, buyer-supplier negotiate creates win-win situation in order
to decide the ways to divide and share the extended value pie (Monczka et al., 2004). In this
situation effective negotiation from buyer’s point of view creates value when receiving better
price than a competitor, assistance in developing new technology or product design, shorter
lead time for ordering and delivering. In addition, both parties able work together to reduce
waste and ultimately eliminate the hidden cost in long run. On the other hand, supplier
creates value with additional volume, preferential and promising treatment for future business
and lead to technical assistant from purchaser to reduce the operating cost. Eventually
effective negotiation strategy should lead towards greater manufacturing competitive
priorities.
2.1.2 Collaborative Relationship and Interaction Strategy Building collaborative relationship and interaction with supplier is the key element in
purchasing strategy. Mark (2004) referred supporting element of buyer-supplier collaboration
as cultural element which made of trust, mutuality, information exchange, openness and
communication. There was empirical study done by Golicic and Mentzer (2006) on
examination of relationship magnitude in term of trust, commitment and dependence as
independents variable contribute to relationship value. Relationship value had been
acknowledged as first step of quantifying measurement of relationship outcome. Humphreys,
Shiu and Chan (2001), added that collaborative relationships demand for trust and
commitment for long term cooperation in addition to willingness to share risks. Commitment
and trust been developed through effective communication (Lengnic-Hall, 1998).
Meanwhile, Chandra and Kumar (2001) claimed that trust, commitment and
collaboration between buyer and supplier were becoming more popular in supply chain
relationships because of their ability to reduce fraction and uncertainty. Commitment from
both supplier and buyer been exercised through committing resources to the relationship
which exist through the expense, time and amenities of an organization (Zailani & Rajagopal,
2005). The development of trust, respect and commitment are from openness and honesty
(Whipple & Frankel, 2000). Therefore, successful and effective partnerships between buyer
and supplier observed when committing their resources towards improvement. Buyer able to
establish great network with supplier through collaborative relationship in order to achieve
cost, quality, delivery and time improvements. Bilateral interaction is part of information
sharing which open clear and broad lines of communication. Communication able to sort out
valuable information on timely manner to avoid buyer from left out on progress surrounding
them. Information sharing is essential in order for chain members to share and gather the
information available surround them. Openness and honesty a part of first impression will be
crucial step in creating trust among buyer supplier. Information sharing is not merely
desirable but mandatory to build effective collaborative buyer supplier relationship.
2.1.3 Effective Cost Management Strategy
Janda and Seshadri (2001) noted that every single percentage saving in purchasing cost can
significantly contribute in saving half point in sales. This significant contribution in
purchasing function required focus on total cost management as part of purchasing strategy
influencing manufacturing performance. Zsidisin and Ellram (2001) identified that total cost
of ownership fundamental for strategic cost management. Their research examined cost
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management associate with supplier alliances in three dimensions covers total cost of
ownership, understanding supplier cost and target costing.
Cost management revolution had switch focus from price to Total Cost of Ownership
ensuring that purchasing strategies necessity to manufacturing operation. Total cost of
ownership is essential for buyer in order to analysis and assess the cost factors involved in
acquisition, possession, utilize and subsequently disposition of a product or services (Ellram
& Siferd, 1998) which ultimately leads to firm’s make or buy decision (Zsidisin & Ellram,
2001). Ellram (1995) in his study highlighted that total cost ownership interrelated with
supplier relationship as this involved information sharing on cost driver factors. This will be
the initial point for buyer to identify the gaps that needs aligning in order to achieve the target
cost which eventually will lead to minimize the production cost. Giunipero and Pearcy (2000)
reported that purchasing function is shifting focus from tactical which stress on placing an
order and price saving, to strategic move with more attention given on value added activities
and total cost savings. Thus, as part of cost leadership strategy (Porter, 1980), manufacturing
firm must aligning goals with its core supplier in order to achieve significant cost reduction.
Zsidisin and Ellram (2001) identified specific elements such as working out breakdowns of
supplier cost structures and creates database on estimation of supplier cost structures base on
market and economic environment study able to help buyer in better understanding and
enhance knowledge on supplier costs. Understanding cost structure of key suppliers, supplier
expertise and experience will help buyer to generate new ideas and identify high cost areas
which need more attention.
Target costing development will be part of effective cost management strategy. Target
costing been studied by Ellram (2000) through detail analysis on process step to achieve
overall target costs and working on continuous cost improvement plan. Target cost is the
point organization willing to spend on the purchase of product and services which ultimately
determine the price that market willing to pay and backs out the desired profits (Zsidisin &
Ellram, 2001). As a result, target costing will be focusing on firm’s product which it can
produce and sell at reasonable profit supported with long term competitive advantage against
the competitors’ price. First component in target costing is to understand competitive position
of an organization in order to further boost the overall competitiveness. According to Ellram
(2000) second component of strategic cost management will be focus on cost driver analysis.
Cost drivers described as breakdown of cost element which used to explore cost reduction
opportunity or process improvement. Third component in Ellram (2000) research on target
costing is value chain analysis which influenced by involvement of other members of value
chain. In term of engineering effort, value chain elaborates the important of design the right
products at the right price during the pilot release of product.
2.1.4 Supply Base Management Strategy
One of the key elements in supply base management is determining the optimum number of
supplier by purchasing for continuous improvement. Thus, organization must maintain right
number of suppliers for effective management and continuous development of its supply base.
Monczka et al., (2004) outline that supply base optimization will contribute in cost, quality,
delivery and information sharing improvement between buyer and supplier. Supply base
optimization will be a continuous process which identifies the best suppliers in terms of
number and quality.
Krause has described the supplier development as “any effort by a buying firm to
improve a supplier’s performance and / or capabilities to meet the buying firm’s short term
and / or long term supply needs” (Krause, 1999, p. 206). It is required substantial effort from
purchasing to warrant that supplier development plan been in place to increase supplier
performance and capabilities (Humphreys, Li & Chan, 2004). Thus, size of supply base plays
7
an important role in supplier development process. Dwyer, Schurr and Oh (1987) stressed
that purchasing able to increase committed from supplier via long term orientation with
single source supply. Trent and Monczka (1999) supported that large supply base will
jeopardize the close interaction between buyer and supplier. Therefore, genuine partnership
that an organization develops should be limited due to the factor of cost of development and
maintenance (Zailani & Rajagopal, 2005). Supply base management strategy is essential in
order to develop, improve and maintain its supplier’s performance and competencies to fulfill
manufacturer short and long term supply requirement (Ndubisi, Jantan, Loo & Ayub, 2005).
Vonderembse and Tracey (1999) research finding revealed the existence of significant
relationship between supplier selection criteria and supplier involvement contributing
towards manufacturing performance.
2.2 Manufacturing Performance
Leachman, Pegels, and Shin (2005), studies on manufacturing performance revealed that
most of the researchers evaluating manufacturing performance are sharing common
understanding that need to have multiple performance measurement. Looking back on the
evaluation of performance measurement before 1980s, the performance measurement process
was mainly concentrated with cost accounting approach which consists of financial key
performance indexes such as return on investment (ROI), profit plus earning per share
(Gomes, Yasin & Lisboa, 2006). However, focusing on the financial indicators alone been
exposed to the critics that other non-financial indicator which contribute towards organization
performance been neglected and will only lead to short term thinking.
Therefore, Gomes, et al., (2006) evaluate the revolutionary of the performance
measurement approaches been used by researchers in their attempt to comprehensively
measured the manufacturing performance aspects. Dsouza and Williams, (2000) stressed on
application of problem specific approaches on their research the essential of processes and
tasks flexibility measurement as an answer to address the market volatility and to fulfill the
diverse customer needs. As the focal point of the performance measurement process,
Performance Prism been established on the foundation of multi-dimensional framework by
incorporating the stakeholders contribution and fulfilling their satisfaction level. As a result,
the performance evaluation best described in term of attaining sustainable achievements
without factoring for corresponding resources or efforts pledged which normally
underestimate the true competitive status in the decision making unit. This is because that
outcome of the results might fail to stress the relationship between “good operational
practices and their economic benefits” (Leachman et al., 2005, p.855).
Manufacturing strategies consist of competitive priorities which mainly focus on
quality, cost, delivery, flexibility, innovation and responsiveness. Competitive priorities been
widely used as part of the measurement for manufacturing strategy performance (Zeng, Tam,
& Wan, 2008) most firms used to achieve these goals through engaging with advanced
technologies and manufacturing practices such as worker empowerment, JIT and concurrent
engineering (Snell & Dean, 1992). However, Das and Narasimhan (2000) reported that latest
development in industry comes out with new dimension which divert the focus of
manufacturing strategy towards supply chain capabilities to obtain quality, cost, delivery,
innovation and responsiveness goals. Zailani and Rajagopal (2005) also stressed the
importance in measuring manufacturing performance through evaluating the key competitive
priorities which consist of quality, delivery and flexibility. However, their measurement on
performance focus only given on three elements and neglecting other competitive priorities
element such as cost, innovation and customization responsiveness. Cost and new product
introduction which directly relate towards the innovation and customization responsiveness,
8
important in creating synergy in the manufacturing growth as this will eventually determine
the sales of product produced.
Das and Narasimhan (2000) in their research cited Minahan (1997) study on success
of supplier versatility that Pitney Bowes analyze a group of key suppliers with manufacturing
expertise will be developed by manufacturing performance, future growth and new product
introduction. Therefore, the competition in manufacturing industry might be within the radius
of supply chain competence which consists of purchasing strategy. Vonderembse and Tracey
(1999), measured the manufacturing performance in the aspect of quality, cost of production
and rework, finish goods delivery and in addition consider the inventory level of work in
production goods. In their study, they related supplier selection and involvement tactics
impact and manufacturing performance. As a result, they highlighted that these progress in
supply chain had provided opportunity to purchasing to become a significant influence in
achieving manufacturing and business goals.
2.3 Theoretical Framework and Hypothesis Development
As outlined earlier, the four elements of purchasing strategies used in the framework
(cooperative negotiation, supplier collaborative relationship, cost management and supply
base management) are from six dimensions of purchasing strategies proposed by Kiser (1976).
In his detail research on purchasing strategies, Kiser recommended six purchasing strategies
which consist of “negotiation, sourcing, developing and maintaining good relations with
suppliers, developing suppliers, protecting the cost structure of company and minimizing
costs” (Janda & Seshadri, 2001, p. 294). However, in later research by Janda and Seshadri
(2001), which utilized Kiser’s framework to abstract four purchasing strategies which are
cooperative negotiation, collaborative interaction, supply base and temporal relationship. As
a result, this research outlines three purchasing strategies from Janda and Seshadri (2001) and
one additional strategy on cost management which subsumes Kiser’s last two strategies on
cost. In recent development, cost element plays a significant role on firm’s profitability and
enhances share holder value. Thus, conceptualization of these four dimensions is observed as
the most suitable purchasing strategies dimension for the present study. Based on Figure 1,
the main sets of variables are categorized into independent and dependent variables.
Figure 1: The Theoretical Framework
Effective
Negotiation
Supply Base
Management
Collaborative
Relationship
and
Interaction
Effective
Cost
Management
Manufacturing
Performance
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As mentioned earlier, Janda and Seshadri (2001) stressed that cooperative negotiation
able to build up win-win formula whereby both purchaser and supplier satisfied with the
outcome of the negotiation process and believe their interest in the negotiation process well
protected. This will lead to supplier loyalty enrichment and stimulate supplier relationships.
Therefore, supplier will be more transparent to buyer needs with flexibility to fulfill buyer
requirement, provide excellent quality of products with on time delivery which eventually
leading cost reduction through cutting the waste. As explained cooperative negotiation
strategy will some how support the manufacturing performance which measured through
quality, cost, delivery, flexibility, innovation and responsiveness. As such the hypotheses
proposed are:
H1: Effective negotiation strategy has significant positive impact on manufacturing
performance.
Long run collaborative relationships with key supplier contribute to firm’s financial
performance (Carr & Pearson, 1999). They cited Ford success in forming collaborative
relationships with their supplier enable to boost the competitiveness in market. Collaborative
relationships with supplier are building up with foundation of effective communication on
information sharing, trust, commitment and cooperative. Janda and Seshadri (2001) also
supported that strong integration with supplier able to create cooperation with suppliers in
providing strategic information and technical guidance for product quality improvement, cost
reduction through non-value added activity elimination and effective delivery performance
with supply assurance. Meanwhile, Fynes, Voss, and Burca, (2005) findings revealed that
dynamics of supply chain relationships and manufacturing performance are yield more in
mixed mode. Collaborative relationship and interaction components such as communication,
trust, cooperation and adaptation have significant positive relationship with manufacturing
performance elements such as quality and cost (Fynes et al., 2005). Thus, the following
hypotheses generalize the relationship of collaborative relationships and manufacturing
performance:
H2: Supplier collaborative relationship and interaction has significant positive
impact on manufacturing performance.
Zsidisin and Ellram, (2001) highlighted that target costing, total cost of ownership and
understanding supplier cost are costing tools which able to support firm in overall reducing
manufacturing costs. Buyer will have detail information and understanding of cost
breakdown information provided by supplier through collaborative interaction. Thus, buyer
should be able to form strategic alliance with key suppliers to focus on cost driver factors to
eliminate hidden costs. Tracey and Tan (2001) also supported that strategic management of
supplier able to produce competitive pricing through reduce production cost of supplier,
minimize the rework activity and optimum level of inventory. As such the hypotheses
proposed are:
H3: Effective cost management has significant positive impact on manufacturing
performance.
Supplier selection base on quality, pricing, delivery and performance of product have
significant relationship with four elements of customer satisfaction (product quality, product
variety, delivery service and competitive pricing) and firm performance (Tracey and Tan,
2001). Further Tracey and Tan research also supported that supplier participation during
10
product design and continuous improvement creates significant impact on delivery service
and firm performance. On the other hand, Vonderembse and Tracey (1999) research findings
highlight that supplier selection criteria and supplier involvement as part of supply chain
management strategy are positively correlated with manufacturing performance. Therefore,
two major components in supply base management strategy correlation impact on
manufacturing performance provide evidence on the existence of link between them. As such
the hypotheses proposed are:
H4: Supply base management has significant positive impact on manufacturing
performance.
3.0 METHODOLOGY
The population of the study covers manufacturing firms in five Malaysian industrial states
mainly Penang, Kedah, Perak, Selangor and Johor. It is important to highlight that Malaysia
is one of important and prominent industrialize country in South East Asia which managed to
attract many local from Small Medium Industries (SMI) development as well as foreign
investors from all over the world mainly American, Japanese, European, Singaporean and
Taiwanese. The sampling method used to collect the data is random sampling in order to
avoid bias on the feedback. Sample randomly drawn from the list of Federation of Malaysian
Manufacturers (FMM) website consists of 2,211 companies. Assuming a conservative 15-20
percentage response rate, 750 questionnaires were distributed to the manufacturing firms’
purchasing professional specialization in sourcing and purchasing whose holding most senior
position in company purchasing organization (Das & Narasimhan, 2000).
3.1 Development of Questionnaires
The questionnaires are designed to measure the factors of purchasing strategies influencing
manufacturing performance where the relationship of the affected variables is analyzed. All
questions in the questionnaire are based on the hypotheses generated which align to the unit
of analysis. Sekaran (2003) highlighted that erroneous results may occur if the questions are
not reflecting the unit of analysis which leads off beam conclusions. The questions designed
in a way that the respondents able to understand and answer the questions faster.
The model of questionnaire for purchasing strategies was adapted from Janda and
Seshadri (2001) as it was referring to the four critical variables influencing purchasing
performance through effectiveness and efficiency which eventually leads towards
manufacturing performance. On the other hand, some items measuring Supply Base
Management and Collaborative interaction been adapted from Kannan and Tan (2003); Wu,
Chiag, Wu and Tu (2004). On top of this, there are also some self constructed items which
been added in order to create more comprehensive measurement on the variables. Finally, the
model of questionnaire for manufacturing performance was adapted from Das and
Narasimhan (2000) research as it was referring to purchasing competence and its relationship
with manufacturing performance.
The questionnaires consist of two main sections which are Section A designed to
measure the independent variables and Section B measuring the dependent variables.
Respondent were asked to indicate their perception on purchasing strategies practice in their
organization and their impact on manufacturing performance. Finally Section E, focus on
respondent sex, age range, qualification, position in purchasing organization, and years of
experience in purchasing department. The questions designed with 6-point Likert scale
ranging from strongly disagree (1) to strongly agree (6) for Section B. Meanwhile, Section C
and D 6-point Likert scale from Not at All (1) to Very High (6). The 6-point Likert scale is
used to offset the central tendency bias that may be encountered with Asian respondents
11
(Chen, Lawler & Bae, 2005). A cover letter is enclosed to explain the purpose of the
questionnaire to motivate and encourage respondents to participate. Summary of all items
measured in questionnaire been development from various source as depicted in Table 1.
Table 1: Source of variables items measured in questionnaire
Variables Number
of Items
Source
Effective Negotiations Skills 8 adapted from Janda and Seshadri (2001)
Collaborative Relationship and
Interaction 9
adapted from Janda and Seshadri
(2001); Kannan and Tan (2003); Wu,
Chiag, Wu and Tu (2004);
Effective Cost Management 10 adapted from Janda and Seshadri
(2001); Self contructed;
Supply Base Management 12 adapted from Janda and Seshadri
(2001); Wu, Chiag, Wu and Tu (2004);
Purchasing Strategic
Integration 6 adapted from Benito (2007)
Manufacturing Performance 6 adapted from Das and Narasimhan
(2000)
4.0 ANALYSIS
4.1 Profile of Organization and Respondent
All organization profile, purchasing function classification variables, demographic data and
biographical data of respondent been perfectly tabled from frequency distribution data. The
manufacturing organization profile been summarized in table and been categorized into 11
variables such as area of manufacturing, ownership of the companies, number of employees,
years of establishment, years of the establishment in Malaysia, perception on reputation of
product in market, number of departments, number of suppliers, total purchase outside of
Malaysia, standard payment term and finally the company location in Malaysia. The profiles
are illustrated in Table 2.
Table 2: Summary of Respondents Organization Profile
Variables Categories Frequency Percentage (%)
Electrical and Electronic Products 86 54.4 Area of
Manufacturing Consumer Products (FMCG) 24 15.2
Chemical / Gases Products 23 14.6
Metal Products 2 1.3
Others 23 14.6
Company Ownership American 55 34.8
European 30 19.0
Japanese 45 28.5
Malaysian 14 8.9
Singaporean 5 3.2
Taiwanese 8 5.1
Others 1 .6
Location in Malaysia Penang 72 45.6
12
Kedah 24 15.2
Perak 11 7.0
Selangor 51 32.3
Less than 100 19 12.0 Number of
Employees 100 – 250 22 13.9
251 – 500 48 30.4
501 – 1000 22 13.9
More than 1000 47 29.7
Less than or equal to 5 years 2 1.3
6 – 10 years 20 12.7
Years of
Establishment in
Malaysia 11 – 15 years 66 41.8
More than 15 years 70 44.3
The market leader 5 3.2 Market reputation of
products In top 3 28 17.7
In top 7 29 18.4
In top 10 37 23.4
In top 20 48 30.4
None of these 11 7.0
Less than 3 8 5.1 Number of
departments 3 – 4 9 5.7
5 – 6 57 36.1
7 – 8 66 41.8
More than 8 18 11.4
Number of suppliers Less than 25 35 22.2
25 – 50 21 13.3
51 – 75 17 10.8
76 – 100 14 8.9
More than 100 71 44.9
Less than 20% 18 11.4 Percentage purchase
from outside Malaysia 20% – 40% 13 8.2
41% - 60% 16 10.1
61% - 80% 67 42.4
81% - 100% 44 27.8
More than 90 days 19 12.0 Standard Payment
Term 90 days 41 25.9
60 days 42 26.6
45 days 22 13.9
30 days 18 11.4
Others 16 10.1
*N = 158
13
4.2 Factor Analysis
A factor analyses with principal component method using varimax rotation was applied to all
the variables. The factor analysis was done under the suspicion that there might be
multicollinearity between variables and interrelationship. Factor analysis is performed using
all items used to measure on total of four independent variables effective negotiation,
collaborative supplier relationship and interaction, supply base management and effective
cost management, continue with dependent variable for this research which is manufacturing
performance. In addition, factor analysis is performed on moderating variable which is
purchasing strategic integration. The varimax rotation method is used to determine any
underlying components for each variable.
4.2.1 Factor Analysis on the Independent Variables Factor analysis with varimax rotation was done to validate whether the respondents perceived
the four constructs to be distinct in independent variable. The result as presented in Table 3
showed a four factor loadings with Eigenvalues greater than 1.0 for the independent variables
with total variance explained was 73.07% of the total variance. A closer examination
revealed that for factor 1 the total variance explained was 25.14%, followed by factor 2 it was
20.41%, factor 3 was 14.30% and finally in factor 4 it was 13.21%. KMO measure of the
sampling adequacy was 0.86 indicating sufficient intercorrelations while the Barlett’s Test of
Sphericity was significant (Chi square = 7.5413, p<0.01). In order to obtain this result, items
with less than 0.5 from anti-image result correlation in the diagonal direction is excluded and
factor analysis was performed again to ensure an acceptable level of measure of sampling
adequacy is attained (Hair et al., 2006). The items that been excluded during this process are
supply base management four and effective negotiation 3. In total two items measure the
independent variables been removed during the factor analysis.
Table 3: Rotated Component Matrix for Independent Variables
Factor
Relationship and Interaction (RI) RI CM SBM NG
Feels our supplier as part of the business partner in this relationship
(11) .916 .141 -.079 .066
Present strategic information to suppliers (5) .911 .169 -.152 .197
Involve in extensive formal and informal communication with suppliers
(12) .897 .153 -.147 .189
Treat suppliers as our customers (7) .889 .150 -.068 .080
Retain the same supplier(s) for more than two years (1) .878 .147 -.111 .166
Place orders on current supplier(s) for an item (2) .862 .124 -.129 .156
Involve vendors in product improvement (6) .844 .073 -.133 .167
Extend current contract(s) with suppliers (3) .837 .106 -.009 .077
Knows the strength and weakness of our supplier (9) .826 .036 -.160 .117
Let vendor access our technical and managerial know-how (4) .812 .055 -.158 .134
Supplier willing to share confidential information (8) .802 .120 -.015 .082
Perceives that our supplier is perfectly honest and truthful (10) .749 .213 -.141 .087
Cost Management (CM)
Reduce inventory level by engaging supplier with JIT, VMI &
Consignment (7) .172 .947 -.037 .099
Make or buy decision through cost measurement (10) .172 .945 .000 .099
14
Monitor poor deliver performance by suppliers (8) .145 .918 -.058 .105
Provide target costing for suppliers to be meet (3) .167 .894 -.036 .083
Request suppliers to provide the cost breakdown to analyze the cost
drivers (4) .094 .884 -.015 .139
Control internally on Order processing costs (2) .122 .817 -.055 .173
Minimize the storage and transportation cost (5) .106 .795 -.037 .108
Monitor poor quality performance by suppliers (9) .055 .748 .272 -.077
Measurement on Supplier’s ability to eliminate waste as cost reduction
(6) .121 .723 -.143 .072
Control of suppliers’ on price increases (1) .110 .720 .193 .044
Supply Base Management (SBM)
Involve suppliers’ on the new product development (7) -.150 .045 .899 .109
Devote time to improve suppliers’ productivity (9) -.146 .011 .889 .077
Prefer to purchase from single source (2) -.119 -.018 .808 -.007
Provide training support to suppliers’ as part of supplier development
(6) -.128 -.025 .786 .010
Select qualified suppliers through standard supplier selection process
(8) -.106 -.077 .784 -.026
Avoid supplier dependence (5) -.107 -.058 .730 .073
Deal many suppliers for the item (1) -.126 .050 .707 .046
Purchase items from many suppliers in one location (3) -.019 .093 .655 .067
Negotiation(NG)
Seek for win-win outcome (5) .147 .183 .108 .902
Spend longer time on negotiation process (8) .176 .154 .083 .846
Reach mutual agreement on discussed issue (6) .089 .011 .048 .809
Require bidders to provide cost data (4) .303 .167 .023 .779
Powerful enough to ask supplier to readjust their pricing strategy (7) .155 .310 .083 .773
Solicits ideas and suggestions (2) .323 .119 .056 .767
Explore supplier oriented solutions (1) .036 -.083 .001 .744
Eigenvalues 12.464 6.521 4.827 3.226
Total Variance (73.07%) 25.144 20.414 14.304 13.212
KMO 0.86
Approximate Chi-Square 7.5413**
Notes: **p<0.01
4.2.2 Factor Analysis on the Dependent Variable A total of 6 items were used to measure the dependent variable which is manufacturing
performance. Principal component analysis was used and all items measured were extracted
into one factor with eigenvalue 4.515 more than 1 and total variance explained was 75.25%
as shown in Table 4. All the anti-image correlation metric displayed a value greater than 0.50.
There was no rotation as there was only one component extracted. The KMO measure of the
sampling adequacy was 0.84 indicating sufficient intercorrelations while the Bartlett’s Test of
Sphericity was significant (Chi square = 1.0233, p<0.01).
15
Table 4: Rotated Component Matrix for Dependent Variables
Loading
The extent to which the company has been able to meet its cost reduction goals (1) .925
The extent to which the company has been able to meet its product introduction time goals
(4) .916
The extent to which the company has been able to meet its delivery goals in term of
delivery speed and dependability (5) .899
The extent to which the company has been able to meet its quality improvement goals (2) .898
The extent to which the company has been able to meet its customization responsiveness
goals (6) .896
The extent to which the company has been able to meet its manufacturing cycle time
reduction goals (3) .635
Eigenvalues 4.515
Total Variance 75.25%
KMO 0.843
Approximate Chi-Square 1.0233**
Notes: **p<0.01
4.3 Reliability Analysis
The inter-item consistency reliability or the Cronbach’s Alpha reliability coefficients of the
independent, moderating and dependent variables were obtained. The range between 0 and 1
for Cronbach Alpha coefficients is reflecting the reliability of the data. A Cronbach Alpha
coefficient is acceptable, if the value higher than 0.70 (Nunnally & Bernstein, 1994). On the
other hand, Sekaran (2003) stated that a level of 0.60 is still acceptable. However, the values
obtained for all the six variables were above 0.70 meets the standard requirement which is
considered very reliable. The highest reliability scored by Collaborative Supplier
Relationship at 0.97 Cronbach Alpha Value, while Supply Base Management scored the
lowest reliability value at 0.92. In general, the reliability of all the variables in this study
indicates to ensures consistent measurement on respondent answers to all items in measure
that indicates stability and consistency of the model development (refer Table 5). As a result,
due to the fact that all the respondents in this study are holding senior staff position in
purchasing organization and well experience in this field with around 90% respondents
experience more than 5 years provide consistency and stability in respondent answers.
Table 5: Reliability coefficients for the major variables Variables number of item Item dropped Cronbach’s
Alpha Value
Effective Negotiation 8 1 0.93
Supply Base Management 9 1 0.92
Collaborative Supplier Relationship
and Interaction
12 - 0.97
Effective Cost Management 10 - 0.96
Manufacturing Performance 6 - 0.93
16
4.4 Descriptive Statistics
The dependent and independent variable were measured based on a six-point Likert scale.
The mean and standard deviation of all the variables were summarized in Table 6. From the
descriptive analysis results, it shown that mean of all six variables are rather higher than
medium whereby all variables recorded mean range between 4.21 to 5.25. The highest mean
been recorded at 5.25 by Supply Base Management as independent variable, meanwhile
Collaborative Supplier Relationship and Interaction recorded lowest mean which is 4.21. On
the other hand, in term dispersion Collaborative Supplier Relationship and Interaction having
the widest dispersion with standard deviation of 0.94 and Overall the standard deviation
having range between 0.44 to 0.94 two of the independent variables (Supply Base
Management and Effective Cost Management) having same level standard deviation of 0.59.
Table 6: Descriptive Analysis of Study Variables
Variables Mean Std. Deviation
Independent Variables
Effective Negotiation 4.7342 .82049
Supply Base Management 5.2041 .59796
Collaborative Supplier Relationship and Interaction 4.1403 .93769
Effective Cost Management 4.9563 .66624
Dependent Variable
Manufacturing Performance 4.7521 .80991
Notes: Independent items used a 6-point Likert scale with (1 = Strongly Disagree and 6 = Strongly Agree), and
dependent variables used 6-point Likert scale as well with (1 = Not At All and 6 = Very High)
4.5 Regression Analysis
Table 7 presents the result of regression analysis for Factor Influencing the Manufacturing
Performance. The model is significant (F=21.212; p<0.001) and can explained 36.3 percent
variants. Even so, the hypothesis testing shows Effective Negotiation (β =0.324, p<0.001),
Supply Base Management (β = 0.263, p, <0.001), Collaborative Supplier Relationship (β =
0.183, p, <0.05), and Effective Cost Management (β =0.236, p<0.001) were positively
correlated with Manufacturing Performance. Based on this results can be concluded that the
hypotheses H1, H2, H3 and H4 were supported.
Table 7: Regression Analysis for Factor Influencing the Manufacturing Performance Predictor variable t-value Standardized Coefficients
Beta
Effective Negotiation (X1) 4.485 .324***
Supply Base Management (X2) 3.828 .263***
Collaborative Supplier Relationship and
Interaction (X3) 2.433 .183*
Effective Cost Management (X4) 3.407 .236***
F 21.212***
R² .363
Adjusted R² .346
F² Change 21.212***
R² Change .363
Note: * p value < 0.05; ** p value < 0.01; *** p value < 0.001
17
The result proved that all the independent variables (Effective Negotiation Strategy,
Collaborative Supplier Relationship and Interaction, Supply Base Management and Effective
Cost Management) have significant positive impact on manufacturing performance among
the manufacturing firms in Malaysia.
5.0 DISCUSSIONS
The test results of hypothesis as obtained from empirical output in previous section highlights
that all four independent variables of purchasing strategies have significant positive impact
influencing the manufacturing performance of an organization. The result obtained reveals
that purchasing strategies creates significant positive impact on manufacturing performance
which comprises the competitive priorities of the firms in term of quality, cost, cycle time,
new product introduction time line, delivery speed and dependability and finally
customization responsiveness performance. All these independent variables are also strongly
supported in the study by Janda and Seshadari (2001) against the impact towards effective
and efficient purchasing performance. Das and Narasimhan (2000) study’s empirical result
also revealed that buyer supplier relationship development as part of purchasing competence
has significant positive relationship with manufacturing performance.
First hypothesis result, on the impact of effective negotiation strategy has strong
significant positive impact on manufacturing performance. This been one of the main criteria
influencing the manufacturing performance competitive priorities which impact on both
internal and external performance goals. Internal performance goals comprise the elements of
cost, quality and delivery, while the external performance goals focusing on new product
introduction time and customization responsiveness (Das & Narasimhan, 2000). Guinipero
and Pearcy (2000) also supported that effective negotiation skills factors content of key skills
in term of influencing and persuasion, understanding business condition and surrounding
environment, plus with ultimate focus on customer satisfaction fulfillment in order to meet
the business requirement.
Staff in purchasing organization required to develop the negotiation skill sets in order
to be dynamic and interactive nature of purchasing function on their role as boundary spanner
(Guinipero & Pearcy, 2000). Experience of the purchasing personal plays an important role in
creating positive impact on the manufacturing performance. Purchasing staff experience in
negotiation with external business partners and internally within the organization will pursue
for mutual understanding and creates win win situation results in order to achieve the
manufacturing competitive priorities goals in term of cost, quality, delivery speed and
flexibility. Around 90% of the respondent has more than 5 years experience in purchasing
organization which comprises their negotiation skills as well.
Effective negotiation skills will expand all possible option by exploring the supplier
oriented solution while solicit ideas and suggestions from suppliers in order to achieve the
desire goals of manufacturing performance for continuous cost improvement with high
quality raw material, creating flexibility approach with short delivery time and lower
minimum order quantity (MOQ). Janda and Seshadari (2001) findings supported as well that
negotiation strategy in purchasing function using cooperative approach able to maintain the
competitive advantage through purchasing efficiency in obtaining best deal with supplier
which will be beneficial in sustaining and improving the manufacturing performance. In
general committed parties will seek for win win situation and actively search for mutual
agreement that best meets both parties’ interest.
The second independent variable which was influencing the manufacturing
performance is supplier collaborative relationship and interaction. The hypothesis is
supported whereby supplier collaborative relationship and interaction creates significant
positive impact on manufacturing performance. Contemporary purchasing organization in
18
manufacturing firms requires supply chain interaction both externally with supplier and
customers and internally with other departments within the organization (Guinipero & Pearcy,
2000). Giunipero et al. (2006) findings revealed the importance of strategic relationship
management with suppliers. In this fast moving world, customer requirement are advancing
in triple pace. Everyday there will changes in term of demand to fulfill the end user
requirement which required more flexibility and easy adaption method to run parallel in
meeting customer requirement. Thus, we need a matured purchasing function that able to
accommodate with greater customization in product and service presenting. Moving forward,
building the capability to customize will be the key component in value added service
provided by purchasing function.
As a result, fundamental relationship element in developing long term relationship
and maintaining those relationships will be core in creating value added which help to acquire
the rewards of mutual risks and reward sharing in buyer supplier relationship. In searching
for advance technology with latest design which able to minimize the waste as well produces
superb quality of raw material and spares for machine and factory maintenance will be
essential in driving the manufacturing performance towards exceeding the customer
expectation. Strong supplier collaborative relationship and interaction will create feel that
supplier is our business partners. Information sharing through cooperative communication is
essential in build trust whereby all information on the strength and weakness of our supplier
is available in order for buying firms to provide technical assistance for improvement and
advancement in new technology (Kannan & Tan, 2003). On the other hand, firms even able
to get the assistance from supplier in order to find solution in improving on their
manufacturing process and products with the existence of strategic relationship with supplier.
The third independent variable which is effective cost management strategic been
found with strong positive influence on manufacturing performance. Giunipero et al. (2006)
revealed the findings that strategic cost control is key business driver for purchasing.
Purchasing function holding essential task in sourcing the raw material, spares for machine
and factory maintenance plus with services for their daily operation at cost that provide the
manufacturing firm with advantages in pricing, time and delivery. Total cost management in
manufacturing plays an important role in driving the competitiveness of firms’ product in
market. In total cost management, price only employs a portion and the rest of the cost
including quality, delivery, flexibility, service and other value added elements.
Therefore, purchasing need to align strategically in controlling the total cost from
suppliers. Cost breakdown analysis in identifying and understanding the cost drivers’ factors
is essential in controlling the overall manufacturing cost. Effective cost management able to
increase firms’ investment capability in exploring new product introduction and
customization while creating flexibility to customer been fundamental in building core
competence of the firm. Therefore, purchasing function need to align with supplier in
measuring the supplier capability and afford to eliminate waste as part of the cost reduction
elements. Purchasing must be creative and innovative in handling cost drivers such as
reducing inventory and cash out by engaging supplier to various inventory management
programs such as vendor managed inventory (VMI), just in time (JIT) and consignment.
The last independent variable is Supply Base Management strategic which also
resulted in positive significant impact on manufacturing performance as dependent variable.
Basically, supply base management focusing on the size of the supply base required for a
firm in driving the manufacturing performance. Size of supply base has been critical element
in determining the supplier selection and management strategies. Janda and Seshadri (2001)
findings highlighted that size of supplier base is negatively related with performance
efficiency. Supply base management need to ensure the right suppliers who have sufficient
resources in supporting manufacturer to be flexible in meeting customer expectation. Ndubisi
19
et al. (2005) empirical finding supported that manufacturer who focuses on product and new
introduction launch tends to select supplier based on technology in comparison to quality,
cost and delivery performance. Lee (2002) revealed that supply chain strategies derived from
one size model fits all or try all method will fail. Therefore, different manufacturer has
different ways in managing their supply base on the needs of the industry priorities.
Neglecting the supply base management especially in vendor selection process can
better describe in term of ‘gabbage in-gabbage out’ (GIGO) slogan been widely used to
illustrate the situation whereby poor supply base management as input will be resulting in
poor quality output (Ndubisi et al., 2005). This will definitely creates huge impact on the
manufacturing performance. As a result, focal point of supply base management strategy will
be on driving suppliers for continuous improvement plan, involving suppliers on new product
development, flexibility in term of speed decision making patterns, understand and
recognized the customer requirement will assist firm in achieving excellence manufacturing
performance.
5.1 Conclusions
The result from this study demonstrates the influence of purchasing strategies on
manufacturing performance. The result from this research also consists of the strategic value
of purchasing department and purchasing professional whom align the purchasing strategies
towards manufacturing performance. Traditional role of buyer who fill out purchase order,
send out request for quotation (RFQ) and possessing paper work must be eliminated in the
view of changing purchasing function into strategic approach. Purchasing professional need
to be strategically align with firms cooperate and business strategic goal in gaining the
knowledge about the company and industry future, obtain the best product and services,
analyzing the cost drivers on effective total cost management by evaluating the rewards and
risk associated in order for manufacturing performance excellence. Manufacturer able to
managed to obtain optimal inventory levels and production capacity in multiplant operation
such as MNCs’ which can maximize the use of working capital (Ndubisi et al., 2005). In
addition, building value added relationship both with external partners and internal units will
be the influential for all strategic relationship goals. Cooperative communication, confidential
information sharing and commitment in meeting firms request able to address the ability of
the supplier to be a reliable partner.
One of the approach in cost reduction activities is the supplier forum to discuss on
benchmarking elements, improve productivity, labor cost reduction, innovative logistic and
transportation plan, creative management of key material, efficient packaging technique and
recycle of usable material (Giunipero et al., 2006). Driving towards the competitive
environment and uncertainty in demand, purchasing function been acknowledged as
important resource in identifying right suppliers who have direct and large impact on quality,
cost, innovation, customization, delivery and flexibility subsumes the manufacturing
performance competitive priorities. On the other hand early supplier involvement in new
products development in addition with product design knowledge, understanding of clear
quality standard and technology acquiring roadmap will equipped manufacturer to be ready to
face any challenge of uncertainty in its supply chain. There should be higher attention from
top management to drill out greater competitive advantage from purchasing function.
Therefore, integrating purchasing function into strategic planning process which is align with
mainstream of business strategy is essential for further development and utilization of
purchasing function. In this case, higher importance of purchasing will be expedite to pull
purchasing function into mainstream instead of functional support which will possible to
facilitate the strategic integration of purchasing function into strategic manufacturing
objective.
20
A few limitations are identified and acknowledged while conducting the results,
although the research is consider successful in meeting the objectives. Firstly, the limitation
in this research is the uneven respondent from each category of industry responded to the
questionnaire. The respondent for this research mainly dominated from Electric and
Electronic Industry category which consist of 54% of the respondent. The sample size also
limited. Thus, this may not represent the actual scenario of purchasing strategies in
manufacturing firms influence the manufacturing performance. For future research on the
topic of this study, it would be most beneficial to examine the influence of purchasing
strategies on manufacturing performance for specific industrial cluster. As explained by Lee
(2002) supply chain strategies derived from one size model in general manufacturing industry
will not fit well to construct a model which generally acceptable. Thus, in order to understand
well the characteristic of specific industry purchasing strategies and its impact on
performance need to be carried out in order to identify the differences in purchasing function
strategies between the industrial clusters.
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