It has long been recognized that the purchasing function can play an important strategic role in contributing to the success of a firm. In many cases, however, members of the purchasing function have been too far removed from decisions that affect their ability to perform the purchasing job effectively. The purpose of this article is fourfold. First, it begins with a brief exploration of past literature regarding the involvement of the purchasing function in a variety of decision issues that affect the purchasing function. Second, key purchasing decision issues are presented and clustered into categories. Third, the results of a survey of purchasing executives regarding the current level of the purchasing function's involvement in a variety of decision issues are presented. Finally, based on the study results, the article examines future trends in purchasing decision involvement.
IMPORTANCE OF PURCHASING INVOLVEMENT IN DECISIONS
The past decade has seen an increase in the body of literature that supports the concept that the purchasing function can be an active, vital contributor to the strategic success of a firm if it is informed of and involved in key decision issues.|1~ In particular, purchasing can contribute by playing a key role in the supplier selection process--matching the selection of a supplier with the firm's strategy. Researchers have postulated that given access to information regarding the firm's strategy and involvement in key decision-making issues within the firm, the purchasing function can be an important contributor to the overall strategic success of the firm.|2~
Thus, the purchasing function's involvement in decision making should reflect the important role that purchasing can play in the firm. In particular, the decision-making involvement of the purchasing function should reflect the large number of dollars that purchasing controls in many firms. Further, the involvement of the function in decision making should reflect the potentially significant strategic contribution purchasing can make to the firm's overall success.
However, relatively little work has been undertaken that examines the purchasing function's involvement in decision making. An important study conducted by the Center for Advanced Purchasing Studies|3~ explores the purchasing function's involvement in key decision issues by examining the major areas for which the purchasing function is responsible. The involvement of the purchasing function in key decision issues is also explored to some extent by several other researchers.|4~
Nature of Decision Participation
This research explores in some depth the specific nature of the purchasing function's involvement in decision making on a decision-by-decision basis. There are a variety of ways in which purchasing may become involved in a firm's decision-making process. Purchasing might have responsibility for some aspect of a given decision, responsibility for routine, day-to-day decisions, or complete responsibility for all decision making in a given area.
On the other hand, purchasing could be involved in decision making as a member of a team. Today the team concept is becoming increasingly important in managing a business.|5~ For the purposes of this research, a team includes the use of a committee, task force, or group of people from a variety of functional areas to achieve a common goal. By using work teams that include a number of functions with a variety of skills and knowledge, communication, decision making, understanding, and commitment all improve. The concept supporting team involvement holds that improved interfunctional cooperation and understanding can improve the quality, the speed, and the commitment of decision making. Issues that have broad and strategic implications increasingly are decided at a team level.
Team action typically provides a greater breadth of information for consideration in the decision process. For members of the purchasing function, however, some team decisions may remove the sole responsibility for a decision that previously was handled entirely within the purchasing department. On the other hand, purchasing personnel may also have an opportunity to participate in decisions that previously had been closed to them. For example, the purchasing function's participation on a new product development team could provide early access to new product information. This may allow purchasing an early opportunity to locate and recommend qualified sources of materials for the new product. Such involvement also may raise critical issues of source reliability, cost, and quality that have the potential to create major barriers if not addressed early in the new product development process. Similarly, as part of the team decision-making process, other functions may make valuable contributions in the selection of suppliers as well as in other areas that traditionally have been the sole responsibility of purchasing.
Thus, team decision making should not be viewed as a threat to the purchasing function's decision-making involvement and authority. On the contrary, the team approach represents an excellent opportunity to increase the purchasing function's influence in decision making, as well as its strategic participation and visibility to others in the firm. Inviting the purchasing function to participate in a team-based activity implicitly recognizes the important role purchasing can play in the success of the firm.
The next section of the article details the research methodology. Following a description of the methodology, the research results are presented. First, a classification of 18 key purchasing decisions is provided. Next, the current role and participation of the purchasing function in decision making is explored. Third, the anticipated role of the purchasing function in decision making in 1995 is discussed. The article concludes with a summary of the implications of purchasing's involvement for the role, status, and perception of the purchasing function in the future.
This section of the paper discusses the specifics regarding the survey methodology used to gather the data that support this study.
The study investigated the purchasing function's involvement in the key decision issues that have an impact on tasks the purchasing function performs. The first research question analyzed the relationships among key decision issues by organizing these issues into categories or clusters. Subsequent questions explored the degree of purchasing responsibility today and that expected in 1995. The levels of responsibility were classified as follows:
1. No responsibility: Purchasing is not involved in this activity in any way.
2. Some responsibility: Purchasing has occasional involvement, not ongoing involvement.
3. Routine responsibility: Purchasing is responsible for day-to-day, ongoing issues in this area, but not unusual situations.
4. Total responsibility: Purchasing is responsible for virtually all issues in this area of responsibility, from routine to unusual.
5. Team responsibility: A team, task force, or group of people that includes representation from the purchasing function is responsible for this activity.
Prior research suggests that there should be an increase in the purchasing function's "team responsibility" involvement on key decision issues. Thus, there should be a subsequent shift away from "no responsibility" and "individual responsibility," as identified in the first four levels of responsibility.
The research sample consisted of 600 members of the National Association of Purchasing Management (NAPM) who were randomly selected from the listings of electronic firms in the two-digit SIC code 38. A modified Dillman|6~ method was utilized with respect to the mailing procedure. The questionnaire and cover letter were mailed to the entire sample of 600. Two weeks later a second questionnaire was sent to all 450 nonrespondents. In total, 225 questionnaires were returned, for a 37.5 percent response rate. Of this total, 210 were usable. Of the nonusable responses, 12 firms were not in the electronics industry, and 3 were returned because they were not deliverable to the identified NAPM member. Therefore, the effective response rate was 35.9 percent (210/585). All respondents were either directly involved in the purchasing/materials management function or had detailed knowledge of the function.
The questionnaire included 18 variables that concern key decision issues (tasks) of the purchasing function along with the level of purchasing responsibility experienced today and also that expected in 1995. The survey instrument was based on previous related research.|7~ Colleagues reviewed the questionnaire for construct validity and clarity. The questionnaire was further reviewed by academics and purchasing professionals regarding its clarity, completeness, relevance, and applicability. A pilot test was also undertaken. The final survey instrument was developed based on input from these three sources. This instrument also contained demographic information regarding industry, position title, number of years in purchasing positions, annual sales, and annual purchased goods and services in the respondent's firm.
The average sales figure for responding companies was $403.8 million, with a range of $65 thousand to $12.9 billion. The median sales figure was $50 million. Respondents' sales were divided as follows: industrial 65 percent, consumer 13 percent, and other 22 percent. Purchased goods and services averaged $149.3 million, with a range of $25 thousand to $5.4 billion and a median of $15 million. The number of employees in the responding electronic firms averaged 2,310, with a median of 300 and a range of 10 to 115,000.
The research questions were investigated by utilizing the SAS statistical package. The first research question was addressed through the VARCLUS procedure, while the following question was explored through the use of frequency analysis.
This section of the article provides a breakdown of the cluster categories, followed by an exploration of the current role of the purchasing function in the decision-making process. Finally, the anticipated nature of the purchasing function's involvement in decision making in 1995 is discussed.
Cluster Analysis Results
The SAS VARCLUS procedure using hierarchical clustering of the 18 key decision variables identified three clusters with eigenvalues greater than one. The total variation explained by this three cluster solution was 50.8 percent. The cluster analysis was performed on the degree of purchasing responsibility that exists today because these responses represent the current state of purchasing decision issues--not an anticipated or a future state.
Based on the results of the cluster analysis, the 18 key purchasing decisions have been classified into three categories:
* Internal analysis roles
* Supplier interface and external data gathering roles
* Planning and strategic roles
The responsibilities included in each category are illustrated in Table I; the titles of each cluster category are largely self explanatory. Internal analysis roles deal primarily with decisions that are made within the firm, whereas supplier interface and external data gathering involve people and information that are largely outside the boundaries of the firm. The planning and strategic roles deal with predictions of the future and with long-term purchasing decisions.
CLASSIFICATION OF KEY PURCHASING DECISION ISSUES USING CLUSTER ANALYSIS
Internal Analysis Roles
1. Review Materials Requirements
2. Develop Specifications
3. Analyze Data for Make-or-Buy Decisions
4. Standardize Materials Purchased
5. Determine Inventory Levels of Purchased Items
6. Determine Quality Requirements for Materials
Supplier Interface And External Data Gathering Roles
7. Negotiate Price/Terms
8. Supplier Selection
9. Problem Solve with Supplier
10. Gather Information from Supplier
11. Communicate Specification Changes to Supplier
12. Productivity/Cost Improvements
13. Sourcing Strategy
14. Gather Market Information
Planning And Strategic Roles
15. Price Forecasts
16. Long-Range Plan for Purchasing
17. Determine Purchasing Policy
18. Conduct Value Analysis of Purchased Items
Current Decision Involvement
As expected, participation of the purchasing function in key decision issues varied widely among the firms studied. Table II represents the levels of responsibility experienced today and those expected in 1995 for the 18 key decision issues surveyed. The areas in which greater than 50 percent of the purchasing functions surveyed have "total responsibility" today include:
* (7) Negotiating price/terms (74.8%)
* (17) Determining purchasing policy (68.6%)
* (11) Communicating specification changes to suppliers (52.9%)
* (15) Price forecasts (51.9%)
* (16) Long-range planning for purchasing (52.4%)
These tasks cross into both the categories of Planning and Strategic Roles and the Supplier Interface and External Data Gathering Roles.
With respect to the tasks identified as internal analysis roles, purchasing had total responsibility for decision making ranging from 3.8 percent of the time to 30.5 percent of the time. This finding supports the notion that certain tasks are best performed with the input of other functions, or perhaps by the use of a team approach, rather than being performed as the total responsibility of the purchasing function. In particular, tasks that require internal data gathering and analysis often involve others, as both a source of information and a participant in the decision-making process.
Another interesting finding was that "no responsibility" for the internal analysis roles was unusually high. The no responsibility response ranged from 1.9 percent to 22.4 percent for internal interface roles, with a mean value of 11.8 percent reporting no responsibility. The only other tasks outside of internal analysis roles that scored as high in no responsibility were (14) gathering market information and (16) long-range planning for purchasing, with 11.9 percent and 7.1 percent of those surveyed reporting no responsibility, respectively. The lack of involvement in internal analysis roles and two key strategic activities appears to indicate that the purchasing function's potential contribution in these areas is not currently recognized in some firms.
The highest levels of team involvement are currently experienced in:
* (9) Problem solving with suppliers (37.6%)
* (8) Supplier selection (32.9%)
* (3) Make-or-buy decision analysis (30%)
* (18) Conducting value analysis of purchased items (27.1%)
* (4) Standardizing materials purchased (26.2%)
* (6) Determining quality requirements for materials (24.3%)
* (12) Productivity/cost improvements (23.8%)
It is interesting to note that three of these seven tasks (3, 4, 6) fall into the category of internal analysis roles. Indeed, internal analysis roles experience the highest mean level of team involvement in decision making, at the 22.6 percent TABULAR DATA OMITTED level, compared with 20.8 percent for supplier interface and external data gathering and only 14.2 percent for planning and strategic roles. Thus, when the purchasing function does become involved in team activity today, it is likely that such involvement focuses on traditionally interfunctional issues.
The following paragraphs explore role patterns and changes anticipated by 1995 with respect to purchasing's responsibility for key decision issues.
Decision Involvement in 1995
As indicated by numerous sources and supported by the results of this study, there is expected to be a significant increase in "team responsibility" for the purchasing function during the mid and late 1990s. Study results indicate that by 1995 the expected increase in team responsibility ranges from 39.4 percent to 182.6 percent, with an average increase of 108.6 percent across the 18 key decision issues.
The three largest percentage changes in team responsibility are expected in:
* (17) Determining purchasing policy (182.6%)
* (7) Negotiating price terms (170.9%)
* (14) Gathering market information (150.8%).
The three smallest increases are expected in:
* (9) Problem solving with suppliers (39.4%)
* (8) Supplier selection (66.6%)
* (18) Conducting value analysis of purchased items (73.8%).
It is interesting to note that the only decision issue expected to increase less than 50 percent in team responsibility is (9) problem solving with suppliers. However, at the present time this activity is already a team responsibility in 37.6 percent of firms, higher than any other key decision issue.
Clearly, this study shows that the mean level of team responsibility in decision making by 1995 is expected to increase for all three classifications of decisions. However, the relative ranking remains the same as today, with mean levels of team responsibility in 1995 expected to be 45.8 percent, 39.3 percent, and 29.0 percent for Internal Analysis Roles, Supplier Interface and External Data Gathering Roles, and Planning and Strategic Roles, respectively.
Additionally, six of the key purchasing decisions are expected to increase in total responsibility for decision making by 1995:
* 4.6 percent increase for (15) price forecasts
* 5.3 percent for (5) determining inventory levels of purchased items
* 17.4 percent for (14) gathering market information
* 19.0 percent for (18) conducting value analysis of purchased items
* 23.1 percent for (4) standardizing materials purchased
* 36.5 percent increase for (6) determining quality requirements for materials.
Three of these issues, (5) determining inventory levels of purchased items, (4) standardizing materials purchased, and (6) determining quality requirements for materials, are internal analysis roles. In each of these decision issues, team responsibility in decision making is expected to increase dramatically, from 105.3 percent to 135.1 percent. Hence, the purchasing function appears to be anticipating greater decision-making responsibility by 1995, both in terms of total responsibility and team responsibility.
Furthermore, the results indicate that the expected decrease in nominal responsibility for (6) determining quality requirements for materials, (5) determining inventory levels for purchased items, (14) gathering market information, and (2) developing specifications in most cases is compensated by a corresponding increase in total and team responsibility. Of the 18 issues studied, these 4 decision issues represent some of the largest expected increases in team responsibility by 1995, ranging from 116.9 percent to 149.1 percent. Thus, purchasing's participation will increase dramatically in these decision issues through its involvement in cross-functional team activity.
The implications are that purchasing will be assuming greater responsibility and playing an active role in key decision issues, specifically quality, standardization, value analysis, and those dealing with market analysis and forecasting activities. The dynamic changes in purchasing responsibilities mirror the changing global competitive environment. In addition, the increased participation in decision issues, indicates that in many organizations purchasing will have an opportunity to expand its influence on the development of competitive strategies that affect the firm's overall performance. Thus, it appears that an increasing number of firms are integrating purchasing as an effective contributor to the strategic decision process.
IMPLICATIONS AND CONCLUSIONS
A major competitive strategy found both in management practice and in the literature|8~ details an increasing role for team or project responsibility--with the objective of increasing early supplier involvement in design and development, reducing time-to-market, improving quality, and reducing costs. The results of this study clearly support the notion of an increased emphasis on team responsibility for the purchasing function.
More specifically, the study results show that there is a definite trend toward team responsibility for the 18 key decision issues of the purchasing function in the participating firms. As could be expected, the percentage increases in team responsibility are largest in those areas that historically have been considered exclusive purchasing responsibilities, and are smallest in those areas that have been viewed as joint functions of purchasing and other units of the organization.
However, this does not mean that the purchasing function's responsibilities are being diminished. The purchasing function is becoming increasingly involved in areas in which it previously had little responsibility--for example, specification development. Thus, this study supports the idea that the key decision issues of the purchasing function are increasingly perceived as cross-functional decision issues. Such team participation should foster improved communication, awareness, and integration of the purchasing function with other functional groups in the firm. This, in turn, should increase the visibility and opportunities for the purchasing function to make important contributions to a firm's competitiveness.
This team, or systems, approach complements many of the newer management philosophies, practices, and competitive strategies. The just-in-time (JIT) manufacturing system and philosophy, total quality control (TQC), statistical quality control (SQC), design of experiments (DOE), and early supplier involvement (ESI) all require a team approach to be effectively integrated and implemented as a way of doing business.
While this study specifically explores the purchasing function's involvement in the decision-making process within a firm, purchasing's decision-making impact and potential contributions also extend outside the boundaries of the firm. With the recent surge of interest in early supplier involvement, concurrent engineering, and the utilization of supplier technology, the role of the purchasing function will continue to expand in scope and strategic importance.|9~ Future research into purchasing decision making should explore the involvement of purchasing in decision making with suppliers, in both the buyer's and the seller's firms.
1. Peter Kraljic, "Purchasing Must Become Supply Management," Harvard Business Review, vol. 61, no. 5 (September/October 1983), pp. 109-17; Robert Reck and Brian G. Long, "Purchasing: A Competitive Weapon," Journal of Purchasing and Materials Management, Fall 1988, pp. 2-8; Robert Landeros and Robert M. Monczka, "Cooperative Buyer-Seller Relationships and a Firm's Competitive Posture," Journal of Purchasing and Materials Management, Fall 1989, pp. 9-18; Roy Shapiro, "Toward Effective Supplier Management: International Comparisons" (Harvard University Working Paper, 1985); Robert Spekman, "Strategic Supplier Selection: Understanding Long-Term Buyer Relationships," Business Horizons, July/August 1988, pp. 75-81.
2. Landeros and Monczka, op. cit.; Reck and Long, op. cit.
3. Harold Fearon, Purchasing Organizational Relationships (Tempe, Ariz.: Center for Advanced Purchasing Studies, 1988), pp. 13-16, 29-34.
4. Lisa Ellram, "International Supply Chain Management: Strategic Implications for the Purchasing Function" (Doctoral Dissertation, The Ohio State University, 1990); Landeros and Monczka, op. cit.; Dale Shields, "An Examination of the Importance of Purchase Planning and Decision Management Activities in Industrial Firms" (Doctoral Dissertation, The Ohio State University, 1987).
5. Ellram, op. cit.; Lisa Ellram, "A Managerial Guideline for the Development and Implementation of Purchasing Partnerships," International Journal of Purchasing and Materials Management, vol. 27, no. 2 (Summer 1991), pp. 2-8; Christopher Bartlett and Sumantra Ghosal, "Matrix Management: Not a Structure, A Frame of Mind," Harvard Business Review, vol. 68, no. 4 (July-August 1990), pp. 138-47; Peter Scholtes, The Team Handbook (Madison, Wis.: Joiner Associates, 1988).
6. D.A. Dillman, Mail and Telephone Surveys: The Total Design Method (New York: John Wiley, 1978).
7. Ellram, op cit.; Fearon, op. cit.; Robert Monczka, Phillip L. Carter, and John H. Hoaglund, Purchasing Performance: Measurement and Control (East Lansing, Mich.: Michigan State University Business Studies, 1979), pp. 30-35; John Pearson and Karen Gritzmacher, "Integrating Purchasing into Strategic Management," Long Range Planning, vol. 23, no. 3 (June 1990), pp. 91-99; Shields, op. cit.
8. Joseph Blackburn, Time-Based Competition: The Next Battle Ground in American Manufacturing, The Business One Irwin, APICS Series in Production Management, 1991; Robert Mosbacher, "The Second Industrial Revolution," APICS--The Performance Advantage, vol. 1, no. 1 (July 1991), p. 14; George Stalk, Jr., and Thomas M. Hout, Competing Against Time (New York: The Free Press, 1990).
9. David Burt and WIlliam R. Soukup, "Purchasing's Role in New Product Development," Harvard Business Review, September-October 1985, pp. 90-97; Joel Dreyfuss, "Shaping Up Your Suppliers," Fortune, April 10, 1989, pp. 116-22; Kevin Keller, Otis Port, James Treece, Gail DeGeorge, and Zachary Schiller, "Learning from Japan," Business Week, January 27, 1992, pp. 52-60.
Lisa M. Ellram is Assistant Professor of Purchasing and Logistics Management at Arizona State University. Dr. Ellram received her Ph.D. degree from the Ohio State University. Dr. Ellram's current research interests include international and domestic supply chain management, buyer-seller relationships, and purchasing strategy. She also holds the Certified Purchasing Manager designation.
John N. Pearson is Associate Professor of Purchasing and Logistics Management at Arizona State University. Dr. Pearson holds a Ph.D. degree in business administration from Georgia State University. His current research interests include purchasing strategy, materials management, strategic planning, and entrepreneurial firms.…