Proactive Supply Management: The Management of Risk

Article excerpt

INTRODUCTION

In this area of quickly changing corporate environments, purchasing managers are encouraged to be proactive. Spekman and Hill[1] stated that purchasing managers need to develop a more proactive strategic approach, and Rajagopal and Bernard[2] encouraged a proactive approach to purchasing planning.

Proactive Purchasing

Insight into the meaning of proactive purchasing management is gained from an examination of purchasing textbooks. Leenders and Fearon[3] discuss five major categories of purchasing strategies:

1. Assurance of supply 2. Cost reduction 3. Supply support 4. Environmental change 5. Competitive edge

They also discuss many specific strategic purchasing opportunities which could certainly be considered proactive. Examples include backward vertical integration, outsourcing, establishing supplier quality assurance programs, supplier development, supplier-purchaser data sharing, and risk-sharing with the supplier. Henritz, Farrell, Giunipero, and Kolchin[4] identify several substantial risks that occur when purchasing is not included in the strategic-planning process. These risks include threats to supply assurance, possibility of improper supplier selection, problems with environmental constraints, increased company liability, and uncertainty of supply and lead time. When these perspectives are combined, a view of proactive purchasing begins to emerge. Dobler and Burt[5] provide additional insight about the term "proactive". They contend that the purchasing discipline is moving from a transaction perspective to a supply management orientation. As this transition occurs, two shifts in focus are occurring:

1. From internal processes to value-adding benefits 2. From tactical management to strategic management

Burt[6] highlights the importance of developing integrated systems for design, procurement, quality, inventory management, and production in order to move from a reactive purchasing activity to a proactive procurement system which will add value to the firm's operations. Burt recognizes that "procurement of material and services is a process that cuts across organizational boundaries, and implementation of an integrated procurement system results in proactive procurement, as distinguished from reactive purchasing."[7]

Burt and Pinkerton[8] define proactive procurement management as "the process of professionally and aggressively adding value during the four stages required for effective procurement." The four stages include:

1. Determining what to buy

2. Identifying and developing the appropriate relationship with the supplier

3. Obtaining the lowest total cost associated with purchasing and converting the required material or service

4. Ensuring that the required material or service is received in a timely manner and that future supply will be available[9]

The concept of proactive purchasing management is also addressed by Carr[10] who defines proactive purchasing as purchasing's willingness to take risks and to effectively use current knowledge to make decisions about the future. Carr contends that purchasing proaction includes purchasing foresight and purchasing's willingness to initiate change. Carr's study of purchasing strategy included responses from 739 purchasing managers. The study shows a positive correlation between the level of strategic purchasing and proactive purchasing, but the strength of the correlation is low. In a second analysis, Carr shows a stronger, and statistically significant ([Alpha] [less than] 0.05) relationship between proactive purchasing and management of the supplier market/base.[11] The findings lead to the conclusion that relationships exist between risk, strong pursuit of objectives, early supplier involvement, and careful management, development, and evaluation of suppliers. It is important to note that Carr[12] views risk as integral to proactive purchasing management. …