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SCRC Article Library: Strategic Purchasing: The Nature of Strategic Purchasing - Part 3

Strategic Purchasing: The Nature of Strategic Purchasing - Part 3

Published on: Oct, 28, 2005

by: Rob Handfield (SCRC), Paul Cousins, Benn Lawson, and Ken Petersen

PART 1: Introducing New Research on Relational Rents
PART 2: Strategic Purchasing and Supply Management Practices
PART 3: The Nature of Strategic Purchasing
PART 4: Supplier Relationship Performance Outcomes
PART 5: Lessons for Purchasing Managers

Figure 1 models the ramifications of adopting a strategic purchasing approach for a firm’s supply management practices. It illustrates how relationships between buyer and supplier must evolve in order to enjoy the benefits of a collaborative partnership. Each link in the model will be discussed in turn.

Long-term
Strategic purchasing requires a proactive long-term approach to supplier relationship management. The formation of closer, cooperative links with key suppliers requires increased boundary-spanning activities which link buyer and supplier at different levels within each organization. Buyer and supplier are brought together through formal structures that communicate expectations and share knowledge. Specific structural formats for engagement include; cross-functional teams, co-location, regularly scheduled meetings and conferences, and matrix style reporting structures. Thus, as a firm adopts strategic purchasing, there is an increased need for socialization processes which facilitate communication and coordination with key suppliers.

Coordinated
Strategic purchasing requires significant levels of cooperation between buyer and supplier. Developing close relationships with suppliers necessitates commitment of relational assets, both human and physical. A long-term perspective between the buyer and supplier increases the intensity of buyer–supplier coordination. The long-term perspective and cooperative approach to supplier management also influences the willingness of the supplier to make specific asset investments in the relationship. Integration with suppliers is also a means of safeguarding investments specific to the relationship. These relation-specific assets may then be leveraged for competitive advantage – the key aim of strategic purchasing. Thus, as a firm adopts a strategic purchasing orientation, and aims to form closer relationships with suppliers, operational integration will be an important avenue to achieve this aim.

Responsive
A further objective of strategic purchasing is to specify the types of relationships that a firm wishes to form with its supply base. The trend in recent years has been for companies to reduce the number of suppliers they work with through an approach known as supplier tiers. Key suppliers operate on the first tier of a supplier network, assuming responsibility for a host of sub-suppliers. The key first tier suppliers become the focus of intensive collaboration, where the buyer and supplier align their various organisational systems to enable very close interaction. Through this exchange the needs of the buyer firm are communicated and attention is focused on the flexibility of the entire supply base in meeting those needs. Thus, the adoption of a strategic purchasing orientation enables greater alignment between the requirements of the firm and the responsiveness characteristics of its supply network.

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