The Strategic Contribution of Supply

(Original title in French: La contribution stratégique de l’approvisionnement.)

Julien Robineau is one of the two recipients of a $2,000 scholarship awarded by the Canadian Purchasing Research Fund, for a Masters thesis in procurement written in 2005-2006 at HEC Montréal. This abstract is intended for PMAC members. The full version of the Masters thesis is available at HEC Montréal.

Thesis supervisor:

Professor Jean Nollet, Chairholder, Chair in Supply Management

Abstract

“At Last Purchasing is Becoming Strategic” wrote Spekman et al. in 1994. After years of research, this seemed to be the reward that the academic and professional communities had long been waiting for. Finally! Recognition of the strategic importance of supply!

Yet although researchers have published a wide variety of articles about this strategic role and described a great many types of potential strategic contributions, they remain persistently vague about the exact characteristics and scope of the strategic role of supply.

They have also come up with new terms to refer to purchasing in view of its strategic dimension. These days purchasing professionals are no longer buyers, but procurement managers, supply chain managers and so on.

The key question, nonetheless, remains: What exactly is the strategic role of supply and does it really play this role in organizations?

The purpose of our exploratory and descriptive study is to clear up the confusion surrounding the strategic role of supply. We examined articles published between 1975 and 2005, so as to identify the characteristics of the different types of strategic contributions made by supply, in order to settle on a clear and structured definition of itsstrategic role. Armed with this definition, we then attempted to see whether, according to written sources, the different types of strategic contributions made by supply can be considered a reality in organizations.

Our literature review showed us that research on the topic of the strategic role of supply remains mainly conceptual and exploratory. Yet a growing number of authors maintain that supply really does make a strategic contribution within organizations.

Our review also revealed that, overall, the authors’ arguments were in line with the main trends in thinking about organizational strategy. They attempted to show the ways in which supply contributes to strategic planning, and supports competitive advantage, according to Porter’s logic (with a cost focus or a differentiation focus), or the management of core competencies. In recent publications, however, there is a more pragmatic approach, specifying that the contribution of supply depends primarily on an organization’s needs.

From the point of view of supply managers and professionals, our study also provided some useful insight.

First of all, we were able to clearly identify and categorize the different types of strategic contribution made by supply. Even better, we also showed that these different types of contribution have different levels of sophistication: the more sophisticated they are, the greater their impact on competitiveness.

The six types of strategic contribution made by supply that we identified are as follows:

• Profitability: The strategic contribution of supply is to support and enhance profitability.
• Continuity of supply: The contribution of supply is strategic because it allows the organization to operate, by ensuring that it has the raw materials it needs at exactly the right time.
• Support for the organization’s competitive advantage: The strategic contribution of supply lies in supporting the development of the organization’s competitive advantage.
• Defining the organization’s competitive advantage: The contribution of supply is the basis of the organization’s competitive advantage.
• Managing boundaries and core competencies: The strategic contribution of supply lies in protecting and developing the organization’s core competencies (core competencies consist of all the skills in the organization on which its competitive advantage is founded).
• Supply as a core competency: So we now know that supply professionals can draw on a variety of strategic contributions, of varying importance for the organization, to deal with the different challenges faced by organizations.

In connection with this first finding, we also noted that all types of strategic contribution made by supply, with the exception of profitability and continuity of supply, apply only under certain conditions.

For instance, a number of different conditions must first come together to ensure that supply constitutes the basis of the organization’s competitive advantage: the necessary skills by the purchasing teams, for example, and the recognition by managers of the potential of supply.

The key condition, however, and one that is often neglected or overlooked, concerns the fact that supply must first and foremost respond to the organization’s strategic and competitive needs. In other words, the strategic contribution of supply is not an end in itself, but rather a tool to be used by organizations!

This is one of the main insights of our study for managers. For the strategic role of supply to be recognized and exploited, and hence for the status of the profession to improve, supply must suggest solutions adapted to the organization’s needs. The different types of strategic contribution identified offer some possible solutions in this regard.

Among the other conditions that must be present for the different types of strategic contribution to be realized is the structure of the supply function, which must be adapted to the types of strategic contribution desired. It is generally recognized that the supply function is more likely to be recognized and clearly identified as a profession if it is concentrated in a department with clearly defined boundaries and prerogatives. Trends in the structure of the supply function as described by the authors might not be beneficial to its growth as a profession.

Our study’s conclusions show that as the strategic role of supply becomes more sophisticated, the structure of the supply function tends to evolve as follows:

• Once a certain level of sophistication has been reached, the strategic aspect of supply becomes so fundamental for the organization that it takes on a new dimension and involves a comprehensive examination of the organization and its relationship with its environment. It becomes more a question for the organization’s top strategists than for supply experts.
• The tactical aspect, for its part, tends to be managed by multidisciplinary teams, through interventions by non-supply experts. Supply experts, for their part, advise and/or co-ordinate these teams. Taken to its conclusion, this logic leads to the creation of a smaller group of supply experts, with most purchasing operations being handled by teams that focus on the appropriate projects or processes.
• The operational aspect, for its part, is automated and/or delegated.

The end result is a sort of dismemberment of the supply function, thereby compromising its recognition as a profession.

Promoting and defending the strategic role of supply and the status of supply professionals therefore implies a crucial choice: Is it the profession or supply as a discipline that should be recognized as strategic?