Introduction - pure.southwales.ac.uk€¦ · Web viewThis is the peer reviewed version of the...
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This is the peer reviewed version of the following article: White, G. R.T., Parfitt, S., Lee, C. and Mason-Jones, R. (2016), Challenges to the Development of Strategic Procurement: A Meta-Analysis of Organizations in the Public and Private Sectors. Strategic Change, 25: 285–298, which has been published in final form at DOI 10.1002/jsc.2061. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
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Challenges to the Development of Strategic Procurement: a meta-analysis of organisations in the public and private sectors1
Gareth R.T. White, Scott Parfitt, Chris Lee and Rachel Mason-Jones, University of South Wales, UK
Main MessageEnabling the development of strategic procurement has been long recognised as contributing to an effective organisation however companies in both the public and private sector still seem to find it challenging and there appears to be a systemic Cycle of Impotence.
Key PointsThe training and development of Procurement staff in the public and private sector needs careful consideration.
Non-Procurement staff and management need better awareness of the strategic benefits that Procurement is capable of delivering.
The usefulness of the models of strategic procurement is an area that requires further research.
IntroductionProcurement has evolved considerably since its recognition as a primarily
manufacturing sector discipline in the mid twentieth sector (Tassabehji and
Moorhouse, 2008; Reynolds and Thompson, 2008; Porter, 1985; Ammer, 1974).
Originally defined as simply involving the acquisition of goods and services
(Compton and Jessop, 1995) it underwent the greatest change during the 1980’s and
1990’s due to rising cost pressures in an increasingly global market (Rozemeijer,
2008; Ellegaard and Ritter, 2006; Ellram and Carr, 1994; Porter, 1985). It is now
widely recognised as a strategically significant function that is capable of driving and
delivering competitive advantage (Ubeda et al, 2015; O’Brien, 2010; Lysons and
Farrington, 2006; Paulraj et al, 2006; Mol, 2003; Ellram and Liu, 2002; Hendricks
and Singhal, 2002; Humphreys, 2001; Spekman et al, 1999; Tan, Kannan and
Handfield, 1998; Carter and Narasimhan, 1996; Landeros and Monczka, 1989; Syson,
1989).
1 L14
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Procurement has clearly demonstrated its rise to strategic importance (Tassabehji and
Moorhouse, 2008; Carr and Smeltzer, 1997; Ellram and Carr, 1994; Burt and Doyle
1993; Novak and Simco, 1991). Yen and Yen (2012) for example highlight the
importance of top management support in driving purchasing initiatives. However it is
extraordinary to discover that many organisations still view it as an administrative,
passive and reactive function (Gonzalez-Benito 2007; Kaufmann and Carter, 2004;
Hirsch and Barbalho 2001). Narasimhan and Das (2001) recognise that in practice
some organisations have struggled to realise the value that procurement can deliver.
Despite the increasing recognition of the need to develop a strategic approach to
procurement academic focus has been largely based on studies of the private sector
(Deasy et al, 2014; Murray, 2001). Public services procurement forms a considerable
proportion of overall government spend, comprising for example 17% of the
European Union’s GDP (€1900 billion) in 2006 (European Commission, 2008) and
public sector procurement has been a subject of debate among European leaders for
many years (Cabras, 2011). The UK government spends around £240 billion per
annum on the procurement of goods and services (Maude, 2012). Consequently,
developing an effective and strategic procurement function is increasingly becoming a
priority for managers who recognise that it has a definitive role in the ultimate success
of the public sector (McClelland, 2012; Green, 2010; Matthews, 2005; Gershon,
2004).
This paper aims to identify the challenges that surround the development of strategic
procurement practices. It undertakes an investigation in both the public and private
sectors thereby contributing to a hitherto under-researched area of supply chain
management in the public sector. Comparisons of public and private sector
procurement practices are made implicitly within the literature, this study provides an
explicit examination. The paper arrives at the realisation that the development of
strategic procurement is ensnared in a Cycle of Impotence (CoI) whereby the
procurement function is neither empowered nor compelled to develop its strategic
capabilities and contributions
The next section of the paper examines the literature around strategic procurement
development, the challenges that it presents and the summary differences between
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public and private sectors. Following this, the research methodology is discussed and
then the analyses of the primary data are presented. Finally, the key findings of the
study are discussed before concluding remarks and suggestions for future research are
made.
Developing Strategic ProcurementThe trend to outsource business functions and services is one factor that has
contributed to procurement becoming more important to organisations (Zheng et al,
2007; Guinipero, 2000; Mol, 2003). During the last decade, outsourcing has become
one of the major issues in many sectors of commerce (Cigolini et al, 2011). Many
companies have focussed upon their core capabilities in order to develop their
competitive advantages and have outsourced their extraneous activities. According to
Pouder et al, (2011) 82% of large and medium sized firms now outsource. Over time,
the reasons for outsourcing appear to have shifted, from being predominantly cost-
related, to enabling the organisation to focus upon its core competencies and, lately, to
access complementary specialist expertise (Davis et al, 2015; Dekkers, 2011;
Klingberg and Boksma, 2010; Bengtsson and Dabhilkar, 2009; Lacey and Blumberg,
2005; Elmutti et al, 1998). This trend has led to organisations becoming increasingly
reliant upon their suppliers (Axelsson et al, 2005). It also means that organisations are
dependent upon their purchasing function, not just for sourcing and maintaining
supply, but also for identifying and utilising innovations that arise from within the
upstream and downstream supply chain (Mouzas and Ford, 2012; O’Brien, 2009;
Accenture, 2009).
A plethora of frameworks and models exist that outline the steps toward developing
procurement as a strategic function (outlined in Figure 1) (Beukers et al, 2006;
Cousins et al, 2006; Van Weele, 2005; Jones, 1997; Barry et al, 1996; Stannack and
Jones, 1996; Burt and Doyle, 1993; Cammish and Keough, 1991; Freeman and
Cavinato, 1990; Bhote, 1989; Syson, 1989; Reck and Long, 1988). Part of the reason
for the existence of so many models is due to the constantly changing nature of
procurement activities and responsibilities within organisations (Van Weele et al,
1998). As the function develops and its roles and responsibilities change and expand
so the models are enhanced.
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Mol (2003) offers words of caution in reference to the relevance and over-use of
procurement models and frameworks and explains that they are easy for managers to
apply but they need to be applied appropriately. Ubeda et al (2015) point out that the
models do not specify the techniques that organisations could, or should, use in order
to develop their maturity level. Rozemeijer (2008) claims that many of the
procurement development models are unhelpful or are used inappropriately because
they do not consider operational factors. Furthermore, the models infer that the
ultimate goal for an organisation is the development of fully strategic procurement
practices. In practice however, asymmetric procurement practices have been found to
be not only effective, but also appropriate, depending upon the nature of the materials
being procured (Deasy et al, 2014).
Figure 1, Overview of Models of Strategic Procurement
Challenges to Strategic Procurement
The development of procurement as a strategic enabler is a significant undertaking for
any organisation (Greve and Mitsuhashi; 2007; Cox and Lamming, 1997; Cammish
and Keough, 1991). It is more complicated than merely following the path identified
by one of the models: these should perhaps be viewed as descriptions of strategic
procurement practice rather than prescriptions for its attainment.
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Mintzberg et al (1998) emphasise a critical issue in the development of organisational
strategy: if the business and functional strategies are not in alignment then the
organisation is at risk of failing to achieve its long-term goals (Freeman and Cavinato,
1990). Strategic misalignment eventually results in lower profit margins (Saunders,
1997), reduction in market share (Johnson and Scholes, 2002) and missed
opportunities that are often seized by competitors (Baily et al, 2008). The
development of Category Management (CM) as a strategic method of procurement for
example, presents significant challenges to organisations and their personnel.
CM is a radical transformation of the established view of procurement, expanding its
responsibilities from demand-side cost control, to include responsibility for supply-
side cost control (O’Brien, 2009; Heikkila and Kaipia, 2009). Consequently CM
challenges the established structure of an organisation and requires procurement staff
to expand their skills to include activities such as market research and analysis,
managing projects and change, as well as being able to recognise and foster
innovative practice. The difficulties that CM presents are considered by many to be
worth enduring as CM has been shown to be capable of delivering tens of millions of
pounds worth of savings within two to three years of implementation (CIPS, 2012).
One of the biggest challenges that the procurement function continues to face, despite
its widely reported benefits, is the general lack of awareness of the advantages that it
can provide to an organisation (Tassabehji and Moorhouse, 2008; Van Weele and
Rietveld, 1996; Reck and Long, 1998). The efficacy of strategic procurement is
heavily reliant upon its formal position within the organisation (Cannon, 2005),
particularly at Board level (Cousins et al, 2006), and has also been battling for
acceptance and recognition among functional peers (Cox, 1996). This appears to be a
particularly problematic issue for smaller, resource-scarce organisations (Quayle,
1998; Spekman, 1994). Procurement professionals can also be hindered by a lack of
appropriate skills and knowledge to enable them to address the problems and
opportunities that arise in a strategically important business function (Tassebehji and
Moorhouse, 2008).
Public and Private Sector Procurement
Both the public and private sectors have an important role in supporting the economic
environment in which they operate (Hoctor and Keating, 2009). Procurement in both
public and private sectors is concerned with the purchase of materials to enable them
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to undertake their primary functions (Cabras, 2011; Uyarra and Flanagan, 2010).
Some perceive that procurement has a much more strategic role within public sector
organisations since there are increasingly complex product choices, increased use of
technology, increased consideration of environmental issues and a switch of focus
from cost to Value for Money (VFM) (McCue and Gianakis 2001; Zheng et al, 2007;
Beukers et al, 2006; Paulraj et al, 2006; Gelderman and van Weele 2005).
Procurement in the public sector differs somewhat to private sector procurement, most
noticeably through the potential for government influence and the highly regulated
nature of the sector (Schapper et al, 2006). The regulations that govern public sector
procurement define performance requirements together with the delivery of
efficiencies and this can be interpreted to show that the sector is just as concerned
with productivity and performance improvement as the private sector (Linna et al,
2010). It has, however, been stated that regulation cannot deliver the same
competition levels as afforded to the private sector, but it does provide a pressure on
the public service to perform (Cousins et al, 2008). It has also been said that the drive
in the public sector to operate in a commercial sense undermines the forms of
regulation within which it operates (Prowse and Prowse, 2007).
Summary and PurposeEven a cursory review of the literature would suggest that the development of
strategic procurement practices is a panacea for corporate success. However, as one
could expect from an initiative that aims to radically change the way in which a key
business function operates, the challenges are significant. These range from poor
perceptions of its potential value, functional recognition, resource availability, and
staff skills and capabilities.
A multitude of frameworks exist that provide taxonomies of the stages of strategic
procurement development. While they are useful descriptors and comparators they are
of questionable value to those practitioners that aim to use them as guides for the
development of their own organisations. In fact, the use of strategic procurement
practices should be confined to only those areas where it is appropriate and will reap
reward.
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Public sector procurement has received comparatively little academic attention
despite being a significant proportion of national spend. The private sector has been
hailed as the vanguard of organisational efficiency (MacDonald, 2002; Bailey and
Pack, 1995) much to the chagrin of their public sector counterparts. In order to
examine the challenges to strategic procurement this study explores organisations in
both the public and private sectors. In doing so it also provides illumination of the
interesting question, “which is more strategic, Public or Private Sector procurement?”
MethodologyThis research presents a meta-analysis of ten case studies conducted within a range of
public and private sector organisations. The technique of meta-analysis is widely used
and may be applied to data sources from any epistemological or ontological domain.
It has been applied in studies ranging from human mortality (O’Sullivan et al, 2013),
learning (Yorio and Ye, 2012), motivation to use information systems (Wu and Lu,
2013), effectiveness of advertising (Assmus et al, 1984), to strategic alignment (Cao
et al, 2012), and, in support of this study’s approach, researchers have been called
upon to utilise meta-analyses to improve supply chain management theory and
understanding (Goldsby and Autry, 2011).
This study draws upon prior fieldwork that comprised ten case study examinations of
public and private sector organisation. The work is exploratory in nature and so case
study approaches are appropriate (Yin, 2003). Descriptions of the organisation types
and the data capture methods that were employed in the ten individual case studies are
presented in Table 1. Five of the case organisations operate in the public sector, one
is a public/private partnership and the remaining four are private sector organisations.
The cases were selected in order to provide a representative sample of organisation
types in each sector. Multi-method and multi-site analyses triangulate the findings and
contribute to this study’s validity (Bryman and Bell, 2011; Eden and Huxham, 1996;
Jick, 1979; Miles, 1979).
There appears to be no prescribed way to perform a meta-analysis, partly due to the
wide range of philosophical paradigms and data sources that may be employed. The
meta analysis employed in this study consisted of a thematic analysis of the findings
of the individual case studies to identify common themes and observations (Guest et
al, 2012). Thematic analysis of the public sector case studies was undertaken by one
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of the investigators and the analysis of the private sector case studies by another
investigator. Collectively they then compared their individual findings in order to
identify the common themes and issues between public and private sector
organisations. The common themes were then independently verified by the third
investigator through comparison with the original case study data findings.
Organisation Description Data Capture Method(s)
UK Local authority. Focus Groups with senior managers.
UK Emergency Service. Focus Groups with senior managers and staff survey.
A consortium that undertakes procurement for a
group of UK educational establishments.
Survey of suppliers.
Local Authorities in England and Wales. Semi-structured interviews with senior procurement managers and a
survey of 101 local authorities.
UK Borough Council. Semi-structured interviews with senior procurement professionals and
key suppliers.
Part Public/Part Private Airline company employing
5,000 people worldwide, with an annual turnover in
excess of £700 million.
Focus Groups, semi-structured interviews and survey with senior
managers.
Pharmaceutical company, employing over 65,000
people worldwide with a turnover in excess of £25
billion.
Focus Groups with senior procurement managers.
FMCG company, employing over 185,000 people
worldwide with a turnover in excess of £20 billion.
Focus Groups with senior procurement professionals.
Construction company, employing over 50,000
people worldwide with a turnover in excess of £800
Semi-structured interviews with senior management.
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million.
Aerospace company, employing over 10,000
employees with a turnover in excess of £900
million.
Action Research observations and semi-structured interviews with
Procurement staff.
Table 1, Overview of Prior Fieldwork
Thematic Meta-Analysis
This section presents the meta analysis of the ten case study organisations. The
discussions are arranged according to the key themes of ‘acting tactically, ‘perception
of the value of the procurement function’, ‘lack of recognition of the function’,
‘training and development of staff ‘and confusion over the meaning of ‘centralization
of procurement’, that emerged from the analyses.
Acting Tactically
Across both public and private sectors the study finds that many organisations do not
enact strategic procurement practices. Procurement was stated to be ‘reactive’, ‘short-
termist’ and concerned with delivering price reductions (Gonzalez-Benito 2007;
Kaufmann and Carter, 2004; Hirsch and Barbalho 2001). It is perhaps significant that
both the procurement function staff and other people, predominantly senior managers,
within each organisation, proffered this view.
Procurement staff indicated that acting tactically was not their preferred methodology
and that they recognised the limitations of such an approach. However, circumstances
within the organisations, including a lack of functional recognition and directives to
generate cost reductions had meant that the development of strategic procurement
practices was neither wanted nor possible. In these situations the staff reported
increased frustrations at being constrained from fulfilling their potential, both as a
department and as individuals.
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Perception of Value
Despite the relative maturity of the Procurement function since its emergence as a
professional discipline, and contrary to much of the contemporary literature (such as
Ubeda et al, 2015; O’Brien, 2010), organisations still perceive that it is not a value-
adding function and that it undertakes merely administrative tasks. This view was
expressed by procurement staff and senior managers in the organisations in both
sectors.
Even though both groups of stakeholders make similar comments their motivations
are rather different. In accordance with Cox’s (1996) observations, non-procurement
managers stated that procurement, as a function within the organisation, was of little
value, but some did concede that it was a potentially value-adding discipline in
general. Contrastingly, while the procurement staff agreed that the procurement
function was a potentially value-adding discipline, they felt as though it was not
perceived as being value-adding within the organisation because it was constrained
from acting in such a manner by the organisation strategy and management itself.
Lack of Recognition
Similar to the analysis of the perceptions of procurement’s value-adding capability,
both public and private sector organisations indicated that the function lacked
recognition. In this instance though, the lack of recognition was not due to a
perception of value-adding capability, but was a statement of the function’s
representation within the organisation, reflecting the observations of Cousins et al
(2006) and Cannon (2005). In both cases the organisations employed senior
Procurement staff, responsible for managing specific aspects of the department and
company spend. However, it was reported that the function did not possess
representation at the highest level within the organisation.
Training & Development
Staff capabilities and ongoing development is a perennial issue for procurement
professionals (Tassebehji and Moorhouse, 2008) and was an issue that was found to
span both the public and private sectors. This was observed to be particularly
problematic in long-established organisations where procurement staff had been
employed for a number of years. Some of these staff had been unable to pursue the
development of their skills and capabilities, due to personal commitments, company
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constraints and often a lack of recognition of the importance of continuing their
professional development.
The lack of ongoing training and development is an obvious concern for all staff in all
disciplines. It is of particular concern in a function that is developing its strategic
capabilities especially when those developments have significant effects upon the rest
of the organisation and the supply base, such as CM that was discussed in the
literature review.
Centralisation
According to the frameworks that were used to conduct the initial case-based
analyses, one of the most common areas where organisations in both public and
private sectors appeared to be operating in non-strategic manners was around the
centralisation of responsibility for purchasing materials. The analyses also suggested
that in some instances the notion of centralised procurement had been misinterpreted:
organisations expected centralised purchasing to mean that all procurement functions
should be carried out by the procurement department and staff. This would appear to
concur Rozemeijer’s (2008) observations.
This had lead to the introduction of significant lead-time into the process for
purchasing low-value and consumable items. In reality, the notion of centralisation
refers to the centralisation of responsibility for sourcing and managing procurement
contracts while the act of procuring some items may remain the responsibility of the
function or person that requires them. An example of this may be the procurement of
stationery for a large, geographically dispersed organisation. In this instance one
would expect the procurement function to establish Vendor Managed Inventories
(VMI) or contract call-off arrangements whereby control of the spend and
management of the supplier relationship remained centralised but the act of managing
and ordering stock remained the responsibility of the item’s end users.
Overall there did not appear to be a difference between the degree of strategic
procurement development in one sector over the other. There would therefore appear
to be little ‘best practice’ knowledge that could be garnered from any specific sector,
although individual organisations in either sector may exhibit functional excellence.
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Discussion
The observations that the procurement functions that were studied in both the public
and private sectors are acting tactically and are often perceived to be of questionable
value, raises an interesting point. It was found that Senior Management teams
appeared to be “waiting” for procurement to emerge as being value-adding, while
procurement were “waiting” for the organisation to enable the function to develop its
strategic direction and thereby deliver the greater benefits that it is capable of. This
may be an issue that begins to explain why some organisations still view procurement
as an administrative, passive and reactive function (Gonzalez-Benito 2007; Kaufmann
and Carter, 2004; Hirsch and Barbalho 2001).
The lack of recognition and representation of Procurement at the highest level in
organisations may well also be partly due to its perceived, and its historical, relatively
poor track record in delivering bottom-line benefits (Cousins et al, 2006; Cannon
(2005). This is an issue that has also been identified in the lack of strategic
recognition of the Marketing function (Merlo et al, 2012). This may be exacerbated
by less than adequate training provision, both for the Procurement staff, and for other
senior managers in the organisations. It is likely that non-Procurement staff would
have received little or no exposure to cutting edge Procurement methodologies and
would therefore be unaware of its potential contribution (Tassabehji and Moorhouse,
2008; Cox, 1996).
Collectively this can be seen to initiate and perpetuate a Cycle of Impotence (CoI)
whereby the procurement function is neither empowered nor compelled to develop its
strategic capabilities and contributions (Figure 2). The lack of understanding of, and
confidence in, the long-term value of procurement constrains the rational
development of a strategic approach to take advantage of the function’s capabilities
(Porter, 1985). Meanwhile, poor execution of procurement strategies has limited the
contributions that the function has delivered and thereby constrained its emergence as
a strategically valuable function (Mintzberg, 2013). This results in strategic
misalignment between the organisation and the function (Freeman and Cavinato,
1990).
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Figure 2, Cycle of Impotence in Strategic Procurement Development
Strategic Misalignment
Lack of representation at senior level
No evidence of improved
competitive advantage
Lack of training and
development.
No directive to develop
strategically
Perceived lack of Procurement value
Lack of strategic Procurement practices
Senior Management
Procurement
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The meta-analysis identified a range of problems that have been identified in previous
studies, including the perception of procurement’s value, its recognition as an
important function, and staff skills and capabilities. The only issue that was not
highlighted within this analysis was that of resource availability, however, this might
have been a more prominent issue if the meta-analysis had been performed upon
studies of SMEs for example. Overall, the problems appear to plague both public and
private sector organisations. There did not appear to be any particular problem that
was prevalent in one sector to a greater degree than another. What this suggests is that
both sectors are still in need of assistance in making the best use of their procurement
functions and professionals, and, that procurement staff in both sectors need to both
develop and demonstrate their capabilities in order to gain opportunity to make further
contributions to organisations’ successes (Narasimhan and Das, 2001).
ConclusionThe aim of this paper was to identify the challenges that surround the development of
strategic procurement practices within both private and public organisations. It found
that many organisations, in both the public and private sectors experience the same
difficulties when developing strategic procurement. Most significantly, these include
a general lack of cohesive strategic practices: some organisations remain focussed on
making tactical, cost-based improvements. This was in part due to a general lack of
recognition of the potential value of strategic procurement and a lack of representation
of the procurement function at a senior level in the organisation.
The primary contribution of this paper is to identify that recognition of procurement
as a strategically valuable function is constrained by internal and external factors in
both the public and private sectors. Procurement is often neither recognised within a
rational strategic approach nor capable of emerging as a valuable function.
Consequently, a Cycle of Impotence (CoI) transpires that serves to maintain the
function as a merely necessary activity. Business managers should be aware of the
possibility of such as cycle occurring and take action to stimulate the development of
what has become, in many situations, an increasingly important and valuable
discipline.
The training and development of staff was found to be a common problem across both
sectors. Procurement professionals often lacked coherent personal development plans,
partly due to operational constraints and lack of support, but also due to personal lack
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of recognition of the importance of continuing professional development. Other
organisational staff, especially senior management, also appeared to lack an
understanding of the potential benefits that strategic procurement practices may bring,
along with the scale of change that they impart, and the level of commitment and
support that they require. This contributes to the difficulty that the procurement
function faces in gaining recognition and support at a senior level.
These findings suggest that procurement professionals should be more concerned for
their own professional development and that organisations should support their
Procurement staff in order to gain maximum benefits from a strategically significant
function. Furthermore, training and education in other disciplines should incorporate
exposure to Supply Chain Management and Procurement theory and practice in order
to become more aware of the benefits that this discipline can deliver, and more
attuned to the support that it requires in order to be a value-adding business function.
The literature pointed to the issues that surround the use of strategic procurement
development models. The models appear to suggest that ‘more strategic’ procurement
practices are somehow always more desirable. Research has suggested that this is not
necessarily the case and that strategic procurement practices should be developed
where they are only capable of delivering bottom line benefit. Future research should
explore the use of development models, in particular the way that different models
may impart different emphases upon the resultant procurement function and systems.
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Author Biographies
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(Corresponding Author)
Dr Gareth RT White is Reader in Operations and Information Management at the
University of South Wales, Director of the Connections Research Group (CRG) and
Co-Director of the Centre for Supply Chain, Operations and Procurement Excellence
(CSCOPE). His research interests encompass a broad range of operational subjects
and disciplines including information systems and development, lean production and
environmental management.
Telephone: (+44)1443 482958
Email: [email protected]
Scott Parfitt is a Senior Lecturer at the University of South Wales and a member the
Centre for Supply Chain, Operations and Procurement Excellence (CSCOPE). He is a
member of Welsh Governments Creative Procurement Forum. He has undertaken
research for Value Wales and Cardiff Council and is a member of the Source Regional
Group. He was actively involved in the Category Management KTP at Cardiff Council
and continues to act as a ‘critical friend’ on matters of Category Management policy
and implementation.
Chris Lee is a Senior Lecturer at the University of South Wales and a member the
Centre for Supply Chain, Operations and Procurement Excellence (CSCOPE). His
teaching and research interests encompass strategic supply chain management,
operations management, purchasing, logistics, retail and supply chain management,
organisational behaviour and management theory.
Dr Rachel Mason-Jones is a Senior Lecturer at the University of South Wales has
worked in both industry and academia within the field of supply chain management.
The main focus of her previous research has been supply chain management
resilience with particular interest in the area’s of uncertainty and risk management.
The resilience work has led to a current interest in sustainable supply chain
management and the renewable technology sector.