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1 Supply chain management: New organisational practices for changing procurement realities By Poul Houman Andersen D & Morten Rask DD 2. Draft: Comments are welcomed, citations are not, without the authors’ written permission Abstract How does implementation of SCM strategies affect the organisation of procurement? Based on case study material of 15 Danish companies this contribution develops a set of statements concerning the organisational role and job assignments of procurement in the light of SCM practice. For this purpose we use an analytical technique known as the degree-of-freedom analysis. It is suggested that new organisational practices such as key supply management, team based management and changing skill requirements of purchasing personnel may be an outcome of implementing SCM practices towards suppliers. Further theoretical and practical implications are derived. The main implications are that procurement officers must develop their communicative and boundary-spanning abilities in order to take on their new position as key supply purchaser linking actors both internal and external to the lead firm. Background and purpose Following the adoption of supply chain management (SCM) and similar principles of lean manufacturing in the automobile industry, a growing number of industries are transforming their organisation of procurement. Still more producers are re-shaping their relationships with suppliers and are involving these as strategic partners in both product and process development activities (Sheth & Sharma, 1997; Quinn & Hilmer, 1994). As a consequence, the division of work among buyers and suppliers in the business system changes (Helper, 1993). Sticking to core competencies, downsizing of production and increasing focus on suppliers’ complementary skills are involving into a common practice in several industries (Mathyssens & Van den Bulte, 1994). The principles of SCM also induce a recent restructuring of the procurement departments' role in managing the buyer-supplier relationships of these firms. In the past decade or so, firms have been implementing practices along SCM principles in order to co-ordinate and integrate the component and product flow from suppliers to customers (Carr & Smeltzer, 1999). As a consequence of implementing D Corresponding author Associate Professor, The Aarhus School of Business, Department of International Business, Denmark DD Ph. D. Student, Aalborg University, Department of Planning & Development, Denmark

Transcript of Supply chain management: New organisational practices for ... · They need to implement new...

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Supply chain management: New organisational practices forchanging procurement realities

ByPoul Houman AndersenD & Morten RaskDD

2. Draft: Comments are welcomed, citations are not, without the authors’ written permission

Abstract

How does implementation of SCM strategies affect the organisation of procurement? Based on case study

material of 15 Danish companies this contribution develops a set of statements concerning the organisational

role and job assignments of procurement in the light of SCM practice. For this purpose we use an analytical

technique known as the degree-of-freedom analysis. It is suggested that new organisational practices such as key

supply management, team based management and changing skill requirements of purchasing personnel may be

an outcome of implementing SCM practices towards suppliers. Further theoretical and practical implications

are derived. The main implications are that procurement officers must develop their communicative and

boundary-spanning abilities in order to take on their new position as key supply purchaser linking actors both

internal and external to the lead firm.

Background and purposeFollowing the adoption of supply chain management (SCM) and similar principles of leanmanufacturing in the automobile industry, a growing number of industries are transforming theirorganisation of procurement. Still more producers are re-shaping their relationships with suppliers andare involving these as strategic partners in both product and process development activities (Sheth &Sharma, 1997; Quinn & Hilmer, 1994). As a consequence, the division of work among buyers andsuppliers in the business system changes (Helper, 1993). Sticking to core competencies, downsizing ofproduction and increasing focus on suppliers’ complementary skills are involving into a commonpractice in several industries (Mathyssens & Van den Bulte, 1994).

The principles of SCM also induce a recent restructuring of the procurement departments' role inmanaging the buyer-supplier relationships of these firms. In the past decade or so, firms have beenimplementing practices along SCM principles in order to co-ordinate and integrate the component andproduct flow from suppliers to customers (Carr & Smeltzer, 1999). As a consequence of implementing

D Corresponding author Associate Professor, The Aarhus School of Business, Department of International Business,

DenmarkDD Ph. D. Student, Aalborg University, Department of Planning & Development, Denmark

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SCM, new responsibilities and practices for procurement officers are evolving. Major production anddevelopment responsibilities are handed over to a selected group of strategic suppliers and theimportance of selecting the optimal supply base becomes crucial. Procurement plays a critical role inimplementing and managing this process. They need to implement new practices and adopt newperceptions for handling the interface between buyers and suppliers in terms of integrating internal andexternal production and product development activities. For the individual procurement officer thismay often be a painful process of unlearning old practices and adapting to new realities. So far, limitedattention has been given to the internal organisation challenges within the buying firm in the light ofchanging sourcing practices. More research has been called for (Sheth & Sharma, 1997). . The purposeof this study is to deepen our theoretical understanding of the effects of SCM to the organisation andmanagement of procurement. Some studies have recently discussed the changing role of theprocurement department in the organisation with respect to its increased participation in cross-departmental teams and corresponding involvement in decision areas outside the traditional realm ofprocurement (Pearson, 1999; Hult et al, 2000). However, their findings are not directly related to theconspicuous following of a particular strategy for managing and integrating the supply function.Moreover, they focus on an important but particular aspect of organisational consequence (increasedparticipation in cross-departmental teams), rather than relating these to broader issues of changingdemands to the procurement department. A more coherent theoretical understanding of the emergingissues and challenges to the procurement department has yet to be developed. We move towards thisfrom the SCM literature and other related fields (relationship marketing and organisational theory).From the theoretical basis we develop a set of statements and apply a case study methodology, knownas the degree-of-freedom analysis (DFA) (Wilson & Woodside, 1999). This is a formal case studyapproach used for matching patterns of observations to expected statements. This approach differs fromtraditional grounded theory in the Glaser & Straussian sense, by allowing theory to be an active andexplicit part of the researchers’ analytical framework (Glaser & Strauss, 1967). Compared to analyticalinduction on the other hand, it does not only test theory but develops it as well. In conclusion, ourintention is to modify the already developed theory and to see how it applies to new and variedsituations, as differentiated from those situations to which it was originally applied.

The issue we are exploring here concerns the changing job descriptions and practices of procurementmanagers in firms transforming their production and outsourcing practices along the lines of SCM, ascompared to procurement managers in other organisations. For this reason we are investigating thechanging practices in the procurement departments of Danish users and non-users of SCM as aproduction strategy

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MethodologyIn our explorative endeavour, we neither follow the inductive or deductive rhetoric, fitting data totheory or vice versa. We apply the iterative approach found in an analytical procedure known as thedegree-of-freedom (DFA) analysis (Wilson & Woodside, 1999). This is a formal case study approachused for matching patterns of observations to expected statements, allowing the researcher to evoke andtest mini-theories on simple casual relationships and let these form into more complex patterns (Weick,1979). This process of pattern matching is an analogy to having degrees-of-freedom in a formalstatistical test (Campell, 1975). However, the purpose in this approach is not to generalise findings intopredictions about a population. Rather it is an approach to ground theory development in empiricalobservations and further refine it through the test of reality (Orton, 1997, Strauss & Corbin, 1990;Mills, 1959, Yin, 1991). Contrasted to the traditional procedures of grounded theory (Glaser & Strauss,1967), which picture bipolar research world composed of inductive and deductive research, ourapproach deliberately falls in between these stances. This is consistent with methodological positionknown as iterative grounded theory (Orton, 1997). Iteration occurs when researchers spiralling betweentheoretical concepts and field observation and seek to enkance theoir understanding of both theory anddata during this process. Hence it allows theoretical pre-understanding to play an active role in theresearchers’ mind, rather than assuming away its existence. This division in methodological thinkingwithin grounded theory is apparent in the later works of the founding fathers of grounded theory(Goulding, 1999).

In our analysis, the purpose is to further develop theory concerning the relations between application ofSCM and procurement practice. We have modified the procedure in order to better meet the theorydevelopment objective without deviating from its initial logic and process rationale. Hence, a casestudy is considered in terms of hits and misses in matching patterns and is used as a means for furthertheoretical development, involving several iterative loops between phases of the research process.

Formal approaches to case analysis holds disadvantages as well as advantages to the researcher.Among the advantages are the ability for others to better understand and follow the interpretationprocesses of researcher in deriving findings from complex data material, which is an issue lessstructured qualitative analysis procedures have been scolded for (Miles, 1979; Miles & Huberman,1984). Moreover following this procedure, processes of interpretation can be supplemented with (ratherthan being overruled by) descriptive non-parametric statistics, such as sign tests and the like, whichmay help the researcher in reflecting and distancing from their idiosyncratic beliefs and expectations.

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We therefore deepen the theory-case matches by drawing in relevant examples and statements from ourinterviews. The analytical procedure of DFA applied in this study may be outlined as follows in figure2 (developed from Wilson & Woodside, 1999):

The paper is structured as follows: First, a prediction matrix derived from the current literatureconcerning the relationship between evolving role of supply chain management and the reorganisationof procurement practices is given. Next, we present the findings of our case study and reflect this on theexisting literature in order to extend and deepen the existing knowledge. Finally, a number ofimplications for academia and management practice are derived.

SCM and reorientation of the procurement function – some conceptual issuesand statementsThe concept and philosophy of SCM has not been defined in a homogenous fashion, and multipledefinitions exist in literature (Houlihan, 1985). Hence, it is basically an umbrella term, covering a set of

Step 1: Grounding study in existing literature

Step 2: Developing statements in a prediction matrix

Step 3: Conducting field work

Step 4: Matching predictions to observations

Step 5: Evaluation and further reflection

Step 6: Further generation and revision of theoretical understandning

Figure 2: The research process

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practices for ensuring a cost-effective flow and inventory of materials and finished products throughoutthe value chain from point-of-origin to point-of consumption. Even though the SCM principleenvisions the integration of the entire supply chain, the real-life applications have been more mundane.Firms usually apply the principles of SCM in a piecemeal fashion, developing individual parts of theirsupply chain towards selected partners rather than leap-frogging into an entirely new and all-bridgingstructure. Similarly, we will here restrict ourselves to the upstream application of the SCM principlestowards strategic suppliers. Even critical views of the SCM literature points out that maintaining strongand effective supplier relationships and operational integration across organisational boundaries aredistinctive qualities of the SCM principle (New & Ramsay, 1997). As consequence, organisationalboundaries between buyers and suppliers are blurred.

Developing a prediction matrixThe change in supplier policy towards principles of strategic outsourcing calls for a radicalreorientation of the procurement function; some may even describe this as a paradigm shift; from atransaction-oriented to a relationship-oriented process (Sheth & Sharma 1997). Traditionally,procurement activities have not been a central strategic issue among top managers and usually themanagerial links between the procurement policy and the overall corporate strategy has been weak.Procurement has been restricted to operating policies such as effectuating purchasing orders,controlling supplier deliveries and inventory management, and more or less been an appendix to themanufacturing manager. In the new set-up managing vendor relations takes up a central role in theprocurement department as well as in the overall business process of the firm. Increased outsourcingincreases the interdependence of buyers and suppliers at all levels. Suppliers are taking over productionresponsibilities on the buyers’ factory floor, blurring the boundary between the organisational entitiesof buyers and suppliers. Decisions concerning warehousing, production scheduling and otheradministrative activities linked to manufacturing are becoming increasingly interdependent and call fordistribution of information and new cross-organisational communication practices (Germain & Dröge,1997). Internally, the development of cross-functional practices is needed in order to reconfigure andintegrate procurement and production activities in new forms (Monczka & Trent, 1995). In sum,internal, external and boundary-crossing communication patterns that hitherto were weak or even non-existing must now be developed in order to secure a tight integration of business processes.

A prediction matrix is presented in table 1, which provides an overview of our statements concerningthe consequences to the procurement department of applying SCM practices in the organisation andcontrasts these to those firms that do not follow this strategy. The prediction matrix clarifies the

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relation between the independent variable (use of SCM) and the dependent variables (the statements).We explore the theoretical robustness of our statement that SCM lead to the adaptation of specificpatterns of procurement management organisation and practice. We consciously use the term“statement” rather than “proposition” in order to distinguish this study from one of testing statisticalsignificance. Hence, we see these statements not as deduced theoretical propositions, but rather asextracts of our theoretical pre-understanding, which may be exposed to empirical testing and possiblefalsification (Popper, 1965).

Table 1: Prediction Matrix

Statement ID Indicators SCM users SCM non-users

1a Representing the access point of the single or selected group

of suppliers to other departments in the buying organisation

Yes No

1b Mediating contacts between internal and external groups Yes No

1c Maintaining relationships with selected suppliers Yes No

The

implementation of

a KSP practice in

procurement

1d Use of information and communication technology in relation

to operation integration

Yes No

2a Participation in formalised cross-organisational teams on

continuous basis

Yes No

2b Participation in formalised cross-departmental teams on

continuous basis

Yes No

The use of cross-

organisational and

departmental

teams

2c Involved in product development and/or production decisions Yes No

3a Broader range of technical skills acquired Yes No

3b More holistic oriented specialists employed or skills otherwise

acquired

Yes No

3c Reverting order tracking and similar day-to-day procurement

activities to other departments

Yes No

The changing

strategic outlook

and skill profile of

the procurement

department

3d Formal links to top management Yes No

The growing interdependence between buyers and suppliers increases the need for interaction andinformation exchange in the buyer-seller dyad. Thus, the buyer-seller interface broadens dramatically,as personnel from diverse departments in buying and the selling department is involved in makingdecisions on a multitude of activities and processes of mutual adaptation and exchange occurs atdifferent organisational levels. Managing this intricate web of relationships towards important partnersin order to ensure efficiency and progression is a demanding task on both sides of the marketing dyad.

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In the sales management and relationship marketing literature, this has been discussed as themanagement of selling (and buying) interfaces (Spekman & Johnston, 1986). This process is headed bya “key account manager” (KAM), a person who is responsible for keeping the relationship movingforward according to set goals and for nurturing the relationship after the sale (Spekman & Johnston,op. cit, ref). However, although the process is equally important for the supply function in an SCM-setting, a similar organisational role in the buying organisation is (at least to our knowledge) not foundin the literature of SCM or procurement management.

However, we expect, that a similar boundary-spanning role is demanded from the procurementorganisation in organisations pursuing an SCM strategy, given that extensive contacts exists bothexternally and internally. We will term this person a key supply purchaser (KSP). We expect thisperson to be responsible for co-ordinating the complex pattern of information exchanges in thereceiving end of the dyad, and mediating contacts and help eliminating barriers between internal andexternal groups. Moreover, we expect that the development and integration of information andcommunication technology to strategically important suppliers will become essential in managing thesupply chain communication processes. The use of external communication facilities such as extranet,EDI and mail-based communication will be widespread here, and so will internal informationprocessing such as Enterprise Resource Planning Systems, as such systems ties in with the streamliningobjectives of the SCM principle (Stump & Sriram, 1997; Evans, Towill & Niam, 1995; Yücesan,Wassenhove & Vos, 1999). Elaborated information patterns replace inventory buffers in maintaining asmooth product flow (Stump & Sriram, op. cit). The geographical scattering of supply chains, whichwill only magnify the need for elaborated communication technology practice. Hence, global sourcingfurther propels this development (Germain & Dröge, 1997).

Following the principles of SCM intensified collaboration across inter- and intra-organisationalboundaries call for information sharing, joint action and co-ordination of different activities.Departmental as well as organisational boundaries become blurred as the supplier becomes involved inactivities at the factory floor or in the R&D department which traditionally are considered theresponsibility of a single department (Heide & John, 1990; Monczka, Trent & Handfield, 1998). This isexpected to cause organisational stress between departments, as traditional responsibilities, powerbases and decision-making routes between the commercial and the technical personnel are relinquishedand new practices evolve (Monczka & Trent, 1995). A frequently used practice for handling thesepossible co-ordination and communication issues, is to establish cross-departmental team-based workin relation to supplier selection and involving the supplier in various activities retaining to

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product/process streamlining or development (Katzenbach & Smith, 1993; Monczka, Trent &Handfield, 1998). For the procurement department reorganising according to the SCM principle weexpect that supplier auditing, selection and negotiation tasks, which traditionally were assigned theprocurement department are now carried out conjointly with personnel from other departments as wellas across the organisational boundaries of buyer and supplier organisations. This blurs the decision-making responsibilities as the procurement department are increasingly consulting and giving advice ona broad range of issues, rather than deciding within a narrow range of tasks. Within the SCM principlewe expect these teams as an integral part of the organisations’ standard operation procedures. Thereforethey can be distinguished from other forms of inter-departmental collaboration, as they are task-oriented groups, which work on a continuous basis, rather than being randomly formed to solveoccurring problems. Moreover, our expectations, coming from the literature study, are that procurementpersonnel are participating in decisions on manufacturing, quality management and productdevelopment, which beforehand were left entirely to other departments.

In relation to these changes, procurement officers are facing changing responsibilities, demanding theinternal development or external acquisition of new skill profiles of department personnel. In their newrole as organisational linch-pin and mediator between external and internal units, procurementpersonnel must both develop an understanding of technical areas such as engineering andmanufacturing, as well as develop a more holistic view of the entire supply chain process (Germain &Dröge, 1997). This may cause abrupt demands to the skill profile and learning abilities of theprocurement function. For instance, use of Internet in relation to supply management is a fairly recentphenomenon, although it is now widespread in use (Lancioni, Smith & Oliva, 2000). Hence we expectthat more specialists are employed or that specialist skills within technical area are broadened in theprocurement department. Moreover, given the increasingly important role of procurement in the overallstrategy of the firm, we would expect the both the formal and the informal organisational links betweenprocurement and top management to develop. Also, the day-to-day activities which traditionally was acentral part of the procurement officers’ job, such as documentation, price bidding, materials ordering,order tracking and inventory control are either rationalised away or are left to others directly such asthe technical departments or the suppliers. This process is further enhanced by the increasing use ofinformation and communication technology as means for streamlining information sharing inprocurement and materials management processes (Lancioni, Smith & Oliva, 2000).

Data

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The data material collected during field work consists of interviews, internal memos, articles andarchival data that have been collected among 15 Danish manufacturers during the year 2000. One ofthe reasons for doing multiple case studies is that particular aspects of each case study can be reflectedand benchmarked from the perspective of other cases, which makes self-delusion less likely (Miles,1979). The cases have been strategically selected to cover distinct industrial sectors, following theindustry-sector taxonomy developed by Pavitt (1984). All firms are relatively large by Danishstandards, employing 400 persons or more. Yearly amount of purchased goods varied between 40million and 800 million US$. Table 2 provides an overview of the investigated firms.

Table 2: Firm demographics

Export share Today’s share offoreign suppliers

Procurement'sshare of product

value

Turnover inmillion US$

Employees intotal

Employees inprocurement

Median of all 75% 65% 50% 90 866 5,5

Median of SCM users 75% 70% 50% 155 1142 6,0Median of SCM non users 78% 50% 40% 58 733 5,0

Difference -3% 20% 10% 97 409 1,0

A semi-structured interview protocol was used as a guideline during the interviews, however thequestion order and the following discussions, probes and exemplification did not follow the same routefor all interviews, as respondents were given latitude to develop their explanations and leads was takenfrom there. Two interviewers have participated in all interviews, and the interviews have subsequentlybeen taped and converted into text. All interviews were made with persons responsible for procurementactivities at the management or the sub-management level. One or two respondents participated at eachinterview and the duration of each interview varied between 60 and 90 minutes. Interviews andcollected material has been written together into a case describing the company context and task relatedto procurement in general and the use of information technology related to procurement, which hasbeen re-submitted to all interviewed firms for approval and further comments.

For the present purpose, the participating firms were divided into users and non-users of SCM. Thisdivision was made according to whether the firms explicitly as part of their mission statement, in theirinternal memos or otherwise adhered to the principles of SCM and these statements was backed up bythe interviewed persons. Nine users and six non-users could be identified from the material, which wasin the process of implementing such practices or had implemented SCM within the last 5 years. As theprocess of implementing SCM is a long-standing one, this case material is considered adequate forcapturing the organisational dynamics of implementing this practice.

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New organisational practices for changing procurement realities: Findingsfrom case studiesAs expected, table 2 envisage a relationship between the use of SCM and the share of internationalsuppliers, as the international procurement median of SCM users clearly differs from that of non-users.Hence, global sourcing seems to present an ample cause of implementing SCM principles. Table 3outlines the pattern of hits and misses in the case material. The identification numbers in the top rowrelates to the statements presented in the prediction matrix (table 1), whereas the letter in each rowrepresents a case firm. First set of rows (above the dotted line) is users of SCM whereas non-users arefound in the second set of rows (below the dotted line). A cell marked with a (+) sign, marks a hit,whereas a cell with a (-) sign marks a miss.

As seen from the overall number of hits, the expectations outlined in the prediction matrix are wellbacked up by case findings. Data coding for the prediction matrix (table 3) has been cross-checked bycase company informants as well as by two judges and the judges did excerpt a pattern of agreementsignificantly greater than one would expect by chance (see appendix A). A sign test shows that theoverall match of the prediction matrix to the findings is significant, as the H0 hypothesis is rejected,using the student’s t-distribution (p < 0.05).

Table 3: An overview of matches found in the study

Statement 1 Statement 2 Statement 3 1a 1b 1c 1d 2a 2b 2c 3a 3b 3c 3d Hit rate

Danfoss A/S + + + + + + + + + + + 100%Fritz Hansen A/S + + + + + + + + + + + 100%Kansas N/A + + + + + + N/A N/A N/A + 100%Bang & Olufsen A/S + + + + + + + + + + + 100%LR af 1998 A/S - + + + + + + + + - + 82%Wittenborg + + + + + + + - - + + 82%Nordisk Wavin A/S - + + + + + + + N/A - + 80%FFE + + + - + + + + + + - 80%Crisplant A/S + - + + - - + - - - + 45%Anonymous A/S + + + + + + - + + + - 90%Micro Matic LTV + + - + + + + + + + + 91%Maersk Medical A/S + - + + - - + + + + + 73%A/S Chr. Fabers Fabrikker + - + + + + - + + - - 64%Terma Elektronik A/S - - - + - - - N/A + + - 30%Gram Equipment A/S - - - - - - - - - - - 0%Hit rate 71% 67% 80% 87% 73% 73% 73% 77% 77% 64% 77%

The implementation of KSP in procurement

In our theoretical point of departure we stated the belief that companies pursuing an SCM strategy

would employ key supply purchasers (KSP). The KSP was expected to be the access point of the single

or selected group of suppliers to other departments in the buying situation, to mediate contacts between

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them and to maintain relationships with selected suppliers and to use of information and

communication technology in relation to operation integration. In order to make this statement solid it

was expected that we would not find these indicators in those companies not pursuing an SCM

strategy.

With a few exceptions, table 3 shows that the study findings met our expectations, with some notable

expectations. Deviations from our predictions is primary found in four companies. The exceptions

include: Crisplant, a supplier of sorting systems; FFE that supply plants, equipment and services to

extraction and processing industries world-wide, Terma Electronics, a producer of radar equipment and

other monitoring systems for military and civilian use and Gram Equipment, an ice cream machinery

producer. These companies have one important common characteristic: They all develop advanced and

highly customised systems on a turnkey basis. Hence, their production technology basis is project

oriented and calls for a project-oriented organisation form which share a number of similarities with the

organising principles outlined in the SCM principle, such as mutual task interrelations, inter-

departmental dialogue and technical dependence on resources and contingencies outside the firm

(Thompson, 1967). For the procurement department in question this means that they are involved in a

much more interactive manner than firms devoted to more mass-producing technologies. At Terma

Electronics the interactivity are very close connected to the development of new customised supplies

where the supplier contribute with their knowledge about a certain product. In the words of one

Logistics Manager:

It is often the case that we have to find the newest products and processes. Here we start with creating interest for our

goals, which often is a kind of extreme but it can be the product of the future. The driving force for the suppliers is

often that we think it is interesting and that we will be able to make it mowing. When B&O purchase one million

similar items at one place, I purchase one million different items at one place.

[Lars Weibel, Terma Electronics]

Even though FFE are pursing a SCM strategy, the procurement manager at FFE are also focused on the

need for a different type of procurement organisation:

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It’s a kind of special procurement here. If you for example take Danfoss or Grundfos or these types of companies that

need supply security… we have a different need for supply security – machine for machine. Of course there is a great

deal of standard equipment but there is items where there is only three possible suppliers world wide… this makes

some other demands to procurement than normal.

[Jens Staugaard, FFE]

The remaining case firms are all mass production companies and they are overall differentiated

according to the pursuing or not pursuing an SCM-strategy.

In companies pursuing an SCM-strategy, we expected the KSP to be an access point for suppliers as

well as for internal personnel from diverse departments. Their function is to manage the intricate web

of relationships by mediating contacts between internal an external groups and using information

andcommunication technology to integrate the operations between the company and the supplier. This

job description was confirmed in several cases and is well described by the Group Procurement &

Vendor Relation Manager at Wittenborg, a producer of coffee automates for industrial use:

I seek to create a prearranged way of communication with suppliers and to bring selected suppliers closer together with

some of our most important functions – usual people in product development… I am a catalyst for dialog; preferably

this should be self-reliant… After all, e-mail make the situation where you are closer connected. In the context where

you want the supplier to be a part of your own process, his process will be a part of our process. We see it as a natural

chain, as he was sitting here, then I have the opinion that it is a totally better way of communication.

[Morten Nyholm Jensen, Wittenborg]

Bang & Olufsen (B&O), a producer of high-end audio and video products has also formalised the KSP

function in order to managing the suppliers, where the purchaser has the responsibility for maintaining

the relations through strategy meetings each year. In that way all the contacts are handled by the

purchaser and the purchaser participate in all meetings including those meetings the product

development department initiates. At the same time the purchaser have the task to be a mediator

between the employees in B&O manufacturing and the supplier. The procurement director from B&O

are stressing that information and communication technology used in operation integration also have a

pedagogical purpose:

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The goal is that wee make them (suppliers) understand where the buffer in the chain should be.

[Steen Bilde Jørgensen, B&O]

Regarding the use of information and communication technology the companies with a SCM strategy

often mentioned their ERP systems as a driving factor in relation to operation integration as a condition

for optimising the SCM strategy. Some of those companies are even waiting on the fulfilment of the

implementation of new ERP systems before they take further steps in operation integration by using

information and communication technology. Crisplant, a producer of equipment for automatic high-

speed transport and sorting systems, believes that the implementation of the enterprise resource

planning system Baan will give them opportunities for e-commerce. LR, a manufacturer of pipes for

district heating systems is waiting on implementation of the new version of SAP in order to create a

stringer connection to their suppliers. Crisplant and LR as well as other companies pursuing a SCM

strategy have also felt the pressure from the suppliers to allow a tighter integration of their ERP

systems. In other words, SCM strategy and ERP systems, which also are driving by their suppliers,

tends to be mutually connected in reorganizing the procurement processes. The companies that have

not a SCM strategy are not in the same way focused on the use of ERP systems to restructuring their

procurement processes.

However, companies that are not pursuing for an SCM-strategy have also developed the flavour of the

KSP role. This is especially true in mediating contacts between internal and external groups and

maintaining relationships with selected suppliers. Here it seems to be the tendency that pursuing or not

the SCM-strategy is more a designation of the company, than it has something to say for how to

organise the procurement function in the companies. It is possible to conclude that our model is backed

up by the findings when it comes to understand the KSP practice in procurement.

The use of cross-organisational and departmental teams

In firms following the SCM principles we expected that traditional procurement assignments were

carried out in cross-departmental teams as well as across the organisational boundaries of buyer and

supplier organisations. Moreover, our expectations were that procurement personnel participate in

decisions on manufacturing, quality management and product development. Table 3 illustrates that

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these expectations are supported in the study findings when it comes to the companies pursuing a SCM

strategy. However, regarding the companies not pursuing for an SCM-strategy we do not find a total

coincidence of our expectations and the findings in the study. For those companies it seems to be of

minor influence on how the procurement department is reorganised. This is especially true for the two

non-SCM users (Gram Equipment and Terma Electronics) that are characterised by building advanced

and highly customised systems on a turnkey basis. In general many of the companies’ procurement

departments is involved in product development and/or production decisions even though they do not

pursue an SCM-strategy.

The reorganising of the procurement department differs among users and non-users of SCM. The users

tends to work more on projects in teams where the non users have a working process similar to a

traditional input/output functional processes that is focused on the traditional procurement tasks.

Among the companies pursuing an SCM strategy it differs who manages the project tasks. An example

is Wittenborg that have the policy to make a purchaser to the leader of a project were this person have

the responsibility to manage the teamwork.

The way we manage the product development today is by using project managers that have extensive knowledge

about the whole business process. In reality they follow a project until the customers have told us that they are

satisfied with the product. It is a very long process.

[Morten Nyholm Jensen, Wittenborg]

LR does have the same project/team approach but it is a person from product development that is the

manager of the team.

We start up a team with a product development person as the project leader where also a purchaser, a person from

product development and others are members of the team. In connection to the project, suppliers will be members

of the team.

[Claus Vibe, LR]

An example of the traditional way of organising procurement is Chr. Faber, a producer of window

shields where the process is described as follows:

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They [product development] make a drawing of an item... this item comes to us and they ask us to make an inquiry…

later we make an connection and ask them “Will you talk to the engineers at the certain supplier” so they can get a

chat about what is the most optimal solution.

[Carsten Pedersen, Chr. Faber]

However, as table 3 illustrate not all companies without an SCM strategy work like this. Altogether the

tendency is that an SCM strategy make procurement departments more teamwork oriented with a

higher involvement in product development and production decisions, but the absence of an SCM

strategy does not prevent teamwork in procurement processes. This could be understood as those

companies pursuing a SCM strategy have a more clear focus on optimising procurement as such. This

reorganising process may concern internal power relations between the technical and the commercial

actors within the firm (Monczka et al, 1995). According to the Group Procurement & Vendor Relation

Manager Morten Nyholm Jensen at Wittenborg, the reshuffling of decision-making authority takes

time.

It is not until the last five years it is started to people have realized the importance of procurement… during the last

years we have received more attention form the top management but after all it is still difficult for the procurement

manager to get a direct line to the managing director. If you look at the job openings will you see that a procurement

manager typical will be employed by a production manager and this is at the third level or even some times at the fourth

level in the organization hierarchy. Here at Wittenborg, I am on my way to refer directly to the managing director. This

is the only way to realize something like this in a company group.

[Morten Nyholm Jensen, Wittenborg]

The use of cross-organisational and departmental teams could therefore also be related to the

recognition of the importance of procurement in the buying organisation rather than strictly related to

SCM strategies. The importance of maintaining vendor relationships is recognised independent of an

SCM policy. It is possibly therefore wee see more team work based procurement departments among

those companies pursuing for an SCM strategy and in those non SCM users where procurement have

received attention from the top management.

The changing strategic outlook and skill profile of the procurement department

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As illustrated in table 3, the case studies show that introducing SCM principles have an impetus on the

skill profiles of the procurement personnel. In most cases, the introduction of SCM has meant that the

amount of traditional day-to-day procurement activities of order requirements etc have been reduced or

entirely have been delegated to other departments. Most often these changes have been backed up by

information systems, which handle the documentation flow and reduces the paper work in relation to

requiring materials from suppliers. In the case of Wittenborg, and Fritz Hansen, (a manufacturer of

high-end furniture), ordering new materials was entirely in the hands of the production personnel,

which could use the intranet for direct ordering at suppliers. However, in other cases such as B&O, the

involvement of the procurement department in ordering and related assignments have been reduced, but

not entirely eliminated. The reason for not doing this is that it is seen as important for the purchasers to

have some responsibility for the material flow, in order to maintain their attention to production tasks.

We do not want our procurement and logistic department to be in an isolated ivory tower, focusing only on

the horizon…it is important that their feet are on the ground as well

[Steen Bilde Jørgensen, B&O]

An interesting observation occurs when the citation above is contrasted with that of the procurement

and vendor relationship manager at Wittenborg concerning the job assignment of procurement

personnel. Here, procurement was expected to give op operation activities concerning the management

of day-to-day procurement practice. This suggests that differences in organisational practice among

users of SCM may also occur. In two cases, users of SCM deviated from expectations concerning the

changes in job assignments. In both cases, SCM was still being introduced, but it was not possible to

say whether the changes in job assignments would take place at a future date.

Strongly related to a decreased involvement in day-to-day procurement activities, purchasers are

assigned tasks of a more strategic nature. The demand for a more holistic orientation among purchasers

of course influences which skills are acquired from purchasers to master this role. In several of the

cases, procurement managers confirmed this, expressing their concern of finding qualified staff, which

might meet this new profile of. In an internal memo at Fritz Hansen, this is described as “involvement

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in the strategic management of vendor relations”. Similarly, Danfoss, a world-leading manufacturer of

thermos and other industrial equipment, describes the changed in involvement in the following way

The purchaser of yesteryear has no role in our procurement function today..we need purchasers with an

understanding of our entire business system and how they contribute to this process

[Michael Saxtorph, Danfoss]

However, not all firms supporting SCM agree on this. At Crisplant, a manufacturer of sorting systems,

the SCM policy has not left to a reduction of day-to-day procurement activities, and a changing

strategic outlook of the procurement department. Instead, the procurement staffs have been reduced,

and a number of its current assignments have been delegated to other departments, such as logistics and

manufacturing. Hence, one consequence to the procurement department (or maybe one more subtle

agenda) of introducing SCM might be a reduction in staff, in order to achieve more cost efficiency in

administration. Thus, reorganising the procurement function may not necessarily grant the procurement

department more influence in the organisation. At the contrary, procurement activities may in extreme

cases be carried out without this role is assigned to any specialised function within the firm.

As a consequence of employing SCM principles such as increased outsourcing and reduction of

internal production, procurement managers may increase their organisational influence through the

development of formal links to the management level. This is evident in most cases where firms are

using SCM. At Kansas Wenaas, a leading European producer of technical clothing and work wear,

procurement and logistics are integrated and the manager of this department is represented in the top

management group. A similar pattern is found in several of the interviewed firms. In some cases,

however administrative heritage seems to stand in the way. In one firm, a world leading producer of

turnkey plants, the purchasing-to-cost ratio exceeds 70%, meaning that a major part of the total costs

are owed to external sourcing. Therefore, in theory any efficiency increasing process including vendors

play a strong role in the entire cost structure, which would grant top management attention and demand

of direct influence. However, the protection of existing internal power structures reduces the

willingness to relinquish decision-making power to the purchasers.

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Further findingsAs our prior discussion has revealed, a major bulk of our expectations was met concerning the

organisational outcomes to the procurement department of following the SCM principle. However, due

to the explorative nature of our study we also came across unexpected findings of the causing and

mediating effects of these organisational outcomes. Especially these findings helped us in developing

further the initial conceptual model, as we had to question our own pre-assumptions more deeply than

in other cases. This is often described as the true test of field driven research.

First of all we specifically found one case, which runs completely counter to our expectations. Terma, a

producer of radar equipment and other monitoring systems for military and civilian use, may be

labelled an outlier, as the firm countered most of our statements. Although this firm did not follow

policies of SCM such as operational supplier integration and maintaining long-term relationships with

suppliers the organisation and role of its procurement function had developed very much in parallel to

those of the SCM users in the study. The reason for these development processes we learned was the

high degree of project-orientation within the firm, where customer demands to speedy product

development and highly customised solutions made procurement of leading components of high

tolerances a central part of the business process. However, given the relatively weak purchasing power

of this firm toward single suppliers, a policy of singe sourcing and operational integration was simply

not an optimal supply strategy. Hence, this case taught us the important lesson of teleological

explanations often pointed out by middle range theorists: A function may be explained not only

through simple cause and effect relationships but also by the larger context, in which the function

serves a purpose (Arbnor & Bjerke, 1997). Even though following SCM may induce specific change

patterns in the procurement function, other strategies may equally well be causing this pattern. Thus,

we may need to control for other factors such as supplier/buyer power and pace of technological

change as important mediating factors.

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Another interesting finding concerns the potential link between following SCM principles and the role

of international sourcing in the firm. The case material shows a remarkably high difference in terms of

the international sourcing ratio of SCM users as compared to non-users. Following up on the case

studies as this pattern came clearer to us, we have detected that SCM users often have fairly complex

supply chains and are facing greater supplier integration challenges than others. This also makes sense

in a theoretical framework, as increased distance calls for means to integrate suppliers better, as market

governance becomes less efficient, inducing market failure. Therefore, we can more explicitly add the

extent of foreign sourcing as an effect causing firms to follow SCM policies. A model summarising our

tentative findings is portrayed in figure 3.

Discussion - implications for management and researchOur exploratory study implies a number of important lessons, which may be pointed out here withsome caution, as further empirical evidence is needed in order to test these statements in a population,using more robust theoretical means than those employed here.The conceptual model presented in this article suggest a need for reorientation of the procurementfunction as a response on the transforming of production and outsourcing practices along the lines of

Change agents

Global competitive pressure/

technological pace

Organisational processes

Consequences for procurement practice

Reorientation of procurement

function

•Key supply managers•Cross organsiationaland cross-departmental teams•New competencesfor purchasers

EnterpriseSystems

implementation

Core competence& Global strategicoutsourcing focus

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SCM. Following this strategy positions procurement at the heart of business strategy. Theorganisational outcome is a change of the job descriptions and practices of procurement managers. Thissuggests that procurement management must rethink their employees’ skills, their use of informationand communication technologies and finally how to redesign the firm’s information architecture.

One outcome of our theoretical development is that the employees in procurement very likely will meetchanging requirements of their competencies. Mastery of other languages, advanced skills in the use ofinformation and communication technologies and capabilities to work in cross-departmental as well ascross-organisational teams are some of the important challenges faced by procurement personnel. Onthe other hand, learning of new skills may also mean unlearning of existing know-how. Day-to-dayprocurement activities are replaced by tasks of a more strategic nature. Purchasing officers need tofocus on their role in the business system and how they can contribute to the value-adding process.

A related outcome of this changing role is the need for a new type of boundary-spanner, which maymediate the linkages between external and internal stakeholders. We name this organisational functionthe key supply purchaser (KSP). Analogous to a Key account manager in the selling end of themarketing dyad, the KSP will be the access point of the single or selected group of suppliers to otherdepartments in the buying situation. The KSP is an important part of the information architecture buildfor a closer and tighter relationship with the suppliers. This procurement job is functioning as amediator with a focus on both external and internal issues. The KSP external responsibilities relates tomanage part of the fairly complex supply chains with many international sourcing activities where theinternal responsibility task is to be a part of the teamwork that is involved in product development andproduction decisions. In order to handle these tasks, extensive use of information and communicationtechnology in relation to operation integration becomes very important for the KSP.

An additional implication is that information replaces inventory when procurement has to ensure thatsuppliers are meeting the narrow specifications for delivery and inventory control. In this senseinformation and communication technology is an important tool to manage the intricate web ofrelationships by integrating the operations between the company and the supplier. Information andcommunication technology helps both the supplier and the buyer to better understand the businessprocess tasks in terms of supplier managed stock and other activities based upon information from partsof the supply chain closer to the end user. However, pressure for tighter operation integration may notonly come from the buyers. In order to achieve higher exit barriers for their customers the suppliers are

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putting pressure on their customers to use information ad communication technologies in operationintegration.

Several of the points made beget further investigation. First, the conceptual framework developedthroughout this text is ready for empirical testing, using a more traditional quantitative research design.This is needed to empirically validate the proposed relationships among SCM usage and procurementpractice.

Furthermore, the case study suggests that differences among users of SCM exist concerning theirimplementation of this practice in the organisation. A study of differences in implementation of SCMand the corresponding reasons for different organisational outcomes is an intriguing question to explorefurther on in order to develop our understanding of how organisations receive new strategic initiativessuch as the implementation of SCM practice. The role of the firms’ production technology as adiscriminating factor pose a useful lead for further investigation of the unfolding dynamics and tensionsbetween the technical and the commercial parts of the organisation and how they shape the process arerelevant topics to discuss further.

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Appendix A: A note on the judgmental process

A repeatedly stated criticism towards qualitative methods is their lack of methodological rigor.Compared to quantitative data, qualitative data analysis is in need of clear conventions to follow whenestablishing validity and reliability claims around research results (Miles, 1979; Miles & Snow, 1984;

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Strauss & Corbin, 1990). Some qualitative researchers maintain that the criteria for scientificqualification are useless in a qualitative study (Yin, 1992; Gabriel, 1990). However, others, groundedtheorists in particular, would claim that the usual canons of good science should be retained, but shouldbe redefined in order to fit the realities of qualitative research and the complexities of socialphenomena (cf. Strauss & Corbin, 1990, p. 249-250). The scientific canons of validity and reliabilityboth concerns the use of shared critical judgement in defence of weeding out less justifiable results infavour of more justifiable findings. This may be especially important in iterative grounded theory inorder to avoid tautological loops as researcher reflect empirical findings into theoretical findings andvice versa.

The best way of ensuring this is to specify as clearly as possible the basis upon which theinterpretations have been made and to test whether others may reach similar conclusions based on thedata material. The process of external judgement in the DFA procedure allows for this. Based on theirreview of the interview transcripts and other sources of material, the authors and two external judgeshave reviewed our material against the statements made. Following the procedure outlined by Wilson& Woodside (1999) They have provided the following statements confirmed (Y) partly confirmed (P)and not confirmed (N) Four levels of agreement exists for the judges: perfect (YYY, PPP, NNN) nearperfect (YPP NNP, NPP) some (YYN, YNN) or none (YPN). We have reported our findings in table 3:perfect or near perfect matches are given a "+" sign whereas some or none matches has been given a "-"sign.