Purchasing Competence and Its Relationship with Manufacturing Performance.This article develops purchasing competence as a valid construct and explores its relationship with different manufacturing priorities. An empirical study is conducted among purchasing professionals in manufacturing firms. The results of the research indicate that purchasing competence can be operationalized, developed, and estimated in a firm. Further, purchasing competence is found to have a positive impact on manufacturing cost, quality, and delivery, as well as new product introduction and customization performance. Purchasing integration, a component of purchasing competence, is found to relate to all dimensions of manufacturing performance.INTRODUCTION Quality, cost, delivery, innovation, and responsiveness underlie most manufacturing strategic agendas today (Neely, Mills, Platts Platts is a provider of energy information around the world that has been in business in various forms for more than a century and is now a division of The McGraw-Hill Companies. , Gregory; and Richards Rich·ards , Dickinson Woodruff 1895-1973. American physician. He shared a 1956 Nobel Prize for developing cardiac catheterization. 1994). Firms have traditionally pursued these goals through adoption of advanced technologies and manufacturing practices such as concurrent engineering, JIT JIT - dynamic translation , and worker empowerment em·pow·er tr.v. em·pow·ered, em·pow·er·ing, em·pow·ers 1. To invest with power, especially legal power or official authority. See Synonyms at authorize. 2. (Snell Snell , George 1903-1996. American geneticist. He shared a 1980 Nobel Prize for discoveries concerning cell structure that enhanced understanding of the immunological system, resulting in higher success rates in organ transplantation. and Dean 1992). Recent developments in industry suggest the emergence of another route to manufacturing excellence -- the acquisition and effective management of supply chain capabilities to achieve cost, quality, technology, delivery, and responsiveness objectives. These developments have provided purchasing with the opportunity to become a key contributor to manufacturing and business goals. The strategic reach of purchasing, its role in developing sustainable competitive advantage, and its emergence as a core competence Core competence Primary area of expertise. Narrowly defined fields or tasks at which a company or business excels. Primary areas of specialty. of firms have been documented in the literature (Carter and Narasimhan 1995; Tully Tully: see Cicero. 1995). Manufacturing firms are increasingly obtaining volume, design, and technology capabilities through strategic supply chain management (Tully 1994). However, such benefits cannot be obtained as a matter of course. Supply chain management competence enables and facilitates such gains. Faced with strikes in its own stamping plants in 1998, GM moved to obtain critical stampings and other parts from its suppliers. Industry analysts reported that this strategy might not be successful for a variety of reasons. One is that GM has not developed enough supply chain competence to obtain such emergent emergent /emer·gent/ (e-mer´jent) 1. coming out from a cavity or other part. 2. pertaining to an emergency. emergent 1. coming out from a cavity or other part. 2. coming on suddenly. , empathetic em·pa·thet·ic adj. Empathic. em  pa·thet i·cal·ly adv. responses from its suppliers. In contrast, Ford, Volkswagen “VW” redirects here. For the airline using IATA designator VW, see Aeromar.Volkswagen AG (ISIN: DE0007664005), or VW, is an automobile manufacturer based in Wolfsburg, Germany. , and Chrysler Chrys·ler , Walter Percy 1875-1940. American automobile manufacturer who founded the Chrysler Corporation (1925). are pioneering such supply chain management techniques as building modular plants in Brazil Brazil (brəzĭl`), Port. Brasil, officially Federative Republic of Brazil, republic (2005 est. pop. 186,113,000), 3,286,470 sq mi (8,511,965 sq km), E South America. that house suppliers under the same roof (CNN CNN or Cable News Network Subsidiary company of Turner Broadcasting Systems. It was created by Ted Turner in 1980 to present 24-hour live news broadcasts, using satellites to transmit reports from news bureaus around the world. News 1998). The need for supply chain management competence is also found in other industries. Pitney Bowes  This article or section is written like an .Please help [ rewrite this article] from a neutral point of view. Mark blatant advertising for , using . predicates its manufacturing performance, future growth, and new product introduction strategy on developing a core group of technologically capable suppliers with manufacturing expertise (Minahan 1997). Evidence in the literature thus suggests that the basis of competition in many industries in the future may revolve around Verb 1. revolve around - center upon; "Her entire attention centered on her children"; "Our day revolved around our work" center, center on, concentrate on, focus on, revolve about the development of supply chain competence by organizations. Supply chain competence can be conceived as comprising three distinct competencies: purchasing competence, production competence, and logistics/marketing competence. Past research has examined production competence, logistics and marketing competence, and their strategic relationships to competitive positioning (Avlonitis and Gounaris 1997; Vickery, Droge, and Markland 1993). However, despite its importance, purchasing competence remains largely unexplored in the literature. There is a conspicuous con·spic·u·ous adj. 1. Easy to notice; obvious. 2. Attracting attention, as by being unusual or remarkable; noticeable. See Synonyms at noticeable. absence of rigorous conceptualizations or examinations of this construct. Investigations of the relationship between purchasing competence and manufacturing performance are also lacking in the literature. This article addresses these gaps in the literature. Its objective is to examine purchasing competence and investigate its relationship to manufacturing performance. The article is organized as follows. First, the concept of purchasing competence is defined. Next, a measurement model of purchasing competence is developed from empirical data. This is followed by a discussion of the statistical relationships between purchasing competence and manufacturing competitive priorities. The article concludes with a discussion of the results and their implications for theory and practice. PURCHASING COMPETENCE -- THE CONSTRUCT Purchasing competence is the capability to structure, develop, and manage the supply base in alignment with the manufacturing and business priorities of a firm. When fully developed, purchasing competence enables purchasing to become a participant in the strategic planning Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. processes of a firm and impact key policies at the functional and corporate levels. Developing purchasing competence requires the selection and use of purchasing practices that can be directly related to the achievement of business-level goals. However, from a theoretical and statistical standpoint The Standpoint is a newspaper published in the British Virgin Islands. It was originally published under the name Pennysaver, largely as a shopping-coupon promotional newspaper, but since emerged as one of the most influential sources of journalism in the , purchasing competence is quite distinct from purchasing practices. Purchasing competence is the latent Hidden; concealed; that which does not appear upon the face of an item. For example, a latent defect in the title to a parcel of real property is one that is not discoverable by an inspection of the title made with ordinary care. capability to structure, develop, and manage the supply base in alignment with manufacturing (and business) priorities. Purchasing practices represent internal, observable ob·serv·a·ble adj. 1. Possible to observe: observable phenomena; an observable change in demeanor. See Synonyms at noticeable. 2. activities that can be measured directly in a firm. Purchasing competence is similar to the notions of "world-class purchasing," "integrative purchasing," and "strategic pur chasing management," by virtue of its focus on purchasing integration with business goals (Freeman Freeman can mean:
Purchasing competence could encompass a portfolio of purchasing practices, ranging from supply base optimization optimization Field of applied mathematics whose principles and methods are used to solve quantitative problems in disciplines including physics, biology, engineering, and economics. to early supplier design involvement to worldwide purchasing (Monczka and Trent 1991). This research considers four purchasing practices that might be encountered in many purchasing environments -- supply base optimization, buyer-supplier relationship development practices, supplier capability audit, and purchasing integration. While other purchasing practices such as global purchasing and green purchasing exist, past research has observed the importance of the preceding four purchasing practices in a variety of purchasing situations. Robertson (1995), in an in-depth study of the strategic evolution of the purchasing function at Rover Motors, U.K., observed that supply base rationalization rationalization, in psychology: see defense mechanism. formed the first step in the company's strategic purchasing initiative. Rover then engaged in information sharing See data conferencing. and several other buyer-supplier relationship development activities with its supply base, followed by systematic and regular assessments of supplier performance. These actions were coordinated through cross-functional teams In business, a cross-functional team is a group of people with different functional expertise working toward a common goal. It may include people from finance, marketing, operations, and human resources departments. , integrating purchasing with manufacturing, engineering, and finance. Purchasing integration played a key role in convincing management of the strategic value of purchasing actions. The tangible value added Value Added The enhancement a company gives its product or service before offering the product to customers. Notes: This can either increase the products price or value. to business goals led management to recognize the strategic importance of purchasing and invest in its development. Other studies have documented the fundamental nature of these four purchasing practices in the purchasing plans of companies (Gadde and Hakansson 1994; Monczka and Trent 1991). These practices often support and subsume sub·sume tr.v. sub·sumed, sub·sum·ing, sub·sumes To classify, include, or incorporate in a more comprehensive category or under a general principle: other, more disaggregate See disaggregated. , purchasing actions. For example, companies engaged in buyer-supplier relationship development may employ supplier quality and technical assistance programs, build long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. supplier relationships, form buyer-supplier councils, and deploy a total cost focus (Dyer and Ouchi 1993). Such practices have been labeled as supplier development, total quality management (TQM (Total Quality Management) An organizational undertaking to improve the quality of manufacturing and service. It focuses on obtaining continuous feedback for making improvements and refining existing processes over the long term. See ISO 9000. ), and total cost of ownership purchasing practices (Monczka and Trent 1991), all of which can be included within the larger rubric RUBRIC, civil law. The title or inscription of any law or statute, because the copyists formerly drew and painted the title of laws and statutes rubro colore, in red letters. Ayl. Pand. B. 1, t. 8; Diet. do Juris. h.t. of buyer-supplier relationship development. Supply base optimization is often perceived as a prerequisite pre·req·ui·site adj. Required or necessary as a prior condition: Competence is prerequisite to promotion. n. for other purchasing initiatives and constitutes a distinct purchasing strategy. It generally precedes other purchasing activities (Bhote 1989) and reduces transaction and supplier production costs (Dyer and Ouchi 1993). Supply base optimization consists of supplier reduction, reorganization, and volume leveraging actions that may facilitate more sophisticated purchasing practices such as buyer-supplier relationship development and early supplier involvement in product and process design. Supplier capability audits are associated with supplier performance expectations. Purchasing contributes to strategic objectives by selecting, developing, and monitoring a capable supply base (Fitzpatrick 1996). Increased reliance on the supply base for obtaining current and future competitive success has focused management attention on supplier performance. Such attention has increased in recent years, particularly since buyers perceive supplier performance as less than satisfactory -- escalating management expectations of purchasing have created similar purchasing expectations of supplier performance (Monczka and Trent 1995). Supplier performance evaluation Performance evaluation The assessment of a manager's results, which involves, first, determining whether the money manager added value by outperforming the established benchmark (performance measurement) and, second, determining how the money manager achieved the calculated return and capability audits have become a critical part of purchasing strategies in supply chains in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and abroad (Hahn, Watts Watts, residential section of south central Los Angeles. Named after C. H. Watts, a Pasadena realtor, the section became part of Los Angeles in 1926. Artist Simon Rodia's celebrated Watts Towers are there. , and Kim 1990). Purchasing integration represents the fourth purchasing practice examined in this research and underlies the strategic impact of the other three purchasing practices. Purchasing integration enables fit and alignment between purchasing practices and the business objectives of a firm. It links purchasing plans, policies, and actions to corporate and cross-functional priorities and is a key influence on top management perceptions of the strategic importance of purchasing. For these reasons, during the 1990s, purchasing research focused on the integration of and purchasing participation in the business goals of an enterprise (Fitzpatrick 1996; Ellram and Can 1994). Purchasing integration requires the active involvement of purchasing in the business of a firm, achieved through mechanisms such as cross-functional teaming, participation in strategy formulation formulation /for·mu·la·tion/ (for?mu-la´shun) the act or product of formulating. American Law Institute Formulation , and a focus on activities that are perceived as adding value to strategic business goals (Robertson 1995; Gadde and Hakansson 1994). PURCHASING COMPETENCE -- AN OPERATIONALIZATION These four purchasing practices -- supply base optimization, buyer-supplier relationship development, supplier capability auditing, and purchasing integration -- provide a platform for the evolutionary development of purchasing competence in a firm. The purchasing competence construct was conceptualized as a latent construct, with four first-order dimensions: supply base optimization, buyer-supplier relationship development, supplier capability auditing, and purchasing integration. Although the literature lacks a validated val·i·date tr.v. val·i·dat·ed, val·i·dat·ing, val·i·dates 1. To declare or make legally valid. 2. To mark with an indication of official sanction. 3. scale for purchasing competence, several studies have discussed and developed item measures for individual sourcing domains. The following studies were used in developing measures for supply base optimization: Robertson (1995); Gadde and Hakansson (1994); Handfield (1993); Monczka, Trent, and Callahan (1993). Measures for buyer-supplier relationship practices were derived from the relationship and alliance literature: Dyer, Cho, and Chu (1998); Kamath and Liker (1994); Ring and Van De yen (1992), (1994); Landeros and Monczka (1989). Measures for supplier capability auditing were based in part on the supplier development and performance literature: Watts and Hahn (1993); Monczka et al. (1993); Watts, Kim, and Hahn (1992); Lascelles and Dale (1990). Specific measures were also developed in this research for evaluating supplier responsiveness and design capabilities that are related to the competitive priorities of customization and responsiveness. Items for purchasing integration were based on the integration and strategic sourcing literature: Robertson (1995); Ellram and Carr CARR Carrier CARR Customer Acceptance Readiness Review CARR Carrollton Railroad CARR Corrective Action Request and Report CARR City Area Rural Rides (Texas) CARR Configuration Audit Readiness Review CARR Customer Acceptance Requirements Review (1994); Gadde and Hakansson (1994); Monczka and Trent (1991); Freeman and Cavinato (1990); Reck and Long (1988). Item measures for the competitive performance dimensions were adopted from the manufacturing strategy literature: Roth and Miller (1990); Dean and Snell (1991); Miller and Roth (1994). Each dimension of manufacturing performance was measured in terms of internal and competitive performance st andards. The item pool generated for the four dimensions of purchasing competence and manufacturing competitive priorities was pilot-tested on three academics and 10 purchasing practitioners. The final list of item measures that emerged from the pilot test is shown in Table 1. A survey instrument was developed based on the above item measures and administered to a cross-section of purchasing professionals. Comparisons of initial interviews with purchasing and manufacturing managers did not reveal any substantial inconsistencies among their responses on manufacturing-related questions. Further, a random subsample sub·sam·ple n. A sample drawn from a larger sample. tr.v. sub·sam·pled, sub·sam·pling, sub·sam·ples To take a subsample from (a larger sample). of firms was selected from the respondent In Equity practice, the party who answers a bill or other proceeding in equity. The party against whom an appeal or motion, an application for a court order, is instituted and who is required to answer in order to protect his or her interests. sample to obtain manufacturing's perspective on the manufacturing-related items in the questionnaire. Responses were obtained for manufacturing-related questions from the manufacturing managers of these firms. Paired comparisons were made between the purchasing and manufacturing scores for these questions, and the inter-rater reliability Inter-rater reliability, Inter-rater agreement, or Concordance is the degree of agreement among raters. It gives a score of how much , or consensus, there is in the ratings given by judges. for each of the firms was calculated (James, Demaree, and Wolf 1984). The average inter-rater reliability was 0.96, evidencing a high degree of agreement between purchasing and manufacturing perspectives on manufacturing-related issues. DATA COLLECTION AND ANALYSIS The sample frame was drawn from the manufacturing sector of the National Association of Purchasing Management (NAPM NAPM National Association of Purchasing Management NAPM National Association of Pharmaceutical Manufacturers NAPM National Academy of Popular Music NAPM National Association of Photographic Manufacturers NAPM National Association of Punch Manufacturers ) Title 1 member list. The range of industries covered in the sample frame included the following Standard Industrial Classification (SIC) codes: SIC 34 -- Fabricated fab·ri·cate tr.v. fab·ri·cat·ed, fab·ri·cat·ing, fab·ri·cates 1. To make; create. 2. To construct by combining or assembling diverse, typically standardized parts: Metal Products, except Machinery and Transportation Equipment SIC 35 -- Industrial and Commercial Machinery and Computing computing - computer Equipment SIC 36 -- Electronic and Other Electrical Equipment A piece of electrical equipment is a machine, powered by electricity and usually consists of an enclosure, a variety of electrical components and often a power switch. Examples of Electrical Equipment
SIC 37 - Transportation Machinery and Items SIC 38 -- Measuring, Analyzing, and Controlling Instruments; Photographic, Medical, and Optical Goods Data collection was conducted in two phases. Phase one involved site visits and interviews with executive management in the sourcing and manufacturing areas across different industries. Phase two, following Dillman's (1978) guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. , involved mailing the survey to senior-level NAPM members selected at random from the NAPM member list. The mailing package consisted of a cover letter, the survey, and a reply paid return envelope. Assuming a conservative 15-20 percent response rate, the mailing was made to approximately 1,700 potential respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. . Written follow-ups (with duplicate DUPLICATE. The double of anything. 2. It is usually applied to agreements, letters, receipts, and the like, when two originals are made of either of them. Each copy has the same effect. questionnaires) were mailed to all non-respondents approximately three weeks after the initial mailing. A total of 322 usable USable is a special idea contest to transfer US American ideas into practice in Germany. USable is initiated by the German Körber-Stiftung (foundation Körber). It is doted with 150,000 Euro and awarded every two years. responses were received. The response rate was 19 percent, which compares well with past studies in the purchasing literature (Fawcett and Scully 1998; Germain and Droge 1998). A profile of the respondents is presented in Table II. ANOVA anova see analysis of variance. ANOVA Analysis of variance, see there tests failed to reveal any statistically significant differences among different SIC group means for company sales, plant sales, number of employees, product characteristics, process characteristics, and product life cycle. Measurement Analysis Structural equation modeling Structural equation modeling (SEM) is a statistical technique for testing and estimating causal relationships using a combination of statistical data and qualitative causal assumptions. was employed to develop a second-order confirmatory model for estimating purchasing competence. Figure 1 shows the operationalization of the purchasing competence construct (error terms not shown). Initially, a first-order confirmatory factor analysis In statistics, confirmatory factor analysis (CFA) is a special form of factor analysis. It is used to assess the the number of factors and the loadings of variables. (CFA (Computer Fraud and Abuse Act of 1986) Signed into law in 1986, the CFA was a significant step forward in criminalizing unauthorized access to computer systems and networks. The Act applies to "federal interest computers" that include any system used by the U.S. ) with four factors was developed and validated, followed by a second-order CFA. Only two item measures relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc volume consolidation and parts bundling loaded on the first-order "supply base optimization" factor. Considering the limited domain of these item measures, it was deemed appropriate to rename Re`name´ v. t. 1. To give a new name to. Verb 1. rename - assign a new name to; "Many streets in the former East Germany were renamed in 1990" the "supply base optimization" factor as "parts bundling." Table III presents the results of the CFA. The global fit indices (CFI CFI abbr. cost, freight, and insurance : 0.982; NNFI NNFI Non-Normed Fit Index (statistics) : 0.977; and NH: 0.926) provided strong support of model fit. The absence of negative error variances provided further evidence of good model fit (Bagozzi and Yi 1988). Convergent validity Convergent validity is the degree to which an operation is similar to (converges on) other operations that it theoretically should also be similar to. For instance, to show the convergent validity of a test of mathematics skills, the scores on the test can be correlated with scores was indicated by the strong and significant (p[less than]0.05) item loadings. All loadings (with the exception of one item, 0.41) were at 0.50 or above. Reliabilities for the factors (coefficient coefficient /co·ef·fi·cient/ (ko?ah-fish´int) 1. an expression of the change or effect produced by variation in certain factors, or of the ratio between two different quantities. 2. alpha) ranged from 0.75 1 to 0.863. All inter-factor correlations were found significantly different from 1.00, affirming the discriminant validity Discriminant validity describes the degree to which the operationalization is not similar to (diverges from) other operationalizations that it theoretically should not be similar to. of the model. A multi-group analysis of the second-order CFA model was conducted to validate To prove something to be sound or logical. Also to certify conformance to a standard. Contrast with "verify," which means to prove something to be correct. For example, data entry validity checking determines whether the data make sense (numbers fall within a range, numeric data the model and to undertake a simultaneous test for non-response bias. The sample was split into early (n=200) and late (n=122) respondents. Respondents to the follow-up letter follow-up letter n → carta recordatoria were assumed to be equivalent to non-respondents, since a post-survey stimulus stimulus /stim·u·lus/ (stim´u-lus) pl. stim´uli [L.] any agent, act, or influence which produces functional or trophic reaction in a receptor or an irritable tissue. was required to elicit e·lic·it tr.v. e·lic·it·ed, e·lic·it·ing, e·lic·its 1. a. To bring or draw out (something latent); educe. b. To arrive at (a truth, for example) by logic. 2. their response (Narasimhan and Das 1999; Armstrong and Overton 1977). The objective was to test for measurement invariance in·var·i·ant adj. 1. Not varying; constant. 2. Mathematics Unaffected by a designated operation, as a transformation of coordinates. n. An invariant quantity, function, configuration, or system. across the first and second waves of respondents. The global indices of the "stacked Stacked is an American television sitcom that premiered on Fox on April 13, 2005. On May 18, 2006, Stacked was cancelled, leaving five episodes unaired in the United States. The last episode aired on January 11, 2006. model" represent an excellent fit (CFI: 0.969; NNFI: 0.963; NFI NFI Nasjonal Forskningsinformasjon (Norwegian Research Database) NFI National Fisheries Institute NFI National Fatherhood Initiative NFI National Forest Inventory (Australia) NFI Nutrition Foundation of India : 0.867). The results serve as a stringent indicator of the absence of non-response bias and cross-validate the model. The item measures for individual manufacturing competitive priorities were single indicators, albeit benchmarked against internal and external (competitive) goals. A CFA would have been redundant in view of this and was not deemed necessary. Each manufacturing performance dimension was measured by summating respondent scores on the internal and external item measures. The reliabilities (Cronbach's alpha Cronbach's  (alpha) has an important use as a measure of the reliability of a psychometric instrument. It was first named as alpha by Cronbach (1951), as he had intended to continue with further instruments. ) of these summed scores are indicated below:
Manufacturing Cost Reduction Performance - [alpha]: 0.783 Quality Performance - [alpha]: 0.826 New Product Introduction Time Reduction Performance - [alpha]: 0.791 Delivery Performance - [alpha]: 0.896 Customization Responsiveness Performance - [alpha]: 0.822 The individual manufacturing performance dimension reliabilities well exceeded the minimum limit (0.60) suggested for new scales (Nunnally 1978). In summary, the results of the data analysis established the validity of the measurement models for estimating purchasing competence and the manufacturing competitive priorities. Investigation of Relationships Regression analysis In statistics, a mathematical method of modeling the relationships among three or more variables. It is used to predict the value of one variable given the values of the others. For example, a model might estimate sales based on age and gender. was used to explore the relationship between purchasing competence and manufacturing performance. An aggregate manufacturing performance measure was constructed by combining the scores on each competitive priority. Business strategies may involve the simultaneous pursuit of multiple performance objectives. As such, a firm may be interested in aggregate manufacturing performance, encompassing multiple performance outcomes. Table IV shows the correlations among the individual manufacturing performance dimensions. The strength of these correlations implies that actions taken for a particular individual performance objective should concurrently affect related performance dimensions, supporting the notion of an aggregate approach to assessing manufacturing performance. A three-stage approach was followed in the analysis of the data. The central research theme of this study is the examination of purchasing competence and its implications for manufacturing performance. Accordingly, aggregate manufacturing performance was first regressed against purchasing competence. Next, multiple regressions Multiple regression The estimated relationship between a dependent variable and more than one explanatory variable. were run, employing the components of purchasing competence as independent variables and aggregate manufacturing performance as the dependent variable. In order to enhance interpretability, a final set of multiple regressions was conducted, regressing the four purchasing competence factors on individual aspects of manufacturing performance. Table V shows the results of the first regression analysis, with manufacturing performance as the dependent variable and purchasing competence as the independent variable. The results show that purchasing competence explained 12 percent of the variance The discrepancy between what a party to a lawsuit alleges will be proved in pleadings and what the party actually proves at trial. In Zoning law, an official permit to use property in a manner that departs from the way in which other property in the same locality in aggregate manufacturing performance. The "F" test and "T" statistics indicate a statistically valid relationship. Table VI presents the results of the second set of regression analysis with aggregate manufacturing performance and the individual purchasing competence factors. The individual dimensions of purchasing competence explained approximately 14 percent of the variance in aggregate manufacturing performance. The significant "F" statistic statistic, n a value or number that describes a series of quantitative observations or measures; a value calculated from a sample. statistic a numerical value calculated from a number of observations in order to summarize them. evidences the statistical validity of the regression regression, in psychology: see defense mechanism. regression In statistics, a process for determining a line or curve that best represents the general trend of a data set. model. The significant betas (p[less than]0.05 and p[less than]0.10) indicate the positive effects of buyer-supplier relationship development, supplier capability auditing, and purchasing integration on aggregate manufacturing performance. Table VII shows the summary results of the final set of regression analysis, with individual components of manufacturing performance constituting the dependent variables, and purchasing competence factors constituting the independent variables. Significant relationships were found between supplier capability auditing and the dependent variables: new product introduction time performance, manufacturing cost performance, and customization responsiveness performance, respectively. Statistically significant relationships were also found between purchasing integration and the dependent variables of new product introduction performance, manufacturing cost performance, quality performance, delivery performance, and customization responsiveness performance. A significant relationship was also found between parts bundling and delivery performance. The regression models were statistically significant and explained from 4 percent to 7.6 percent of the variance in the dependent variable(s). The next section discusses the implications of the relationships. IMPLICATIONS The findings have implications for theory and practice. The operationalization and estimation estimation In mathematics, use of a function or formula to derive a solution or make a prediction. Unlike approximation, it has precise connotations. In statistics, for example, it connotes the careful selection and testing of a function called an estimator. of "purchasing competence" as a valid construct fulfills past research calls (Hines 1996). The purchasing competence construct can be used as a fundamental building block in sourcing theory development. The relationships between purchasing competence and manufacturing performance provide a framework for identifying and exploiting opportunities in a firm's supply chain. Developing Purchasing Competence The results of the CFA show that one way to develop purchasing competence is through investments in the distinct purchasing practices of parts bundling, buyer-supplier relationship development practices, supplier capability auditing, and purchasing integration. The item factor loadings (see Table III) indicate the practices that purchasing must pursue to develop purchasing competence. Volume consolidation and parts bundling are practices that could facilitate supply base rationalization. The loadings for buyer-supplier relationship practices reaffirm re·af·firm tr.v. re·af·firmed, re·af·firm·ing, re·af·firms To affirm or assert again. re the importance of top management commitment for successful functional initiatives. Joint problem solving problem solving Process involved in finding a solution to a problem. Many animals routinely solve problems of locomotion, food finding, and shelter through trial and error. with suppliers is another practice that appears to strongly impact relational programs. Other practices involve production information sharing by buyers and suppliers. When implemented, these practices should aid the development of mutual trust among firms in a supply chain relationship. Purchasing practices that are relevant for a supplier capability auditin g strategy include supplier participation and assistance in product design. Supplier involvement in design is predicated on strong supplier capabilities in design, a criterion for consideration during supplier selection, and supply base rationalization. Supplier responsiveness to changes in product specifications, order mix, order volume, and delivery schedules is also a factor that impacts supplier capability auditing. Product modularization is another supplier competence that buyers should include in their evaluation criteria. Together, these supplier capabilities can provide strong support for the development of strategic purchasing programs. The item loadings also suggest specific purchasing practices that could enable purchasing integration with business goals. Purchasing participation in business strategy meetings, a reorientation Noun 1. reorientation - a fresh orientation; a changed set of attitudes and beliefs orientation - an integrated set of attitudes and beliefs 2. reorientation - the act of changing the direction in which something is oriented of purchasing's functional focus and evaluation programs toward customers and markets, and purchasing involvement in new product development are some practices that merit atte ntion. For this purpose, purchasing may be required to retrain re·train tr. & intr.v. re·trained, re·train·ing, re·trains To train or undergo training again. re·train or hire personnel; measure and reward personnel on strategic metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. such as technology development, new product development success, and customer responsiveness; and become proactive in recommending product and business goal changes based on careful analysis of the supply market. Purchasing integration links purchasing to strategic business goals and forms an essential component of purchasing competence. Implemented independently, the four purchasing competence factors might not lead to best results. The significant inter-correlations among these factors suggest a synergistic synergistic /syn·er·gis·tic/ (sin?er-jis´tik) 1. acting together. 2. enhancing the effect of another force or agent. syn·er·gis·tic adj. 1. interrelationship in·ter·re·late tr. & intr.v. in·ter·re·lat·ed, in·ter·re·lat·ing, in·ter·re·lates To place in or come into mutual relationship. in among the factors (Table VIII). In brief, the results suggest that purchasing competence is a capability that: * Derives from a synergistic combination of specific purchasing strategies * Can be developed through the implementation of specific purchasing practices and programs * Can be measured through a factor scale Purchasing Competence and Manufacturing Performance The results show that purchasing competence has a significant and positive impact (b=0.443; p[less than]0.01) on aggregate manufacturing performance. This is a critical finding for purchasing. Clearly, purchasing can gain in status and strategic importance when a demonstrable de·mon·stra·ble adj. 1. Capable of being demonstrated or proved: demonstrable truths. 2. Obvious or apparent: demonstrable lies. relationship can be shown to exist between investments in developing purchasing competence and performance outcomes. Manufacturing performance is potentially subject to multiple influence factors, including variables (omitted in this study) such as worker morale, pay systems, manufacturing technology and plant age. Considered in this light, the obtained R-square values of 0.12-0.14 for the purchasing competence-aggregate manufacturing performance regression models are not insubstantial. The regression with decomposed de·com·pose v. de·com·posed, de·com·pos·ing, de·com·pos·es v.tr. 1. To separate into components or basic elements. 2. To cause to rot. v.intr. 1. purchasing competence offers additional insights. Supplier auditing capability and purchasing integration were found to have a positive influence on aggregate manufacturing performance (p[less than]0.01). Buyer-supplier rel ationship development was found to benefit aggregate manufacturing performance (p=0.057). While the latter result is consistent with previous research, the findings tying purchasing integration and supplier capability auditing to manufacturing outcomes are new and interesting. Evidence of a direct relationship between purchasing integration and manufacturing performance confirms the earlier conceptualizations in the literature (Gadde and Hakansson 1994; Watts et al. 1992). Similarly, the linkage linkage In mechanical engineering, a system of solid, usually metallic, links (bars) connected to two or more other links by pin joints (hinges), sliding joints, or ball-and-socket joints to form a closed chain or a series of closed chains. between supplier capability auditing and manufacturing performance supports previous research theories (Fitzpatrick 1996; Monczka and Trent 1995). The third set of regression analyses provided insights into the relationships between the constituent CONSTITUENT. He who gives authority to another to act for him. 1 Bouv. Inst. n. 893. 2. The constituent is bound with whatever his attorney does by virtue of his authority. factors of purchasing competence and individual manufacturing priorities (see Table VII). Specific purchasing practices were found to impact the operational-level priorities of cost, quality, and delivery, as well as strategic performance metrics Performance metrics are measures of an organizations activities and performance. Performance metrics should support a range of stakeholder needs from customers, shareholders to employees [1]. such as new product introduction time and customization responsiveness. The results suggest that purchasing competence should be developed by differently weighting the component factors to suit individual priorities. For example, a cost-focused business and manufacturing strategy would require increased emphasis on purchasing integration and supplier capability auditing, both of which have a positive impact on manufacturing cost reduction (p[less than]0.05 and p[less than]0.10). Attention to parts bundling appears to improve delivery performance (p[less than]0.5), and supplier capability auditing could enhance new product development and customization goals (p[less than]0.03 and p[less than]0.07). Interestingly, purchasing integration is a significant common denominator common denominator n. 1. Mathematics A quantity into which all the denominators of a set of fractions may be divided without a remainder. 2. A commonly shared theme or trait. in all of these relationships, lending credence to recent observations about the increasingly critical role of this factor in strategic sourcing programs (Fitzpatrick 1996; Ellram and Carr 1994). The results suggest that purchasing may benefit from improving and aligning a·lign v. a·ligned, a·lign·ing, a·ligns v.tr. 1. To arrange in a line or so as to be parallel: align the tops of a row of pictures; aligned the car with the curb. internal relationships before attempting to initiate external programs. Table VII shows that all of the purchasing factors, except "buyer-supplier relationship development" (BSRD BSRD British Society for Restorative Dentistry BSRD Business Systems Reengineering Division ), influenced different aspects of manufacturing performance. A plausible reason for the failure to find a significant relationship between BSRD and disaggregated Broken up into parts. manufacturing performance could be an extended time lag between BSRD initiatives and impact. It has been noticed that organizational interventions involving human or relational factors are likely to suffer from lagged outcomes, relative to investments in "hard" structural areas. Companies implementing T QM programs, for instance, had to wait for 5-8 years on average before experiencing anticipated gains (Dusseau 1996). BSRD could be the most time-consuming initiative among the four purchasing competence factors, given its dyadic Two. Refers to two components being used. (programming) dyadic - binary (describing an operator). Compare monadic. nature and focus on relational issues. A longitudinal study longitudinal study a chronological study in epidemiology which attempts to establish a relationship between an antecedent cause and a subsequent effect. See also cohort study. would clarify the time lags associated with BSRD implementation and its outcomes. CONCLUSION This research defined and developed measures for estimating purchasing competence. It also conducted an exploratory investigation of the relationship between purchasing competence and various manufacturing priorities, finding several significant influence relationships. The results of the study provide useful insights into the development and use of purchasing competence as a strategic competitive capability. The results provide evidence of the performance implications of developing purchasing competence in a firm. The results also suggest that purchasing competence could be tailored to meet specific manufacturing priorities, by placing differential emphasis on the four purchasing competence factors. Purchasing integration and supplier capability auditing together impact both internal (cost, quality, delivery) and external (new product introduction time, customization responsiveness) performance goals. Purchasing thus has the capability to address issues at the operational and the strategic level. It is necessary for purchasing to recognize and exploit this capability in order to position itself in a strategic role. The four purchasing competence factors may not constitute the full domain of this construct. Global sourcing, environmental issues, and logistics are some additional areas that could be included in future studies. It also may be useful to investigate issues of order and sequence among the component factors of purchasing competence. AUTHORS Ajay Das is assistant professor of management in the Zicklin School of Business The Zicklin School of Business, named after financier and alumni Lawrence Zicklin, is a business school in New York, New York, United States. The Zicklin School is one of the three schools that comprise Baruch College of the City University of New York (the others being the School at Baruch College Baruch College: see New York, City University of. , City University of New York The City University of New York (CUNY; acronym: IPA pronunciation: [kjuni]), is the public university system of New York City. . Dr. Das earned his Ph.D. degree from Michigan State University Michigan State University, at East Lansing; land-grant and state supported; coeducational; chartered 1855. It opened in 1857 as Michigan Agricultural College, the first state agricultural college. . His research interests include supply chain management, manufacturing flexibility, technology strategy, and quality management. Ram Narasimhan is distinguished professor of operations and supply chain management in the Eli Broad Eli Broad (born June 6, 1933) a native of Detroit, Michigan is a Jewish American billionaire who lives in Los Angeles, California. His last name is pronounced as rhyming with road. Broad is well known for his philanthropy and extensive art collection. Graduate School of Business at Michigan State University. Dr. Narasimhan earned his Ph.D. degree from the University of Minnesota (body, education) University of Minnesota - The home of Gopher. http://umn.edu/. Address: Minneapolis, Minnesota, USA. . 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LIST OF MEASURES FOR THE PURCHASING COMPETENCE CFA
Factor Item Measures
Supply Base Average number of suppliers per part
Optimization Is current number of suppliers high/low/right
Tiering of supply base into primary and
secondary suppliers
Extent of volume consolidation
Extent of parts bundling
Buyer-Supplier Nature of contractual relationship with supplier
(short-term/long-term/partnership)
Relationship Trust building
Development Top management commitment to relationship
Joint problem solving
Joint investments in specialized
machinery/materials/assets
Financial assistance to supplier
Technological assistance to supplier
Quality training to supplier
Use of buyer-supplier similar mechanisms
Timely production information sharing with
supplier
Direct communication between production
schedulers at buyer and supplier plants
Cost information sharing with supplier
Cost information sharing by supplier
Use of total cost concept
Use of formal supplier evaluation and feedback
procedures
Granting supplier performance rewards and awards
Buyer concern for supplier earning a fair profit
Supplier concern for buyer earning a fair profit
Supplier Capability Quality performance
Auditing Cost performance
Ability for complex manufacturing
Ability to modify product to meet customer needs
Responsiveness to schedule delivery changes
Ability to accept late "mix" changes in orders
Product modularization
Responsiveness to schedule volume changes
Assistance in buyer product/process design
Ability to design and supply new products
Purchasing Integration Extent to which purchasing and manufacturing
jointly establish goals
Purchasing regularly attends strategy meetings
Purchasing recommends and impacts changes in end
products and inputs
Participates in cross-functional teams
Proportion of purchasing personnel who spend
time in routine tasks (expediting, order
generation)
Proportion of purchasing personnel who spend
time in supplier development and certification
Proportion of purchasing personnel who spend
time in market and price/cost analysis
Purchasing participation in product design
Purchasing participation in process design
Purchasing participation in developing sales bid
Purchasing is rewarded on strategic
contributions (new products/technologies) to the
company
Manufacturing The extent to which the company has been able to
Competitive Priorities meet its cost reduction goals
The extent to which the company has been able to
meet its quality improvement goals
The extent to which the company has been able to
meets its manufacturing cycle time reduction
goals
The extent to which the company has been able to
meet its delivery goals in terms of delivery
speed and dependability
The extent to which the company has been able to
meet its customization responsiveness goals
RESPONDENT PROFILE
Respondent Titles Vice President/Director Purchasing/Materials 50
Purchasing/Commodity/Materials Manager 179
Senior Buyer/Buyer 7
Other Titles (Operations Manager, Purchasing
Engineer) 6
No Response 80
Company Sales ($ million) [less than]1 [greater than]1-10
# of respondents 2 31
No Response: 8
Plant Sales ($ million) [less than]1 [greater than]1-10
# of respondents 2 32
No Response: 4
Number of Employees in Plant [leq]100 [greater than]100-200
# of respondents 59 80
No Response: 4
Company Sales ($ million) [greater than]10-50 [greater than]50-100
# of respondents 72 41
Plant Sales ($ million) [greater than]10-50 [greater than]50-100
# of respondents 108 66
Number of Employees in Plant [greater than]200-500 [greater than]500-1,000
# of respondents 81 43
Company Sales ($ million) [greater than]100-500 [greater than]500
# of respondents 74 94
Plant Sales ($ million) [greater than]100-500 [greater than]500
# of respondents 72 38
Number of Employees in Plant [greater than]1,000
# of respondents 55
Product Characteristics Made-To-Stock Eng.-To-Order (TO) Make-T-O
# of respondents 76 53 130
No Response: 1
Process Characteristics Job Shop Batch Repetitive
# of respondents 109 71 117
No Response: 1
Product Characteristics Assy.-T-O
# of respondents 62
Process Characteristics Continuous
# of respondents 24
Product Life Cycle Growth Maturity Decline
# of respondents 148 160 13
No Response: 1
ITEM MEASURES AND GOODNESS-OF-FIT INDICES
FOR THE PURCHASING COMPETENCE CFA
n 289
[[chi].sup.2] 215.14
Degrees of Freedom 166
p-Value 0.006
CFI 0.981
NNFI 0.976
NFl 0.924
Factor Item Measure Loading
Buyer-Supplier Relationship
Development (Fl)
Contractual Relationship
with Supplier 0.570
Degree of Mutual Trust 0.639
Top Management Commitment 0.763
Joint Problem Solving 0.810
Product Information Sharing
with Supplier 0.626
Product Information Sharing
by Supplier 0.582
Parts Bundling (F2)
Volume Consolidation 0.865
Parts Bundling 0.703
Supplier Capability
Auditing (F3)
Supplier Ability to Modify Product 0.523
Supplier Responsiveness to
Delivery Changes 0.510
Supplier Ability to Accept Late
"Mix Changes" in Orders 0.416
Modularization of Supplier Products 0.507
Supplier Responsiveness to Volume
Changes 0.536
Supplier Assistance in Product
Design 0.859
Supplier Ability in New
Product Design 0.826
Purchasing Integration (F4)
Purchasing Attends Corporate
Meetings 0.613
Purchasing Impacts End-Product
Changes 0.740
Purchasing Focus on Market/Price
Analysis 0.543
Purchasing Participates in New
Product Development 0.695
Purchasing Participates in
Process Design 0.733
Purchasing Measured on
Strategic Metrics 0.595
First-Order Factor Loadings
on Purchasing Competence
Construct (F5)
Buyer-Supplier Relationship
Development 0.638
Parts Bundling 0.479
Supplier Capability Auditing 0.724
Purchasing Integration 0.790
CORRELATIONS AMONG MANUFACTURING PERFORMANCE PRIORITIES
1 2 3 4 5
New Product
Manufacturing Cost Qualify Introduction Customization Delivery
Performance Performance Time Performance Reponsiveness Performance
1 1.000
2 0.548 1.000
3 0.497 0.426 1.000
4 0.402 0.422 0.453 1.000
5 0.534 0.496 0.432 0.649 1.000
All correlations are significant at p[less than]0.01.
REGRESSION RESULTS
PURCHASING COMPETENCE AGAINST AGGREGATE
MANUFACTURING PERFORMANCE
n=289
Dependent Variable: Manufacturing Performance
Independent Variable: Purchasing Competence
Multiple R 0.35
R-square 0.12
Adjusted R-square 0.11
Standard Error 0.56
Analysis of Variance
Sum of Mean
d.f. Squares Square F P
Regression 1 11.39 11.39 35.93 0.0000
Residual 287 90.95 0.32
Variable B SE B Beta T Sig T
Purchasing
Competence 0.443 0.074 0.334 5.994 0.000
Constant 2.169 0.197 11.027 0.000
REGRESSION RESULTS
PURCHASING COMPETENCE FACTORS WITH
AGGREGATE MANUFACTURING PERFORMANCE
n=289
Dependent Variable: Manufacturing Performance
Independent Variables: Parts Bundling; Buyer-Supplier
Relationship Development Practices;
Supplier Capability Auditing;
Purchasing Integration
Multiple R 0.37
R-square 0.14
Adjusted R-square 0.13
Standard Error 0.56
Analysis of Variance
Sum of Mean
d.f. Squares Square F p
Regression 4 14.07 3.52 11.32 0.0000
Residual 284 88.26 0.31
Variable B SE B Beta T Sig T
Parts Bundling 0.045 0.033 0.078 1.370 0.172
Buyer-Supplier
Relationship
Development 0.104 0.055 0.118 1.913 0.057
Supplier
Capability
Auditing 0.128 0.051 0.147 2.488 0.013
Purchasing
Integration 0.352 0.110 0.197 3.189 0.002
Constant 2.102 0.210 9.995 0.000
REGRESSION RESULTS
PURCHASING COMPETENCE WITH DISAGGREGATE
MANUFACTURING PERFORMANCE
n=289
Dependent Variable R-square F p Independent Variable Beta T
New Product Introduction
Time Performance 0.071 5.446 0.000 Parts Bundling 0.075 1.28
BSRD 0.049 0.76
SCA 0.127 2.07
PI 0.141 2.21
Manufacturing Cost
Performance 0.071 5.439 0.000 Parts Bundling 0.006 0.11
BSRD 0.099 1.55
SCA 0.114 1.86
PI 0.143 2.22
Quality Performance 0.040 2.966 0.020 Parts Bundling 0.014 0.24
BSRD 0.051 0.77
SCA 0.085 1.36
PI 0.123 1.89
Delivery Performance 0.074 5.655 0.000 Parts Bundling 0.129 2.18
BSRD 0.065 1.10
SCA 0.084 1.37
PI 0.133 2.07
Customization
Responsiveness
Performance 0.076 5.845 0.000 Parts Bundling 0.067 1.14
BSRD 0.102 1.60
SCA 0.110 1.80
PI 0.128 2.00
n=289
Dependent Variable Sig T
New Product Introduction
Time Performance 0.204
0.447
0.039
0.028
Manufacturing Cost
Performance 0.914
0.123
0.065
0.027
Quality Performance 0.813
0.433
0.175
0.059
Delivery Performance 0.029
0.311
0.171
0.039
Customization
Responsiveness
Performance 0.255
0.111
0.071
0.047
BSRD: Buyer-Supplier Relationship Development
SCA: Supplier Capability Auditing
PI: Purchasing Integration
CORRELATIONS AMONG PURCHASING
COMPETENCE FACTORS
1 2 3 4
Buyer-Supplier Supplier
Parts Relationship Capability Purchasing
Bundling Development Auditing Integration
1 1.0000
2 0.1905 [**] 1.0000
3 0.0951 0.2971 [**] 1.0000
4 0.1957 [**] 0.3904 [**] O.2993 [**] 1.0000
(**.)Significance [leq]0.01 (two-tailed test).
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