A theoretical model is presented for conceptualising the relationship between the management of supply, strategic orientation at the business-unit level and their proposed link with firm performance. The shortcomings of existing approaches in accounting for the wide variety of purchasing practices in a comprehensive supply management framework are discussed as well their alignment with strategic orientation. The paper concludes by presenting a model and propositions concerning firm-level supply management, strategic orientation and firm performance
The relationship between business strategy, make/buy decisions and supplier management have been a focal point of investigation by a number of academic disciplines, namely economics (Poppo et al., 1995), marketing (Buvik and John, 2000), operations management (Narasimhan and Das, 2001), accounting (Balakrishnan, 1994) and strategic management (Venkatesan, 1992; Ring and Van de Ven, 1992; Rossetti and Choi, 2005). Moreover, a number of previous studies (e.g. Monczka and Trent, 1991; Watts et al., 1992; Narasimhan and Das, 2001; Brown and Cousins, 2004) have conceptually linked purchasing at the functional level with the business strategy of the firm. However, there are no conclusive studies that adequately address the relationship between the management of supply, a firm's strategic orientation and its impact on financial or operational performance (cf. Tracey, 1998; Gilley and Rasheed, 2000; Das and Narasimhan, 2000; Narasimhan and Das, 2001; Park et al., 2001; Ellram and Lui, 2002; Ellram et al., 2002).
The aims of this paper are to extend the concept of the management of supply, introduce a construct called supply management practices, and offer a model and propositions to test its direct and interaction effects with strategic orientation and firm performance. The proposed model for supply management practices uses an extended version of a purchasing practices scale developed and tested by Narasimhan and Das (2001). A well-tested framework for operationalising firm level strategy, the Miles and Snow typologies of strategic orientation, is used to discuss its alignment with supply management practices. Building on previous research that found strategic co-alignment has a moderating effect on firm performance (see Conant et al., 1990; Sabherwal and Chan, 2001; Rodriguez and Ventura, 2003; Vorhies and Morgan, 2003), the performance impact of the relationship between supply management practices and strategic orientation is proposed.
This paper is presented into two parts. Firstly, the supply management practices construct is outlined, building on a revised version of the Narasimhan and Das (2001) purchasing practices framework. We discuss the difference between the unit of analysis for measuring purchasing practices at an organisational rather than a functional level, and define the scope of the supply management practices construct at the firm level. Next, the strategic orientation construct is outlined. It links the constructs of supply management and strategic orientation with operational and financial performance in a conceptual model using propositions.
The aim of this paper has been to anchor the key constructs of supply management practices, its alignment to strategic orientation and their impact on firm performance in the literature and propose a model and propositions for further empirical study. The purchasing practices construct has been expanded into the supply management task as a firm-level construct. Moreover, integration has been refined to include alignment between purchasing practice to strategic behaviour rather than to generic business goals.
In propositioning the relationship between purchasing practices and firm performance we argue there is a moderating variable that must be taken into account, namely, the interaction effect with the strategic orientation of the firm. We have argued that Das and Narasimhan's (2000) conceptualisation of purchasing competence as a latent construct indicative of alignment between purchasing practices and business strategy is too simplistic. The added factor of the relationship between purchasing practices and strategic orientation provides a rich and complex inter-relationship at the firm level and gives a real opportunity to measure the impact of supply management practices on a firm's competitive position. Therefore, the empirical testing of the models presented in this paper will provide a contribution to knowledge for both the supply management and strategy communities.
The next steps for the research model and propositions presented in this paper will be an operationalisation and subsequent testing of the inter-relationships between the key constructs and propositions. In practice this means revising and adding to the item scale used by Das and Narasimhan (2000) then undertaking rigorous piloting of the instrument before it is used to collect data.
The results of this work will, subject to the propositions being tested, make an important contribution in terms of confirming (or otherwise) the impact that purchasing practice has on firm performance when there is strategic alignment between purchasing practices and business unit strategy. It will also distil a series of purchasing practices that are more aligned with different strategic archetypes, thus allowing for a more sensitive configuration of strategies by purchasing practitioners.
The survey research is the early stages of a potentially wider, qualitatively and quantitatively richer study. It provides the impetus for a detailed investigation of the different archetypes from a purchasing practices perspective, which will be undertaken using case-based research. This will support more in-depth research about the processes of strategising in purchasing, and the impact it has on the relative financial and operational performance of the business. An alternative strand of research will support the performance measurement impact of the research but it will use a different approach. It will advance the firm-based performance analysis and work back through the model using academic contributions from the strategic finance field. In doing so there will be two distinct and cross-disciplinary approaches used in the research which will be tied together with the same aims and objectives.
