Case Study
Instructions are attached.
Capstone
How can supply management really improve performance? A knowledge-based model of alignment capabilities
Reference:
Handfield, R. B., Cousins, P. D., Lawson, B., & Petersen, K. J. (2015). How can supply management really improve performance? A knowledge-based model of alignment
capabilities. Journal of Supply Chain Management, (3). 3
Discussion Points / Questions:
1. Define and explain both internal and external supply management and why it is important that they work together.
2. Using material learned throughout your courses at Southwestern, define and explain why it is important that team leaders possess both a team and systems
orientation and how that impacts communication with the supply base.
3. Define and discuss some of the ethical decisions that a supply manager must take into consideration when selecting suppliers and how those decisions affect
internal and external areas of the company.
4. Define and discuss some critical thinking skills used in supply management and how are those used from the onset of a project to the completion of a project?
5. In supply management, define and discuss the different types of value from cost savings to quality and how a supply manager balances value as a part of
continuous improvement or total quality management.
HOW CAN SUPPLY MANAGEMENT REALLY IMPROVE
PERFORMANCE? A KNOWLEDGE-BASED MODEL OF
ALIGNMENT CAPABILITIES
ROBERT B. HANDFIELD
North Carolina State University
PAUL D. COUSINS
University of Manchester
BENN LAWSON
University of Cambridge
KENNETH J. PETERSEN
Boise State University
Prior research has underscored the importance of internal and external
supply chain integration, but the growing role of the supply management
organization in developing this capability is not well specified. In this
research, we explore the concept of supply management alignment,
defined as the behavioral characteristics and process requirements for
understanding and explicitly outlining internal stakeholder needs, and
linking these to supplier performance agreements. Using the lens of
dynamic capabilities, we propose a theoretical model for creating supply
management alignment. This model presents the synergistic effects derived
through strong internal lines of communication combined with external
supply relationships based on defined metrics and processes. The
underlying set of requirements to achieve supply management alignment
is proposed and tested in this model, thereby enhancing our understanding
of the processes and behaviors required for integration of internal
stakeholder needs with external suppliers, which can lead to improved
performance. We explore the complementary effects of supply
management alignment on network agility and supplier performance
improvements. Data from 151 UK manufacturing firms are used to test
the model. The results provide a unifying framework tying together many
of the prescriptive elements of strategic sourcing into a more coherent
theoretical model and establish the basis for future studies of supply
management alignment capabilities.
Keywords: strategy; structure; alignment; capabilities; performance; supply management
INTRODUCTION
The literature on supply chain integration emphasizes
the importance of enterprise alignment with suppliers
(Cousins & Menguc, 2006; Wong, Boon-itt &
Wong, 2011), but a major gap exists when it
comes to the specific processes used to describe and
communicate internal needs to those suppliers
(Narasimhan & Das, 2001). Prior research suggests
integration is hindered by functional disincentives but
supported by improved internal alignment, procedural
and information process quality (Oliva & Watson,
2011), and improved communication within the
enterprise (Cousins & Menguc, 2006; Pagell, 2004).
Cross-functional integration is believed to require
July 2015 3
specific incentives to be effective (Flynn, Huo & Zhao,
2010; Watson & Zheng, 2005). Much of the prior
research has focused on internal relationships between
manufacturing and marketing (Flynn et al., 2010;
Malhotra & Sharma, 2002; O’Leary-Kelly & Flores,
2002). Narasimhan and Das (2001), however, identify
the importance of purchasing integration on manufacturing
performance but measure primarily outcomebased
process measures. To some extent, the majority
of internal integration research emphasizes cost savings
achieved through strategic sourcing (Lawson,
Cousins, Handfield & Petersen, 2009; Terpend, Tyler,
Krause & Handfield, 2008).
A new face of procurement is emerging, which recognizes
that a new set of value drivers must be developed
in the face of massive environmental changes
(Handfield, 2013). Prior work on dynamic capabilities
emphasizes the need to “integrate, build, and recon-
figure internal and external competencies to address
rapidly changing environments” (Teece, Pisano & Shuen,
1997, p. 516). Dynamic capabilities are unique
sets of routines and processes that build unique relationships
and specialized knowledge within a firm (Eisenhardt
& Martin, 2000; Peng, Verghase, Shah &
Schroeder, 2013; Teece et al., 1997). Such capabilities
emerge through direct engagement with internal customers
to understand requirements, codifying these
requirements into a coherent statement of need and
effectively communicating them to the supply market
(Narasimhan & Das, 2001; Pagell, 2004; Swink, Narasimhan
& Wang, 2007). We term this new capability
“supply management alignment” because it empowers
procurement to link internal and external parties that
are mutually dependent on one another. Supply managers
play an important role in facilitating a match
between internal stakeholder needs and the supplier’s
interpretation of those needs. These strategies impact
upon many value adding areas of the business,
including the following: product innovation and technology
development (Handfield, Ragatz, Monczka &
Peterson, 1999); knowledge sharing and new process
capability development (Dyer & Nobeoka, 2000);
multi-tier supplier integration (Choi, Wu, Ellram &
Koka, 2002); mitigation of supplier risk (Ellis, Shockley
& Henrey, 2011); supplier performance improvement
and capability augmentation (Krause, Handfield
& Tyler, 2007; Krause, Scannell & Calantone, 2000),
supplier financial disruption avoidance (Wagner, Bode
& Koznol, 2009); and sustainable supply chain
improvements (Wieland & Handfield, 2013). Yet, the
specific processes resulting in improved alignment of
internal stakeholder requirements with an emerging
and growing global supply base remain unclear
(Chen, Paulraj & Lado, 2004; Handfield, 2013; Kotabe,
Martin & Domoto, 2003; Monczka, Blascovich,
Markham, Parker & Slaight, 2010).
Moreover, a gap in the extant research is the depiction
of the specific processes employed by supply
managers to learn about internal business needs, filter
and codify this information into knowledge, and
transfer (e.g., “align”) this codified knowledge effectively
to suppliers. We, therefore, seek an answer to
the research question: What are the characteristics of
an effective supply management alignment process
that result in improved outcomes? This study develops
and tests a hypothesized model establishing an alignment
process, drawing on both supply chain learning
and knowledge management research (Hult, 2003;
Hult, Ketchen & Nichols, 2003; Hult, Ketchen & Slater,
2004). Learning in the context of supply management
involves the “values and beliefs associated with
the development of new knowledge that has the
potential to influence behavior” (Hult, 2003, p. 192).
As supply managers are being asked to play a more
strategic role in developing supply chain capabilities,
they are called on to generate and disseminate information
(from internal stakeholders), develop a shared
knowledge of the information (through internal category
teams), and filter the shared understandings into
degrees of potential value (through supplier management
systems), to store valuable wisdom within the
organization (Azadegan, 2011; Cousins, Lawson &
Squire, 2006; Huber, 1991; Hult et al., 2004). This
transformation of information into knowledge
requires an intelligent process that operates through
shared understanding and filtering of information
(Hult et al., 2003), often through mechanisms such as
key performance measures (Azadegan, 2011).
We begin with a brief review of the relevant theoretical
underpinnings for this research, followed by the
development of our specific research hypotheses. This is
followed by a description of the empirical analysis, discussion
of results, and conclusions for future research.
THEORETICAL MODEL
The theoretical roots of our model lie in the extant
research on dynamic capability theory, referring to the
unique sets of routines and processes, unique relationships,
and special knowledge possessed by a firm (Eisenhardt
& Martin, 2000; Peng, Schroeder & Shah,
2008; Teece et al., 1997). Dynamic capabilities are
derived from exchanges of knowledge and relationships
between supply chain partners (Barney, 2012;
Peng et al., 2013; Priem & Swink, 2012). Recent literature
reviews suggest that research is needed to understand
the critical contingencies that define successful
capability development between buyers and sellers
(Azadegan, 2011; Crook & Esper, 2014; Zimmermann
& Foerstl, 2014).
Studies of supplier integration have emphasized how
strong relational partnerships between buyers and supVolume
51, Number 3
Journal of Supply Chain Management
4
pliers can improve suppliers’ understanding of buyers’
needs, the ability to meet changing requirements, and
performance (Crook & Esper, 2014; Flynn et al., 2010;
Zimmermann & Foerstl, 2014). Further, synergies are
proposed when knowledge resources provide opportunities
and boundary conditions in both customer and
supplier-facing relationships (Malhotra & Mackalprang,
2012; Peng et al., 2013). Other research points to the
importance of internal integration and its positive
impact on both delivery and flexibility performance
(Azadegan, 2011; Schoenherr & Swink, 2012). These
studies, while hinting at the presence of some form of
internal–external alignment, do not explicitly define or
articulate the supply management capabilities required
to lead to these outcomes. Schoenherr and Swink
(2012, p. 100) refer to “information processing capability”
as an important component, but this is in reference
to a firm’s downstream external customers, not
suppliers. Other research by Lawson et al. (2009) stresses
the role of both formal and informal socialization
as mechanisms for sharing information. The concept of
supply management alignment in our study refers to the
ability of procurement to formally define internal needs
and ensure communication and understanding of these
expectations by key suppliers. This is depicted as a
“dynamic capability” consisting of organizational routines
by which managers alter their resource base,
which in this case, is the supply base (Eisenhardt &
Martin, 2000; Peng et al., 2008).
We rely on prior theory on knowledge management
defined as the “organized and systematic process of
generating and disseminating information, and selecting,
distilling, and deploying explicit and tacit knowledge
to create unique value that can be used to
achieve a competitive advantage in the marketplace by
an organization” (Hult, 2003, p. 190). This definition
forms the basis for our theoretical model, in that, it is
applied to the collection and dissemination of knowledge
by purchasing between two specific entities: (1)
internal stakeholders and (2) suppliers. The knowledge-based
view of the firm builds on tenets of the
resource-based view’s unique abilities to create and
exploit wisdom-enhancing outcomes (Grant, 1996;
Hult et al., 2004). When applied to our model of
alignment of internal needs with external supply execution
against these needs, knowledge management
theory provides a suitable model for explaining the
role of supply management alignment as an enabler
and boundary spanner between stakeholders and suppliers
(Hult, 2003). Supply management alignment is
also linked to performance based on the idea of routines
as organizational processes that utilize clusters of
resources (suppliers) to achieve desired outcomes
(performance improvement; Teece et al., 1997).
Internal and External Alignment
Our theoretical model is shown in Figure 1 and is
introduced as follows. Alignment capability is driven
by a routine initiated when (1) supply managers
engage in knowledge acquisition to assess the needs
of organizational stakeholders. Supply managers then
apply this information (2) through strong process
routines (Hult et al., 2004; Peng et al., 2013), specifi-
cally using a well-defined category strategy development
process (Handfield, 2006). Category teams are
able to (3) drive clear communication of these needs
to suppliers through formal mechanisms (Azadegan,
2011), thereby driving supplier activity (4) that is
consistent with stakeholder needs and long-term goals
(Carr & Pearson, 2002). This dynamic capability is
then posited to result in improved performance outcomes
(Eisenhardt & Martin, 2000; Peng et al., 2008).
While some authors argue that a highly centralized
purchasing function is required to drive such
FIGURE 1
Theoretical Model
St k h ld
St k h ld P f
Orientation
Internal
a e o er
Alignment Supplier
Agility H1
Systems
Orientation
Supply Base
Alignment H2 H6
H5
H4
Internal H3
er ormance
Improvement
a e o er
Alignment X
Systems
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A Knowledge-Based Model of Alignment Capabilities
5
improvements in performance outcomes (Chen et al.,
2004; Lawson et al., 2009), others (Cousins & Menguc,
2006; Hult, 1998) argue that it is the explicit process
of knowledge requirements for business that
ensures the right goals are being pursued (Crook &
Esper, 2014; Peng et al., 2013). We adopt the view
that both components are needed to establish supply
management alignment. Establishing a strong relationship
with business unit stakeholders provides procurement
executives the opportunity to establish supply
management goals that are not only consistent with
organizational goals, but also contribute directly to
their success (Chen et al., 2004; Handfield, 2013).
Secondly, supply managers at the category strategy
level are able to communicate information between
suppliers and stakeholders, thereby ensuring specific
category strategies are aligned with stakeholder needs
(Cousins et al., 2006; Lawson et al., 2009).
By understanding the true basis of competition and
prioritizing what elements are important, supply management
is able to establish a strong “team orientation,”
whereby there is a commonality of purpose
among all team members (Hult et al., 2003, p. 544).
The key competitive and business priorities are often
expressed through supplier performance specifications
or statements of work. For example, a large construction
equipment manufacturer uses the terminology
QCLDM (Quality, Cost, Logistics, Delivery, Management)
to codify both stakeholder and supplier
requirements and operationalizes each one with lower
bounds and clear expectations (Handfield, 2013). Performance
against stakeholder-generated performance
criteria is then measured using supplier evaluation
programs, requests for quotes (RFQ’s), or requests for
proposals (RFP; Azadegan, 2011; Monczka, Handfield,
Giunipero & Patterson, 2014). This boundary-spanning
activity involves both stakeholders and suppliers,
clarifies expectations for all interfirm relationships and
is a vehicle for the exchange and assimilation of
knowledge within and between firms (Cousins &
Menguc, 2006; Dyer & Singh, 1998; Kale, Singh &
Perlmutter, 2000). The explicit nature of the knowledge
acquisition and transmittal process is carried out
by purchasing-led category management teams, who
directly communicate the needs to suppliers in the
form of an RFP, RFQ, or SOW, leading us to the following
hypothesis:
H1: Internal stakeholder alignment is positively
related to external supply base alignment.
Systems Orientation and Supplier Alignment
Effective supply alignment necessitates a set of capabilities
that may be unique to only a subset of organizations
that have evolved procurement functions
(Handfield, 2006, 2013). Organizations need to establish
strategic resources in the form of capabilities that
enable the engagement of internal stakeholders and
creation of value (Wernefelt, 1984). Learning is a
complex concept encompassing both a process and a
structure (Slater & Narver, 1998). The implication is
that to be able to create strategic alignment, buying
organizations must create mechanisms to guarantee
that both internal stakeholders are able to learn the
value of the new category management approach and
behave accordingly (Hult, 2000). This is referred to in
knowledge management research as a systems orientation,
which requires prioritization of work, a deep
understanding of stakeholder criteria, an ability to
translate these needs into technical or performance
requirements for suppliers, and a defined process clarifying
to managers how these elements must be
deployed (Cousins et al., 2006; Hult et al., 2003;
Monczka et al., 2014).
The systems orientation concept was introduced by
Hult (1998) and builds on the work of (Senge, 1990),
and in our application measures alignment of procurement
activities with the needs of individual business
functions. Hult (2003, p. 544) defines systems
orientation as “…the degree to which the corporate
buying center and the SBU field manager in the focal
sourcing unit stress the broad picture of activities in
the strategic sourcing process and is thus a reason certain
activities exist.” Systems orientation is deemed an
integral part of the organizational learning process
because it helps to predict events, adjust processes,
and facilitate the free flow of information from the
environment.
Cooperative relationships between strategic buyers
and suppliers require high levels of information
exchange (Chen et al., 2004; Lawson et al., 2009) to
facilitate the streamlining of inter- and intra-organizational
processes, joint new product development, and
cost reduction. Information exchange can apply both
formal and informal socialization mechanisms (Cousins
& Menguc, 2006) and is vital to the relationship
process. It has been suggested that procurement
should have deep knowledge of the business function,
and in some cases may have prior experience in that
same function but in a business or marketing role.
For instance, one executive who participated in our
study noted, “…in my experience the best advertising
campaign category managers formally worked in marketing,
and the best IT category managers used to
work in IT.”
The need for a structure and a process for an internal
alignment demand a different type of capability
that concentrates on soft skills and a role as a trusted
advisor to internal stakeholders. (Esper & Crook,
2014). A focus on internal stakeholder accountability
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Journal of Supply Chain Management
6
defines procurement’s role as a “trusted advisor,” in
so much as the procurement executive understands
the elements of value critical to the business and the
capability of the external supply market to deliver
them. Procurement’s true accountability is to build a
strategy that resolves the need with an often broad
and difficult set of market conditions.
Process (routines) and structure emerge as a critical
component that enables internal and external knowledge
transfers (Peng et al., 2008). Process occurs in a
routine as purchasing first learns and then codifies
business level needs into meaningful objectives (Eisenhardt
& Martin, 2000; Lorenzoni & Lipparini,
1999). This entails the ability to articulate and create
expressions of need using tools, such as statements of
work, performance or technical specifications, or supplier
evaluation programs (Azadegan, 2011). Much of
this activity is determined through the category management
process, which, when fully deployed, assures
that a rigorous structure and process are communicated
and carried out (Handfield, 2006). The clear
interpretation and articulation of business needs guarantees
a degree of alignment with organizational
requirements; this becomes the basis for effective
communication of needs to external suppliers (Kanter,
1994; Lado, Boyd & Hanlon, 1997). For example, if
manufacturing is underscoring delivery and quality,
yet purchasing continues to pursue cost savings to the
exclusion of these requirements when negotiating with
suppliers, suppliers will interpret this behavior as
meaning that price is most important, while delivery
can suffer—a potentially disastrous outcome. While
having an effective internal communication process is
certainly one piece of the puzzle, the second piece
(structure) is articulated in the form of the buying
organization’s capability to transfer knowledge to suppliers
(Hult, 2003). This is most often referred to as a
“system orientation,” defined as the degree to which
the members of the focal supply management unit
stress the interconnectedness and mutual dependence
of the activities in the supply management process
(Hult et al., 2003). Knowledge acquisition activities
shape information distribution to suppliers when
team members clearly understand their role and
objectives in the process (Hult et al., 2004).
H2: Purchasing process structure (systems orientation)
is positively related to supply base
alignment.
Complementary Effects on Supplier Alignment
Prior research has shown that a relational approach
to supplier collaboration can facilitate positive outcomes
(Lawson et al., 2009). Progressive supply management
functions acknowledge that value is created
through forms other than simple cost savings, which
has been the major form of procurement focus for
many years (Fearon, 1968). Chief procurement offi-
cers now recognize that procurement’s unique placement
as a boundary spanner in the organization
creates the opportunity to establish interfirm relationships
as never before, leading to sustainable competitive
advantages through knowledge flows between
partner firms (Crook & Esper, 2014; Handfield,
2013). The ability of a firm to capture, transfer, and
disseminate knowledge can create unique forms of
competitive advantage (Grant, 1996), as relational
contracts with partners facilitate the flow of tacit
knowledge not normally conveyed through conventional
market mechanisms.
Consistent with the knowledge management view,
our theoretical model proposes that supply management
involves both a team orientation and a systems
alignment (process structure). Learning occurs through
the generation and dissemination of information in
the form of stakeholder requirements, which are effectively
translated via a strong routinized process capability
(Peng et al., 2008). Both elements generate
congruency outcomes. The combination of elements
is often present in the form of category team leaders
who engage stakeholders in a frank discourse on
stakeholder needs, scans the external market, establishes
a strategy for approaching the market, and
builds relational contracts with suppliers (Handfield,
2006; Monczka et al., 2014). This approach is also
consistent with the relational view of the firm,
whereby investments made by buyers toward the
development of key suppliers produce tangible bene-
fits, such as cost reduction, improved quality, agility,
and joint product development (Dyer & Singh, 1998;
Madhok & Tallman, 1998). As the category team leader
builds a stronger relationship with the supplier,
the relationship leads to increased information sharing,
technical assistance, training, and aligned
improvement efforts (Krause et al., 2007). In a sense,
procurement takes on more of a role as both an internal
consultant to the organization and an external
coach to the supplier (Handfield, 2013). Supply management
alignment ensures that supply managers
build a deep understanding of internal stakeholder
requirements for success before establishing required
performance criteria for suppliers (Handfield, Krause,
Scannell & Monczka, 2000; Krause et al., 2007).
Firms may have a strong process structure and systems
orientation, but if the focus of these efforts do
not match those of stakeholders, the right outcomes
will not be achieved (Cousins, Lawson et al., 2006;
Esper & Crook, 2014). This occurs in cases where
purchasing does not have ready access to the decision
forums where critical supply chain requirements are
made, such as product development and strategic
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A Knowledge-Based Model of Alignment Capabilities
7
planning meetings. Procurement also has little ability
to influence product design decisions in such cases
(Handfield et al., 1999). Similarly, firms may have
strong internal ties to the business, but lack the systems
and capabilities to codify these needs into a set
of relationships that are meaningful to suppliers.
Sourcing and category team leaders who possess both
a team and a systems orientation have a much higher
likelihood of successfully learning, interpreting, and
communicating business needs to the supply base.
This combination of internal alignment and purchasing
process structure is proposed to have an interaction
effect with external alignment:
H3: The interaction of internal stakeholder alignment
and purchasing process structure has a
positive effect on supply base alignment.
Aligned Suppliers are More Agile
By and large, the major outcome of “strategic purchasing”
has been focused on cost savings performance
(Chen et al., 2004). Several other researchers
have documented how improved collaboration
between buyers and sellers can lead to the development
of new technologies or products (Petersen,
Handfield & Ragatz, 2005), shared process and technical
knowledge that produces tangible improvements
(Dyer & Nobeoka, 2000), improved supplier quality
and delivery (Lawson et al., 2009), and can foster
long-term and sustainable impacts on partner performance
(Cousins, Handfield, Lawson & Peterson,
2006). In the words of one study participant, “…the
majority of benefits accrue after the ink on the contract
has dried, not through contracted savings, but
through shared continuous improvement.”
In the current global environment, the ability of
suppliers to quickly adapt and change in response to
the evolving needs of customers has been documented
as paramount for performance (Handfield, 2013).
According to a recent survey of 1,700 supply chain
executives in North America, Europe, Brazil, China,
Russia, and the Middle East, the number one top
logistics objective was “meeting customer expectations,”
followed by “on-time delivery.” A majority of
managers believe that customers can change delivery
orders based on 10 days or less, and over 50% indicated
that this window could be 1 day or less (Hand-
field, Straube, Pfohl & Wieland, 2013). To achieve
this ability to rapidly respond to changes in delivery
and schedule volume and to accept late mix changes,
organizations have taken steps to invest in visibility
systems, work with suppliers to improve communication,
and have designed products with more modular
product structures that enable quicker configuration
to customer orders. Conversely, Chinese managers
who were interviewed as part of our study emphasized
how agile decision-making was especially problematic
in their organizations, as procurement was often
highly centralized, with poor alignment between
stakeholders, procurement, and suppliers (Handfield
et al., 2013). This cultural attribute is difficult to overcome
given China’s roots in centralized planning.
Results suggest that in a complex global supply chain
network, network agility is even more important than
low cost and requires a close working relationship,
established performance priorities, and open lines of
communication between buying companies and their
suppliers. We posit a direct relationship between
increased supplier alignment and network responsiveness
(Flynn et al., 2010; Schoenherr & Swing, 2012).
H4: Supply base alignment is positively related to
supplier agility.
Agility and Alignment Improves Supplier
Performance
As organizations move toward customer-driven network
environments, the coordination of decisions
throughout the chain becomes paramount for success
(Holweg & Pil, 2008). Complex adaptive systems’
research suggests that adaptive, flexible, and coherent
collective behavior in supply chains is an imperative
(Choi et al., 2002, p. 352). This body of research is
clear in depicting supply chain coordination as involving
a meaningful level of knowledge transfer and
learning within the context of buyer–seller interactions.
A systems orientation within supply management
ensures that input derived from stakeholders is
properly coded and communicated to suppliers,
enabling improved responsiveness to these requirements.
In some cases, they are also able to learn to
predict buyer requirements before they are communicated.
Bundles of skills and accumulated knowledge
enable both firms to coordinate activities more effectively,
creating both marketing-related and technology-related
capabilities (Day, 1994). This in turn leads
to benefits that go beyond simple cost savings, but
translate instead into formal performance benefits
including improved product outcomes, process outcomes,
and increased innovation (Terpend et al.,
2008).
H5: Supply base alignment has a direct and positive
effect on buyer performance improvement.
Secondly, we propose that heightened responsiveness
in the supply base fosters knowledge and learning
over time (Lawson et al., 2009). With this
improved knowledge of customer requirements, suppliers
learn to provide suggestions for improvement
and approach the buyer with ideas for product,
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Journal of Supply Chain Management
8
process, and product quality improvements (Dyer &
Nobeoka, 2000; Krause et al., 2000, 2007). Learning
also takes place on the part of buyers who are open
to supplier ideas and establish supplier suggestion
programs through formal and informal channels of
communication (Cousins, Handfield et al., 2006).
Hence, our final hypothesis (H6) posits that:
H6: Supplier agility has a positive effect on the
level of performance improvement.
In the following section, we describe the research
methods employed to test these hypotheses.
RESEARCH METHODS
Sample Characteristics
The hypotheses were tested through a survey that
collected information about a firm’s strategic supply
practices. A sample of 800 UK manufacturing firms
was surveyed, which included firms from a database
provided by the Chartered Institute of Purchasing &
Supply (CIPS). Each respondent in the sample was
selected based on job function (purchasing manager
or equivalent), plant size (at least 100 employees),
and industry sector by SIC code. We received 172
responses, of which 21 were deemed unusable due to
missing data. The effective response rate was thus
18.8% (151/800). This response rate compares favorably
with other similar studies in the area (Carr &
Pearson, 2002; Ragatz, Handfield & Petersen, 2002;
Rosenzweig, Roth & Dean, 2003).
The characteristics of the sample organizations are
shown in the Appendix, including the number of
employees, business unit sales, and industry sector.
The response by position was managing director
(3%), vice president/director (13%), purchasing manager
(52%), senior buyer (8%), and junior manager
(24%). No significant mean differences were detected
between any pair of these groups. The average length
of tenure with the company was 10.16 years, providing
support that our informants were also knowledgeable
about the issues under investigation. An
important characteristic of systems and team orientation
culture is that managers throughout the enterprise
understand and buy in to the concept (Hult
et al., 2003). As such, we sought a broad sample of
respondent levels (Table 1).
Questionnaire Administration
The survey and a letter explaining the purpose of
the research were mailed to senior purchasing managers.
Efforts were made to enhance the response rate by
sending an email containing the survey to managers
2 weeks after the initial mailing and by offering
respondents a composite summary of results (Forza,
2002). The survey was also pretested in two phases.
The draft questionnaire was first sent to four academics,
experts in the area, and four practitioners who
were asked to comment on the content, clarity, and
scaling of the instruments. A small number of minor
changes were made as a result of this feedback.
In completing our research, we also conducted eight
30-min phone interviews with supply management
executives from a variety of different industries (oil
and gas, electronics, medical devices, transportation
and logistics, supply chain consulting, and others).
These interviews explored many of the relationships
posited in the survey and elicited several important
insights that were woven into the analysis and discussion
later in the study.
Non-Response Bias
Tests for nonresponse bias were carried out by comparing
early respondents (responses received within
the first 2 weeks) and later respondents (responses
received within the third week or later; Armstrong &
Overton, 1977). A t-test of difference was conducted
TABLE 1
Profile of Respondents
N %
Number of employees
Under 100 26 17.2
100–500 42 27.8
500–1,000 10 6.6
1,000 61 40.4
No response 12 8.0
Total 151 100.0
Business unit sales volume
Under £50 million 38 25.2
£50 million–100 million 22 14.6
£100 million–250 million 16 10.6
£250 million–500 million 15 9.9
£500 million–1 billion 18 11.9
£1 billion 35 23.2
No response 7 4.6
Total 151 100.0
Industry Sector
Aerospace and defense 10 6.6
Automotive 10 6.6
Chemicals 6 4.0
Communications/high tech 15 9.9
Consumer goods 12 7.9
General manufacturing 33 21.9
Pharmaceutical 7 4.6
Other services 57 37.7
No response 1 .7
Total 151 100.0
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A Knowledge-Based Model of Alignment Capabilities
9
on firm size (employees and sales) and mean
responses to each variable. No statistically significant
differences were identified at p < .05.
Operationalization of Variables
The items used to measure the theoretical constructs
were derived from an extensive review of the extant
literature. Each item was measured using a sevenpoint
Likert scale, with the use of practices anchored
at “not at all” (=1) and “a very great extent” (=7). All
items used in the questionnaire are reported in the
Appendix.
Internal Stakeholder Alignment. We used the construct
developed by Chen et al. (2004), which
assessed the extent to which purchasing professionals’
development focuses on the elements of the competitive
strategy, the purchasing function has a good
knowledge of the firm’s strategic goals, purchasing
performance is measured in terms of its contribution
to the firm’s success, and purchasing is included in
the firm’s strategic planning process. These measures
align the team orientation construct developed by
Hult (1998), which evaluates cross-functional team
work, commonality of purpose in purchasing, agreement
on organization vision, and sharing of vision.
Systems Orientation. This construct was measured
using a four-item scale developed by Hult (1998).
Respondents were asked to assess their understanding
of how their activities fit within the purchasing process
value chain, and how well defined these activities
are.
Supply Base Alignment. This construct was adapted
from Krause et al. (2000). Respondents were asked
the extent to which the organization measured the following:
supplier performance through formal evaluation,
using established guidelines and procedures;
made use of a supplier certification program to verify
supplier quality, thus making incoming inspection
unnecessary; site visits by your firm to the supplier’s
premises to help it improve its performance; invited
the supplier’s personnel to your site to increase their
awareness of how their product is used; and training/
education of the supplier’s personnel.
Supplier Agility. This construct was measured using a
four-item scale developed by Lawson et al. (2009)
gauging the responsiveness of a firm’s suppliers, including
their ability to undertake customization, responsiveness
to schedule and volume changes, and degree
of modularization leading to improved flexibility.
Performance Improvement. This construct was evaluated
using a three-item scale, adapted from Kotabe
et al. (2003), assessing the degree to which the relationship
had, over the past 2–3 years, resulted in
improved product design, product quality, and
reduced lead times for the buyer firm.
RESULTS
Confirmatory factor analysis (CFA) and structural
equation modeling (SEM) were adopted to test our
proposed theoretical framework. AMOS 7.0 was
employed for this purpose (Arbuckle, 2006). We
assessed model fit using four indices: the chi-squared
test, the comparative fit index (CFI), the Tucker–Lewis
Index (TLI), and the root-mean-square error of
approximation index (RMSEA). Discussion of these
indices may be found in Gerbing and Anderson
(1992), Hu and Bentler (1999), Marsh, Balla and Hau
(1996). Satisfactory model fits are indicated by nonsignificant
chi-squared tests, RMSEA values ≤ .08, and
TLI and CFI values ≥ .90.
The items were first validated via CFA, which provides
a more stringent test of construct validity and
unidimensionality using latent and manifest variables.
Each construct was made scale-variant by fixing one
of the loadings in each construct to a value of 1.0
(Joreskog & S € orbom, 1993). Each indicator within the €
measurement model was then checked for low factor
loadings (<.40), high residuals (i.e., normalized residuals
>2.58), and modification indices (>3.84). Appendix
provides the loadings and error terms of the
manifest variables onto each latent variable.
A number of procedures were followed to assess
convergent validity (Bagozzi & Yi, 1988) and discriminant
validity (Anderson & Gerbing, 1988; Fornell &
Larcker, 1981). The convergent validity of the scales
(the extent to which the measurement items reflect a
common underlying construct) was supported, with
estimated coefficients of all indicators being significant
(t > 2.0). The average variance extracted (AVE), which
measures the variance captured by the indicators relative
to measurement error, was also greater than the
.50 minimum necessary to justify the use of a construct
(Hair, Anderson, Tatham & Black, 1998). The
exception was the AVE for supply base alignment of
.49, slightly less than the recommended cutoff. As all
other AVE and composite reliabilities (CR) results
exceed the minimum levels, we consider the overall
validity of the model to be acceptable. Composite reliability
values were also calculated to provide a further
assessment of internal consistency. A minimum value
of .70 is recommended, as it indicates that around .50
of the item’s variance (the squared loading) can be
attributed to the construct of interest (Fornell & Larcker,
1981). The lowest composite reliability was .81
for strategic purchasing, ranging to .91 for systems
orientation.
All tests of discriminant validity were similarly
supportive. That is, no confidence intervals of the
correlations for the constructs (/ values) included 1.0
(p < .05; Anderson & Gerbing, 1988), and the square
of the intercorrelations between two constructs, /2
,
Volume 51, Number 3
Journal of Supply Chain Management
10
was less than the AVE estimates of the two constructs.
This was true for all pairs of constructs (Fornell & Larcker,
1981). The interitem correlations, CR, and the
values of AVE for the constructs operationalized in
this study are shown in Table 2. We also carried out a
test of convergent validity by correlating the buyer
performance improvement construct with a selfreported
objective scale of firm profit margins. The
financial performance construct was correlated positively
and significantly with profit margin (r = .44,
p ≤ .01).
Finally, the overall fit of the CFA measurement
model to the data was satisfactory: v2
(179) = 286.05,
p = .00; TLI = .93; CFI = .94; and RMSEA = .063.
The structural model was tested with full information
maximum-likelihood estimation. The model
(Figure 2) is recursive and hence identified (Bollen,
1989). The fit indices for the structural model indicate
an acceptable fit to the data: v2
(201) = 309.05,
p = .00; TLI = .93; CFI = .94; RMSEA = .060. Further,
the interaction effects between strategic purchasing
and systems orientation were computed as product
terms. The lambdas that represent the reflection of
each of these interaction terms on its latent construct,
and their associated error terms were calculated using
the approach described by Ping (1995).
Figure 2 presents the results of the six hypothesized
relationships and shows that the constructs are related
in the theoretically predicted manner. Hypothesis 1
and 2, respectively, were supported, with internal
stakeholder alignment (b = .30, p < .01) and purchasing
process structure (b = .38, p < .001) significantly
associated with supply base alignment. We also found
a positive moderating effect between the interaction
TABLE 2
Correlation Matrix and Descriptive Statistics
Variablea 12345
1. Performance Improvement 1.00
2. Supplier Agility .50 1.00
3. Supply Base Alignment .74 .44 1.00
4. Internal Stakeholder Alignment .41 .13 .40 1.00
5. Systems Orientation .38 .25 .44 .44 1.00
Mean 4.39 4.59 4.30 4.24 5.00
Standard Deviation 1.18 .92 1.24 1.16 1.10
Average Variance Extracted .65 .61 .49 .52 .71
Composite Reliability .88 .86 .82 .81 .91
a
For N = 151, r has to be .161 or higher to be significant (p < .05).
FIGURE 2
Structural Equation Modeling Results
SP1 SP2 SP3 SP4
Supplier
Agility SF3
SF2
SF1
SD1 SD2 SD3 SD4
Stakeholder
Alignment
SD5
Supply Base
SF4
Systems
SO1 SO2 SO3 SO4
38***
.30**
05
.44***
.41***
.24***
Alignment
BP1
Orientation
.38 -.05
(ns)
.65*** -.21*
Performance
Improvement BP3
.27*** BP2
Stakeholder Alignment
*
Systems Orientation BP3
*p < .05; **p < .01; ***p < .001, all one-tailed tests.
July 2015
A Knowledge-Based Model of Alignment Capabilities
11
effect (Internal Stakeholder Alignment 9 Purchasing
Process Structure) and supply base alignment (b =
.27, p < .001). In turn, supply base alignment was significantly
related to network agility (b = .41, p < .001)
and performance improvement (b = .65, p < .001),
supporting Hypotheses 4 and 5, respectively,
Finally, network agility was positively associated with
performance improvement (b = .24, p < .001), providing
support for H6.
In the next section, we discuss the implications of
these results.
DISCUSSION
Our research set out to answer the question: “What
are the characteristics of an effective supply management
alignment process that results in improved outcomes?”.
We next discuss the characteristics that are
critical to alignment identified by our research project
and go on to draw implications for theory and practice.
As noted by one of the executives we interviewed:
…The space occupied by procurement is not well
understood by the CEO or the CFO in most companies,
and in many cases is not well understood
by the CPO themselves! There is a huge opportunity
as organizations roll out category strategies, as
these have a huge impact on the top line and the
bottom line of the company. We need to back
away from the standard portfolio matrix approach,
and recognize the importance and magnitude of
the risk that needs to be documented in the supply
chain. Procurement is the only platform in the
company that has an end-to-end horizontal view
of the supply chain. Marketing and IT see this to
some extent, but not like procurement. Procurement
must take this opportunity to exercise leadership
and truly position procurement as a strategic
contributor at the executive board level on organizational
decisions. This means bringing the right
level of ambition to the table.
This statement provides a good jumping-off point to
discuss the implications of the results identified in
this study and their contribution to our thinking. All
of the hypothesized results were positive and signifi-
cant, providing support for our supposition that procurement
transformation requires both internal and
external relationship management capabilities (Hand-
field, 2013). The research suggests a number of different
implications that provide guidelines for ongoing
research in supply management.
Firstly, the identification and development of “supply
management alignment” as a dynamic capability
augments prior studies that found inbound supplier
flexibility could complement outbound logistics
flexibility (Malhotra & Mackalprang, 2012). Delivery
performance is certainly one form of value, but our
research extends this concept and identifies the specific
forms of procurement behaviors and capabilities
required to achieve this alignment. Other studies propose
that synergies exist when improved integration
occurs across customers and suppliers, but specific
guidelines as it relates to procurement are not well
understood (Schoenherr & Swink, 2012). Our results
point to the importance of common goals, aligned
metrics, and defined processes that occur in parallel
between purchasing and stakeholders, purchasing and
suppliers, and the combined synergistic effect of these
performance measurement systems on network agility
performance.
Our research has important implications for how
procurement should organize itself to facilitate the
right level of internal and external alignment. The
most common form of structure is through an
approach identified as category management (Monczka
et al., 2014). Traditional category management
approaches have been largely focused on internal
spending patterns and have targeted high spend areas
for cost savings based on driving common specifications,
part families, or services. However, category
management may not be the only way to think about
how to organize procurement effort. The strength of
supplier relationships clearly demonstrates how
both elements of internal and process structure are
important.
An alternate emerging approach is to organize
around internal categories based on bilateral characteristics
defined on the one hand by the needs of constituent
internal stakeholders, but secondarily by the
characteristics of the external supply marketplace. This
is first and foremost a technological hierarchy defined
on product or service specifications, but mature organizations
are not limited to just internally defined
criteria (Handfield, 2013). Advanced category management
structures assign category roles that provide the
most logical and simple interface between the external
and internal worlds that the category manager must
communicate between and connect. We discovered
several variations of this approach. Firstly, a category
manager may be assigned to a large supplier that provides
multiple products and services to multiple businesses
and functions within the buying organization.
Secondly, they may be assigned to an emerging technology
group geared toward tracking innovations that
can align with the internal technology product roadmaps.
Thirdly, they might be relegated to a largely external
role as a cost analyst, understanding the
movement of key metals, commodities, and chemicals
in supply markets, and translating and codifying this
knowledge into specific impacts. Fourthly, they may
Volume 51, Number 3
Journal of Supply Chain Management
12
serve as a government interface to influence legal standards,
tariffs, or environmental regulations that can
dramatically influence the course of procurement. We
are, thus, much more likely to see a diversity of different
forms of sourcing executive roles in the future that
are less aligned around category, but are focused on
creating greater alignment between the internal and
external environments they face.
LIMITATIONS AND CONCLUSIONS
No research is without its limitations, and there are
some cautions in interpreting the results of our study.
Firstly, this study was based on a sample of companies
in the CIPS database. Although a wide range of
sectors was evident, the results may not be generalizable
to all companies. Replication across other industries,
including services, as well as international
contexts would also increase our understanding of the
pervasiveness of strategic purchasing. Informant bias
can be an issue in self-reporting surveys (Kumar, Stern
& Anderson, 1993). We attempted to minimize the
presence of any such bias through the selection of
respondents with comparable roles, focusing on organizational
and subunit performance and avoiding
questions of personal performance, as well as by
assuring total anonymity and confidentiality such that
individual responses could not be identified. In addition,
the cross-sectional nature of our data means that
we are not able to test causal inferences regarding the
relationship between strategic purchasing, supplier
development, and the outcomes on supply base agility
and buyer performance improvement. Longitudinal
data are required to assert causation. Future research
based on case studies could provide rich data and
would be particularly useful in substantiating the
interaction effect of what we have termed “supply
management alignment” in the supplier development
process.
Our unit of analysis was also restricted to one side
of a dyadic tie between the buyer and the supplier.
Further research could examine the other side of the
dyad, namely the supplier. Future research could also
go on to develop the financial implications of supply
management alignment for both the buyer and supplier
firms. We suspect that supply management alignment
has a synergistic effect for both the buyer and
the supplier. It would be interesting to investigate this
as a motivation for buyers and suppliers to become
involved in supplier development activities.
Prior research on purchasing and supply management
has largely assumed that sourcing activities
occur in a vacuum and are vague in establishing the
mechanisms for this alignment. There is also a need
to explore the relative value of internal and external
management, as managers often perceive that their
companies are more accomplished in external integration
efforts than they are in internal efforts. Our
approach draws on the systems orientation developed
by Hult et al. (2003), which identifies the importance
of a systematic and team-based approach to carrying
out congruency requirements and the importance of
establishing both a deep knowledge of stakeholder
requirements as well as a direct channel for communication
of these needs to suppliers. Our research
emphasizes the importance of employing congruent
and aligned performance metrics between internal
and external parties. Most importantly, the combination
of these activities can create a distinctive competence
and a synergistic effect. The synergistic benefits gained
from these management processes are difficult to imitate
and substitute, and they clearly add value; therefore,
they conform to the tests of a strategic capability
(Gulati et al., 2000).
While readily identifiable as important, this ability
to bridge stakeholders and suppliers is, in fact, a challenge
for many organizations with which we spoke.
For example, several procurement executives noted
that they had difficulty getting internal stakeholders to
see purchasing as anything other than a “costcutter”
or “hardball negotiator.” In fact, several organizations
are taking steps to promote procurement as a more
strategic function and have compared this evolution
to the evolutionary path of the marketing area. This
ability to act as a boundary-spanning function
between internal and external organizational stakeholders
has its roots in the marketing research, and is
referenced in this research as “supply management
alignment.” Prior to the 1980s, marketing was viewed
as a mere sales order taking activity and has grown to
be recognized as a critical function that links customer
needs with internal business planning (Slater & Narver,
1998; Song et al., 2005). A similar strategic transformation
is underway in procurement, as the same
set of alignment capabilities required for effective marketing
is also necessary for stakeholder–supplier communication.
Both marketing and procurement talent
pools can learn skills from one another as they
develop applications in each of their respective areas.
The merging of buy-side and sell-side capabilities was
adopted by the International Association of Commercial
and Contract Management (IACCM) and provides
a natural basis for integration. Indeed, several of the
executives we spoke with explained the approach they
used to create the right type of “blended skills”
needed to drive better internal alignment of procurement
with the functional roles in the organization.
Our research also went on to investigate the impact
of improved supply management alignment on firm
performance improvement. One of the key structural
effects that arise from improved alignment is that the
supply base becomes more agile and able to respond
July 2015
A Knowledge-Based Model of Alignment Capabilities
13
rapidly to customer requirements due to improved
understanding of these requirements. Increased levels
of internal alignment facilitate the exchange and flow
of knowledge between supply managers and supplier
firms (Kotabe et al., 2003; Krause et al., 2007). Procedures,
market knowledge, and new product development
activities all improve (Cousins, Handfield et al.,
2006; Lawson et al., 2009), resulting in a new and
dynamic capability (Eisenhardt & Martin, 2000; Teece
et al., 1997). To the end, this improved knowledge of
requirements drives higher levels of supplier performance
improvements that directly benefit all parties
in the supply chain.
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Paul D. Cousins (Ph.D., University of Bath) is a
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interface between supply chain and new product
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Journal of Supply Chain Management
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development. He is currently working on projects
related to supply chain-related product recalls and
valuation of order fulfilment strategies. Dr. Lawson
serves as an Associate Editor for Journal of Supply
Chain Management, and his work has been published
in outlets including Journal of Supply Chain Management,
Journal of Operations Management, Journal of
Product Innovation Management and Human Resource
Management.
Kenneth J. Petersen (Ph.D., Michigan State University)
is a professor and Dean of the College of Business
at Boise State University. Dr. Petersen’s research
interests include supply chain management, procurement,
strategic sourcing, sustainability, and supply
networks.
APPENDIX
CONSTRUCTS AND ITEMS
Each item was measured using a seven-point Likert
scale, with the use of practices anchored at “not at
all” (=1) and “a very great extent” (=7).
Internal Stakeholder Alignment
How well do you agree with the following about purchasing
within your firm?
SP1: Purchasing professionals’ development focuses
on the elements of the competitive strategy
(k = .74, e = .17, t = 7.51).
SP2: The purchasing function has a good knowledge
of the firm’s strategic goals (k = .77, e = .99,
t = 7.28).
SP3: Purchasing performance is measured in terms
of its contribution to the firm’s success (k = .68,
e = .15, t = 6.82).
SP4: Purchasing is included in the firm’s strategic
planning process (k = .67).
Systems Orientation
How well do you agree with the following about the purchasing
process within your firm?
SS1: All activities that take place in the purchasing
process are clearly defined (k = .73).
SS2: We understand how our work fits into the
value chain of the purchasing process (k = .82,
e = .09, t = 10.06).
SS3: We have a good sense of the interconnectedness
of all parts of the purchasing process (k = .93,
e = .10, t = 11.28).
SS4: We understand where all activities fit in the
purchasing process (k = .87, e = .10, t = 10.67).
Supplier Agility
To what extent do the following describe characteristics
of your key suppliers?
SBF1: Responsiveness to our schedule delivery
changes without excessive cost penalties
(k = .93).
SBF2: Responsiveness to our schedule volume
changes without excessive cost penalties (k = .94,
e = .06, t = 17.08).
SBF3: Ability to accept late “mix” changes in orders
(k = .66, e = .08, t = 9.69).
SBF4: Modularization of supplier products
(k = .52, e = .07, t = 6.96).
Supply Base Alignment
To what extent does purchasing carry out the following
with its key suppliers?
SD1: Assessment of supplier’s performance through
formal evaluation, using established guidelines &
procedures (k = .74).
SD2: Use of a supplier certification program to
certify supplier’s quality, thus making incoming
inspection unnecessary (k = .64, e = .14, t = 7.38).
SD3: Site visits by your firm to supplier’s premises
to help supplier improve its performance (k = .78,
e = .11, t = 8.92).
SD4: Inviting supplier’s personnel to your site to
increase its awareness of how its product is used
(k = .69, e = .10, t = 7.93).
SD5: Training/education of the supplier’s personnel
(k = .62, e = .12, t = 7.08).
Performance Improvement
How well do you agree with the following about the performance
from your key suppliers in the last 2 years?
BPI1: Improved product design performance
(k = .84, e = .13, t = 9.56).
BPI2: Improved process design (k = .86, e = .12,
t = 9.67).
BPI3: Improved product quality (k = .80, e = .12,
t = 9.14).
BPI4: Reduced lead time (k = .71).
July 2015
A Knowledge-Based Model of Alignment Capabilities
17
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