Purchasing for lean production: the new strategic agenda.

Purchasing has until recently occupied a relatively obscure position in most companies, and has been perceived primarily as a stand-alone function dealing at an operational level with the ordering and delivery cycle of materials from suppliers. Fortunately, this is not the case with a small but growing minority of companies where purchasing is now becoming the new architect of value stream excellence.

It is no coincidence that these organizations see their individual supplier networks (of both direct and indirect firms) as a key source of competitive advantage, having already successfully implemented a Total Quality Management (TQM) approach internally. It would also be true to say that while these firms come from a variety of industrial sectors and national origins, they are most commonly found in the Japanese discrete parts manufacturing industries, such as automotive and electronics.

The success of such Japanese firms is now well established.[1] However, their success has usually been attributed to their internal manufacturing systems such as the Toyota Production System (TPS) and the Canon Production System (CPS). It is, however, the author's belief that while this was undoubtedly the case at first, a large part of their continued long-term success can be traced to the integration of their key internal processes with those of their suppliers, and the rapid development of the latter community of firms.

The purpose of this article is to discuss not only how these lean producers integrated their suppliers into their activities, but also how the purchasing function played a pivotal role in this process. A subsequent discussion defines a new strategic agenda for purchasing within the lean production system and as a result extends the lean production philosophy to include the many-tiered supplier network.

STRATEGIC PURCHASING - A RAPID EVOLUTION

It is only in the last decade that purchasing has gained a place within the strategic direction of leading Western companies. Indeed, it was not until the 1960s that the first text devoted specifically to purchasing appeared in Europe.[2] This book and its contemporaries in the United States represented the first serious attempt to put purchasing on the map as a key function within organizations. At this point in time, the strategic importance of the buyer and supplier working together in an ongoing relationship went largely unnoticed, with the exception of the classic article "Vertical Quasi-Integration," written by Blois in 1972.[3]

However, it was not until the 1980s that the true strategic value of buyer-supplier relationships was discussed in any depth. One of the first to do this was the Industrial Marketing and Purchasing (IMP) Group.[4] Another key text in the development of strategic intercompany relationship literature is Beyond Negotiation by Carlisle and Parker.[5] With this book, the focus on a traditional win-lose relationship, based on the location of power between the bargaining positions of the two parties, shifted to a scenario in which a win-win relationship can be created. The advantages of creating a win-win scenario, or purchasing partnership, have been defined within management, technology, and financial spheres, and have been summarized by Ellram, as shown in Table I. This partnership is defined by Ellram as "an agreement between a buyer and a seller that involves a commitment over an extended time period, and includes the sharing of information along with a sharing of the risks and rewards of the relationship."[6]