To Be or Not to Be – The

Dilemma of Strategic Supply

Chain Management
Prepared by: Professor Paul D Cousins
paul.cousins@mbs.ac.uk
0161 306 3459

Supply Chain Management Research Group

Manchester Business School

Executive Briefing 2006-05

© 2006 The copyright and information contained within this document remains the property
of Manchester Business School
The authors gratefully acknowledge the financial support and access provided by The
Chartered Institute of Purchasing and Supply, UK 2
© 2006 Manchester Business School
Many firms espouse the virtues of strategic
supply and collaborative relationships but
few achieve their potential. Exactly what is
the secret to unlocking the benefits of
supply chain management?
Since the 1970s scholars and supply managers
have debated the strategic significance of
purchasing within the organisation. Indeed part
of this debate has led to a range of new words
to more accurately encapsulate the role of
purchasing, including: Supply Chain
Management, Strategic Supply Management,
and Resource Management. The role of
purchasing (i.e. identifying sources, negotiating
and placing the purchasing order) has also
changed significantly. In addition, while the
‘sourcing process’ still continues, the remit of a
strategic supply chain manager tends to be
much wider including issues of outsourcing,
relationship management techniques, a clear
understanding of the firm’s goals and being
able to set strategy, measures and targets to
achieve these goals.
This is not, however, the role for all people
involved in the supply process. Indeed whilst
the role of purchasing professionals has
changed towards this ‘wider’ range of
responsibilities there are still a vast majority of
purchasing professionals whose job is to simply
purchase. This paper argues that firms need to
consider what an appropriate focus is for their
purchasing professionals. Practitioners and
academics often ask: “Why isn’t purchasing
strategic?” A preoccupation with this query has
encouraged a focus on purchasing as a
profession, whose role and status needs to be
clearly defined and elevated within the firm. I
argue that three decades of reflection has
potentially been misplaced. The problem
comes from a basic misunderstand of the word
‘strategic’. This word is often used in
management speak and across a wide variety
of contexts. I often ask executives “what do
you think the term ‘strategic’ actually means?”
This tends to cause a great deal of silence,
which is then followed by a range of phrases
like: planning, vision, mission, long term
objectives, goals etc. Whilst these are all
laudable business school lexicon they actually
don’t tell you very much. Interestingly most
executives tend to use the term to refer to the
status of themselves or their department.
I would suggest that the view of how strategic
you are, should come from the point of view of
the organisation itself. Readers should consider
the word strategic as meaning “important”.
Furthermore, if you are perceived as being
important you will be seen as adding value to
your organisation. Therefore, perhaps a better
question would be: “What does the
organisation see as important and how can I
deliver to that requirement?” This change in
emphasis, whilst being subtle, will have a
profound effect on how purchasing behaves
within the organisation. The focus moves to
developing appropriate strategies that meet the
organisation’s requirements as opposed to
following the latest trends in ‘best practice’.
Rather than consider why purchasing is not
“strategic” and imagine ways of advancing it up
the corporate hierarchy, managers and
academics should analyse the manner in which
a firm’s strategic direction dictates the role
purchasing may play. In order for firms to
cultivate a strategic approach to supply they
must first examine their own competitive
priorities. The supply function must then be
positioned to match these strategic objectives.
Only through the alignment of supply and
organisational strategies can firms unlock the
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benefits that strategically focused supply savings). Firms will benefit from improved
capability can offer. pricing and delivery performance via shared
operational schedules with suppliers, linked
Competitive Priorities forecasting systems and a move towards joint
In order for purchasing to achieve its strategic capacity sharing. Firms following a cost-focus
goals it must understand on what basis the firm strategy are also likely to enter into marketing
is competing. Michael Porter suggests that collaboration relationships that will build levels
firms may adopt one of two strategic directions, of asset specific investments through co-
either cost focused or differentiation. In reality branding, merchandising and joint selling. This
each exists simultaneously with the other and activity will lead to longer-term market share
strategic approaches to supply chain outcomes for the firm including, reduced
management should combine them, but a competition, increased cash flow and an
preference for one over the other will always increased market share. This approach is often
be discernable. favoured by management consultants as it
delivers ‘quick wins’ (i.e. short term savings).
The Cost Approach This strategy is totally appropriate if the market
Cost-focused firms view competitive advantage conditions and firms approach see competition
as primarily concerned with the costs of on this basis.
competing in the marketplace. They must offer
products or services at a lower cost in order to Cost-focused firms are not interested in
compete. Firms defining their competitive complex supply chain management techniques
advantage in this way would generally consider designed to delivery increased technology
supply as playing a cost-reduction role. Cost sharing e.g. long-term collaborations. The key
reductions could be achieved though focus of the firm is price-based competition
aggressive price competitions, e-auctions and which means that the basis of competitive
leveraging strategies. advantage is on cost reduction. If the Supply
function focuses on trying to deliver what the
Cost minimisation is more easily achieved firm does not require it will be seen (at best) as
through what might be termed a ‘standard’ a nuisance and will have no ‘strategic’ impact
purchasing approach. I use the term on the business. Remember in order to be
operational collaboration. Operational seen as ‘strategic’ purchasing has to deliver
collaboration refers to working with key what the firm requires and in this case it is
suppliers (or within supplier tiers) to reduce simply cost reduction. There may be a variety
cost through, for example process redesign of methods for doing this, but the outcome is
(e.g. Kaizen workshops), negotiation and required is relatively simple.
straight forward leveraging approaches. The
use of operational collaboration with supply The Differentiation Approach
partners enables purchasing to deliver a range Firms with a differentiation focus view their
of short to medium-term business and competitive advantage as coming through the
marketing benefits that will put the firm in a careful management of their resources and
stronger cost management position (i.e. capabilities to create a distinctive competence

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in the marketplace e.g. technology, innovation, The Importance of Alignment

quality etc. The table below summarises the linkages
between the strategic approach of a firm,
Differentiation is most easily achieved through different modes of collaboration and
long term strategic collaborative relationships. consequent business outcomes.
The use of strategic collaboration leads to a
Type of Relationship Business
broad range of business benefits such as Collaboration Focus Benefits
increased commitment and learning, and
Operational - Operations - Price
shared knowledge and vision. Higher visibility
planning reduction
of the partner’s business will be encouraged - Forecasting - Cost
through cost transparency and information - Order management
management - Delivery/
sharing. The development of risk and reward - Scheduling lead time
sharing agreements helps to divide the level of improvement

risk and return between strategic partners on

Cost
Marketing - Merchandising - Market
technology, customer or market focussed - Co-branding share
initiatives. Firms following a differentiation - Joint selling development
- Increased
strategy can also expect to benefit from market share
increased integration of business processes, - Reduced
competition
which will lead to efficiency gains and - Improved
improvements in the overall effectiveness cash flow
levels of these processes. Finally, strategic
Strategic - Customer - Long-term
collaborations will also enable firms to pursue requirements partnerships
joint shared capital investment projects such as - Technology - Improved
- New product integration of
the development of new factories and development business
Differentiation

warehousing. - Joint CAPEX processes

planning - Shared
risks and
Firms adopting this approach will take a longer- rewards
- Personnel
term view of desired business outcomes and
and ideas
purchasing will be conceived as a core exchange
- Joint
capability to be manipulated to assist firms in
product
creating a distinctive competency in the market. development
Supply will therefore be treated strategically
and complex sourcing strategies, such as
supply tiers (delegated and/or parallel
Research Method
sourcing), outsourcing and co-design Purchasing managers in 142 large
agreements, implemented to achieve business manufacturing firms in the UK were surveyed.
goals. Respondents had co-ordinated the activity of
cross-functional teams involved in major
relationship development initiatives. A wide
range of manufacturing industries (automotive,
aerospace, appliances, process industry) were
sampled.

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Discussion
Case Study
The results show that the difference between
The supply function in a large UK retailer
cost-focused and differentiation-focused spent over a year negotiating long-term
strategies is the firm perceiving supply as either agreements with suppliers following an
useful or important, respectively. The aggressive re-sourcing programme. After
the negotiations were complete and the
competitive priorities of a firm thus dictate the contracts were running, the suppliers each
way in which supply will be viewed. It is, received a letter from the CEO demanding a
therefore, essential that supply managers 10 per cent price reduction across the
board. This letter was sent without the
understand the competitive pressures and knowledge of the supply function.
priorities of their firm, so that they can align
The result was mayhem with suppliers
their supply strategies to fit the demands of the
refusing to supply and threatening legal
business strategy. Whilst purchasing action. The supply function became very
managers may try to adopt a variety of demoralised and disillusioned with senior
management and a great deal of money
initiatives to become more strategic, the firm
was wasted setting up deals that were not
itself may move against this if it will going to be realised. In order to survive the
compromise the main strategic business firm needed to reduce costs – that is, follow
a cost-focused approach. Conversely
objective, i.e. cost. The position of supply is supply was implementing long-term
further compromised because the returns strategic collaborations. There was a
offered by strategic collaborative relationships mismatch between what the firm needed to
do and the role supply adopted. This
are medium-to-long-term, and are not easily occurred because the strategic priorities of
measured. The returns from a pure cost the firm were not communicated to the
strategy are short-term and easily measured in supply function (until too late).
bottom-line benefits. The case study below
highlights these pressures.
Recommendations
1. Understand your organisation’s business
Figure 1 suggests strategies that are important
strategy. A supply function operating in
to different competitive priorities.
isolation from the strategic intent of the firm
is likely to follow a misaligned approach,
which will result in the firm not achieving its
full business benefit or worst still may
involve supply spending a large amount of
time working with a key supplier only to be
undermined by the senior management of
their own company (see case study insert).

2. Consider what approach to supplier

collaboration is required to match the firm’s
strategic intent. If the firm is taking a
differentiated approach, supply must make
sure that it has the capabilities and
competencies within its staff to manage
these strategies effectively. They will also

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need to make sure that performance (organisational and supply) to deliver the
measures are adjusted to track these more level and type of benefits required.
complex relationships. Finally, they will
need to consider the structure of the supply Paul D. Cousins is Professor of
organisation itself. Should the organisation Operations Management and
CIPS Professor of Supply
be centralised, decentralised or a hybrid
Chain Management at
model? The answer, again, is one of Manchester Business School,
appropriateness. UK. His research focuses on
the area of supply
3. Whether supply is to be strategic (or not), management, environmental
depends on the strategic focus of the supply and inter-organizational
relationship management. He
organisation. The problem is that all too has published in a wide variety
frequently the strategic direction of a firm is of journals, including Journal of
Operations Management,
ill-defined. In this context aligning supply
International Journal of
and organisational strategies is difficult, if Operations & Production
not impossible. Each strategic direction Management, and British
Journal of Management.
(cost and differentiation) delivers a range of
business outcomes for the firm. Firms paul.cousins@mbs.ac.uk

adopting a cost-focused approach to

competitive advantage require the supply
function to focus on operational and market
collaboration (Strategies A and B in Figure
1). Business benefits derived from this
approach tend to be short-term and tactical.
Firms that consider their competitive
advantage lie in their ability to create a
distinctive competence in the marketplace
will place greater weight on the importance
of purchasing as a competitive resource. It
will be critical that the supply function
develops strategic collaborations with the
firms’ supply base to encourage long-term,
strategic business outcomes (Strategy C in
Figure 1).
4. Alignment is critical! Supply cannot be
• This Executive Briefing based on the article:
Cousins, P.D (2006). “The alignment of
appropriate firm and supply strategies for
competitive advantage”, International
Journal of Operations & Production
Management, 25(5), 403-428. This paper
was awarded a ‘Highly Commended’ by
Emerald Press.
The Supply Chain Management Research
Group (SCMRG) was launched in January
2006. It aims to be an internationally
recognised centre of excellence for scholarly
and relevant research in Supply Chain
Management. Further information about
SCMRG including its research projects,
industry briefings and scholarly publications
can be found at:
www.mbs.ac.uk/research/supply-chain/

considered simply as a strategic

differentiator to the business. What is more
important is the alignment of supply and
organisational strategies. Only through
alignment will supply’s positive contribution
be felt. The issue for managers is to
choose the most appropriate strategy