Effect of strategic purchasing on supplier development and performance: a structural model

Cristobal Sanchez-Rodrguez
School of Administrative Studies, York University, Toronto, Canada
Abstract Purpose This purpose of this paper is to introduce strategic purchasing (SP) and supplier development (SD) as constructs that could have the potential to contribute to the success of relationship marketing efforts. Based on the relational view of the rm, the authors propose that SP is an antecedent of SD practices and can create value for the buying rm in terms of better purchasing performance. Design/methodology/approach Hypotheses derived from the key features of SP and SD practices are tested using structural equation modeling through eld research on a sample of 306 manufacturing companies in Spain. Findings Findings from this study indicate that there is signicant evidence to support the hypothesized model in which SP exerts a direct inuence on SD practices and purchasing performance, as well as an indirect impact on purchasing performance mediated through SD. Research limitations/implications Further research is necessary to increase our understanding of a buyers strategic purchasing and supplier development practices and more specically how suppliers could develop a supporting environment to facilitate the strategic alignment of these two concepts. The limitations of the survey are also discussed. Practical implications The ndings from this study provide supplying rms with an understanding of how buying rms use SD to deploy their SP initiatives in order to achieve improvements in purchasing performance. Originality/value While there is some literature analyzing SP and the implications for buyer-supplier relationships, the relationship between SP and SD practices and their effect on purchasing performance has not been yet analyzed. Keywords Buyer-supplier relationships, Purchasing, Supply chain management Paper type Research paper

An executive summary for managers and executive readers can be found at the end of this issue.

1. Introduction
Industrial markets have undergone fundamental transformations during the last decade making buyersupplier relationships a matter of strategic analysis for industrial buyers and marketers (e.g. Cannon and Perreault, 1999; Dyer and Hatch, 2004; Jap, 1999, 2001; Wanger and Johnson, 2004). Researchers have suggested that buyersupplier relationships are undergoing a paradigm shift from transaction-oriented to relation-oriented, thus, making relationship marketing an increasingly important organizational concern for business. Critical to the success of relationship marketing is the exchange of resources between buyer and supplier (Hunt and Morgan, 1994). In this regard, both supplier (Perrien et al., 1995; Perrien and Ricard, 1995) and buyer (Campbell, 1998, p. 199) play a key role in ensuring the overall quality and effectiveness of relationship marketing efforts. As one author has argued:
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Unsuccessful relationship marketing efforts by suppliers may not necessarily be attributed to an inherent weakness in the supplier, but rather to organizational barriers and constrains within the buying rm that inhibit the successful implementation of relationship marketing practices (Campbell, 1998, p. 199).

Journal of Business & Industrial Marketing 24/3/4 (2009) 161172 q Emerald Group Publishing Limited [ISSN 0885-8624] [DOI 10.1108/08858620910939714]

Thus, successful relationship marketing requires that managers have a clear understanding of how each partner can contribute to this relationship building process. In this context, a buying rms efforts towards strategic planning in purchasing (strategic purchasing) and the realignment of a suppliers capabilities to match the buyers needs (supplier development) has the potential to contribute signicantly to the success of relationship marketing. Strategic purchasing has been identied as a critical antecedent of supplier involvement in the buyers new product development process (Carr and Pearson, 2002) and the implementation of effective communication and evaluation practices with suppliers (Carr and Pearson, 1999), thus making it an integral part of building successful buyer-supplier relationships. Similarly, supplier development has also been acknowledged to be a critical element of collaborative buyer-supplier relationships and has been identied to play a critical role in improving a suppliers capabilities and performance (Krause, 1999; Krause et al., 2000). However, to date there has been no direct effort to analyze the relationship between strategic purchasing and supplier development practices. Thus, we use the relational view of the rm (Dyer and Singh, 1998) to gain a better understanding of this issue by empirically examining the implementation of a buyers strategic purchasing and supplier development activities, and relating them to the buyers 161

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purchasing performance. Next, we describe the research model, methodology and results. Finally, we discuss our research ndings and the limitations of the study.

2. Literature review and research model

In recent years, researchers have adopted a relational approach to explain how buyer-supplier relationships can be a source of competitive advantage. The relational view (Dyer and Singh, 1998) argues that rms who combine resources in unique ways may realize a competitive advantage through four important mechanisms: joint investments, knowledge exchange, combining valuable and scarce resources, and more effective governance. Thus, both supply management and relationship marketing activities are critical elements to a rms competitive advantage. However, for such efforts to be effective it is necessary that they are aligned with the rms overall goals and strategies. Thus, for a supplying rm to effectively address the needs of the customers, it would need to strategically target individual customers (buyers) and realign the rms capabilities to match the customer rms buying priorities. Similarly, the buying rms supply management activities need to be strategically oriented towards the accomplishment of the rms overall goals and strategies. This is known in the literature as strategic purchasing (Carr and Pearson, 1999; Carr and Smeltzer, 1997). Thus, any effort on the part of the buying rm to realign the supplying rms capabilities with the buyers needs should be part of the buying rms planned strategy (strategic purchasing) if they are to contribute to the attainment of the rms overall goals. This suggests that strategic purchasing should precede the adoption of supply management practices including supplier development. Figure 1 depicts our theoretical model that links strategic purchasing with supplier development and purchasing performance. We model strategic purchasing as a direct antecedent of supplier development and purchasing performance. 2.1 Linking strategic purchasing and supplier development The literature has provided support for the strategic importance of purchasing in the corporate strategy and provides a classic approach to strategy formulation that identies purchasing as a key functional element to address the business overall objectives (e.g. Porter, 1980). It has been argued that the focus of purchasing should be on strategies that are planned, implemented, and controlled in order to Figure 1 Research model

achieve the long-term goals of the rm (Aguilar, 1992) and when purchasings operations are designed around the needs of the total organization, then, purchasing has the ability to support the corporate planning framework and the corporate value system (Freeman and Cavinato, 1990). This is referred to as strategic purchasing. Carr and Pearson (1999) provided a formal denition of strategic purchasing as the process of planning, implementing, evaluating, and controlling strategic and operating purchasing decisions for directing all activities of the purchasing function toward opportunities consistent with the rms capabilities to achieve its long-term goals. Thus, a strategic purchasing function is characterized by having direct communication links with top management and the focus is on short term as well as long-term purchasing decisions (e.g. involvement in the product design process, cost and value analysis, involvement in the companys strategic planning process) (Ellram, 1994). More recently, Pressey et al. (2007) in their empirical study found that high strategic purchasing oriented rms evaluate their suppliers differently on a number of issues including a t with the buyers competitive strategy. A rms strategic planning process generally involves three organizational levels: corporate, business unit, and functional (Leenders et al., 2002; Monczka et al., 2002). Corporate strategic plans are the important basis for the subsequent development of the business unit goals and strategies, which in turn drive the operational strategies and daily activities of functional areas (Carr and Smeltzer, 1997). According to Watts et al. (1992) a buyers purchasing strategy can be viewed at the functional level as the pattern of decisions related to acquiring required materials and services to support operations (e.g. manufacturing) activities that are consistent with the overall corporate competitive strategy. Consequently, a rms purchasing and manufacturing strategies must be congruent with the business unit and corporate level strategy. This also requires that supplier capabilities need to be congruent with the buying rms purchasing and manufacturing requirements. In order to do so, the buying rm can initiate a supplier development program. Narasimhan and Das (2001) suggested that strategic purchasing actions should preferably precede investments in purchasing activities (e.g. supplier development activities) and, in any case, not be delayed beyond the start of such investments. Carr and Pearson (1999) analyzed the relationship between strategic purchasing, supplier evaluation systems, and the establishment of collaborative relationships with suppliers, nding evidence that strategic purchasing precedes the implementation of strategically managed buyer-supplier relationships and evaluation systems. Zsidisin and Ellram (2001) reported evidence of a positive association between strategic purchasing and supplier alliances. In 2002, Carr and Pearson replicated their earlier study (Carr and Pearson, 1999) through an investigation involving small-sized rms and found that strategic purchasing precedes efforts to involve suppliers in the rms new product development process (Carr and Pearson, 2002). Accordingly, it would be reasonable to assume that strategic purchasing is an antecedent of supplier development, thus, the following hypothesis was formulated: H1. Strategic purchasing will be positively related to supplier development

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2.2 Linking supplier development to a buyer rms purchasing performance According to the relational view, idiosyncratic interrm linkages may be a source of performance improvements (relational rents) which are the outcome of four rent generation mechanisms: joint investments, knowledge exchange, combining valuable and scarce resources, and more effective governance (Dyer and Singh, 1998). Supplier development enables these four rent-generating mechanisms. For example, involvement of the supplier in the buyers new product design process enables joint investment and combining valuable and scarce resources; sharing of cost structure information enables knowledge exchange; and the reward and recognition of a suppliers achievements enables more effective governance mechanisms. In this context, supplier development could be viewed a strategy where both buyer and supplier access and combine other rms resources with their own in order to improve performance and garner otherwise unavailable competitive advantages. Initial evidence from the literature is supportive of the positive effect of individual supplier development practices on performance. For example, Krause (1997) and Krause et al. (2000) reported that the evaluation of suppliers through site visits and the use of supplier reward and recognition systems improves supplier performance. Forker and Hershauer (2000) found that involvement of the buyer in the suppliers new product design process resulted in better performance for both supplier and buyer. Timely and accurate information is also crucial to buyer-supplier decision-making and ultimately to supplier performance (Handeld et al., 2000). Tan et al. (1998) reported that sharing condential information (e.g. production schedules, production costs) with the suppliers is positively correlated with a rms overall business performance. Additionally, involving suppliers in the buyers product design process provides the buyer with access to the partners technology (Han et al., 1993); suppliers are meanwhile given the opportunity to work with the buyer to identify parts that can most efciently and effectively be produced given their production capability (Trent and Monczka, 1999). The above discussion suggests that implementation of supplier development results in increasing supplier performance which, subsequently, would produce improvements in a buying rms purchasing performance. Thus, the following hypothesis was formulated: H2. Supplier development will be positively related to purchasing performance.

However, the effect of strategic purchasing on performance could also be mediated by supply management practices. It could be the unique combination of strategic purchasing and supplier development practices or activities and their conguration with the buying rms strategic goals as well as the supplying rms specic resources and capabilities, what may protect the buying rms competitive advantage. Thus, we expect that a buying rms strategic purchasing efforts should lead to increased performance both directly and indirectly (mediated by supplier development). Previous evidence from the literature support both direct (Carr and Pearson, 1999; Carr and Pearson, 2002) and mediated (e.g. Chen and Paulraj, 2004; Narasimhan and Das, 2001) impact of strategic purchasing on performance measures. Thus, we hypothesize that strategic purchasing has a direct positive effect on performance (H3) and a mediated impact through supplier development (H4): H3. H4. Strategic purchasing will be positively and directly related to purchasing performance. Supplier development mediates the relationship between strategic purchasing and purchasing performance.

3. Research methodology
A survey methodology was chosen to test the research hypotheses. Survey methodology was chosen because the phenomena to be studied required obtaining information regarding a rms relationships with their suppliers and this type of information is not available publicly. Thus, an appropriate method to obtain this information was to survey purchasing managers perspectives on supplier development and strategic purchasing. In addition, survey methodology ensures greater generalizability of the results when compared to case based research. Finally, the number of articles dealing with strategic purchasing and supplier development using survey methodology is relatively small compared to case research methodology, therefore, it contributes to ll this gap in the literature. 3.1 Construct measurement Multi-item scales were developed for each of the variables included in the theoretical model (see Table I). Measures were developed following the procedure recommended by Churchill (1979) after reviewing the extant academic and trade literatures related to strategic purchasing, supplier development, and purchasing performance. Strategic purchasing is present in the company when the purchasing function has a formally written long-range plan, the purchasing goals and plans are aligned with the rms strategic goals and plans (Carr and Smeltzer, 1997), and purchasing participates actively in the strategic planning process within the rm (Narasimhan and Das, 2001). Purchasings representation in top-level management is another important element of strategic purchasing (Carr and Pearson, 2002) since it can facilitate purchasings involvement in the companys strategic decision-making process (Fitzpatrick, 1996). Thus, the strategic purchasing construct includes measures of purchasings active involvement in the companys planning process, implementation of a purchasings long-range plan (more than two years), purchasings strategy alignment with the 163

2.3 Linking strategic purchasing to a buyers purchasing performance Strategic planning processes that are well developed, properly implemented, and controlled have a positive effect on a rms performance (Bracker et al., 1988). Therefore, the participation of purchasing in the strategic planning process of the company (strategic purchasing) should also have a positive effect on the buyers purchasing performance. As Rajagopal and Bernard (1993) claim:
A planned and proactive approach to the strategic management of the purchasing function both show enormous potential for the rm in terms of increased prot and improved competitiveness in the marketplace.

Accordingly, strategic purchasing would be expected to have a positive direct effect on a buyers performance.

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Table I Means, standard deviations and exploratory factor analysis for the items composing the scales measuring strategic purchasing, supplier development, and purchasing performance
Code Construct/item SP V1 V2 V3 V4 SD V5 V6 V7 V8 V9 V10 PP V11 V12 V13 V14 V15 Mean Std dev. Factor 1 3.313 2.820 4.102 4.411 1.242 1.373 1.014 0.824 20.074 0.183 0.086 0.003 Factor 2 20.054 0.027 0.010 0.112 Factor 3 0.768 0.626 0.714 0.725

Strategic purchasing Purchasing is actively involved in the companys planning process Purchasing has a long-term plan (more than 2 years) The top purchasing manager is located in the top higher levels of the organizational hierarchy The purchasing strategy is consistent with the rms corporate strategy Supplier development Plant visits to suppliers Supplier reward and recognition Collaboration with suppliers in materials improvement Providing training to suppliers Sharing of cost and quality information by the supplier Supplier involvement in the buyers product design process Purchasing performance Cost of materials Quality of materials On-time delivery Inventory performance Internal customer satisfaction
Eigenvalues Percent variance extracted

3.621 2.961 3.239 2.039 2.549 3.016

1.107 1.256 1.190 1.077 1.214 1.237

0.720 0.580 0.740 0.670 0.775 0.743

0/016 20.003 0.067 20.108 20.007 0.046

0.025 0.051 0.022 0.151 20.011 20.108

3.314 4.343 3.343 3.784 3.886

1.011 0.635 0.973 0.857 0.791

0.010 0.004 0.124 20.011 20.097 4.250 28.333

0.512 0.624 0.805 0.780 0.612 1.993 13.287

20.016 0.048 20.137 20.016 0.173 1.424 9.496

overall rms strategy, and the importance of a purchasings manager in the companys organizational hierarchy (see Table I). Supplier development broadly refers to any effort by a buying rm to improve a suppliers performance and/or capabilities to meet the buying rms short- and/or long-term supply needs (Krause, 1999). A buying rm can make use of a wide range of supplier development practices to improve a suppliers performance and/or capabilities. Typical activities of a supplier development program include visits to suppliers plants to assess their processes (Krause, 1997), reward and recognition of a suppliers achievements (Krause, 1997), collaboration with suppliers to improve existing materials and components or develop new ones (Forker and Hershauer, 2000), providing training to suppliers (Krause, 1997), and involvement of the supplier in the buyers new product design process (Humphreys et al., 2004). Effective communication between buyer and supplier constitutes another important factor in supplier development (Humphreys et al., 2004; Krause and Ellram, 1997) and it can be attained by intensive information sharing between buyer and supplier (e.g. information about costs, quality levels, accounting, and nancial data). Thus, the supplier development construct included the following measures: visiting suppliers to assess their facilities, rewarding and recognizing suppliers performance improvements, collaborating with suppliers in materials improvement, training provided to suppliers, suppliers involvement in the buyers new product design process, and sharing of cost and quality information. Purchasing performance refers to the effectiveness in procuring materials at the lower total cost of acquisition, on-time, of the right quality, and in the right quantities 164

(Giunipero, 1990). From the supplier rms perspective, these purchasing performance dimensions can be viewed to areas where the supplier could create value for the buying rm. Similarly, internal customer satisfaction has been identied as the most important element of purchasing performance (Cavinato, 1987) and has been used as a purchasing performance outcome in several studies (Stanley and Wisner, 1998, 2001, 2002). For the purchasing function, the customer is the company department for whom the material or service is purchased and thus is dened as an internal customer. Thus, the purchasing performance construct included measures of quality of materials purchased, on-time delivery, cost of materials, inventory performance, and internal customer satisfaction. Respondents were asked to indicate their degree of agreement or disagreement with the statements using vepoint Likert scales where 1 represented strongly disagree and 5 represented strongly agree. For example, item V6 in Table I pertains to supplier reward and recognition; the question in the survey instrument was: Suppliers are recognized and rewarded for materials quality improvement. This is the same procedure used by Krause and Ellram (1997) in their investigation about the critical elements of supplier development. Operations management faculty were used as expert judges for content validation to determine how well the chosen items represented the four dened constructs. Purchasing managers at ve manufacturing sites were interviewed while they reviewed the questionnaire to identify any language ambiguities and perceived omissions of other relevant practices not included in the survey. Reported discrepancies and comments were used to further rene the instrument.

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3.2 Sample description The sampling frame for the study was identied from the Dun and Bradstreet business database, using the number of employees as the criterion for selecting the companies. We identied and sent survey questionnaires to the largest 1,200 manufacturing companies in Spain. The selection of Spanish manufacturing rms was also appropriate due to the scarce number of studies devoted to the analysis of strategic purchasing and supplier development in Spanish rms. Therefore, the results are directly applicable to Spanish rms but could also be transferable to rms in other countries especially in countries with similar economic characteristics such members of the European Union. Purchasing managers were determined as the most appropriate respondents because they are most familiar with their organizations strategic purchasing, supplier development practices and purchasing performance outcomes. The survey questionnaire was pre-tested in six companies and respondents were given one month to provide comments regarding the wording, clarity of items and structure issues, and all six purchasing executives responded. Using these responses, we reworded a few of the items to ensure that the denitions of items were meaningful and comprehensive for the sample; overall, it appeared that respondents had no difculty in understanding the survey items. This ensured content and face validity. The nal survey questionnaire was administered in three mailings following a modied version of Dillmans (1978) total design for survey research. In the rst mailing, a cover letter explaining the purpose of the study and a survey questionnaire, along with a postage-paid envelope, were sent to all members in the sample frame. A letter encouraging nonrespondents to participate in the research was sent three weeks later. Six weeks after the initial mailing, a second survey and cover letter were sent to the remaining non-respondents. After eliminating responses with missing data (15), the sample for analysis consists of 306 usable responses, 198 corresponding to the rst mailing and 108 corresponding to the second mailing. This response rate of 25 percent is comparable to similar studies in the literature (e.g. Chen and Paulraj, 2004; Stanley and Wisner, 2001). Early versus late respondents were compared (Armstrong and Overton, 1977) on sales volume, number of employees, and cost of raw materials and components; no statistically signicant differences were found. The rms that participated in the study came from different industries. In descending order of response frequency: food, automotive components, miscellaneous manufacturing, and chemicals were the most widely represented industries in the respondent group (see Table II). Annual sales and number of employees for the companies in the sample averaged e141 million and 568 employees respectively. Table II provides frequency distribution of sales, number of employees, and respondents titles. To evaluate the possibility of a structural inuence due to size, we performed correlation analyses between sales, number of employees, and the strategic purchasing measurement indicators. Results in Table III show that correlations between size (sales and number of employees) and three strategic purchasing indicators were non-signicant. Only the correlation between size and V2 (purchasing has a long-term plan) was signicant although of small magnitude (0.14). Similarly, we performed analyses of variance (ANOVA) to identify possible differences in 165

Table II Respondents Industries, number of employees and respondents title

Number of Number of respondents rms % 18.9 15.0 13.4 12.4 6.5 4.9 4.6 3.9 3.9 3.9 3.6 3.3 2.9 2.9 100.0

Industry Food and beverage Auto components Miscellaneous manufacturing Chemicals Machinery Pharmaceutical products Construction materials Telecommunications and electronic equipment Electricity materials Primary metals Paper Electric appliances Non ferrous metallurgy Textile Total Number of employees 0-100 101-500 501-1,000 Over 1,000 Total Respondents title Director of purchasing General manager of purchasing Purchasing manager Purchasing supervisor General director Director of logistics Sourcing manager Materials director Director of operations Supply chain manager Director of production Corporate director of purchasing Other Total

58 46 41 38 20 15 14 12 12 12 11 10 9 9 306

30 155 73 48 306

10 50 24 16 100

145 89 19 8 7 4 3 3 3 2 2 2 11 298

48.7 29.9 6.4 2.7 2.3 1.3 1.0 1.0 1.0 0.7 0.7 0.7 3.7 100.0

Notes: The 11 titles under Other were Director of Services; Director of Production Control; Director of Purchasing and Quality; VP Assistant; Director of Materials and Purchasing; Coordinator of Relationships with Suppliers; Purchasing Agent; Vice President; Marketing Director, Business Director and Director of Logistics and Marketing

respondents perceptions about strategic purchasing. As it can be seen in Table III, a respondents title did not have a signicant inuence in two of the four strategic purchasing measurement indicators. Furthermore, when performing the Boferroni test, we found no signicant differences among groups in item V2. The only signicant difference corresponded to item V3 (purchasing position in the organizational hierarchy) between directors of purchasing

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Table III Correlations and ANOVA analysis between strategic purchasing and sales, number of employees, and respondents title
Annual sales (correlation results) Sig. (r) V1 V2 V3 V4 0.10 0.18 0.09 0.07 0.87 0.00 0.15 0.27 Number of employees (correlation results) (r) Sig. 20.05 0.14 0.06 20.08 0.42 0.02 0.32 0.18

Respondents title (ANOVA results) (F-value) Sig. 1.74 4.15 4.87 1.048 0.06 0.01 0.00 0.08

and general managers of purchasing. Thus, overall, the results seem to point to the absence of a structural inuence of size and management level over the strategic purchasing construct.

4. Validity assessments and tests of the research hypotheses

4.1 Construct validity In order to test the construct validity of the variables in the study an exploratory factor analysis was conducted using principal components and oblique rotation (see Table I). Three factors were extracted with eigenvalues greater than one totaling 51.1 percent of the variance explained. Each extracted factor corresponded to each one of the research variables under study as indicated by their factors loadings (factor loadings greater than 0.5). Factor 1 corresponded to supplier development, factor 2 to purchasing performance, and factor 3 to strategic purchasing. A cursory look at the factor loadings indicates that the measurement variables had a high loading value in their corresponding variable and a low loading value in the other two factors. Prior to estimating the structural model in Figure 1, a conrmatory factor analysis (CFA) was conducted to verify the measurement model (Anderson and Gerbing, 1988). The results are reported in Table IV. As recommended by many researchers, multiple t criteria are presented to evaluate the overall t of the model (Bollen and Long, 1993; Hair et al., 1995). As it can be seen in Table IV, the chi-square statistic (x2) for the full measurement model was nonsignicant ( p . 0.05) indicating a good t between the data and the proposed model. The non-normed t index (NNFI), comparative t index (CFI), and goodness of t index (GFI), with values of 0.981, 0.985, 0.959 respectively, were all above the recommended acceptable 0.90 level (Chau, 1997). Finally, the adjusted goodness of t index (AGFI 0:940) was above the 0.80 minimum recommended value. All specied factor loadings were highly signicant, which indicates good convergent validity among the measures of each construct. Table IV sets out the estimated values of the standardized coefcients, which are useful for the assessment of the relative weight of each manifest variable in the denition of the construct being referred to, and above all, in order to calculate the reliability indicators of the measurement model, that is, the construct reliability and the extracted variance, the values of which are also reported. The table also contains, for 166

every coefcient, the relative t-value, which makes it possible to evaluate the statistical signicance of the link between the manifest variable and the latent construct. Finally, it should also be remembered that the limit values for the t-values are: 1.96 with a signicance value of 5 percent and 2.576 with a signicance value of 1 percent. From an initial analysis at this table, it immediately becomes clear that all the coefcients have a statistical signicance of 1 percent. All constructs displayed composite reliabilities (Hair et al., 1995) in excess of the generally accepted 0.70 value for non-exploratory studies and well above the 0.60 recommended value for exploratory studies (Churchill, 1979). Thus, these results provide supporting evidence that the scales used in this study are reliable. Because the distinction between the constructs strategic purchasing and supplier development in the study is important to the results of the study, we used the conrmatory factor analysis model to verify that the constructs are indeed distinct (discriminant validity) and that a single factor model would not be appropriate. Discriminant validity was assessed using the Fornell and Larckers (1981) criterion. Tables V and VI show that the smallest average variance extracted exceeds the squared correlation between each pair of value sources indicating a satisfactory level of discriminant validity. An alternative method for testing discriminant validity consists in xing (i.e. constraining) the correlation between the pair of constructs to 1.0, then re-estimating the modied model (Segars and Grover, 1993). A signicant x2 difference indicates that a single factor model is not appropriate and that the two constructs are separate and distinct and therefore that discriminant validity exists. As it can be seen in Tables V and VI, the differences amongst the constructs were signicant, which indicates that all the constructs are unique and distinct in the study and that discriminant validity is demonstrated. 4.2 Hypothesis testing The hypothesized structural model (Figure 1) was tested using the structural equation modeling (SEM) LISREL 8.50 software package (Joreskog and Sorbom, 1993). Structural equation is an appropriate statistical technique when testing a model that is hypothesized a priori and which assesses the relationships among latent constructs that are measured by multiple scale items, where at least one construct is both a dependent and an independent variable (Hair et al., 1995). A combination of factor analysis and regression analysis could also have been used to test the studys hypotheses. Each hypothesis would have corresponded to a regression analysis that would have to be evaluated individually. In contrast, the use of SEM allows researchers to estimate the strength of relationships among scale items and latent constructs, while giving the investigator an indication of overall model t. Prior to assessing the studys hypotheses, we rst evaluated the structural model (i.e. measurement and path model combined) (Bollen and Long, 1993). The structural model displayed a good t as indicated by the model t statistics: the chi-square statistic (x2) was nonsignicant (p 0:112); x2/d.f. ratio 1:19; RMSEA 0:025; NNFI 0:981; CFI 0:985; GFI 0:959; AGFI 0:940; and RMSR 0:039 (Chau, 1997). The hypothesized model (Figure 1) explained 10.6 percent of variance of purchasing performance (R2 0:106). This

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Table IV Conrmatory factor analysis for the items composing the scales measuring strategic purchasing, supplier development, and purchasing performance
Code SP V1 V2 V3 V4 SD V5 V6 V7 V8 V9 V10 PP V11 V12 V13 V14 V15 Construct/item Standardized loadings 0.512 0.868 0.695 0.735

t-value *
8.743 10.527 10.997 11.561

Composite reliability 0.801

Average variance extracted 0.51

Strategic purchasing Purchasing is actively involved in the companys planning process Purchasing has a long-term plan (more than 2 years) The top purchasing manager is located in the top higher levels of the organizational hierarchy The purchasing strategy is consistent with the rms corporate strategy Supplier development Plant visits to suppliers Supplier reward and recognition Collaboration with suppliers in materials improvement Providing training to suppliers Sharing of cost and quality information by the supplier Supplier involvement in the buyers product design process Purchasing performance Cost of materials Quality of materials On-time delivery Inventory performance Internal customer satisfaction

0.794 0.680 0.528 0.741 0.663 0.679 0.589 12.434 9.154 13.482 11.543 12.388 10.406 0.716 0.375 0.506 0.746 0.701 0.538 5.928 8.226 12.677 11.855 8.830

0.44

0.35

Notes: x2 98:954; p value 0:112; Non-Normed Fit Index NNFI 0:981; Adjusted Goodness of Fit Index AGFI 0:940; Root Mean Squared Error of Approximation RMSEA 0:025; Goodness of Fit Index GFI 0:959; Root Mean Square Residual RMSR 0:0399; Comparative Fit Index (CFI 0:985); *All t-values are signicant at p , 0.05; Minimum reliabilities

Table V Assessment of discriminant validity of the constructs

Strategic purchasing Strategic purchasing Supplier development Purchasing performance 0.510 * 0.256 0.080 Squared correlations among constructs Supplier development 0.438 * 0.073 Purchasing performance

0.347 *

Note: *Numbers on the diagonal show the average extracted variance; numbers below the diagonal represent the squared correlations

Table VI Assessment of discriminant validity of the constructs

Correlation Unconstrained model (d.f.) 36.39 (30) 32.11 (23) Chi-Square statistic Constrained model (d.f) 164.52 (31) 176.93 (24) Difference 128.13 144.82

p-value
0.000 0.000

Strategic purchasing with Supplier development Purchasing performance Supplier development with Purchasing performance

0.51 * 0.28 *

0.29 *

43.63 (43)

337.16 (44)

293.53

0.000

Note: *Correlation is signicant at the a 0:05 level

suggests that the variance of this construct is only partially explained by the supplier development and strategic purchasing constructs. However, the links between the constructs are statistically signicant (see Figure 2), so it 167

can be stated that the data support the theory, which does require the existence of these links. In addition, the strategic purchasing construct explained 25.5 percent of variance of supplier development.

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Figure 2 Research model estimation results

4.2.1 Test of H1, H2 and H3 The test of H1, H2 and H3 was based on the direct effects (structural coefcients) among the constructs as shown in Figure 2 and reported in Tables VII and VIII, model 1. Each of the three hypotheses is associated with a structural coefcient in Figure 2. These coefcients were tested at the signicance level p , 0.05, two tailed which corresponds to a critical t-value of 1.96. H1 proposed a positive relationship between strategic purchasing and supplier development. This hypothesis was supported since the standardized coefcient was 0.50 and statistically signicant (t 7:062; p , 0.01; Tables VII and VIII, model 1). H2 proposed a positive relationship between supplier development and purchasing performance. This hypothesis was supported by a statistically signicant structural coefcient of 0.191, (t 2:152, p , 0.05; Tables VII and VIII, model 1). H3 proposed a positive relationship between strategic purchasing and purchasing performance. This hypothesis was also supported with a standardized coefcient of 0.184 (t 2:256; p , 0.05; Tables VII and VIII, model 1). 4.2.2 Test of H4 In order to test H4 a test of mediation was performed which required to demonstrate three conditions: 1 The predictor variables have to be signicantly related to the mediators. 2 The mediator variables have to be signicantly related to the dependent variable. Table VII Results of model estimations

Table VIII Results of model estimations

Model 1 Model 2 0.193 * * 0.189 * Model 3 0.512 * * 0.299 * *

Structural path SP ! SD SP ! PP SD ! PP R-square: SD PP

0.505 * * 0.184 * 0.191 *

0.255 0.106

0.0731

0.262 0.0894

Notes: *Signicant at p , 0.05, two tail; * *Signicant at p , 0.01, two tail

There must be a substantial reduction in the relationship between the predictor and dependent variable when the mediator is included (Baron and Kenny, 1986).

Complete mediation is evidenced by a non-signicant relationship between predictor and dependent variable once the mediator is included. Conditions 1 and 2 were tested by H1 and H2 above. Accordingly, strategic purchasing was signicantly related to supplier development and supplier development was signicantly related to purchasing performance. To test condition 3 for mediation (complete or partial) two additional structural models were estimated (model 2 and

Chi-square Model 1: (hypothesized model) Direct and indirect effect Model 2: Direct antecedent effect Model 3 Indirect effect 99.95 171,919 105.09

d.f. 83 84 84

CFI 0.985 0.920 0.981

GFI 0.959 0.935 0.956

NFI 0.917 0.857 0.912

RMSEA 0.025 0.054 0.028

168

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model 3). The results of these model estimations are summarized in Tables VII and VIII. Model 2 dened a direct effect model in which strategic purchasing and supplier development had direct effects on purchasing performance. And model 3 dened a fully mediated model, where strategic purchasing had a direct effect on supplier development, and supplier development a direct effect on purchasing performance. Of all three models estimated, model 1 (hypothesized model, see Figure 1) provided the best overall model t as suggested by the t indexes and the Chi-square difference test (Chi-square difference .4 corresponds to a pvalue , 0.05). Thus, model 1 was a signicantly better tting model than model 2 and 3, thus providing initial evidence of partial mediation of supplier development in the relationship between strategic purchasing and purchasing performance. In addition, the signicant relationship between strategic purchasing and purchasing performance in model 2 (BetaSP!PP 0:193, p , 0.05) was weaker after controlling for supplier development in model 1 (BetaSP!PP 0:184, p , 0.05), thus providing some support to H4, that is, the existence of partial mediation by supplier development in the effect of strategic purchasing on purchasing performance.

5. Discussion and implications

The results of this research provide support for the relationship between strategic purchasing and supplier development. This is very important for industrial marketers given the importance and interactive character of relationship marketing efforts. Industrial marketers could benet from a buyers efforts towards supplier development by integrating them with their own relationship marketing efforts. This research also showed that strategically oriented-supplier development practices render positive results for the buying rm. Since supplier development is a reection of many building components of Dyer and Singhs (1998) relational framework, the ndings of this study help us to better understand the link existing between strategic purchasing and supplier development and how it creates value for the buying rm. The studys results suggest that strategically-aligned supplier development practices are a source of relational rents (i.e. improvements in performance). Specically, through supplier development, buyer and supplier can enable the four rentgenerating mechanisms identied by Dyer and Singh (1998), that is, combining, exchanging, or investing in relationalspecic assets (e.g. through buyer involvement in a suppliers new product development, and supplier involvement in the buyers product development process); exchanging knowledge (e.g. through suppliers being trained by the buying rm, sharing of cost and quality information with supplier, and buyers visits to suppliers facilities); combining complementary resources and capabilities (e.g. through buyer involvement in suppliers new product development, and supplier involvement in the buyers product development process); and deploying more effective governance mechanisms (e.g. through supplier reward and recognition). This investigation supports the view that rms that focus on strategic supplier development reap greater long-term benets from their efforts than rms using the non-strategic approach (Krause et al., 1998). Since long-term value creation is one of the key organizational goals of businesses, and strategic purchasing and supplier development leads to improved 169

performance in the buying rm (customer), it is therefore advisable for supplying rms and industrial marketers in particular, to understand strategic purchasing and supplier development, and how they are related. In this regard, this research offers a general guideline for industrial marketers regarding strategic purchasing practices (e.g. participation of purchasing in the strategic planning process, the existence of a formal purchasing plan, and the existence of direct links between purchasing executives and top management) and supplier development activities (e.g. frequent visits to suppliers to assess their processes, establishment of a system to reward and recognize supplier improvements, providing training to suppliers, sharing of quality and production information, collaboration with suppliers in improving existing and new materials, and involving the supplier in the companys new product development process). Thus, in order to support the buying rms supplier development efforts and ensure their success, the supplying rms could provide training to its sales and operations personnel on how to collaborate with the customer rm on new product development, establishment of a system to reward and recognize supplier improvements, or developing interorganizational information systems. From the buying rm point-of-view, the results of this research also provide support to Bensaous (1999) model of buyer-supplier relationships portfolio and suggest that buyersupplier portfolio management leads to performance improvements for the buying rm. According to Bensaou (1999), the rst step in supplier portfolio management is dened by the buying rm setting up plans for its entire supplier base and for individual supplier relationships (Wanger and Johnson, 2004). This step would be equivalent to strategic purchasing in our research model. The second step consists in analyzing the external conditions given by the product, the technology, and the market and selecting the type of supplier relationship to match. Next, the buying rm should match the design of the relationship to the desired management prole. Bensaou (1999) suggests that in case of misalignment between what the supplier is able to provide and what the buying rm requires, the buying rm should take appropriate actions to ll the gap. Our research suggests that a buying rm could implement supplier development practices and that they could lead to better performance. This research also contributes to recent literature on value creation and competitive advantages for customers (e.g. Ulaga, 2003, 2004). Specically, the ndings of this research suggest that strategically oriented supplier development practices could help the supplier in creating value for the buying rm in four dimensions: product quality, delivery, direct product costs, and process costs (Ulaga, 2003). Thus, suppliers should strive to reorient their relationship marketing efforts in order to support their customers strategic purchasing activities, but more importantly their customers strategic priorities. In this way, industrial marketers have the challenge to develop and establishing a process in the company with the capability of identifying a suppliers degree of alignment with their customers strategic priorities in order to align their business processes to satisfy those priorities.

6. Conclusions and future research

This paper proposed and tested a model of mediating relationships involving three constructs: strategic purchasing,

Effect of strategic purchasing on supplier development Cristobal Sanchez-Rodrguez

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supplier development, and purchasing performance. Overall, we found that these three constructs were related to each other in the sequential order specied by the research model. The collective results of this study are consistent with the view that purchasing strategy drives the implementation of purchasing practices (Ellram, 1994) and that alignment of supplier development practices with the overall business goals can enhance a rms purchasing performance. Therefore, the results validate the proposed research framework (Figure 1) where the alignment of the purchasing strategy with the overall business goals is an antecedent to the implementation of supplier development practices and that this relationship produces results at the functional level increasing purchasing performance that in turn would add to improved business performance. This study highlights the importance of strategic purchasing and supplier development in improving customer value (purchasing performance), thus meriting management consideration and resources from both suppliers and buyers when developing an integrated supply chain strategy. The ndings suggest that a buying rms supplier development practices that are strategically-oriented through a buyers implementation of strategic purchasing generate relational rents that lead to superior performance. More specically, we identied that the implementation of strategically-oriented supplier development activities allows buyer and supplier to synergistically combine, exchange, or invest in idiosyncratic assets, knowledge, and resources/capabilities that permit the realization of rents increasing performance. This study identied a number of opportunities and areas for future research. It is necessary to deepen our understanding of the alignment between a buyers strategic purchasing and supplier development practices and more specically how suppliers could develop a supporting environment to facilitate such strategic alignment. The use of a single key informant from participating businesses could be seen as a potential limitation of the study. This studys ndings should be conrmed in the future using information directly obtained from actual suppliers and internal customers (i.e. the companys internal manufacturing, R&D, and marketing personnel). The study incorporated a crosssectional and descriptive sample of the manufacturing industry at a singular point in time. A more stringent test of the relationships between strategic purchasing, supplier development, and purchasing and business performance requires a longitudinal study, or eld experiment, which could gather information about strategic purchasing and supplier development practices and performance over a more extended time span. Regardless of the strength of the relationships between the constructs in the model, we cannot obviate the fact that these relationships may apply to larger rms more than to smaller rms. The data used to test the relationships in the model was obtained from the population of the 1,200 largest manufacturers in Spain. More research is needed to extend these results to the service industry and other national contexts.

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About the author

Cristobal Sanchez-Rodr guez is currently an assistant professor of Management Information Systems at the School of Administrative Studies, York University, Canada. His current research interests include supply chain management, information systems, and quality management. His research has been published in the International Journal of Operations and Production Management, International Journal of Production Economics, International Journal of Enterprise Information Management, Supply Chain Management: An International Journal, and International Journal of Logistics Research and Applications, among others. Cristobal Sanchez-Rodrguez can be contacted at: sanchezc@yorku.ca

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