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THE IMPACT OF STRATEGIC

SOURCING AND E-
PROCUREMENT ON SUPPLY
CHAIN PERFORMANCE
MANAGEMENT
Alex - Papelaria Rabisque

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The 20th National Conference of Australian Society for Operations Research & the 5th International Intelligent Logistics System Conference

THE IMPACT OF STRATEGIC SOURCING AND E-PROCUREMENT

ON SUPPLY CHAIN PERFORMANCE MANAGEMENT

Kanyarat Thawiwinyu1 and Ungul Laptaned2

1
GSK Electronics (Thailand) Co., Ltd. and Japan Network Consultant (Thailand) Co., Ltd.
Tel: +66 2512- 0477 Fax: +66 2512-0478
2
Logistics Engineering Department, School of Engineering,
University of the Thai Chamber of Commerce
Vibhavadee-Rangsit Road, Dindaeng, Bangkok, 10400, Thailand
Tel: 662-697-6707, Fax: 662-275-4892
Email: nicky@gsk.com.sg
epxull@yahoo.com, ungul_lap@utcc.ac.th

ABSTRACT
Major changes are currently taking place within purchasing functions of manufacturing firms.
Purchasing is shifting its focus from daily procurement activities to long term, value-adding
purchasing and supply chain initiatives. At the same time, it is responding to the challenges
and opportunities of electronic procurement (e-procurement), which refers to the utilization of
the Internet to buy and sell products and services. The responsibilities of purchasing have
changed markedly over the last few decades, Purchasing focused heavily on the transactional
elements of the procurement process. Purchasing was accepted as a support function that
provides for the sourcing needs of other departments. The development of materials
management and introduction of new manufacturing technologies in the 1970s brought pre-
and post-production flows closer together. The manufacturing-purchasing interface
strengthened, creating a need to align the buying cycle with production requirements.
Purchasing started to create a „culture‟ that could help it to attain a more proactive role in the
company and start taking responsibility in product design and development activities. The
research reported here was undertaken to understand the impact of purchasing on this thesis
supply chain performance by 1) investigating current and emerging e-procurement practices,
2) identifying the critical elements of strategic sourcing, and 3) assessing the impact of
strategic souring and e-procurement on firm and supply management performance through
empirical investigation.

Key Words: Supply Chain, Performance Measurement, Information Technology,

International Procurement Office

1. INTRODUCTION
The role of purchasing has also changed considerably due to the advances in information
technologies (IT) and information systems (IS). Web-based information systems enable
several purchasing related activities to be managed electronically. Internet purchasing,
business-to-business (B2B) marketplaces, and reverse auctions provide possibilities for

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e-procurement applications. This has enabled purchasing to shift its focus from day-to-day
activities to strategic tasks, which can help companies attain success in the marketplace. The
changing role of purchasing coincides with the growing acceptance of supply chain
management. A supply chain refers to “the network of facilities and activities that performs
the functions of product development, procurement of material from vendors, the movement
of materials between facilities, the manufacturing of products, the Distribution of finished
goods to customers and after-sales support” (Mabert & Venkataramanan 1998). Supply chain
represents all activities associated with the transformation and flow of goods and services
from the sources of raw materials to end users (Ballou et al. 2000). Consecutively, supply
chain management is “the integration of key business processes from end user through
original suppliers that provides products, services and information that add value for
customers and other stakeholders‟‟ (Cooper et al. 1997).Before the introduction of supply
chain management, the focus was on firm-level performance. Over the years, as companies
have aggressively pursued cost cutting initiatives, they have begun to reach the point of
diminishing marginal returns within their organization‟s own boundaries. Consequently,
inter-organizational relationships have gained attention as they provide potential of great
opportunities (Cavinato 1992). Interest in identifying inter-organizational processes that
impact firm level and supply chain level performance has grown (Cooper et al. 1997, Lambert
et al. 1998, Mabert & Venkataramanan 1998).
In this context, purchasing has gained strategic visibility in inter-functional and
inter-organizational relationships (Ellram & Carr 1994) and has emerged as the driving force
behind several supply chain practices. Today, Purchasing is heavily involved in strategic
sourcing, which can be defined as engagement in critical purchasing activities that span across
organizational boundaries (Anderson & Katz 1998). The research reported here was
undertaken to understand the impact of purchasing on this thesis supply chain performance
by:
1. Investigating current and emerging e-procurement practices.
2. Identifying the critical elements of strategic sourcing.
3. Assessing the impact of strategic souring and e-procurement on firm and supply
management performance through empirical investigation.

2. LITERATURE REVIEW
Strategic sourcing is a process where several purchasing activities are streamlined to support a
total supply chain vision focusing on the ultimate customer. The following sections provide a
review of purchasing literature in terms of the main elements of strategic sourcing: a) strategic
elevation of the Purchasing function, b) internal coordination with other functions, c)
supply-base optimization and buyer-seller relationships, and d) integration and early
involvement of suppliers in planning and design processes.
Internal Coordination between supplier and purchasing The inter-dependence between
Purchasing and other functions is becoming stronger. Purchasing increasingly takes part in
activities that have been traditionally assumed to be other functions‟ responsibilities, such as
product design and development. In return, the traditional purchasing decision of which
vendor to select is expanding to involve departments other than procurement, especially when
long-term relationships and outsourcing are utilized (Cavinato 1991). The resulting increased
internal coordination is evident from greater integration, more top-management involvement
(Kraljic 1983) and stronger cross-functional teams (Kraljic 1983, Van Weele et al. 2000).
Earlier research has shown that better integration among different functions lead to price
reduction and savings, inventory reduction, reduced clerical work and better delivery and
service (Kraljic 1983).

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Long-term relationships with key suppliers transaction cost theory predicts that as
environmental uncertainty and frequency of transactions between organizations increase,
firms prefer vertical integration in order to reduce transaction costs (Williamson 1989). These
costs include the costs associated with negotiating, implementing, coordinating, monitoring,
adjusting, enforcing and terminating exchange agreements. Yet, high levels of vertical
integration are risky for firms in industries with excess capacity, rapidly changing technology,
or fluctuating demand, where integration limits firms‟ abilities to respond quickly to industry
changes (Pint & Baldwin 1997).
E-procurement The adoption and utilization of information technologies has a strong
impact on business processes. The link is easy to see when firms are recognized as
information processing entities. In this context, it becomes imperative to understand the
effects of changing information technologies on business performance and the achievement of
business goals. The following sections provide an analysis of previous literature that attempts
to understand the value of information technologies in general and Internet-based
technologies in specific. The last part focuses on the specific use of Internet in purchasing
activities and provides a framework that assesses the level of e-procurement adoption by
companies.
The concept of supply chains is akin to Porter‟s (1985) definition of value chains. The
value chain models a business as a series of inter-linked activities, and groups these activities
as primary and support activities. Primary activities are related directly to the
production/creation of the business‟ product or service and include production, marketing,
logistics and after-sales functions. Secondary activities provide support to the primary
activities and include procurement, firm infrastructure, human resources management, and
technology deployment. The supply chain expands on the value chain model by explicitly
acknowledging the inter-dependency of several business entities that carry out these activities
to provide an end product or service. As a result, supply chain management emphasizes
integration of functional activities across organizational boundaries (Chandrashekar & Schary
1999). The growing interest in supply chain management over the last decade has coincided
with the emergence of electronic networks that facilitate closer coordination (Fisher 1997).
Advances in information technology (IT) and systems (IS), provide tremendous opportunities
in that these technologies reduce the need for companies to create inventory and capacity
buffers to reduce the impact of demand uncertainty. Today, the potential for electronically
facilitated joint decision-making in supply chains is limited only by organizational parameters
of trust, compatibility and mutually recognized common goals rather than the restrictions
related to the technology itself (Chandrashekar & Schary 1999).

3. METHODOLOGY
The data collection of this research was a questionnaire and a survey method. Since it
involves acquiring information directly from the participants by posing questions. The
questions may be asked orally, on paper (questionnaire), or in some combination. This
researcher decides to implement the survey method in this research. Population of the
study the population of this case study refers to the all company of supply chain of GSK
ELECTRONICS (THAILAND) CO., LTD as trading firm for electronics component.
Amount supply chain for distribute the questionnaire from 40 copies of questionnaire which
were distributed to cover all of GSK‟s partners, all of them had been answered and gathered.
The data collected will be analyzed to answer research questions, descriptive statistics,
including frequencies, percentages, means and standard deviations, will be employed to
analyze the data from part of questionnaire.

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1. Descriptive Statistic: Data from questionnaires were processed by SPSS program in

term of frequency, percentages, mean, and standard deviation.
2. Inferential statistics: The inferential statistics will be used to analyze the relationship of
variables as proposed in the model. The Pearson Product Moment Correlation and Linear
Regression Analysis will be used to test hypotheses.
The research conducted on the impact of strategic sourcing and E-procurement on supply
chain performance management is a quantitative research has expressed the relationship
between (1) Strategic sourcing (Y1) with supply chain management performance (Z) and (2)
E-procurement (Y2) with supply chain management performance (Z). The population of this
case study was assumed by using a number of partners on supply chain of the GSK
Electronics (Thailand) Company Limited. There are 40 suppliers of the company with 3
groups which are 36 producers, 2 distributors and 2 importers. This case study determined
those who answer the question should be purchasing manager or top management of the
company. The independent variables in this study were 1) Strategic sourcing (X1=strategic
elevation of purchasing function, X2=Internal Coordination between supplier and purchasing,
X3=Relationships with key suppliers and X4=Supplier involvement) 2) E-Procurement
(X5=Value of IT and IS, X6=Impact of E-commerce, X7=Utilization of B2B E-commerce in
purchasing). The dependent variable of this study was supply chain performance
management. This study developed the questionnaire by integrating the knowledge derived
from the review of literature.
To test the reliability of the questionnaire, the study conducted a pilot test to ensure the
reliability of the questionnaire by using the reliability analysis. The results of the reliability
analysis indicated that Cronbach Alpha Coefficient was 0.837 It was interpreted that the
questionnaire was valid for the use of data collection. The questionnaires were used to
completely collect data from the company‟s supply chain of the GSK Electronics (Thailand)
Company limited, including all suppliers (40 questionnaires). Data Collection was taken
place from 1st Oct, 2007 to 20th Dec, 2007; 81 days). The data colleted by the questionnaire
was compiled and analyzed by using the SPSS program. Descriptive statistics such as
frequency, percentage, mean, standard deviation were used in this case study to describe the
characteristic and attitude of the samples.

Strategic Sourcing One objective of this research was to design a valid and reliable survey
instrument that can be utilized in future studies. To ensure this, the scale developments were
started with an extensive review before and have been proven to be valid and reliable. This
resulted in a pool of items for each construct, which were evaluated by academics and
professionals to ensure that they were applicable to the current study. The item pool generated
for sub-dimensions of strategic sourcing are provided in Table.1

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Strategic Elevation of Purchasing

Function (X1)

Internal Coordination between

supplier and purchasing (X2)

Strategic sourcing
Relationships with key suppliers (Y1)
(X3)

Supplier involvement (X4)

Supply Chain Performance Management (Z)

Value of IT and IS (X5)

Impact of E-commerce on E-procurement

Inter-organization (Y2)
relationship(X6)

The utilization of B2B

E-commerce in purchasing.(X7)
Figure 2 Conceptual Framework of The Impact of Strategic Sourcing and E-procurement on
Supply Chain Performance Management
Table 1 Item Pool for Strategic Sourcing
Emphasis of top management on purchasing function‟s
Strategic Elevation of strategic role
purchasing Visibility of purchasing with the firm
Importance of purchasing relative to other function in the
firm
Involvement in corporate-level strategic planning

Internal Integration of Frequent communication with other function

purchasing with other functions Emphasis on being a member of cross-functional teams
Visibility in concurrent engineering efforts
Cross-functional training of purchasing executives
Assistance to supplier Establishment of mutual trust
Top management commitment to relationship development
Joint investments in specialized machinery/training
Financial assistance to supplier
Technological assistance to supplier
Training suppliers
Rewarding supplier performance
Concern for suppliers‟ profit.
Supplier Involvement in Joint-problem solving with supplier
Planning Representation suppliers in company‟s continuous
improvement program
Production information sharing
Cost information sharing

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Sources: Narasimhan & Das (1999a, 1999b), Noordewier et al, (1990)

E-procurement In this study, the construct e-procurement is intended to measure the extent
to which purchasing managers use the internet for purchasing-related tasks. E-procurement
construct in this research is operationalzed as follows: Strategic procurement, Purchasing
process, Internal tasks and External tasks

Table 2 Item Pool for Electronic Procurement

Strategic procurement Identify necessary capabilities to match the customers needs,
Regarding flexibility, innovation, agility, quality,
responsiveness, cost levels and price levels
Assess one‟s own capabilities (Knowledge, technology,
capacity, competence, long term importance, total cost)
Assess supplier capabilities (Knowledge, technology,
capacity, competence, long term importance, total cost, type
of market, localization, and substitutability)
Model cost drivers for bought items
Model single/multiple sourcing affect on total cost
Model how supplier relationship affect on total cost (cost
and benefit of engaging in a close supplier relationship)
For close supplier relationships share information and
knowledge and make relation specific investments.
Purchasing process Identify needs
Conduct market analysis
Send out and expedite RFx
Do background review
Negotiate contract and select supplier(s)
Purchase order fulfillment
Monitor supplier performance
Internal tasks Analyze corporate spending
Parts bundling
Aggregate corporate expenditures
Develop relationships with internal customers
Reduce maverick buying and promote compliance
Disseminating procurement related information
External tasks Scan for innovations
Monitor, disseminate and stimulate
Develop new sources
Foster external capabilities
Sources: Boyer et al, (1996), Boyer & Pagell (2000) and Kotha & Swamidass (2000)

4. RESULTS
Results pertaining to strategic sourcing initiatives Several implications related to strategic
sourcing have emerged from the empirical study. It appears that many of today‟s business
accept strategic sourcing as a effective initiative in improving purchasing and firm level
performance. Moreover, firms that implement strategic sourcing experience significant
improvement in their supply chain performance management, specifically in terms of
responsiveness and satisfaction of customer. The strategic sourcing included 4 factors of

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supplier involvement, strategic elevation of purchasing function, internal coordination

between suppliers and purchasing as well as relationships with key suppliers on supply chain
management performance. Supplier involvement has showed result that the average
highest score from respondents was Design and/or technical capability as followed the
supplier products low cost and flexibility of suppliers. While the closeness of relationship
supplier was lowest priority on supplier involvement because even though the close
relationship was important but compare with other factor it not enough according to the
resulted.
Strategic Elevation of purchasing function included the attitude of neutral Then
considering each factor, it was found that we have invested a lot of effort in purchasing
involved in corporate-level strategic planning because the company better do the planning
before develop purchasing function if no plan might have huge unexpected problem happen in
future but the followed that the top management of company emphasizes purchasing
function‟s strategic role and purchasing is viewed as equal to other functions in the firm by
the CEO/president was average lowest. Internal coordination between supplier and
purchasing has expressed there is frequent communication between purchasing and other
departments within the firm was very important for gathering the team work and same
understanding among the coordinate and followed by purchasing personnel are included in
sales proposal activity, purchasing executives receive cross-functional training and purchasing
personnel are included in concurrent engineering teams which was the lowest priority for the
respondents. Relationships with key suppliers has showed that the joint investments in
specialized machinery/training are the most important to bring the supplier satisfaction
because the average highest score due to the key supplier very important to the firm for
business expansion if firm able to do joint investments together with suppliers then
automatically got authorized to involvement and manage the company.
E-Procurement included 3 factors of value of IT and IS, impact of e-commerce on
inter-organization relationship and the utilization of B2B E-commerce in purchasing.
However, E-procurement was founded from the thesis resulted the highest average score was
the internet using in purchasing improves procurement process followed by uses the internet
in procurement process means the firmed should update new technology which are important
factor to apply E-Procurement. Value of IT and IS included the attitudes of neutral. When
considering each factor, it was found that lots of dead stock the highest average score due to
the important factor which has hugged impact to profit and lost is the stock level .The
company which has valued IT and IS expected to reduce the business risk of purchasing
procedure such as stock monitoring, forecasting and inventory control. Impact of
E-commerce on inter-organization relationship has showed the most important for
suppliers was customer complains in your company system which means the
inter-organization should have good system to support the company operation wise to get
customer satisfaction and avoid the complaints. The others factor which was impact of
E-commerce was followed important of product‟s lead-time available after get PO,
E-Procurement helps to improve the sales volume, transportation system before starting
E-procurement and lowest average score go to ratio of international customer and domestic
customer. The utilization of B2B E-commerce in purchasing has founded the firmed unable
to utilized E-commerce in purchasing due to afraid to take long time for changing the
purchasing function was the most and take long time to increase system capacity, share
information as well as it‟s costly.
SCM Performance several researchers agree that agile organizations are responsive to
customer expectations (Goldman et al. 1995, Zhang & Sharifi 2000, Van Hoek el al. 2001).
Accordingly, SCM performance is operational in this study as following: 'Supply Chain

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Performance' captures the extent, to which companies and their key suppliers can satisfy their
end customers, by being responsive to their needs and providing a high-quality, competitive
product.
Responsiveness to customer needs quality of product/service overall customer and supplier
satisfaction

Hypothesis 1: Strategic elevation of purchasing function (X1) has a positive influence on a

strategic sourcing (Y1).
Hypothesis 2: Internal coordination between supplier and purchasing(X2) has a positive
influence on a strategic sourcing (Y1)
Hypothesis 3: Relationships with key suppliers (X3) has a positive influence on a strategic
sourcing (Y1).
Hypothesis 4: Supplier involvement (X4) has a positive influence on a strategic sourcing
(Y1).

Hypothesis 5: Value of IT and IS (X5) has a positive influence on an E-procurement (Y2)

Hypothesis 6: Impact of E-commerce on Inter-organization relationship (X6) has a positive
influence on an E-procurement (Y2)
Hypothesis 7: The utilization of B2B e-commerce in purchasing (X7) has a positive influence
on an E-procurement (Y2)

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Hypothesis 8: Strategic sourcing (X9) has a positive influence on a supply management

performance (Z)
Hypothesis 9: Electronics procurement (X10) has a positive influence on a supply
management performance (Z)
Measurement of supply chain performance has proven to be one of the most persistent
challenges in supply chain research. Most studies focus on the cost effects of supply chain
management. This may be attributed to the fact that several companies have already reliable
historical and up-to-date information on inventory and production costs. Other performance
measures are still emerging. Past studies have focused on flexibility, delivery and product
quality or financial performance. The primary challenge for most studies is to go beyond firm
level performance and obtain reliable data on these measures for at least more than one
company along the supply chain.
This study focused on performance in terms of responsiveness to and satisfaction of
customers through quality products and services. Performance was assessed bother for the
firm individually, and for the buying firm and its suppliers collectively. The results indicate
that strategic sourcing and E-procurement have a positive impact on supply chain
performance management. In short very exciting and at the same time challenging future
awaits purchasing professionals. If they succeed on capitalizing these changes, they are likely
to enjoy increased autonomy within the firm and less conflict driven relationships with their
external constituents although the impact of these initiatives on flexibility is currently not
evident, these changes are also likely to have a positive influence on the firm performance in
the near future. Studies where manufacturing, firm level and supply chain level strategies are
assessed simultaneously.

5. CONCLUSION AND RECOMMENDATION

Based on the overall flow of materials, companies can be seen as being composed of three
primary processes: purchasing, manufacturing and distribution. While distribution systems
were excluded in this research, the primary driver for the thesis was to evaluate purchasing
practices such as strategic sourcing and utilization of E- procurement tools, and
manufacturing tools such as advanced manufacturing technologies collectively.
There has been extensive research that has identified the success factors in attaining
trading and manufacturing priorities such as cost, quality, flexibility and delivery. While cost
and quality have been on the forefront for several decades, the increased competition is
forcing companies to start placing emphasis on flexibility and delivery. Out of these four,
flexibility has been most frequently associated with the utilization of advanced manufacturing
technologies and has also been used to assess the impact of different Purchasing practices.
As a result, this study attempted to understand the impact of purchasing initiatives in
conjunction with widely adopted manufacturing initiatives on manufacturing flexibility. In

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this goal, flexibility was evaluated as a multi-dimensional construct as has been increasingly
defined in recent literature. Based on earlier research machine and labor flexibility were
defined as lower level flexibility dimensions, whereas volume. mix, product modification and
new product development were referred to as higher level dimensions.
The study also analyzed the direct and indirect effects of strategic sourcing and
E-procurement on supply chain performance. The main objective was to understand whether
these initiatives improved supply chain performance directly or indirectly through attainment
of higher levels of flexibility. In addition to the above, this thesis contributed to development
of research methods appropriate for investigating the impact of supply chain management and
E-procurement initiatives undertaken by firms in general. It contributed to a better
understanding of how firms, in various industries and business settings, can effectively utilize
strategic sourcing and e-procurement, in conjunction with trading house and advanced
manufacturing technologies and realize improvements in different flexibility dimensions.
Building on past theoretical and empirical research, and close collaboration with
manufacturing firms, this study has extended past research in several ways, while also
opening doors for subsequent research. The theoretical arguments and empirical results of this
study indicate that research has reached a certain level of comprehension in strategic sourcing
and advanced manufacturing technologies.
Strategic sourcing is a multi-dimensional construct; the level of implementation can be
evaluated by looking at the status of purchasing within the firm and among its business
partners. A highly skilled purchasing group equipped with the power and tool to take part in
the strategic formation of a company can and does impact firm and eventually supply chain
performance. Yet, several challenges have to be faced to enjoy these benefits. Companies
need to accept purchasing as one of their primary and critical functions. Purchasing needs to
be elevated to a level where it can provide input to the strategic direction of the company.
Close seller relationships with key suppliers are imperative in being able to communicate
these goals to business partners. In return for expecting the suppliers to align themselves with
these objectives, the buying company should be ready to enhance information sharing and
spending time to assist suppliers. The utilization of e-procurement is also critical in that well
planned and effective utilization of Internet can free Purchasing managers' time from
transactional activities related to order processing and turn their attention to value-adding
purchasing activities This study has expanded previous research on manufacturing flexibility
dimensions, in that it empirically assesses the impact of strategic sourcing, e-procurement and
advanced manufacturing technologies on different dimensions of manufacturing flexibility. In
addition, it is one of the earlier studies that analyze relationships between different flexibility
dimensions. The results indicate that strategic sourcing and e-procurement are not effective in
improving flexibility, while, as expected, advanced manufacturing technologies are. In
addition, increased flexibility does not lead to improved supply chain performance. Yet, our
understanding of the impact of the former two needs to be improved in subsequent studies.
One stream that is critical to the evolution of manufacturing strategy research is to evaluate to
impact of distribution on flexibility. It may be that due to improved communication
technologies, several Purchasing departments are already enjoying enhanced information
sharing and that it is the material flow that causes the bottleneck. Maybe it is not order
generation, but the delays in incoming materials that limit flexibility. Another stream that
provides future opportunities for research is the relationship between manufacturing
flexibility and supply chain performance. Recent years have witnessed a growth in literature
on supply chain agility. Flexibility may be a critical antecedent for agile supply chains. In
fact, measurement of supply chain performance is a stream in itself that needs to be explored.

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