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ResearchGate sev acinar se morro usenet fe jes SS Strategic Procurement: A Review and Prospect ‘Artie rational Jeual of rocieenc Management January 2082 : Bra Swine @ Berney. ree Sento sasewe Sees snore Some ofthe autor of tis publication seo woking on theses projec een suplycnan Managemen ew pct BE) covo.n8 rojas ven pee Alone foi is page was lacey Paul Hong 072 Seprmber205 452 Int. . Procurement Management, Vol. 5, No. 4, 2012 Emerging issues of procurement management: a review and prospect Paul Hong Collewe of Business University of Toledo, 2801 Bancroft, Toledo, OH 43606, USA. E-mail: paul hong@utoledo.edu He-Boong Kwon* School of Business, Park University, 8700 NW River Park Drive, Parkville, MO 64152, USA E-mail: HeBoong Kwon@park edu. *Corresponding author “Abstract: Increasingly, procurement management is becoming a strategic priority of firms for their sustainable competitive advantage in turbulent times In today’s dynamic market environment, procurement is positioned as critical integrative business process and its focus as been extended ftom short tem cost minimisation to Tong term value creation and delivery. In this paper, we examine a major procurement ltersture and presenta framework that suggests ‘evolving pattems of strategic procurement practices of firms, This zeview of articles published in major journals about procurement management shows that procurement literature has evolved from specialised functional orientation to ‘more integrative and strategic approaches, This article provides summaties of the procurement literature in terms of ‘ts key dimensions and emerging pattems, Future research issues are discussed. [Keywords: cmerging procurement issues; procurement professionals; strategic procurement pracices: prospect: review; procurement management Reference to this paper should be made as follows: Hong, P. and Kwon, H-B. (2012) “Emerging Int. J. Procurene! “Managemen, Vol. 5, No.4. p52 469, sues of procurement management: a review and prospect’. Biographical notes: Paul Hong is a Profesor of Information Operations and ‘Technology Management at the University of Toledo, USA. He holds a PAD in ‘Manufacturing Management and Engineering fom the University of Toledo He also holds an MBA and an MA in Economics from Bowling Green State University. USA and BA dearee fiom Yonsei University in Seoul, Korea. His articles have been published in joumals including Jounal of Operations “Management, International Journal of Production Research, Journal of Supply Chain Management, and International Journal of Production Economics. is esearch interests ae in imovation and global supply chain management © 2012 Inderscience Enterprises Le. Emerging issues of procurement management 455 He-Boong Kivon is an Associate Professor of Management at Pak University, ‘USA. He holds a Doctoral and an MS in Electrical Engineering from Flocica Institute of Technology and a BS from the Korean Air Force Academy. He also took MBA coursework from Pacific Lutheran University, and completed the AACSB-endorsed Post-doctoral Bridge to Business programme at the University of Toledo, He had established his carer in operations, logistic, and program management by assuming various managerial postions throughout his tenure in the Korean Air Foree and Samsung-Thales Company in Korea. His articles have been published in joumals including enchmarking- an International Joursal, European Journal of Dinovation Management, and ‘International Journal of Logistics Management. His research interests include ‘global operstions and supply chain management, performance measurement, find innovation management ‘This paper is a revised and expanded version of a paper entitled ‘Emerging ‘procurement issues: a research perspective" presented at the 4th Intemational Supply Chain Management: Symposium and Workshop i Madrid, Spain, 22-24 September 2010, 1 Introduction ‘Traditionally, the focus of procurement has been efficient purchasing activities. Firms regard low cost purchasing of quality materials or component parts of finished products a an important function of procurement (Nollet and Beaulieu, 2003; Schiele, 2007) However, today's dynamic market environment and intense competition drive all types of ‘organisations to be more innovative in introducing new products and services fast to ‘market and requires high level of flexibility in meeting changing customer requirements (Barragan et al, 2003; Doll et al. 2010; Hong et al, 2009: Roh et al. 2011) Increasingly, the source of sustainable competitive advantage does not come from one or ‘Wo areas of excellence, Rather, itis derived from outstanding practices in key strategic areas that are linked to the overall business processes. As market environment becomes ‘more turbulent with rapidly changing customer requirements, the nature of goods and services is more complex and product life cycle is getting shorter. Increased product complexity and shorter product life cycle requires a wide range of innovative component parts and services that make procurement more challenging and costly. Since the portion ‘of procurement is as large as 70% or more of total cost of goods sold in some industries, ‘management needs to take effective procurement as strategic priority (Anderson and Katz, 1998; Barragan et al., 2003: Ryals and Rogers, 2006). Therefore, traditional back office purchasing function has been evolved to be more cross functional and inter-organisational business processes. Thus, increasingly procurement is becoming a key strategic business process from a transaction-based practice to the most of the business finns (Carter and Yan, 2007; Porter and Kramer, 2011; Ryals and Rogers, 2006). Yet, there is a great deal of ambiguity in regard to the nature, scope and role of procurement in this rapidly changing business environment. Priot research on procurement has been quite fiuitfil in many aspects. In the inaugural issue of International Journal of Procurement Memagement, Gunasekaran (2007) broadly defined. the scope of procurement including sourcing. supply management, purchasing. supplier 454. Hong and H-B. Kwon development and innovation, and performance management. The aim of this paper is to examine how research on procurement has evolved over the years. For this purpose, we explore the following questions 1 What scope of procurement topics are covered in the major journals of operations! supply chain’ purchasing’ procurement management? ‘What is the emerging emphasis of procurement practices? 3 What are the key factors for effective procurement? 4 What are the future research areas for the procurement? To answer the above questions this paper examines the papers published in major Joumals ~ particularly Zuternational Journal of Procurement Management, Journal of Purchasing and Supply Management, Supply Chain Management: An International Journal, Jourval of Supply Chain Management, Jounal of Operations Management, International Journal of Production and Operations Management, Strategic Outsourcing: An International Journal — about procurement management and categorises them into subject areas, The selection criteria are 1 articles with procurement in their title procurement as a key word, ‘The assumption is that procurement is apparent only if the article mentions procurement either in the ttle or in the key word. Otherwise, procurement is a fairly sumall element in the article. We then classified these articles by possible broad topics. The paper is organised as follows. The next section first discusses 1 changing perspectives of procurement 2. emerging emphasis on effective procurement management 3 key research dimensions for effective procurement, 2 Changing perspectives of procurement In conventional procurement practices, maximising the bottom line profits through cost minimisation has been a critical indicator for the successful business outcome, consequently, business finns stay vigilant on the cost structure. With the cost consciousness, firms place an emphasis on strategic cost reductions through their suppliers (Barragan et al., 2003; Busi and Melvor, 2008). However, increased product complexity and time-based competition require innovative parts and components that ‘make cost a challenging issue. In this innovation driven market environment, no single company has enough skill sets to fulfil timely demand, hence, procurement tends to be ‘more dependent on efficient supply chain management (Andersen and Rask, 2003. Schiele, 2007: Williamson, 2008). Thus, in response to the changing market environment, there have been some noticeable changing patterns. Figure 1 summarises a changing perspective of procurement. Emerging issues of procurement management 455 Figure 1 Changing perspective of procurement: 1970s-2010 and beyond Inter-orgunistional eoordination and integrative processes for enhancing the total value of procurement processes ‘roe ftnal collaboration and t ‘Conarent proce by aioe departments crv by ena ovat fata Tt Procurement in 19805-1990 Support for crass-fintional busiiess efforts Emerging Parems ‘of Procurement in 2000s: Strategic network capability Functional specialisation and sequential process by purchasing department Tt Procurement prior to 1970s Purchasing for comand quality Procuremtent beyond 2010 A new model for strategic Procurement fer susainable ‘competitive advantage Stategie network process and integrative collaborative value chain management by strategic business unit for ereating and elivering shared values for sustainable competitive advantage Apparently, procurement concept has been evolved to incorporate Jong tern goals and adapted to changing business paradigms. Prior to 1970s, procurement was simply a specialised back office fanction which supports sequential business fimctions and separate departments, In this era, procurement requires a strong purchasing fitetion over supplicrs’ interest and arm's length relationship was a commonly accepted practice. In 1980s and 1990s, concurrent business process required intra-organisational collaboration placed procurennent function in a central position and supported cross functional efforts In response to more dynamic and competitive market environment, procurement practices become more complex. With increasing availability of broad scope of outsourcing, procurement fiction requites not only cross fimctional integration but also a high level of inter organisational integrative processes. Accordingly. emphasis on inter-organisational relationship building has become an important issue and procurement has emerged as a strategic business practice for sustainable competitive advantage. 456. Hong and H-B. Kwon 3. Emerging emphasis on effective procurement management In this section, we review areas of emerging emphasis on today’s procurement practices, ‘As aforementioned, a traditional purchasing has evolved into strategic procurement for competitive advantage. Thus, the scope of procurement is extended from firm level to inter-organisation level, supplier-base is being extended to cover global regions, and collaboration-based effective govemance mechanism covers umiltiple layers of supplier networks. From this perspective, effective procurement management leads to the end customer satisfaction by streamlining supply chains. Procurement concept is in a ‘ansition from a short term profit orientation to a core business strategy that is related to sustainability. Table 1 categorises six emerging areas of emphasis in today's procurement practices in terms of: 1 strategic procurement 2 slobal soweing 3 supplier relationship 4 sustainability 5 public procurement 6 procurement in services sector 3.1 Strategic procurement As firms’ supply chain become longer, two clear trends have been emerging. 1 Each firm has smaller contribution for its finished produets, Thus, value creation is ‘based on what others have already done (i., the procurement components) than ‘what it does within for value creation and delivery. 2 Competitive advantage depends on greater value delivery, This necessitates more intensive product and process innovation. Prajogo et al. (2008) shows that procurement is one of key value chain processes which significantly impact quality and innovation regardless of a firm's strategic direction in their empirical study on Australian firms. In fact, suppliers as Key strategic partners require good understanding of their customer's business processes and needs. Greater innovation potential involves open and timely information sharing (Henke and Zhang, 2010). This requires organisation-wide efforts of sourcing and procurement planning and implementation (Baier et al., 2008: Cousins and Spekman, 2003: Prajogo et al., 2008), Better coordination among cross-functional departments result in effective procurement decisions and outcomes. Thus, long-term strategic procurement planning involves both senior management and functional specialists in the areas of marketing. purchasing, operations and distribution as well (Paultaj et al., 2006; Tassabehji and Moorhouse, 2008). 497 Emerging issues of procurement management ‘Changing emphasis of effective procurement practices in 2000-2010 ‘Tablet Tra 458. Hong and H-B. Kwon 32. Global sourcing Offshore outsourcing in today’s business and the scope of outsourcing covers virtually all areas of business functions including manufacturing, product services, human resource ‘management, and research and development (Carter and Yan, 2007). Firms concentrate ‘on their core capabilities, reduce staffing levels, reduce management problems, and improve manufacturing flexibility through various types of outsourcing. In this context, procurement deals with contradictory nature of business decisions such as make ws. buy. control vs. flexibility. unit cost vs. total cast of ownership, and benefit vs. risk. Among many underlying drives for procurement outsourcing, finns strive to search, for the best price or seck efficient ways of acquisition from outside sources. With the growth of globalisation and intemational trade. easy access to low cost resources fiom overseas makes global sourcing as an important stream in procurement practices. However, global sourcing also carries risk in the form of hidden cost or tradeofis which include wansportation and logistics costs, delivery performance, service quality. production capacity, and other business factors (Lowson, 2002; Ramingwong and Sajeev. 2007). Macro factors such as logistics infrastructure, country specific elements including politics, culture, geographic locations, and administration systems also impact on sourcing performance (Min and Galle, 1999; Oke et al., 2009; Ruamsook et al., 2009) When it comes to innovative product, outsourcing can be a source of innovation From this perspective, advanced economies such as westem European countries and Japan might be attractive location for outsourcing destination, Companies outsource to those countries by seeking knowledge. expertise, and higher quality and standard (Oke et al. 2009). In summary, global sourcing include much broad sets of business process oriented issues such as supplier selections, international negotiation, coordinative ‘mechanisms in procurement research (Busi and Melvor, 2008; Carter and Yan, 2007. 3.3. Supplier relationship Increasingly, cost is no longer the most important order qualifier. especially, for the technology oriented innovative products (Choi and Hartley, 1996). Firms achieve cost efficiency and improve quality and order fulfilment through effective supplier selection (Ellram and Krause, 1994; Oke et al., 2009), Besides, sound supplier relationship as a ‘whole is important for a competitive edge and overall cost performance of the network rather than a focal company is considered critical for the satisfaction of customers (Alnez-Aller and Longas-Gareia, 2010; Gattiker et al., 2007; Lambert and Cooper, 2000: Sandberg, 2007). For this, inter-firm information sharing and intra-firm resources deployment aims to achieve synergy and by distributing risks (Min et al., 2005), 3.4 Sustainability Environmental concems and government regulations demand organisations both in private and public sectors t0 achieve high level of green commitment. Green oriented procurement is a proactive strategic initiative to promote sustainable business outcomes ‘which is far beyond traditional process improvement concepts (Brown, 2008; Handfield et al,, 1997), Firms also have taken sustainability into a prime consideration in their operational level as well (Walker and Brammer, 2009; Walker and Phillips, 2009; Yang Emerging issues of procurement management 459 et al, 2011), Accordingly, purchasing firms tumed their focus from low cost purchasing to enhanced customer satisfaction by adding more values on their product, and a fim ‘with green orientation is translated info developing euviroumentally sound products in today's competitive market environment (Hong et al. 2009: Zhua and Sarkis, 2004) Green sourcing is also considered an important sustainable procurement practice. Joo et al. (2010) empirically showed that socially responsible sourcing practices can result in significantly better performance than other competitors in their study on specialty coffee companies, 35. Procurement in public sector Aforementioned green purchasing, more broadly sustainable procurement is not limited to private sectors but local and central government entities utilise public procurement fimctions to support environment-friendiy social culture (Murray, 2000, Walker and Brammer, 2009). US government sectors alone spend enormous amount procurement for supporting military defence, social services and infiastructure development and constructions (Apgar and Keane, 2004). With their huge budget allocation and purchasing capacity, these governmental procutement policies and processes affect the ‘road pattems of procurement practices. Thus public procurement policies play a Key driver for improving manufacturing and services and promoting a wide range of innovation activities (Lawther and Matin, 2005: Lee, 2008; Walker and Brammer, 2009), With the growing importance of public procurement and its impact on social and economic dimensions, emphasis needs to be put on building a sound partnership berween public and private entities CEssiz and Batran, 2008; Parker andl Hartley, 2003: Zitron 2006). Raymond (2008) suggested four key principles in public procurement practices as value for money, ethics, competition transparency, and accountability. 3.6 Procurement in services sector With the growing emphasis on serviees, service procurement and outsourcing is not a new practice any more. However. despite the increasing importance, litle effort has been made therefore more study needs to be done by addressing service specific features (Eliza et al. 2004), Unlike manufacturing procurement where steady intermediary role exists, in a service outsourcing, dynamic relationships and mechanisms exist between entities which eventually make service procurement challenging (Li and Choi, 2009) With the increasing demands of affordable quality care of all populations both in advanced and emerging global economies, the procurement needs in healthcare have increased (Lian and Laing, 2004). Service sector procurement such as consulting and haealteare serviees is geting more complex and provides heavy task to the purchasing ‘managers (Lian and Laing. 2004; Schiele and McCue, 2006). Especially in public service procurement organisations, service providers should be conseious on satisfying diverse stakeholder groups by maximising efficiency on their procurement of necessary goods and services (Brege et al, 2010: Nollet and Beaulien, 2003; Raymond, 2008). In this sense, sets of high level of expertise and procurement knowledge are required for the suecessfl operation of service orgenisations (Chanda, 2008: Lawther and Mastin, 2005). P. Hiong and Ht-B. Kwon 460 ‘Five key research dimensions for effective procurement ‘Table2 ie pa gone taco sagen eto uo pd stn supp ago pou ‘ucpor ump omen user Tw] sys 98408 mp0 3002 ‘eu a IN s0UE "PsN enor opment Pea Emerging issues of procurement management 461 4 Key research dimensions for effective procurement In this section, five key research dimensions of effective procurement are identified Firms emphasise both efficiency (e., productivity) and effectiveness (Le. strategic goal congmience) of procurement. The focus of procurement efficiency is about cost ‘management of procurement, On the other hand, effectiveness of procurement is about delivering the right types of procurement requirements at the right time (Le., quality, delivery. innovativeness, and social values). Integration of efficiency and effectiveness requires firms to consider puspose, scope, professional development, technologies and performance measures of procurement. Table 2 summarises these key dimensions. 4.1 Purpose of procurement for sustainable competitive advantage Pnspose of procurement is aimed at seeking both short term goals of an organisation and Jong term competitive advantage. In this Sense, procurement is both tactical for satisfying current portfolio requirements and strategic for future value creation. In this dynamic ‘market environment, firm's sustainable competitive advantage requires internal business processes and extemal supply network capabilities. Future research may keep focusing on ‘the purpose of procurement in terms of organisational competitiveness and long term survival. Thus, such purpose-driven research should further identify. understand, and assess changing procurement practices to implement a new model for sustainable competitive advantage (Baier et al, 2008: Niezen and Weller, 2006; Ogden, 2005; Parker et al., 2008; Sanderson and Cox, 2008) 4.2. Scope of procurement: value creation and delivery The scope of procurement is beyond traditional make or buy decision, It includes strategy, process, product, and services both in public and private settings. In addition to these categories, geographic location can be another important factor in determining the scope of procurement. Global, national, and regional factors need to be analysed by taking transaction cost into consideration (Brege et al., 2010; Ellram ef al., 2004). Beyond economics, cultural social and political factors play an important role especially in global procurement practices (Graliam and Hardaker, 1998; Parry et al., 2006; Li and Bares, 2009: Li and Choi, 2009: Ogden, 2005: Walker and Brammer, 2009) 43 Professional development of procurement As the scope of procurement is cularged, roles of procurement professionals also change. Individuals in a purchasing organisation face demanding role in today's procurement practices, Procurement is more than technical fimnetion but strategic and organisational processes (Andersen and Rask, 2003; Baier et al. 2008; Bartezzaghi and Ronchi, 2004: ‘Burki and Buvik, 2010). Procurement professionals are agents of promoting internal coordination. They are also diplomats who establish trust-based relationship with external partners (Huang ct al., 2008). Therefore, professional development of individuals is important as the organisational development for efficient and effective procurement ‘outcomes. Future research is to pay attention to how organisations recruit, train and develop procurement professionals to assume technical, tactical and strategic responsibilities (Schoenherr, 2008; Swafford et al., 2006). Procurement professionals 462. Hong and H-B. Kwon desire to achieve their personal advancement goals and specific fimctionally oriented responsibilities in tems of socio-technical task requirements, human resource ‘qualifications. and technological aptitudes (Emiliani. 2000; Gattiker et al.. 2007: Huang. etal., 2008; Lian and Laing, 2004). However, the real goals of procurement professionals, are to enhance knowledge flow and process improvement among members in various settings including team, organisation, and network and thus consistently improve organisational processes and performance outcomes (Nollet and Beaulieu, 2003: Pagell et al. 2010; Tassabehji, 2010; Tassabehji and Moorhouse, 2008; Tazelaar and Snijders, 2004), 44 Technologies for procurement Achieving cost efficiency by simplifying processes and reducing waste of time and resources has been a major concern in technology factors of procurement practices (Amold et al., 2005; Bartezzaghi and Ronchi, 2004), At the same time, optimised process hhas been sought to facilitate innovation. As a consequence, technology adoption is becoming a more widely accepted trend and gradual number of firms relies on information technology (Bendoly and Schoenherr, 2005: Bertolini and Carmignani, 2010: Croom and Brandon-Jones, 2007). E-procurement and B2B is a popular procurement technology which shift transactions into virtual space (Ronchi et al, 2010; Hannas et al, 2010; Karjalainen and Kemppainen, 2008). Technology adoption needs to be implemented in a way not to diminish relationships which would have been achieved via fice to face transactions with procurement entities (Reunis et al.. 2004: Ronchi et al 2010: Teo et al, 2009; Tatsis et al, 2006). 45° Performance measures of procurement ‘Measuring procurement outcomes is an essential step in a seuse that procurement impacts not only firms" financial performance but also overall performance of a firm Bartezzaghi and Ronchi, 2004), Meanwhile, performance measurement in procurement is considered increasingly challenging as procurement requirements become mote complex (Choy and Lee, 2003; Dumond, 1994; Ellram and Krause, 1994: Lawson et al., 2008). Overall cost reduction throughout supplier coordination and impact of supply chain coordination and alliance have been considered important procurement perfonnance measurement (Baier et al., 2008: Schiele, 2007: Vereecke and Muylle, 2006). On implementing an expanded set of procurement practices, performance metrics should be carefully considered in advance and measured in time (Ryals and Rogers, 2006; Schiele, 2007). Performance ‘measurement should be anchored on the realm that core competency comes from entire supply network including a focal firm (Vaidyanathan and Devaraj, 2008; Vereecke and Muylle, 2006). In brief, researchers in procurement should consider key research, dimensions in tems of purpose, scope, professional implications and technology use for fitful research, 5 Concluding remarks ith the Global Financial Crisis in 2008-2010 the role of government is quite active. ‘The budget allocations in the public sectors are rapidly increasing. Thus, the role of Emerging issues of procurement management 463 public procurement on the private sectors and the entire economy deserve more careful reflection (Caldwell et al., 2005; Csaki and Gelleri, 2005; Raymond, 2008). As firms ‘move more toward open innovation and service network, effective procurement practices for service supply chains, green supply chain issues and innovation outcomes will gain ‘more research attention (Ellram et al., 2004; Henke and Zhang, 2010; Murray, 2000; Schiele, 2007), Procurement of small and medium enterprises will also receive more research attention (Cagliano and Spina, 2002; Karjalainen, 2008). Maximum vale through procurement requires effective coordination of sourcing, purchasing or distibution fom the immediate suppliers or logistic services providers. Since. expancled roles of procurement are to 1 stabilise the entire value chain 2. enhance shared values among the participants of these extended business networks 3. strategically approach integrative procurement practices for sustainable supply chain ‘competitive advantage. In this respect, procurement function will continue to evolve as all forms of organisations change according fo the changing demands of their stakeholders. Accordingly, the nature of procurement thus will be redefined to explore new frontiers as well. References ‘Alnez-aller, R. and Longas-Garcia, J. (2010) ‘Dynamic supplier management in the automotive industy’, International Journal of Operations and Production Management, Vol. 30, No. 3 pp.3i2-335, Ancerani, A. and Capaldo, G. (2005) ‘Supporting decisionmaking process in. ficiltes ‘management services procurement: a methodological approach’. Jounal of Purchasing and ‘Supply Management, Vol. 11, Nos. 5-6, pp.232-241 Andersen, P. and Rask, M. 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