Ž .
Journal of Operations Management 18 2000 317–333 www.elsevier.comrlocaterdsw
Supply management orientation and supplierrbuyer performance
Hojung Shin
a,
, David A. Collier
a,1
, Darryl D. Wilson
b,2
a
Department of Management Sciences, Max F. Fisher College of Business, The Ohio State UniÕersity, 2100 Neil AÕenue, Columbus, OH 43210, USA
b
Florida State UniÕersity, College of Business, Tallahassee, FL 32306-1042, USA Received 1 December 1998; accepted 1 October 1999
Abstract
Academics and practitioners agree that excellence in supply management results in better quality, customer service, and channel performance. Yet, most of these studies are either conceptual in nature or actual case studies. The primary objective
Ž .
of this research is to test the impact of a supply management orientation SMO on the suppliers’ operational performance Ž
. and buyers’ competitive priorities cost, quality, delivery, flexibility . Three major research hypotheses associated with
Ž .
Ž .
SMO, Supplier Performance SP , and Buyer Performance BP are tested using a confirmatory structural equation modeling Ž
. approach. The results of this research support the conclusion that an improvement increase in the SMO improves both the
Ž .
suppliers’ and buyers’ performance i.e., a win–win situation for the supply chain . In addition, the influence of SMO on delivery- and quality-related performance is more statistically significant than on cost or flexibility performance. In fact,
when volume and process flexibility are top competitive priorities, a supply chain management orientation may not be an effective way to achieve the desired flexibility. The article ends by discussing other conclusions and suggests directions for
future research. q 2000 Elsevier Science B.V. All rights reserved.
Keywords: Supply chain management; Competitive priorities; Supplier performance; Covariance structure modeling
1. Introduction
The positive impact of the supply chain manage- ment on a firm’s performance has been reported
Ž .
from many industries. Proctor Gamble P G strengthened its leadership position in the consumer
package goods industry by excelling at supply chain
Corresponding author. Tel.: q1-614-688-9432. Ž
. E-mail addresses: shin.49osu.edu H. Shin ,
Ž .
collier.4osu.edu D.A. Collier , dwilsongarnet.acns.fsu.edu
Ž .
D.D. Wilson .
1
Tel.: q1-614-292-8305.
2
Tel.: q1-904-644-2047.
management. P G has generated more than US325 million in supply chain savings by using Continuous
Replenishment Program and Efficient Customer Re- sponse. In the automobile industry, Chrysler launched
a supplier involvement program, Supplier Cost Re-
Ž .
duction Effort SCORE , benchmarking the supply chain management practices of Japanese companies.
Chrysler announced that it achieved more than US1.2 billion in cost savings through 1997 due to
the SCORE program. Also, Honeywell Industrial Automation and Control reported a 90 reduction of
product defect rates based on its supply management program during the period of 1990 through 1996.
As opposed to traditional procurement and distri- bution channels composed of independent organiza-
0272-6963r00r - see front matter q 2000 Elsevier Science B.V. All rights reserved. Ž
. PII: S 0 2 7 2 - 6 9 6 3 9 9 0 0 0 3 1 - 5
tions, a ‘supply chain’ consists of interdependent organizations working for the efficiency of the entire
supply chain. In general, ‘supply chain management’ can be defined as ‘‘an integrative philosophy to
manage the total flow of a distribution channel from
Ž the supplier to the ultimate user’’ Cooper and Ell-
. ram, 1993, p. 13 . The term ‘supply chain’ or ‘supply
chain management’ is widely used in the literature even when the procurement side of manufacturing is
Ž the primary interest Choi and Hartley, 1996; Forker
. et al., 1997 . However, since our research focuses
primarily on the dyadic supply relationship in the supply chain, we use the term Supply Management
Ž .
or Supply Management Orientation SMO through- out this research to describe the management efforts
or philosophy necessary for creating an operating environment where the buyer and supplier interact in
a coordinated fashion.
Considerable research has been conducted on buyer–supplier relationship management or supply
management, but most of these studies are concep- tual in nature or based on a few case studies. More-
over, the existing literature fails to address empiri- cally what improving supply management really
means in practice and how it is related to the compa- nies’ operational performance. In this context, the
primary objective of this research is to test empiri- cally the impact of an SMO on the performance of
both supplier and buyer. We test the following three questions with corresponding research hypotheses
using a confirmatory structural equation modeling
Ž approach
Bollen, 1989; Bollen and Long, 1993; .
Hair et al., 1995 . Ø
Does an improved SMO improve supplier’s per- formance?
Ø Does an improved supplier’s performance im-
prove the buyer’s performance? Ø
Does an improved SMO improve internally the buyer’s performance as well?
Ž .
Fig. 1. General covariance structure of the models illustrated based on Quality Model .
Ž .
The SMO is the driver exogenous latent variable of the structural equation models developed in this
Ž .
study refer to Fig. 1 and contains the following performance characteristics identified from the litera-
Ž . ture. Those characteristics are 1 a long-term rela-
Ž . tionship with suppliers, 2 supplier involvement in
Ž . the product development process, 3 a reduced num-
Ž . ber of suppliers, and 4 a ‘quality focus’ meaning
that quality performance is the number one priority Ž
. in selecting suppliers. Supplier Performance SP and
Ž .
Buyer Performance BP are the two endogenous latent variables in each model. The logic and details
of Fig. 1 are explained later. In this research, we develop four different struc-
tural equation models depending on buyer’s competi- tive priorities: quality, delivery, cost, and flexibility.
By doing so, we can show how SMO and SP affect the buyer’s performance in each of the competitive
priorities. Based on these structural models, we are
Ž .
testing the theory that, ‘‘if a manufacturer buyer adopts an improved SMO, then the adoption of SMO
improves both SP and BP’’. Given the measurement scales for SMO and SP, BP is evaluated for each of
the four competitive priorities using confirmatory data analysis.
The rest of this article is organized in the follow- ing order. A literature review is presented next to
provide the background and content validity for the primary constructs of the research. Then the research
hypotheses and design are presented, followed by a section that describes the sample data. Finally, the
results of the data analysis are presented. The paper concludes by summarizing the results, limitations,
and future directions of this research.
2. Literature review
