PSM: Demarcation of the Field1
PSM is the discipline that is concerned with the management of external resources—goods, services, capabilities, and knowledge—that are necessary for running, maintaining, and managing the primary and support processes of a firm at the most favorable conditions (Van Weele, 2010). Early references to the function go as far back as 1832, and times of difficult supply, such as wars and economic recessions, have helped to establish PSM as a management discipline (Leenders & Fearon, 2008). Accordingly, the economic recession and supply disruptions of the 1970s put the management of external resources high on the agenda of firms (Kraljic, 1983; Monczka, Handfield, Guinipero, Patterson, & Waters, 2010). This was also the time that transaction cost economics (TCE) emphasized cost efficiency in decisions about the boundary of the firm and the governance of supplier relationships (Williamson, 1981, 1991). Influenced by such developments, PSM has traditionally had a strong focus on cost reduction, through excellent negotiating tactics and competitive contracting. This cost focus still holds today for many researchers and practitioners, many of whom argue that PSM's added value predominantly lies in cost reduction (Anderson, Thomson, & Wynstra, 2000; Chen, Paulraj, & Lado, 2004; González-Benito, 2007).
Due to the increased outsourcing of business activities, PSM has developed into a functional domain of strategic relevance (Carr & Pearson, 1999; Carter, Monczka, Slaight, & Swan, 2000; Ellram & Carr, 1994; Gadde & Håkansson, 1994; Ogden, Petersen, Carter, & Monczka, 2005). As suppliers gradually became more important for the competitive positioning of the firm, research in the field examined topics such as supplier relationship management (Gelderman, 2003), collaborative networks (Holmen, Pedersen, & Jansen, 2007; Joshi, 2009; Spekman & Carraway, 2006), and early supplier involvement in new product development (Choi, Wu, Ellram, & Koka, 2002; Van Echtelt, 2004; Wynstra, 1998). The term “strategic purchasing” emerged in the literature (Ellram & Carr, 1994), but developed into a concept with a strong focus on the integration of the PSM function with other functional domains within the firm and the alignment of purchasing and supply objectives with corporate objectives (Carr & Pearson, 1999; Wolf, 2005). The strategic positioning of the discipline appears to focus more on the value-added of the “purchasing function” than the value-added of suppliers. The current research and literature remain inconclusive about the nature of the contribution firms may want to extract from their suppliers. This is why the dominant focus of the purchasing and supply domain still is on purchasing's “bottom line” impact through cost savings, quality improvement, and technology development (Trent & Monczka, 1998). The question of how firms could or should create customer and shared value (Porter & Kramer, 2006) using their supplier networks receives far less attention.
Supply chain management (SCM) involves a broader perspective than PSM. SCM is the part of the operations management discipline that examines three or more organizations involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer. SCM typically focuses on the coordination of business functions within and across organizations in a supply chain, for the purposes of improving the long-term performance of the individual organizations and the supply chain as a whole (Giunipero, Hooker, Joseph-Matthews, Yoon, & Brudvig, 2008; Mentzer et al., 2001). SCM research addresses topics such as the bullwhip effect (Lee, Padmanabhan, & Whang, 1997), supply chain capacity, sourcing decisions, planning, and scheduling (Kouvelis, Chambers, & Wang, 2006). Traditionally, SCM focuses on optimizing goods and materials flows, the information required for this, and selecting partners on strategic fit to facilitate an efficient goods flow (Chen & Paulraj, 2004; Mentzer, Min, & Zacharia, 2000). PSM, as a more focused discipline, carries prime responsibility for interaction with the upstream supply chain (Schoenherr et al., 2012), but should fulfill this responsibility with the needs of internal functions as well as the downstream customer(s) interests and demands in mind.
Today, SCM research has started to cover a broader spectrum of research topics and includes, among others, product and service development, quality management, logistics, information systems, and human resources management to reflect the value of a firm's capabilities in both manufacturing and service supply chains (Ellram, Tate, & Billington, 2004; Giunipero et al., 2008; Sampson & Spring, 2012). Service encounters within and between firms have become key for business operations and typically involve knowledge sharing, competencies, and a mutual understanding between buyer and supplier to enable optimal business-to-business service and goods exchange (Rosenzweig & Roth, 2007; Van der Valk, Wynstra, & Axelsson, 2009). Thus, SCM has moved from a dominant focus on flows of goods and information toward an increasing focus on how to mobilize and manage capabilities in supply chain relationships.
The focal point in SCM is how to generate value for a specific customer market or firm (Mentzer et al., 2001). Most supply chain research seems to focus on how to plan and manage internal activities and how to coordinate relationships with other supply chain partners (Frankel, Bolumole, Eltantawy, Paulraj, & Gundlach, 2008). Research in the field seems mainly concerned with running supply chain operations efficiently—doing things right—rather than effectively—doing the right things.
Our conclusion that creating value in supply chains is related to supply chain effectiveness calls for an examination of the literature on strategic management. The fundamental question in the field of strategic management is how firms achieve competitive advantage to be effective (Teece, Pisano, & Shuen, 1997). Strategic management focuses on drafting, implementing, and evaluating cross-functional decisions that will enable an organization to achieve its objectives (Hoskisson, Hitt, Wan, & Yiu, 1999). Traditionally, these objectives are related to firm performance and to how to create value for the firm's customers and shareholders (Sirmon, Hitt, & Ireland, 2007).
During the past decades, several research streams in strategic management have attempted to explain the mechanisms through which firms create value. We explore in this article which of these research streams discuss how PSM and suppliers contribute to the process of creating and delivering value. PSM's relevance is tied to its capacity to create value. Next, we explore to what extent strategic management concepts are reflected in contemporary academic research in PSM. Both discussions will help us to provide answers to how relevant academic PSM research is and what can be carried out to improve its strategic relevance. In the last sections of this article, we discuss how to improve the rigor of purchasing and supply research. Research on strategically relevant topics has no value if it has not been executed with the highest possible rigor.