Journal of Supply Chain Management Copyright © February 2002, by the Institute for Supply Management, Inc.

Author(s):

Lisa M. Ellram
Lisa M. Ellram is a professor of supply chain management and Dean's Council of 100 Distinguished Scholar at Arizona State University in Tempe, Arizona, where she teaches in the graduate program in supply chain management.

George A. Zsidisin
George A. Zsidisin is an assistant professor in the department of marketing and supply chain management at Michigan State University in East Lansing, Michigan.

Sue Perrott Siferd
Sue Perrott Siferd is an associate professor at Arizona State University in Tempe, Arizona, where she is director of the undergraduate program in supply chain management.

Michael J. Stanly
Michael J. Stanly is manager of client capability building in McKinsey & Company's purchasing and supply management practice in Minneapolis.

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Acknowledgement
The authors thank McKinsey & Company for its support of this research.

Summary

Purchasing and supply management (PSM) has gained a great deal of attention in recent years as both a source of cost savings (Ellram 1996) and a source of competitive advantage (Fine 1998). This article attempts to link PSM best practices to corporate success. The article begins with an introduction and a brief survey of the literature. The research method is presented, followed by a discussion of the hypotheses tested. Next, the results of the research are presented and discussed. The article concludes with managerial and research implications.

Note: Some tables and graphs not available in this text only format. Please contact the ISM InfoCenter (infocenterform@ism.ws) if you would like the graphic version faxed to you.

INTRODUCTION

The concept of best practices in purchasing and supply management (PSM) has become the focus of much interest in recent years. This concept asserts that successful organizations employ certain activities or processes that can be adapted and applied by other firms. The purpose of this research was to establish a linkage between the application of PSM best practices and organizational success. Organizational success was defined as total return to shareholders (TRS). The calculation of TRS is explained further in the "Research Method" section.

PSM best practices were identified from a review of the managerial and scholarly literature, existing research, and input from industry practitioners. These practices are discussed in the literature review section.

REVIEW OF THE LITERATURE AND CONSTRUCT DEVELOPMENT

Purchasing and supply management has received much attention in managerial literature in recent years (Kapoor and Gupta 1997; Tully 1995). Although PSM is an increasingly important organizational concern, there is some question about its impact on the success of the organization. This research examines PSM best practices, PSM's involvement in these activities, and the linkage to organizational success. For this research, organizational success was measured by the total return to shareholders of an individual firm compared to the industry average TRS. Above average organizations were defined as those firms with a TRS at least 10 percent above the industry average. Average organizations earn a TRS that is less than 10 percent above and greater than 10 percent below the industry average. Below average organizations earn a TRS that is 10 percent or more below the industry average.

Hypothesis 1: Above average organizations have a greater recognition of the importance of PSM than organizations that are average or below average.

The importance of a process within an organization is directly related to the reporting level of that process. In addition, the status of a process can be assessed by whether people from that particular process are promoted into top management and whether that process is viewed as an important job rotation for those slated for top management (Carter and Narasimhan 1996). Three items on the research questionnaire measured the perceived importance of PSM within the organization:

• The reporting level of PSM within the organization
• The perception of the importance of PSM to top management
• The frequency with which PSM is viewed as an important job rotation for those slated for top management

Hypothesis 2: Above average organizations are more likely to have internally coordinated, articulated PSM strategies than those organizations that are average or below average.

A strategic orientation is a fundamental premise of an effective purchasing organization (Leenders and Fearon 1997) and critical to strategic purchasing (Carr and Smeltzer 1997). The following three survey items measured PSM's perceived strategic orientation:

• PSM develops articulated strategies for key commodities and purchases.
• PSM strategy is based on and supports overall corporate strategy.
• PSM strategies for common products and services are coordinated across business units and executed jointly.

Hypothesis 3: In above average organizations, PSM monitors the supply market with greater frequency than in organizations that are average or below average.

An organization must be in tune with the external market in order to be successful. Suppliers are one of the five forces critical to shaping an industry (Porter 1980). Awareness of issues in the supply market has become even more important due to rapid market changes (Chapman, Dempsey, Ramsdell, and Reopel 1997; Kapoor and Gupta 1997). This hypothesis was measured by three questions that address the perceived degree to which PSM monitors the external market for changes in:

• Price on high-value purchases
• Product/service availability for key purchases
• Technology and standards that affect the availability, price, and life cycle of key purchases

Hypothesis 4: In above average organizations, PSM forms long-term collaborative relationships with key suppliers with greater frequency than in those organizations that are average or below average.

The trend toward alliances with key suppliers has been ongoing for years in some industries (Dixon and Porter 1994; Hendrick and Ellram 1993). Successful organizations are becoming more attuned to the characteristics that make suppliers good alliance candidates, as well as better understanding the potential contribution that key suppliers can make to an organization (Fine 1998; Nelson, Mayo, and Moody 1998). Twelve survey questions were used to test collaborative relationships. The items measured the perception of the frequency with which the following were present:

• Sharing financial risks and rewards with key suppliers
• Locating supplier personnel within your organization to perform administrative and support activities such as order placement and shipping
• Locating supplier personnel within your organization to provide support for activities such as order planning, technological assistance, and designing/improving process flows
• Suppliers bringing new ideas and technology to PSM
• PSM offering key suppliers first opportunity for supplying new products and services
• PSM believing that collaboration with key suppliers is critical for organizational success
• Top management believing that collaboration with key suppliers is critical for organizational success
• Key suppliers believing that collaboration with key suppliers is critical for organizational success
• PSM sharing volume and corporate direction information with key suppliers
• PSM having long-term relationships with key suppliers
• PSM seeking collaborative relationships with key suppliers
• Suppliers seeking involvement with the PSM organization

Hypothesis 5: In above average organizations, PSM performance measurement is based on strategic issues and reported regularly to top management with greater frequency than in average and below average organizations.

Being held accountable for strategic issues is a prerequisite for being viewed as a strategic contributor to organizational success (Chapman et al. 1997; Nelson et al. 1998). Thus, reporting PSM performance results to top-level management is an important best practice in creating increased visibility and accountability of PSM (Carr and Smeltzer 1997; Ellram 1999). Five survey items measured the perception of the frequency with which PSM performance measurement is based on strategic issues and reported to top management. These items were:

• PSM is accountable for specific, measurable goals.
• PSM goals and performance are reported to top management.
• PSM goals are understood throughout the PSM process.
• PSM goals are understood throughout the entire organization.
• PSM is accountable for continuous improvement.

Hypothesis 6: In above average organizations, total cost of ownership (TCO) analysis is more likely to be a key purchasing practice than in average or below average organizations.

TCO is a long-term systems-oriented approach for understanding an organization's true cost of doing business (Ellram 1994). A TCO analysis includes all of the significant costs associated with a transaction, such as searching for information/suppliers, setting up processes, price, delivery, costs in use, maintenance, quality-related issues, and disposal. TCO may relate to the costs of working with a particular supplier on a particular purchase, a make-or-buy (outsourcing) decision, or a process choice decision (Ellram 1994; Ellram and Maltz 1995). TCO is measured by four items that examine the perceived extent to which:

• PSM has performance objectives based on TCO.
• TCO is a well-understood and accepted measurement tool within PSM.
• TCO is a well-understood and accepted measurement tool outside the PSM process.
• TCO is used in selecting key suppliers.

Hypothesis 7: In above average organizations, PSM is more likely to understand and follow strategic cost management practices than in average or below average organizations.

In a broad sense, strategic cost management encompasses the organization's competitive strategy, understanding its cost drivers, and its supply chain (Shank and Govindrajan 1992). Although strategic cost management is a concept that applies at an organizationwide level, as does any top-level strategy, it can also be applied specifically to PSM activities (Ellram and Siferd 1998). Measurement of strategic cost management practices included seven items that examined the perceived extent to which PSM:

• Analyzes suppliers' cost structures for key purchases
• Works with suppliers to disclose their costs and cost structures
• Works with suppliers to reduce costs
• Develops a database of supplier cost structures
• Communicates cost savings to top management
• Derives cost targets for new products and services
• Derives cost targets for existing products and services

Hypothesis 8: In above average organizations, PSM is more likely to be involved with utilization of currently available information technology than in average or below average organizations.

The boom in information technology has revolutionized business. Information technology has been especially influential in transaction-intensive activities such as PSM (Ruzicka and Carter 1997). This construct is measured by assessing the perceived degree of PSM involvement in these six technologies:

• Electronic data interchange
• Enterprise resource planning
• Internet use for research
• Online auctions and Internet purchasing
• Intranets
• Extranets

RESEARCH METHOD

The primary method used to gather data for this research was a mail survey. Construct development for purchasing practices closely followed the procedure for one-time, cross-sectional data recommended by Churchill (1979). A survey questionnaire was developed after an extensive review of the PSM literature. Existing scales were used or modified for the constructs of total cost of ownership (Ellram and Maltz 1995; Ellram and Siferd 1998; Maltz and Ellram 1997) and supplier alliances (Blancero and Ellram 1997; Cooper, Ellram, Gardner, and Hanks 1997). Scales for other constructs were developed from the academic and managerial literature discussed in the previous section. All constructs were subject to an extensive review by practitioners and academics possessing general business, purchasing, and research expertise. The survey was modified and pretested on several purchasing executives before being finalized. A copy of the survey is included as Appendix A.

Purchasing professionals associated with the Institute for Supply Management™ (ISM) (formerly the National Association of Purchasing Management) were targeted for this study because of their intimate knowledge of PSM practices. ISM provided the researchers with a database of 2,300 purchasing professionals holding positions at the director level or higher who were ISM members or had attended ISM-sponsored seminars or conferences. Because of the need to calculate TRS for each respondent's organization, professionals who worked in organizations classified as government, consulting, colleges and universities, not-for-profit, legal and accounting firms, or foreign firms or who did not have an organization affiliation listed were eliminated from the sample.

The survey was sent to a random sample of 1,000 individuals from the reduced database. As an incentive to respond to the survey, individuals were given the option of selecting one of four nonprofit charity organizations that would receive a $10 donation following the return of their completed survey. A summary of the characteristics of survey respondents can be found in Table I.

A modified version of Dillman's (1978) Total Design Method was followed to execute the survey mailing. An initial mailing was sent to all 1,000 purchasing professionals, followed by a reminder postcard approximately 10 days later. Two weeks later, a second mailing was sent to non-respondents. Follow-up phone calls were made to all survey non-respondents, beginning a few days after the first mailing, through approximately one week after the second mailing. Of the 1,000 surveys that were mailed, 76 were unusable due to incorrect addresses, a change of employment, or because they did not meet the deadline for analysis. A total of 246 surveys were returned by the prearranged survey cutoff date, resulting in an effective response rate of 26.8 percent.

Non-response bias poses a threat to survey research, even with high response rates. As discussed by Armstrong and Overton (1977), late respondents are likely to provide responses similar to non-respondents. To test for non-response bias, a multivariate t-test was computed to compare responses of the first wave and second wave of surveys. The Hotelling-Lawley Trace had a value of 1.819 (p=0.435), indicating that early respondents did not display significant differences from late respondents.

The calculation of TRS data for each survey respondent followed several steps. First, the ticker symbol for each organization was determined. Then, each company was categorized into an industry following the same primary industry classification as the 1998 edition of the Fortune 1000 database. TRS data were then retrieved for each company and for the industry using Standard & Poor's Compustat data (1999). Monthly closing stock prices were computed and adjusted to account for dividends. This adjusted return was calculated for the two-year period prior to 1999. Using these data, the adjusted returns were calculated for January 1997 through April 1999. TRS was calculated using Compustat's equation for total return to shareholders (Standard & Poor's Compustat 1999) as:

	(Cash Equivalent Distributions) +
Total Return To Shareholders =	Price Appreciation +
	Reinvestment of Dividends Price of Stocks

From the TRS data, companies were classified as above average, average, or below average. As previously stated, above average organizations had a TRS 10 percent or more above the mean TRS for that company's respective industry group. Firms were classified as average if their TRS was within 10 percent above or 10 percent below the industry's mean. Below average companies had a TRS 10 percent or more below the mean of their industry.

Exploratory Factor Analysis (EFA) was conducted to empirically test the purchasing practice constructs. A total of eight factors were individually tested using the maximum likelihood method. Items with a factor loading of 0.50 or greater were retained for further analysis (Hair, Anderson, Tatham, and Black 1995). Because these tests were done one construct at a time, no rotation was possible. Two of the factors, Alliances and Strategic Cost Management, had two eigenvalues greater than one present, suggesting that two factors existed for each of these constructs. Subsequent analyses of these factors revealed that the Alliances construct contained two factors: Alliances and Supplier Co-Location. The Strategic Cost Management construct also contained two factors: Target Costing and Strategic Cost Management.

Reliability analyses were performed to test whether random measurement errors varied from one question to another (Judd, Smith, and Kidder 1991) within the purchasing practices. All of the reliability coefficients, as measured using coefficient alpha, were greater than 0.70 except for Strategy, which was greater than the recommended minimum of 0.60 for initial scale development (Hair et al. 1995). Reliability coefficients and factor loadings can be found in Table II.

Analysis of Variance (ANOVA) was conducted for all factors to statistically test if differences existed in mean responses by TRS classification (above average, average, below average). Construct means were developed using the average response for the questions that loaded from the factor analyses, as shown in Table II. If a respondent failed to answer one or more questions in a construct, the entire response was eliminated from analysis. After examining the ANOVA tables for differences in the overall models, pair-wise comparison tests were conducted to compare each classification with the others (Kuehl 1994) using the Bonferroni post-hoc test. This test simultaneously compared the above average, average, and below average firms. The construct means, standard deviations, and significant findings can be found in Table III.

RESEARCH RESULTS

In two cases, the data supported the division of the original hypotheses into two constructs rather than one. In the first case, the original Hypothesis 4, "In above average organizations, PSM forms long-term collaborative relationships with key suppliers with greater frequency than in those organizations that are average or below average," was separated into Hypotheses 4A and 4B as shown here:

Hypothesis 4A: In above average organizations, PSM forms long-term supplier alliances with key suppliers with greater frequency than in those organizations that are average or below average.

• Sharing financial risks and rewards with key suppliers
• Suppliers bringing new ideas and technology to PSM
• PSM offering key suppliers first opportunity for supplying new products and services
• PSM believing that collaboration with key suppliers is critical for organizational success
• Top management believing that collaboration with key suppliers is critical for organizational success
• Key suppliers believing that collaboration with key suppliers is critical for organizational success
• PSM sharing volume and corporate direction information with key suppliers
• PSM having long-term relationships with key suppliers
• PSM seeking collaborative relationships with key suppliers
• Suppliers seeking involvement with the PSM organization

Hypothesis 4B: In above average organizations, PSM practices co-location with key suppliers with greater frequency than in those organizations that are average or below average.

• Locating supplier personnel within your organization to perform administrative and support activities such as order placement and shipping
• Locating supplier personnel within your organization to provide support for activities such as order planning, technological assistance, and designing/improving process flows

In the second case, the original Hypothesis 7, "In above average organizations, PSM is more likely to understand and follow strategic cost management practices than in average or below average organizations," also loaded onto two factors. Hypothesis 7 was retained as Hypotheses 7A and 7B as shown here:

Hypothesis 7A: In above average organizations, PSM is more likely to understand and follow strategic cost management practices than in those organizations that are average or below average.

• Analyzes suppliers' cost structures for key purchases
• Works with suppliers to disclose their costs and cost structures
• Works with suppliers to reduce costs
• Develops a database of supplier cost structures
• Communicates cost savings to top management

Hypothesis 7B: In above average organizations, PSM practices target costing with greater frequency than in those organizations that are average or below average.

• Derives cost targets for new products and services
• Derives cost targets for existing products and services

The results of the hypothesis testing follow.

Findings

There were no constructs for which the above average organizations demonstrated statistically significant greater use of PSM best practices than the average and below average organizations. However, results of the pair-wise comparisons yielded a number of statistically significant differences. For Hypothesis 4A, the use of supplier alliances, results indicate that above average and below average firms both perceive a higher level of utilization of supplier alliance activities than do the average firms studied (p < 0.05).

For Hypotheses 7A and 7B, the below average firms exceeded average firms in their perceived use of strategic cost management and their perceived use of target costing (p < 0.05). Additionally, Table IV shows significant mean individual item differences by organization classification (above average, average, below average). It is noted that above average organizations had the highest means in the areas of the perception of PSM within the organization, the development and use of articulated and coordinated PSM strategies, and strong supplier alliances. Average organizations had the highest average only in the use of technology related to PSM. Implications of these findings are presented in the following section.

RESEARCH IMPLICATIONS

As previously presented in the Research Method section, the analysis used three categories of TRS performance, above average, average, and below average. A major finding was that the below average organizations were statistically more likely to perceive that they were using PSM best practices than the above average and average organizations. Although there were only a few statistically significant differences, these differences bear examination from a managerial perspective. The fact that below average performers scored statistically higher than average firms on three of the 10 best practices studied indicates that below average performers perceive that they have a higher utilization of best practices on those constructs than do the average firms. These findings may seem counterintuitive at first glance. However, the findings are perceptual. Organizations often put pressure on PSM to improve supplier performance and lower costs when the organization is experiencing profit pressure. Thus, below average performers may be focusing very heavily on increasing their use of purchasing best practices in order to support organizational goals. On the other hand, they may simply perceive that they are employing a high level of best practices due to the current effort they are directing toward best-practice activities.

The conundrum in an analysis of the results comes in comparing the above average organizations to the below average organizations. These two categories of organizations are actually much closer in mean values of the constructs studied than the above average and average firms are. A comparison of above average and below average performers shows no statistically significant differences. A further examination of individual variables forming the constructs leads to the same result. While there are seven individual variables for which above average or below average firms or both types are statistically greater than average firms, there are no cases where above average or below average firms have a statistically significant difference from each other. These results are reported in Table IV. It is surprising to note that below average firms are more similar to above average firms than to average performers in perceived utilization of PSM best practices, when these firms are not successful as measured by TRS.

An examination of the constructs shown in Table III provides some insight into the puzzle. Both above average and below average firms show a statistical difference over average firms in the use/presence of supplier alliances (Hypothesis 4A). Perhaps above average firms have had collaborative supplier relationships longer and have evolved to the point where the focus is on maintenance of the relationship and on continued good results. There are two individual variables related to supplier collaboration for which above average and below average firms both show a higher mean than do average firms: suppliers provide new technology to PSM before providing it to their competitors, and the variable related to PSM's belief that supplier collaboration is critical to organizational success. Neither of these variables provides insight into the similarity in perceived use of best practices between above average and below average organizations. This survey research did not ask about the length or stage of the relationship or the focus of the relationship, so the reason for these differences remains speculation to be confirmed by future research.

One other individual variable for which above average organizations and below average organizations had a statistically higher mean than average firms was the frequency with which PSM develops articulated strategies for key commodities. Well-articulated strategies may be a precursor to knowledge of goals within PSM and throughout the organization. Again, it could be the case that above average firms articulate goals as a matter of course, while below average firms do so in an attempt to improve their focus and performance.

Data from below average firms are statistically greater than data from average firms for two additional constructs: strategic cost management and target costing (Hypotheses 7A and 7B, respectively). Both of these areas have a strong emphasis on cost reduction, an area in which PSM is under the greatest pressure to perform. This research asked only the extent to which the technique was used, and not how the technique was used. It could be that in below average firms, there was great pressure to reduce costs immediately. These findings could reflect the use of short-term oriented cost reduction decisions or coercive tactics that resulted in poor overall performance. It is also possible that ongoing poor TRS performance created an environment in which the cost reduction focus was essential and averted an even more negative impact in below average firms. Additional study is necessary to know which contention is more likely.

Further supporting the cost focus of below average firms, one individual best-practice variable (see Table IV) where below average firms statistically exceeded average firms on their responses was in working with suppliers to reduce costs of products or services. While cost reduction is, in general, a proactive approach, the below average firms seem to have a strong cost/price orientation. This finding lends additional strength to the argument that below average firms may be using PSM primarily as a cost-savings lever.

Below average firms also have a higher mean value than average firms on the reporting level of PSM within the organization. This result reinforces the importance given to PSM by below average firms. One explanation may lie in the target respondents for this survey. The respondents were chosen from organizations that had some affiliation with ISM. The below average firms may be aware of the potential of PSM activities and best practices to lead them to better results, and may have placed PSM in a position of importance in the organization as a proactive measure to improving results. This is conjecture, as this research did not address why PSM was important. However, this was the case with Thomas Stallkamp's promotion to vice president of purchasing at Chrysler in 1998 (Vlasic 1998).

In an ideal world, the results of this survey would have found that PSM in above average organizations embraces best practices to a greater extent than PSM in average or below average organizations. As noted in the previous discussion, the above average and below average firms looked more alike than not in terms of PSM best practices. Some of the possible reasons for this phenomenon are discussed below.

As previously suggested, it could be that below average organizations are taking drastic measures to reduce their costs in an effort to boost TRS. This focus could be occurring at the expense of other strategic activities such as marketing, customer service, and investment in productive assets such as people and equipment. Support for this hypothesis can be found in two widely reported cases. First, Al Dunlap, the former CEO of Sunbeam, cut costs without regard to the future of the company, its employees, or its customers, and only worried about short-term performance (Byrne 1999). Sunbeam's financial results bore out the folly of this approach as it lost nearly $1.2 billion during the 1998 to 1999 time period (Hoover's On-Line 2001). A second case involves Jose Ignacio Lopez de Arriotua, former vice president of purchasing for General Motors. Dr. Lopez told suppliers that GM had alliance relationships with them, but then coercively used cost and price reduction tactics to force the suppliers to reduce prices (Moffett and Youngdahl 1999). Poor supplier performance cost the company billions of dollars in quality issues, delayed production, and lost sales. Though this happened in the 1992-93 time period, GM has still not fully recovered the trust of its suppliers (Moffett and Youngdahl 1999).

Both of these examples show what can happen when organizations misuse best practices to achieve short-term objectives rather than truly understanding and embracing the philosophy of the practice. In some organizations, a given best practice becomes a "flavor of the month," never fully implemented and integrated before the next new approach comes along. One premise is that these organizations are not strategically aligned, but rather take a shotgun approach to business without first taking aim at clear objectives.

It may be that the spirit and the overall system with which the PSM best practices are implemented are equally important as, if not more important than, the actual best practices. There is much anecdotal and case-study evidence to support this (Duffy 1999; Ellram and Birou 1995; Nelson et al. 1998), but no large-scale empirical studies. For example, Intel, a successful organization widely studied for its excellent PSM practices (Ellram 1999; Krause and Handfield 1999), follows a well-integrated approach in its supplier management philosophy throughout the organization (Grove 1996).

While the spirit with which these PSM best practices are implemented is critical, results of this study imply it is also important that PSM is an integral part of a larger system. As suggested by this research, PSM best practices alone are not enough to create superior organization performance. Porter (1980) and Senge (1990) support the notion of the criticality of the entire organization and its related systems. Thus, a limitation of this research is that it looked only at PSM practices, rather than looking at the larger picture of the organization, including other processes and linkages. This research took a narrow view, assuming that the effects of PSM best practices could be isolated and linked to outstanding organizational performance.

LIMITATIONS AND CONTRIBUTIONS OF THE RESEARCH

There are numerous limitations of this research. In retrospect, the researchers believe that the scope was too narrow, attempting to isolate and link PSM best practices to organizational success. The fact that it was not possible to make such a linkage is also a contribution of the research, reminding future researchers and managers that a broader perspective is needed. There are many other intervening variables such as top management turnover, new products and services, and investment in research and development that also influence organizational success. In addition, this research is limited by its choice of TRS as a measure of organizational success.

There have been numerous prior studies that hypothesize links between various business operations and financial performance measures. Self-reported measures have included return on investment, market share, profit as a percentage of sales, net income before taxes, and present value of the firm, among others (see Table V). Objective measures for financial or business performance have included two-year growth rate in sales, sales per labor hour, three-year growth rate in sales, three-year return on assets, and return on assets recalculated to eliminate interest expense effects. Table V helps demonstrate that there is not necessarily one "correct" measure of firm performance. Many of the studies using self-reported data have found statistically significant findings, as compared with objective data. However, subjective reports of corporate success may be flawed in both approach and findings due to the assumption that the survey respondent is not only familiar with its own success in performance, but is also familiar with industrywide and competitors' performance and can assess itself objectively.

The need to have some externally and readily available measure of success limited the organizations studied to publicly traded, U.S.-based firms. Several other publicly available measures for organization success were examined such as return on assets (Adam 1994; Adam et al. 1994) and return on assets adjusted for interest expense (David et al. 1999). Neither of these measures showed a significant linkage between practices in PSM and corporate success.

This research also adopts the widely held belief (i.e., Duffy 1999; Carr and Smeltzer 1997; Ellram 1999) that there is a set of PSM "best practices" that cut across industries and organizations. It may be true that what is a best practice in one industry, such as supplier alliances, may not make sense in another.

Another limitation is that this study had single respondents from each organization. One person's perception may not be enough to measure the use of PSM best practices in an organization. As noted by Boyer and Pagell (2000), reliability of findings improves if data are collected from multiple respondents within an organization.

Despite these limitations, the researchers still believe that the research has merit and makes a contribution to both theory and practice. In terms of research and theory, this study reinforces the difficulty of trying to study the complex interactions among systems and outcomes using traditional survey methods alone. While this may not be an entirely new insight, survey methods are still widely used and accepted in PSM research. The results of this research highlight the need not only to broaden the research tools used but also to broaden the sample to include a population beyond the immediate process of interest.

Implications for Managers

This research raises interesting questions and issues regarding the relationship of PSM to corporate success. The direction of the popular and academic press in recent years gives credence to the notion that purchasing can play an important role in supporting the success of an organization (Anonymous 2000; Carr and Pearson 1999). There is widespread support that money spent on educating and professionalizing supply management will return itself many times over (Anonymous 2000; Nelson et al. 1998).

A critical point is that regardless of how favorably PSM is viewed within an organization, PSM is essentially a support process. PSM can help the organization locate and align with the best suppliers in the industry. It can work to effectively and successfully reduce costs in the supply chain. It can help identify leading-edge technologies and get suppliers involved in new product and service development. However, good PSM practices in and of themselves cannot make up for a poor distribution strategy, a faulty marketing plan, mismanagement of funds, or poor products and services. While PSM may have broad impact in some organizations, it generally does not set overall corporate strategy.

In addition, the measures of PSM's success should be linked as directly to PSM performance as possible. In cases where PSM is working on projects in teams, the overall team performance measures should incorporate relevant PSM metrics such as impact of the project on total cost of ownership, cycle time, and related measures. Further, the financial effects of best-practice implementation may lag the implementation of best practices by several years, as strategic cost management systems and improved supplier collaboration do not take place overnight.

There are also important implications in terms of PSM best practices. Just as PSM practices cannot be isolated as a single variable and linked to corporate success, neither can the PSM best practices be executed in isolation. In order to be successful, PSM best practices must be integrated within purchasing, as well as integrated with other areas within the organization and the supply chain.

More research is needed to determine the strength of the linkage between PSM and corporate success. Is following PSM best practices a necessary, but insufficient condition for corporate success? Do below average firms really rely too heavily on PSM as a short-term source of cost savings to pull them through the current crisis? Is there a set of "PSM best practices" that is generalizable across industries, or does it vary by industry? Clearly, this research raises more questions than it answers.

Table I

Table II

Table III

Table IV

Table V

Appendix A

Appendix A (continued)

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