Supply-Based Strategies, Human Resource Initiatives, Procurement Leadtime, and Firm Performance

INTRODUCTION Time-based strategies have been widely employed to achieve a variety of time-based performance goals. Such goals have typically included reductions in leadtimes for product development, product launch, manufacturing, and delivery.[1] For example, 3M reduced its new product development time from two years to two months, Motorola cut its production lead time for cellular phones from several weeks to four hours, and Johnson and Johnson has the top selling contact lens largely due to its rapid (three days or less) and reliable (99.99 percent on-time) delivery of disposable contacts. Improvements in time-based performance are not limited to new product development, manufacturing, and delivery. For example, Levi Strauss reduced its reorder cycle time from nine weeks to four days resulting in lower costs, fewer stockouts, and higher flexibility.[2] This suggests that procurement leadtime is also an important dimension of time-based performance, even though it has received little attention in time-based literature. The purpose of this research is three-fold. First, it examines the contribution of procurement leadtime (PTL) performance to overall firm performance using data from a large sample of companies in the automotive supply industry. Second, it examines the relationship between antecedents (or drivers) of procurement leadtime performance and procurement leadtime using data from the same sample of firms. Two major categories of antecedents are considered: (1) supply-based strategies; and (2) time-related "best practice" human resource (HR) initiatives. Finally, it investigates whether supply-based strategies and human resource initiatives interact in their effects on procurement leadtimes. LITERATURE REVIEW Procurement Leadtime and Overall Business Performance Researchers have considered time-based competition relative to various stages of the overall value delivery system and have proposed a variety of measures to evaluate these different aspects of time-based performance. In the time-based competition (TBC) literature, five measures appear most frequently: * Delivery speed * New product development time * Delivery reliability/dependability * New product introduction * Manufacturing leadtime The popularity of these measures suggests that new product development, new product introduction, manufacturing, and delivery are key activities contributing to time-based performance. While strategic initiatives associated with procurement leadtime performance are described in the operations and sourcing literatures, the contribution of procurement leadtime to overall firm performance has been largely ignored.[3] No empirical studies have examined the relationship of procurement leadtime to overall firm performance. We contend that procurement leadtime performance will exhibit a positive relationship with one or more measures of overall firm performance (e.g., ROI). This leads to the following proposition: Research Proposition 1: There is a positive relationship between procurement leadtime performance and one or more measures of overall business performance (e.g., ROI). Supply-based Strategies and Procurement Leadtime The operations and sourcing literature suggests that supply-based strategies affect time-based performance in general. Such strategies include electronic data interchange (EDI), integrating information systems, Just-In-Time (JIT) manufacturing/purchasing, standardization, supplier development, and supplier partnership. A summary of the relevant literature is provided in Table I (see page 14).[4] Note that this table highlights the nine empirical studies reporting statistically significant relationships between the use of supply-based strategies and time-based performance. The literature reveals that the integration of information systems is a significant predictor of delivery and new product development leadtimes. …