CURRENT STATE OF PURCHASING AND SUPPLY MANAGEMENT IN FINLAND AND IN RUSSIA - A CROSS COUNTRY SURVEY

Jari Jumpponen, Sergei Kouchtch, Katrina Lintukangas, Maria Smirnova, Veli-Matti Virolainen

Background

• The purchasing and supply management (PSM) literature has strongly emphasized the strategic role of PSM and empirically showed that strategic PSM has influence to the business performance

• The focus of PSM activities has moved towards to the strategic development of value chain and value networks in order to improve the competitiveness of the firms.

• Different views from Finnish and Russian business

Objectives of the study

• The overall objective of this study is to clarify the current state and future directions of purchasing and supply management in Finland and in Russia

• Different views from Finnish and Russian business:

- Finland is ranked high in rather many conventional international competitiveness rankings, whereas Russia’s ranking has been rather modest. This combination of two neighboring countries provides interesting context to analyze and compare the enterprises purchasing and supply

management practices between Finland and Russia.

Strategic Alignment Model (Cousins, Spekman, 2000)

Skills and Competences

Performance Measures

Supply Strategy

Corporate Strategy

Actual Level of Strategic Attainment

Desired Level of Strategic Attainment

Finland and Russia as Business Environments

Indicator Finland Russia

GDP (PPP) USD per capita (2005) 31.590 11.070

GDP growth index (2000-2006) 119,5 143,7

FDI stock, USD per capita (2005) 10.360 930

Share of SMEs in employment (2005) 62% 13%

General features of Russian and Finnish business management

Finland Russia Source

Leadership • Interaction and encouraging to participate to decison-making

• Authoritarian style• Role clarifying• Visions

Suutari and Bolotow (1996)Fey et al. (2001)

Cultural differences

• Low power distance

• Individualistic• Low masculinity• Low uncertainty avoidance

• High power distance• Collectivism• Low masculinity• Low long-term orientation• General Equality between men and women

Hofstede (1984, 1991, 1993)Bollinger (1994)

Supplier relationships

• Intention towards collaborative relationships

• Value net

• Weak link between suppliers and buyers• Importance of personal networks• Transactional and adversial relationships

Johanson and Johanson (1999)McCarthy and Puffer (2002)Tretyak and Sheresheva (2005)

Description of national samples

• Finland

• self-administered questionnaires

• N = 100

• 8 industry groups (metallurgy, chemical industry, construction, wholesale and retailing, ICT, forest industry, power engineering)

• Russia

• fully-structured interviews

• N = 208• 17 regions• 6 industry groups

(metallurgy, machinery, wholesale and retailing, ICT, forest and woodworking industries, light industry)

The research propositions

1) In Finnish companies PSM is considered to be more often strategic than in Russian companies

2) In Finnish companies collaborative supplier relationships are more common than in Russian companies

3) Finnish companies use more PSM and supplier performance analyzing tools and measurements

4) Finnish companies pay more attention to the purchasing capabilities than Russian companies

The strategic meaning of supply

Strategic Status and Role

0 1 2 3 4 5

Corporate managementparticipates in the planning of

purchasing strategy

Corporate managementregards purchasing equally

with other functions

Purchasing has a significantrole in improving the business

of organization

The planning of purchasingstrategy is conducted incollaboration with other

functions

Russia

Finland

Planning of the future

Long-term Planning

0 1 2 3 4 5

The long-range plan ofpurchasing is revised and

adjusted to meet the strategicobjectives of whole

organization

The long-range plan ofpurchasing includes

information of materials andservices to be acquired

Purchasing has an officiallong-range plan (5-10 years)

Russia

Finland

The financial importance of supplyFinancial Importance

0,00 1,00 2,00 3,00 4,00 5,00

Purchasing is responsible formeasurable objectives

The objectives of purchasingare understood all around in

the organization

The total costs of purchasingare monitored in the

organization

Purchasing defines costobjectives for new products

and services

Purchasing defines costobjectives for existingproducts and services

Russia

Finland

Supply capabilities

• Russia: organizational capabilities are documented– Reluctance to share information between

companies– Aligned system

• Finland: benchmarking

Supplier performance monitoring methods

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

Valueanalysis

Tragetcosting

Costanalysis

Supplierauditing

Qualitycontrolsystem

Supplier'sservice level

Productquality

Deliveryaccuracy

Deliveryreliability

Finnish firms

Russian firms

Supplier performance monitoring

Supply Chain Development

0 %

20 %

40 %

60 %

80 %

100 %

120 %

Outsourcing Participation inR&D

Time management Operative actions Processdevelopment

Supplierrelationships

Finnish firms

Russian firms

Supply Chain Development

Conclusion

• We drew together the theories of PSM and cultural differences in business management between Finland and Russia and conducted a country comparison of four elements of PSM. Significant differences were found in measured items.

• In Russia PSM is not yet seen as a strategic function. The findings support also earlier studies about cultural differences in Russia such as collectivism and low long-term orientation

• Intensifying competition forces companies to improve their performance also in Russia,

Conclusion

• One of surprising results: Russian firms are more ready to exchange information electronically

• PSM may become a driver of improvement of managerial technologies in Russian firms, aligning overall strategy and contributing to business development

Thank you for your attention!

• Contact information:

• Jari Jumpponen

• Veli-Matti Virolainenvmv@lut.fi

•