2. Chapter 20 Strategy in Purchasing and Supply Management

3. 20 - 3 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. An Organization Must Approach Strategic Planning on Three Levels Corporate: Decisions and plans that answer the questions of what business are we in? and, how will we allocate resources among these businesses? Unit: Decisions mold the plans of a particular business unit, as necessary to contribute to corporate strategy. Function: Plans concern the “how” of each functional area’s contribution to the business strategy and involve the allocation of internal resources.

4. 20 - 4 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Key Strategy Questions 1.How can the supply function contribute effectively to organizational objectives? OR 2.How can the manager of purchasing make sure the supply function contributes effectively to organizational objectives?

5. 20 - 5 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Supply Strategy Interpreted in Organizational Strategy Supply Objectives Supply Strategy Organizational Strategy Organizational Objectives

6. 20 - 6 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Supply Strategy Links Current and Future Markets to Current and Future Needs Current Needs Current Markets Future Markets Future Needs

7. 20 - 7 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Normal Organizational and Supply Objectives Organizational Objectives 1.Survival 2.Growth 3.Financial 4.Environmental Supply Objectives 1.Quality 2.Quantity 3.Delivery 4.Price 5.Service

8. 20 - 8 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Potential Business-Strategy Contribution Areas 1.Social issues and trends 2.Government regulations and controls 3.Financial planning with suppliers 4.Product liability exposure 5.Economic trends and environment 6.Organizational changes 7.Product or service line 8.Competitive intelligence 9.Technology 10.e-Commerce 11.Investment 12.Mergers/acquisitions/ disinvestment 13.Time-based competition

9. 20 - 9 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Four Possible Changed Organizational Strategies Involving Purchasing 1.Materials management 2.Project management 3.Logistics management, or supply chain management 4.JIT purchasing/production

10. 20 - 10 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Three Ways for Supply to Contribute to Technology Strategy 1.By providing information to their own design/ process/production staff on development in technology 2.By working with suppliers to develop new technology that can be incorporated into the buying firm’s operation 3.By assisting to “lock-up” new, advantageous technology through exclusive agreements with suppliers

11. 20 - 11 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. e-Commerce Issues Which exchanges should our company participate in? Should our company form a B2B exchange with our competitors? Should we demand that our suppliers conduct business with us on-line? What software should we be committing to?

12. 20 - 12 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Risk in the Supply Chain 1.The risk of interruption of the flow of goods and services 2.The risk that the cost of the goods or services will be higher than expected

13. 20 - 13 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Managing Supply Risks 1.Identification and classification of the risks 2.Impact assessment 3.A risk strategy

14. 20 - 14 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Major Purchasing Functional Strategy Areas 1.Assurance of supply strategies 2.Cost reduction strategies 3.Supply support strategies 4.Environmental change strategies 5.Competitive edge strategies

15. 20 - 15 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Strategic Purchasing Planning Process Identify and analyze alternatives Determine supply strategy Review implementation factors Gain commitment and implement Evaluate Restate organizational goals Determine supply objectives to contribute to organizational goals Isolate factors affecting achievement of supply objectives

16. 20 - 16 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Supply Strategy Questions What -Make or buy -Standard versus special Quality -Quality versus cost -Supplier involvement How much -Large versus small quantities (inventories)

17. 20 - 17 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Supply Strategy Questions Who -Centralized or decentralized -Quality of staff -Top management involvement When -Now versus later -Forward buy What Price -Premium, standard, lower -Cost-based, market-based -Lease/make/buy

18. 20 - 18 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Supply Strategy Questions Where -Local, regional -Domestic, international -Large versus small -Multiple versus sole source -High versus low supplier turnover -Supplier relations -Supplier certification -Supplier ownership

19. 20 - 19 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Supply Strategy Questions How -Systems and procedures -Computerization -Negotiations -Competitive bids -Fixed bids -Blanket orders/open orders -Blank check system -Group buying -MRP -Long-term contracts -Ethics -Aggressive or passive -Purchasing research -Value analysis

20. 20 - 20 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Supply Strategy Questions Why? -Objectives congruent -Market reasons -Internal reasons 1) outside supply 2) inside supply

21. 20 - 21 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Trends in Purchasing and Supply Management Nontraditional people will be in many supply management positions Technical entry route into purchasing Emphasis on total quality management and customer satisfaction Emphasis on the process used in acquisition, rather than the transactions Purchase of systems and services, as well as products

22. 20 - 22 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Trends in Purchasing and Supply Management Strategic cost management Design engineering and purchasing capitalize on their potential synergy The supplier base will be reformulated Longer term contracts e-Commerce Global supply management MRO items handled by a third-party contractor

23. 20 - 23 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Trends in Purchasing and Supply Management Sourcing will include the complete end product or service and be done proactively Closer supplier relationships Teaming Empowerment End-product manufacturers will focus on design and assembly Consortiums for purchasing

24. 20 - 24 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Trends in Purchasing and Supply Management Separation of strategic and tactical purchasing Greater purchasing involvement in nontraditional purchases Environmental purchasing Value enhancement versus cost reductions

25. 20 - 25 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. The Future of Supply Management 1.Supply chain management 2.Cycle time reductions 3.Video communication with suppliers 4.Integration into business strategy 5.Outsource the procurement process 6.Functional lines blurred or even eliminated 7.Design for procurability 8.“Pull systems” become common in manufacturing 9.Reduction of third- and fourth tier suppliers 10.Networking of suppliers 11.Contract with two suppliers simultaneously to design and build 12.Rationalization of B2B marketplace 13.Expert systems/artificial intelligence