Procurement Strategies

CHAPTER 3: SUPPLY CHAIN MANAGEMENT

 PROCUREMENT STRATEGIES
ANALYZING THE SUPPLY CHAIN
Contents MARKET
SPEND MANAGEMENT
SPEND ANALYSIS
SUPPLY POSITIONING MODEL

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Analyzing Supply Chain
Market
Structure of the market
Market behavior
Supply chain
Barriers to market entry
Environmental factors
Ethical considerations
The buyers value in the market

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Steps to a Supply Chain Market
Analysis
1. Define your objectives, scope, and commodity profile
• Purpose
• Clarify why you're analyzing the market. (e.g., to reduce costs, diversify
suppliers, or mitigate risk.)
• Scope
• Determine the depth (e.g., global vs. regional) and breadth (e.g., single
commodity vs. category).
• Commodity Profile
• Understand the item’s specifications, usage, and strategic importance.

Supply Chain Management: Strategy, Planning, and Operation by Chopra & Meindl
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Steps to a Supply Chain Market
Analysis

2. Research the market and pricing structure for your commodity

• Analyze cost drivers
• raw materials, labor, logistics, energy, and overhead.
• Understand market dynamics
• Is pricing seasonal? Affected by regulations or geopolitical shifts?
• Benchmarking
• Compare pricing across suppliers or regions.

Essentials of Supply Chain Management by Michael Hugos

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Steps to a Supply Chain Market
Analysis
3. Conduct in-depth supplier analysis
• Identify key players
• Who are the top suppliers? Where are they located?
• Evaluate capabilities
• Capacity, certifications, innovation potential.
• Risk check
• Financial health, legal issues, geopolitical exposure.
• Tools
• SWOT analysis or supplier scorecards.

The Handbook of Logistics and Distribution Management 7

Steps to a Supply Chain Market
Analysis

4. Identify key market indicators

• Track trends
• Commodity indexes, inflation rates, demand forecasts.
• Use indicators
• Lead times, capacity utilization, inventory turnover.
• Purpose
• These help predict supply disruptions or cost fluctuations

The New Supply Chain Agenda by Slone, Dittmann & Mentzer 8

 Steps to a Supply Chain Market
Analysis

5. Synthesize Findings and Recommend Strategy

• Summarize insights
• What are the risks, opportunities, and cost levers?
• Develop sourcing strategy
• e.g., dual sourcing, long-term contracts, local vs. global mix.
• Communicate clearly
• Use visuals like dashboards or heat maps.

Essentials of Supply Chain Management by Michael Hugos; Supply Chain Management: Strategy, Planning, and Operation by Chopra & Meindl
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Spend Management
What is Spend Management?
Spend management refers to the strategic oversight
of all organizational expenditures to ensure alignment
with business goals.
It encompasses budgeting, procurement, and supplier
payments, aiming to maximize value and minimize
waste.
Spend management is not just about cost-cutting, it's
about visibility, control, and strategic alignment across
departments.

Procurement, Principles & Management by Bailey et al.

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Core Goals of Spend Management
• Cost optimization through strategic sourcing and
negotiation
• Compliance with internal policies and external
regulations
• Transparency in financial flows
• Supplier performance management to ensure
value delivery
These objectives support risk mitigation and long-term
supplier relationships, not just short-term savings.

Spend Analysis: The Window into Strategic Sourcing by Pandit & Marmanis
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Spend Management Components
• Policy
• Clear rules for spending authority and categories
• Process
• Standardized workflows for requisition, approval, and
payment
• People
• Cross-functional collaboration between procurement,
finance, and operations
• Technology
• Tools for automation, analytics, and spend visibility
Integration across these components is key to avoiding
maverick spend and ensuring accountability.

Procurement, Principles & Management by Bailey et al.; Essentials of Supply Chain Management by Michael Hugos
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 Tools and Technology
• Spend Cubes
• The spend cube is a 3D data analysis
tool used in procurement to visualize
and examine historical spending
across multiple dimensions (e.g.,
supplier, category, and department).
It helps organizations detect trends,
compare suppliers, and identify cost-
saving opportunities by making
patterns and anomalies more visible
than traditional methods.

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 Tools and Technology

• Dashboards
• Spend Management Software solutions
• SAP Ariba
• Coupa
• Ivalua
• Zycus
• GEP Smart

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Best Practices
• Centralizing spend data for unified analysis
• Regular audits to detect leakage or inefficiencies
• Training stakeholders on policy and tools
• Aligning procurement with strategic goals
• Reviewing supplier contracts to ensure competitiveness
• Continuous improvement and stakeholder buy-in are
also essential for sustainable spend management.

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Spend Analysis
What is Spend Analysis?

Spend analysis is the systematic process of collecting,

cleansing, classifying, and analyzing expenditure data to
uncover cost-saving opportunities, improve
procurement efficiency, and strengthen supplier
relationships.

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Key Metrics in Spend Analysis
Metric Description

Spend by Category How much is spent on each product or service group.

Spend by Supplier Total spend per vendor, including contract vs. off-contract.

Frequency and Volume How often and how much is purchased.

Savings Potential Opportunities for consolidation or renegotiation.

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Spend Analysis Process Flow
• Data Collection
• From ERP, AP, procurement systems
• Data Cleansing
• Remove duplicates, correct errors
• Classification
• Group spend into categories (e.g., UNSPSC codes)
• Analysis
• Identify trends, risks, and opportunities
• Action
• Inform sourcing strategy or supplier negotiations

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Supply Positioning Model
Supply Positioning Model
(Kraljic Matrix)

The Kraljic Matrix helps companies classify purchases

based on supply risk and profit impact, then choose the
right procurement strategy.
Bailey et al. emphasize it as a tool for aligning sourcing
plans with business priorities.

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Supply Positioning Model
(Kraljic Matrix)
Quadrant Characteristics Strategy

Routine Low risk, low value Simplify + automate

Leverage Low risk, high value Competitive bidding

Bottleneck High risk, low value Secure availability

Strategic High risk, high value Collaborate long-term

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Supply Positioning Model
(Kraljic Matrix)

Axis Description
X-axis: Supply Risk How vulnerable the supply is

Y-axis: Profit Impact How critical the purchase is to operations or finances

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