PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e
Purchasing and Supply
Strategy Trends
Chapter 20
CENGAGE LEARNING
Monczka – Handfield – Giunipero – Patterson
Chapter Overview
Expanding the mission, goals, and
performance expectations
Developing category strategies
Developing and managing suppliers
Designing and operating multiple
supply networks
Leveraging technology enablers
Collaborating internally and externally
Purchasing & Supply Chain Management, 4e
2
Chapter Overview
Attracting and retaining supply
management talent
Managing and enabling the future
supply management organization and
measurement systems
Twelve high-impact sourcing and
supply chain strategies for 2009 - 2015
Purchasing & Supply Chain Management, 4e
3
External Forces
Global competition
Mergers, acquisitions, and supply
market consolidation
Increased governmental regulation
Technology advances
Purchasing & Supply Chain Management, 4e
4
External Forces
Customer and channel dynamics
Increased product/service variety and
shorter life cycles
Social responsibilities
Environmental responsibilities, such as
sustainability
Purchasing & Supply Chain Management, 4e
5
Focus on Future Performance
Accelerating and obtaining more
innovation from suppliers
Leveraging supplier capabilities and
know-how
Identifying and mitigating supply risks
Expanding the breadth and depth of
cost management
Purchasing & Supply Chain Management, 4e
6
Examples of Potential Supply Risks
Price volatility
Potential supply disruptions
Financially troubled suppliers
Negative impacts on sustainability and
the environment
Protection of intellectual properties
Purchasing & Supply Chain Management, 4e
7
Applications of Cost Management
Outsourcing/insourcing
Non-traditional purchases
Purchase item standardization and
complexity reduction
Purchasing & Supply Chain Management, 4e
8
Purchasing Objectives
Continuous improvement in purchase
unit cost, quality, and delivery
performance
The reduction of time, particularly
during product and process
development
Purchasing & Supply Chain Management, 4e
9
CAPS Research Question - 2007
Assessment question:
“For your most important purchases (80-
20 rule) over the past twelve (12) months,
indicate the magnitude of measurable
performance improvements and/or
business contribution achieved through
sourcing and supply chain strategies at
your business unit.”
Source: Supply Strategy Implementation: Current State and Future Opportunities
Purchasing & Supply Chain Management, 4e
10
Exhibit 20-1
Performance Area Average Improvement Results
Unit purchase price 4.1% ↑ 20% - ↓ 18%
Transportation and logistics costs 2.6% ↑ 6% - ↓ 20%
Total cost of ownership 3.5% ↑ 16% - ↓ 20%
Overall inventory investment costs 2.0% ↑ 10% - ↓ 30%
Supplier quality 3.3%
Supplier on-time delivery 3.6%
Supplier responsiveness and flexibility 2.3%
Supplier diversity 3.1%
Operating earnings 7.6% ↑ 30% - ↓ 10%
Fixed asset utilization 2.6% ↑ 16% - ↓ 8%
Note: ↑ = Improved; ↓ = Worsened; Range
Purchasing & Supply Chain Management, 4e
11
Time Reduction
Transmission of requirements to
suppliers
Suppliers’ ordering and manufacturing
cycle time
Delivery from suppliers
Incoming receiving and inspection
Purchasing & Supply Chain Management, 4e
12
Category Strategies
Essence is to maximize value by
leveraging external resources and
capabilities
Need to
Look globally for new suppliers
Define strategies for new categories
Purchasing & Supply Chain Management, 4e
13
Creating a Robust Category Strategy
Multiple and concurrent initiatives
Low-cost country sourcing
Design specification change
Switching suppliers to increase product
innovation
Supplier development
Need to define “value”
Increase in breadth and scope of category
strategies
Purchasing & Supply Chain Management, 4e
14
Creating a Robust Category Strategy
Supply base reduction
Global sourcing
Increasing focus on total cost and
value creation
Product/service design and complexity
reduction
Supplier improvement initiatives
Purchasing & Supply Chain Management, 4e
15
Creating a Robust Category Strategy
Design for supply chain effectiveness
Enhanced collaboration between
suppliers to improve performance and
achieve sustainability
Supply network focus vs. individual
supplier focus
Purchasing & Supply Chain Management, 4e
16
Outsourcing Non-Core Competencies
Severe pressure to reduce costs
Specialization in product and process
technology by individual firms
Greater outsourcing in areas of non-
expertise
Need for responsiveness
Purchasing & Supply Chain Management, 4e
17
Outsourcing Non-Core Competencies
Higher pressure for ROI improvement
Improved computer simulation tools
and forecasting software
Sensitivity analysis
Globalization, i.e., finding lower-cost
suppliers in emerging economies
Purchasing & Supply Chain Management, 4e
18
Use of Category Strategies
Define the supply base (internal and
external)
Sourcing allocations
Contracting approaches
Supplier development
Product/service designs
Physical supply chain considerations
Purchasing & Supply Chain Management, 4e
19
Category Strategies
Push beyond volume aggregation or a
unit price reduction focus
Driven by elements of value
Use more effective teams
Will become more complex
Are used to influence supply markets
and supply networks
Block competition and provide an early
warning system
Purchasing & Supply Chain Management, 4e
20
Developing and Managing Suppliers
Increasing availability of information
Importance of strategic partners
Collaborative supplier networks
Buyer-driven development of
philosophies, attitudes, and practices
within these networks
Selective information transparency
Purchasing & Supply Chain Management, 4e
21
Developing and Managing Suppliers
How many suppliers do we want for
this category (and in the supply base),
and what role should each play?
What current and future capabilities are
required, and where in the world should
the supplier(s) be located?
Which suppliers should we work with
and why?
Purchasing & Supply Chain Management, 4e
22
Developing and Managing Suppliers
Do we want to lead and/or manage
supplier networks at the Tier 2 and 3
levels?
Which suppliers do we want to
collaborate with, or have them
collaborate with other suppliers, and
why?
Purchasing & Supply Chain Management, 4e
23
Improving Supplier Relationships
Supplier segmentation
Supplier scorecards and feedback
Supplier capability matrices
Rewards to best performers
Joint executive exchange
Supplier councils and conferences
Process improvement and innovation
workshops
Purchasing & Supply Chain Management, 4e
24
Improving Supplier Relationships
Two-way performance evaluations and
satisfaction surveys
Supplier suggestion systems
Risk/reward sharing
Executive engagement
Trust
Purchasing & Supply Chain Management, 4e
25
Supply Base Management
Supply management will have to clearly
understand company needs and align
with capable suppliers
Working relationships must improve
between buyer and supplier
Future will require more bilateral (or
multilateral) and collaborative
approaches
Purchasing & Supply Chain Management, 4e
26
Multiple Supply Networks
Seamless supply chains driven by end
user or customer needs
Organized around length of product life
cycle
Requires the ability to sense and
respond quickly to changing market
conditions (agility)
Purchasing & Supply Chain Management, 4e
27
Supply Chain Excellence
Anticipate changes worldwide in customer
requirements, product offerings, supply
conditions, regulations, and competitor
actions
Adapt to the changes by configuring
existing supply chains or creatively
assembling new ones
Accelerate implementation of the
transformed supply chain
Purchasing & Supply Chain Management, 4e
28
Leveraging Technology Enablers
Continuing improvements to existing
systems
Technological advantages integrating
applications and data, people’s
personal effectiveness, and
collaboration
Purchasing & Supply Chain Management, 4e
29
Technology Applications
Analytics
Reduced data cleansing
Contract management
Collaboration
Performance monitoring and capability
mapping
Cross-enterprise visibility
Role-based access
Purchasing & Supply Chain Management, 4e
30
Evolving Technology Tools
2007 2008 - 2017
• Collaboration
networking
• User-defined
dashboards and
analytics
• Knowledge
management
Stand-alone, Integrated,
serially-connected collaboration-
applications based, flexible
systems
Source: Succeeding in a Dynamic World: Supply Management in the Decade Ahead
31
Themes of Collaboration
Internal collaboration and integration
should be enhanced to meet future
company needs
External collaboration will signal a shift
from pure competition to cooperation
for some segments of a company’s
supply base
Purchasing & Supply Chain Management, 4e
32
Themes of Collaboration
Technology is required to enable an
increase in collaboration – both internal
and external information transparency
Management risk and protecting
intellectual property may limit
collaboration with suppliers
Purchasing & Supply Chain Management, 4e
33
Obtaining Innovation
Need to use collaboration to keep the
innovation pipeline filled
Interface supply management with
internal product development staff and
suppliers
Link internal technological advances to
demands of external customers
Complexity of linking customer needs to
supplier capabilities
Purchasing & Supply Chain Management, 4e
34
Supply Management Talent
Understand and interpret supply
market dynamics
Analyze complex supply options and
risks
Develop innovative value acquisition
strategies to support business and
functional strategies
Purchasing & Supply Chain Management, 4e
35
Future Supply Management Skills
Leadership Ability
“Soft-side”
Skills
Collaborative Style Innovative Spirit
International Foreign Language
Cross-cultural
Experience Skills
Cross- Broad Business Multi-disciplinary
functional Knowledge Experience
Current and
Supply Market Knowledge Supply Process Expertise
Future
Source: Succeeding in a Dynamic World: Supply Management in the Decade Ahead
Purchasing & Supply Chain Management, 4e
36
Current and Future Skills
Current Future
Supply market Emerging supply
knowledge markets sustainability
Supply process Merger and acquisition
expertise activity
Competitive market Potential new entrants
structure Technology trends
Price and cost models
Purchasing & Supply Chain Management, 4e
37
Cross-Functional Skills and Teaming
Broader general business skills
Multi-discipline skills
Business fundamentals
Cross-discipline exposure
Supplier market competition
Purchasing & Supply Chain Management, 4e
38
Cross-Functional Teams
Broader base of knowledge for
decision making
Cooperative sharing of expertise
Category and supplier strategy
development
Process and system improvement
Global system development
Purchasing & Supply Chain Management, 4e
39
Cross-Cultural Skills
Include foreign language fluency
More suppliers in emerging markets
Broader business perspective
Understanding of how to work in
different settings and cultures
Purchasing & Supply Chain Management, 4e
40
“Soft-Side” Skills
Exhibiting and fostering a collaborative
style of working
Possessing an innovative spirit that
challenges the status quo and seeks
new solutions to problems
Having the ability to lead others
effectively
Purchasing & Supply Chain Management, 4e
41
Organization & Measurement Systems
Increasing importance of the center-led
model
Decreasing importance of decentralized
supply strategies
How to integrate supply management
with the rest of the organization
Purchasing & Supply Chain Management, 4e
42
Organization Alternatives
Supply
Management
supports
Source: Succeeding in a Dynamic World: Supply Management in the Decade Ahead
Purchasing & Supply Chain Management, 4e
43
Organization Alternatives
Supply
Management
leads
Source: Succeeding in a Dynamic World: Supply Management in the Decade Ahead
Purchasing & Supply Chain Management, 4e
44
Process Organizational Structure
Supply Chain
Purchasing Engineering Operations Processes
• New product
development
• Integrated supply
chain logistics
• Demand / supply
planning and
• Emphasis on functional knowledge, execution
skills, and abilities • Customer order
• Vertical flows, decisions, and fulfillment
measurement • Supplier evaluation
and selection
Shifting from a vertical structure…. • Supplier management
….to a horizontal structure and development
Purchasing & Supply Chain Management, 4e 45
Measuring Performance
Align supply measures to corporate and
business unit measures
Develop common metrics across trading
partners
Supply measures should be customer-
centric
Utilize a balanced scorecard approach
Link to economic value add (EVA) and
return on invested capital (ROIC)
Purchasing & Supply Chain Management, 4e
46
High Impact Strategies for 2009-2015
1. Continuous outsourcing determination
and globalization of supply with
greater focus on risk management
with key suppliers
2. Enhanced supply chain integration
and collaboration with strategic
suppliers
Purchasing & Supply Chain Management, 4e
47
High Impact Strategies for 2009-2015
3. Increased information sharing and
transparency internally and with
suppliers
4. Sourcing becoming more integrated
with other functions, processes, and
customers including external
customer-facing activities
Purchasing & Supply Chain Management, 4e
48
High Impact Strategies for 2009-2015
5. Enhancing the quality, number, and
execution of written purchase family/
supplier category strategies with a
focus on value, including the total
supply network
6. Selectively ensuring the adequacy of
sourcing and supply strategies as a
means to accelerate and obtain
innovation from suppliers
Purchasing & Supply Chain Management, 4e
49
High Impact Strategies for 2009-2015
7. Requiring suppliers to take a greater
cost management role by providing
value adding services in R&D,
manufacturing/operations, customer
order fulfillment, and system
integration
8. Common measurement and metrics
across the supply chain
Purchasing & Supply Chain Management, 4e
50
High Impact Strategies for 2009-2015
9. Development of an e-sourcing and
supply applications portfolio including
digitized and paperless supplier
invoicing, e-sourcing (with the Internet
and global data warehouses providing
the backbone), knowledge
management systems combined with
internal applications focused on
analytics
Purchasing & Supply Chain Management, 4e
51
High Impact Strategies for 2009-2015
10. Supply taking a leading role in
sustainability with suppliers
11. Strategic sourcing and supply chain
activities primarily center-led, with
appropriate activities being located at
sites worldwide, with decentralized
execution on a global basis
Purchasing & Supply Chain Management, 4e
52
High Impact Strategies for 2009-2015
12. Human resources strategies and
dedicated personnel focusing on
identifying, hiring, and developing
highly talented, flexible, and globally
oriented personnel, who can
immediately contribute – a critical
success factor
Purchasing & Supply Chain Management, 4e
53
Rapid Change and Competition
Develop the skills of purchasing
professionals
Actively using information technology
across the supply chain
Pursue activities and practices that
capture the full benefit of a world-class
supply base
Purchasing & Supply Chain Management, 4e
54
Rapid Change and Competition
Create responsive new organizational
structures
Establish the most effective purchasing
and supply chain measurement system
Purchasing & Supply Chain Management, 4e
55