Supply Market Analysis - Saravanan

Introduction
Purchasing Shift from transactional to strategic activity Strategic models,frameworks,methodology required Key Questions facing Buyers Which spend categories should we focus on? Are we going to attempt to cultivate similar relationships across the whole supply base? If not, how and why might they differ across the supply base? How do suppliers view the buyers?

Kraljics Framework for Sourcing (Supply Positioning Model)

The framework is based on two dimensions
Profit impact, Business Criticality/Expenditure level
Profit impact is high when the item adds significant value to the organization's output. This could be because it makes up a high proportion of the output (for example, raw fruit for a fruit juice maker) or because it has a high impact on quality (for example, the cloth used by a high-end clothing manufacturer)

Supply risk
Supply risk is high when the item is a scarce raw material, when its availability could be affected by government instability or natural disasters, when delivery logistics are difficult and could easily be disrupted, or when there are few suppliers.

Kraljics Purchasing matrix (Supply Positioning Model)

High Bottleneck Items Ensure supply Strategic Items Form partnerships

Supply risk

Non Critical Items

Outsource and automate

Leverage or Bulk Purchase Items Exploit purchasing power and minimize cost

Low Low
Profit Impact/Business Criticality/Expenditure level
4

High

Examples
Examples vary across industries, market. Uniforms A company with 20 employees and hundreds of possible suppliers of uniform is a non critical category. In the same market, a company with 10,000 employees its a leverage category. For a retail company selling special branded uniforms ,made by a supplier with patented technology strategic category. For a nuclear plant, special uniform providers are scarce and may show no interest in providing better service/product Bottleneck item.

Buyer Strategies
Leverage Items Primary Focus Cost reduction through bulk purchase, negotiations Non Critical Items Using standardized products Strategic Items Bottleneck Items Developing long-term supply relationships, and considering making the item in-house rather than buying it Analysing and managing risks regularly, planning for contingencies Ensuring continuous supply, storing excess stock whenever possible

Secondary Focus

Change suppliers

Optimizing order volume, inventory level

VMI

Takeaways from Kraljics Model For Beroe

Will help to analyze where a particular spend category/product figures in the clients scheme of things. Helps to align our recommendations/suggestions inline with clients perspective of spend categories.

Supplier Preferencing Model

Supplier Preferencing is based on two dimensions

Revenue/Value of Account

the percentage of a suppliers business that the buyer currently represents the percentage of a suppliers business that the buyer could represent
Attractiveness of Account

the profitability of selling to the customer the reputation of the buyer the ease of managing the buyers accounts potential for buyers use of good or service to grow the potential to use the buyer as a marketing platform for the supplier Business Fit Payment on time Consistency

Supplier Preferencing Model

High Attractiveness of Account Development High profile customer who could
offer good future contracts. Willing to supply in short term

Core High level Value added services Keen to meet buyer request Exploitable

Nuisance
Little Interest shown

Low

Low profitability, location Reduction of transaction inconvenience costs Buyer may choose some other supplier Low High

Revenue/ Value of Account

9

Takeaways from Supplier Preferencing Model For Beroe

What do the (key) suppliers think of our client? Will help to get an idea about the interest levels of the suppliers in working with our client. Can target/focus/recommend those suppliers who have sufficiently keen interest in working with the client.

Conclusion
Qualitative factors for the models must be taken based on experience,judgement,brainstorming. View these models holistically. They are a starting point for further analysis and not an end in itself. They are more important for the new questions they throw up rather than for the solution they provide.
Thank You