Class # 4 - Chapter 2

Supply
Strategy
(Part 1)

McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc., All Rights

Reserved.

2-2

An Organization Must Approach

Strategic Planning on Three Levels

Corporate (Enterprise): Decisions and plans that

answer the questions - What businesses are we in?
How will we allocate resources among these
businesses?
Business Unit: Molding the plans of the unit, as
necessary, to contribute to the corporate strategy.
Department (Division or Plant): Plans that concern the
how of each functional areas contribution to the
business strategy and involve the allocation of internal
resources.

2-3

Key Strategy Questions for Supply

1.

How can Supply Management and the supplier base

contribute effectively to organizational objectives and
strategy?
AND

2.

How can the organizations objectives and strategy

properly reflect the contributions and opportunities
offered by Supply Management and the supplier base?

2-4

Supply Strategy Must be Congruent

with Organizational Strategy
Supply
Objectives

Organizational
Objectives

Supply
Strategy

Organizational
Strategy

2-5

Supply Strategy Links Markets to

Business Needs
Current
Needs

Future
Needs

Current
Markets

Future
Markets

2-6

Typical Organizational and

Supply Objectives: Disconnected???
Organizational Objectives

Supply Objectives

1.

Earnings target

1.

Quality

2.

Growth / expansion

2.

Quantity

3.

Product innovation

3.

Delivery

4.

Customer retention

4.

Price

5.

Survival (perhaps)

5.

Service

2-7

Three Challenges When Integrating

Supply Strategies and Org. Strategies

Unambiguous interpretation of corporate objectives

and supply objectives
Choosing the appropriate strategy or plan to achieve
the desired objectives
The identification and feedback regarding Supply
issues that must be correctly integrated into
organizational objectives and strategies (excellent
example: Spartan Heat Exchangers Case)

2-8

Six Major Supply Strategy Areas

1.
2.
3.
4.
5.
6.

Assurance of supply (a traditional priority)

Cost reduction (a traditional priority)
Supply chain functional process support
Enhance competitive edge via the supplier base
Enable market expansion / new product development
Risk management (see next slide)

2-9

Three Categories of Supply Risk

1.

Operational: The risk of interruption of the flow of goods

or services, especially when globalized.

2.

Financial: The risk that the price of the goods or

services acquired will change significantly.

3.

Reputational: The risk that either legal or ethical supply

issues may endanger the survival of the enterprise.

2 - 10

Long-term Strategic Supply

Planning Process (Figure 2-3)
Re-state
organizational goals
Determine supply
objectives to contribute
to organizational goals
Isolate factors affecting
achievement of
supply objectives

Identify and
analyze alternatives
Determine
supply strategy
Review implementation
factors
Gain commitment
and implement
Evaluate

2 - 11

Supply Strategic Components

(Figure 2-4)
1) What?

Make or buy
Standard versus special

2) Quality?

Quality versus cost

Supplier involvement

3) How much?

Large versus small quantities (inventories)

2 - 12

Supply Strategy Components

4) Who?

Centralized or decentralized
Quality of staff
Top management involvement

5) When?

Now versus later

Forward buy

6) What Price?

Premium, standard, lower

Cost-based, market-based
Lease/make/buy

2 - 13

Supply Strategy Components

7) Where?

Local, regional
Domestic, international
Large versus small
Multiple versus sole source
High versus low supplier turnover
Supplier relations
Supplier certification
Supplier ownership

2 - 14

Supply Strategy Components

8) How?

Systems and procedures

Computerization
Negotiations
Competitive bids
Fixed bids
Blanket orders/open orders
Group buying

MRP
Long-term contracts
Ethics
Aggressive or passive
Purchasing research
Value analysis

2 - 15

Supply Strategy Components

9) Why?

Congruent objectives
Market (external) reasons
Internal reasons

2 - 16

Reading Assignment for Next Class:

How to Get Procurement Strategy Right
by Per Segerberg (see Blackboard)
1) What are the key points of the article?
2) Does the authors approach make sense?
3) How hard would it be to implement?

2 - 17

Case Discussion Today:

Case 2-1
Spartan Heat Exchangers, Inc.
p. 39
1) What are the implications of the change in corporate
strategy on Spartans operations?
2) How does the change from a job shop to a flow operation
impact the requirements on the materials function and on
Spartans suppliers?
3) Is it reasonable to expect an improvement in inventory
turns from 4 to 20?
4) Should Rick Coyne commit to a 10% reduction in prices
from suppliers within 12 months?
5) Can customer delivery lead times for finished products be
cut from 14 weeks to 6 weeks?