Supply Strategy: Aligning Organizational Objectives with Supply Chain Opportunities

1. Chapter 2 Supply Strategy

2. 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.

3. Key Strategy Questions for Supply How can supply and the supply chain contribute effectively to organizational objectives and strategy? AND How can the organizational objectives and strategy properly reflect the contribution and opportunities offered in the supply chain?

4. Supply Strategy Interpreted in Organizational Strategy Supply Objectives Organizational Objectives Supply Strategy Organizational Strategy

5. Supply Strategy Links Current and Future Markets to Current and Future Needs Current Needs Future Needs Current Markets Future Markets

6. Normal Organizational and Supply Objectives Organizational Objectives Survival Growth Financial Environmental • Supply Objectives • Quality • Quantity • Delivery • Price • Service

7. Three Challenges in Setting SupplyObjectives and Strategies Effective interpretation of corporate objectives and supply objectives The choice of the appropriate action plan or strategy to achieve the desired objectives The identification and feedback of supply issues to be integrated into organizational objectives and strategies

8. Six Major Supply Strategy Areas Assurance of supply Cost reduction Supply chain support Environmental change Competitive edge Risk Management

9. Three Categories of Supply Risk Operational: The risk of interruption of the flow of goods or services Financial: The risk that the price of the goods or services acquired will change significantly Reputational

10. Corporate Risk Management Supply risk is only one of the various risks to which any organization is exposed Today, large companies have a corporate risk management group headed by a risk manager or chief risk officer (CRO) that allows the company to assess their total risk exposure and seek the best ways of managing all risks The chief purchasing officer needs to work closely with the CRO in three areas of supply risks

11. Strategic Purchasing Planning Process Restate organizational goals Identify and analyze alternatives Determine supply objectives to contribute to organizational goals Determine supply strategy Review implementation factors Isolate factors affecting achievement of supply objectives Gain commitment and implement Evaluate

12. Four Possible Changed OrganizationalStrategies Involving Purchasing Materials management Project management Logistics management, or supply chain management JIT purchasing/production

13. Supply Strategy Questions What Make or buy Standard versus special Quality Quality versus cost Supplier involvement How much Large versus small quantities (inventories)

14. 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

15. 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

16. Supply Strategy Questions 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

17. Supply Strategy Questions Why? Objectives congruent Market reasons Internal reasons 1) Outside supply 2) Inside supply