1.2 - Portfolio analysis techniques to assess relationships in supply chains Flashcards
Name 3 portfolio analysis techniques that can be used by a buyer to support the development of sourcing and supplier relationships
- Supply positioning (Kraljic 1983)
- Supplier Preferencing Matrix (Steele & Court 1996)
- Market management matrix
Name 4 benefits of undertaking a positioning exercise
- Allowing a buyer to focus on leveraging the available resources by identifying both sourcing and the relationship opportunities to add value
- Identifying opportunities to develop competitive advantage
- Providing a framework for decision-making and action planning for the buyer
- Improving risk management, by helping businesses to identify which products and suppliers pose a vulnerability
Name 3 examples of procurement objectives and how they could be supported by the use of portfolio analysis
- Identifying opportunities to move non-contract spend on to a contract and as a result reduce costs. This could be achieved by undertaking pareto analysis (ABC analysis) of the top non-contract suppliers
- Identfifying an organisations key products and suppliers. This could be achieved by using a Kraljic matrix to identify which items are strategic
- Developing value added relationships with strategic suppliers. This could be done by reviewing where the strategic suppliers are on Court and Steeles Supplier Preferencing matrix to assess whether more collaborative relationships are possible
Cousins et al (2008)
20% of products used to manufacture a car will make up 80% of the costs
Name the 3 steps of application of the ABC analysis
- A items account for 80% of cost and 20% of volume
- C items represent low cost and high volume items
- B items are in the middle
Name a downside of the ABC analysis
It does not consider the impact of categories or the market complexity
Risk
A situation that involves exposure to danger
What analysis can be used to monitor internal and external risk
STEEPLED
What should businesses use to manage risk?
A risk register
Zsidsin (2003)
Risks tend to arise from individual supplier failure and market factors
What can supplier failure relate to?
Problems with quality, delivery, relationship and price
What does market characteristics relate to?
Demand and the number of suppliers in the marketplace
How should risks be classified?
According to the size of the impact that they could have on the business as well as the probability that the risks could occur
What formula can be used for a risk score
Total risk = probability x impact
What was the aim of the Kraljic matrix
To enable a buyer to maximise its buying power whilst minimising risk to the organisation
How the does Kraljic matrix link to category management?
You can use it to segment all of the products and services that form part of its category
Category Management
The spend in an organisation is broken down in to categories of related products and services.
What does the vertical axis on the kraljic matrix show?
Financial risk
What does the horizontal axis on the kraljic matrix show?
Supply risk
Name the 4 quadrants of the kraljic matrix
- Routine, bottleneck, leverage and strategic
What does each matrix indicate?
The type of sourcing approach that should be applied and the level of resources that will be required in order to develop or maintain the relationship
Give 4 examples of routine categories
- Stationery
- Consumables
- MRO
- Low-level temporary labour
Name 2 issues of routine items
- Can be time consuming compared to the value due to the volume of orders and requisitions
- On a daily basis can distract a buyer from more strategic/value adding activities
Name 5 strategies used with routine items
- Use tactics to leverage savings and reduce costs e.g. reverse auctions
- Optimise ordering process and stock holding
- Online catalogues to improve efficiencies
- Standardise products to increase volumes
- Construct framework agreement/call-off contracts to reduce the burden of tendering
Name 2 relationship strategies for routine items
- Adversarial
- Arms length / transactional
Reverse e-auction
An electronic procurement process that involves suppliers competing against each other by reducing their prices. The supplier that submits the lowest price will win the auction
Call off contract
An overarching agreement in respect of price, terms and conditions that allows a buyer or user department to order/call off products or services as required over a period of time. These types of contract are useful where volume over a period of time is unknown
Original Equipment manufacturer
Generally perceived as the producer of own branded parts or equipment which are sold to other manufacturers for production and retail
Define routine
Low risk and low value
Define bottleneck
High risk and low value but relatively rare in terms of the supply market
Name 2 examples of bottleneck categories
- OEM parts
- Computer chips
Name 4 issues with bottleneck items
- Prone to supply risk such as limited availability
- Potential storage issues
- Likely to be a small number of suppliers or monopoly in the marketplace
- Can seriously affect the delivery of the product or service
Name 3 strategies for bottleneck items
- Secure long term supply contracts with clauses regarding late delivery charges for delivery failure
- Look for alternatives in the marketplace
- Focus on managing the procurement process
Name 2 relationship strategies used for bottleneck items
- Sole-source, long-term contracts
- Bespoke
Define leverage
Market risk is low and the cost or value is high
Give an example of a leverage product
Product specific materials
Name 2 issues with leverage products
- Unit cost management is important due to volume
- Can have a large impact on profit due to the high value
Name 4 strategies for leverage products
- Obtaining the best deal via competitive tendering due to nature of market
- Use the high level of market power to secure value
- Target pricing and product substitution where possible
- Enhancing buying power by engaging in consortia procurement
Name 2 relationship strategies used for leverage products
- Moderate
- Outsourced
Consortia procurement
When a group of separate organisations come together to procure products or services. This allows them to leverage their buying power. This is common in the public sector
Define strategic
high risk and high impact on profitability
Give an example of a strategic product
Major outsourcing providers such as IT
Name 3 issues related to strategic products
- Dependent on a small number of suppliers
- Could severely affect profits
- Likely to be important for gaining/maintaining competitive advantage
Name 2 strategies related to strategic products
- Long-term relationships as changing the source of supply likely to be costly or difficult
- Balancing power and cooperating with supplier
Name 3 relationship strategies for strategic products
- Strategic or collaborative
- Performance based partnerships with single or very occasionally sole sources
- Co-destiny
Name 4 of Lysons and Farrington (2006) steps in order to carry out segmentation analysis
- Make a list of all purchases in descending order of value
- Evaluate the supply risk and market complexity for each item or service on the list
- Evaluate each item on the matrix based in the above analysis. Which segment of the matrix fits a product or service best?
- Regularly review the position of each product/service in the matrix to assess risks and identify any new opportunities
Name 5 benefits of using the kraljic matrix to segment products that an organisation procures
- The matrix is simple to understand and apply
- It can be applied across all industries and company types
- It can result in a procurement department having a better understanding of the importance of each of the products to the business
- It can assist in deciding what is the optimum relationship strategy for each supplier
- It can provide an additional insight into strategic issues
Name 6 limitations of the kraljic matrix
- Supply markets are complex and so its not easy to classify products into one of the four quadrants
- There is an element of subjectivity regarding where products are located in the matrix
- Over time there are likely to be changes in the marketplace and so analysis is only a snapshot in time
- Analysis applies to the products or services being purchased and not the supplier
- not all supply risks arise within the buyer-supplier relationship, there are also external risks
- It has a limited academic foundation
What does the vertical axis of the steele and court supplier preferencing matrix show?
The attractiveness of the account
What does the horizontal axis of the steele and court supplier preferencing matrix show?
The relative value of the business
Name 7 factors that allow a buyer to show to a supplier that their business is valuable
- Profitability
- Further opportunity for growth and development
- Stability of future contracts
- Reputation
- Ethical trading practises
- Collaboration
- Level of risk they introduce to the supplier
Preferred customer
A buying organisation that a supplier treats better than other customers for example in terms of product quality and availability, delivery or/and prices
What does nuisance mean?
Little profit for supplier, customer difficult or expensive to service
What does exploitable mean?
Supplier in position of strength
What does development mean?
Customer has potential for growth
What does core mean?
Customer very important
Relationship marketing
This looks at long-term customer engagement including customer loyalty
Name 2 advantages to applying the steele and court supplier preferencing matrix
- Provides the supplier view
- It may provide the buyer information it was unaware of
Name 2 limitations of applying the steele and court supplier preferencing matrix
- It is a snapshot in time
- It is subject to the judgement of the buyer
What is the market management matrix
It combines the kraljic and steele and court supplier preferencing matrix to give a more holistic view of supply positioning and supplier preferencing
Name the 4 key stages of the market management matrix
- Strategic security
- Strategic critical
- Tactical acquisition
- Tactical profit
Name 3 benefits of the market management matrix
- It offers a further chance to minimise risks and maximise opportunities by showing which suppliers may be open to partnership development, avoiding wasted resources
- It can indicate when action should be taken
- It can indicate where a change of relationship rather than a change of supplier might be required
Name 2 limitations of the market management matrix
- It is a snapshot in time
- Buyer-supplier relationships can change
Name 3 actions that may be in a supplier action plan
- Increasing the volume/value of business with the supplier if this is possible and desirable
- The buyer could also involve the supplier in innovation and development programmes to create new products and services or generate greater value from existing products and services
- The buyer could work with the supplier to understand why they are viewed as a nuisance
What should the insights provided by the positioning matrices be used to do?
Develop SRM action plans
Plan Do Check Act (PDCA)
Often known as the Shewhart or Demming Cycle - althought Mizuno 1959 is the first recorded reference - this is the classic and original continuous improvement cycle
