Lecture 1 Flashcards
1
Q
Kraljic Matrix Segments& Strategies:
A
Y axis - Supply risk (high/low)
X axis - Profit Impact (High/low)
- Non critical items (X - low; Y low)
e.g.; office supplies, PCs, administration services/ back-office
Solution - Simplify and automate; eProcrument - Leverage items (X - high; Y - low)
e. g.; automation equipment, IT server, packaging machines
Solution: Exploit purchasing power and minimize costs
- Bottleneck items (X-low; Y - high)
e.g.; excipients, raw materials, secondary packaging materials
Solution: Ensure supply - Strategic items (Y high; X high)
.g.; APIs, primary packaging materials
Solution: Form partnerships
2
Q
Kraljic vs Chessboard
A
Similarities:
- 2 Portfolio approaches
- Strategies and most of the tools used (e.g.; partnerships, re-specification, tenders, …) are pretty much the same (sometimes only different wordings)
Differences:
- Different views (product/profit & risk view vs. balance of powers)
- Chessboard seems to be more price focused
- Even non critical items are handled with much / some bigger efforts
- Some tools (e.g. globalization, volume bundling, …) are allocated to different sectors of the portfolios
- Kraljic 8-10 tools (too simple?) vs. chessboard 64 tools (too complicated?)
3
Q
Purchasing Management (Non critical items)
A
- Procurement focus: Non critical items (e.g; steel rods, coal, office suplies)
- Key Performance Criteria: Functional efficiency (should not be a complex process to buy)
- Typical sources: Establish local suppliers
- Time horizon: Limited, normally 12 month or less
- Items purchased: Commodities. Some sepcified materials
- Supply: abundant (plenty of options of supply)
- Decision authority: decentralized / local (low level function)
4
Q
- Materials Management (Leverage items)
A
- Procurement focus:Leverage items (e.g; electric motors, hardware)
- Key Performance Criteria: Costs/price;
Materials flow management - Typical sources: - Multiple suppliers
- chiefly local*
(current trends: local- central-
going back to increase local
today) - Time horizon: Varied
Typically 12-24 month (why?) - Items purchased: Mix of commodities and specified materials
- Supply: Abundant (im Überfluß)
- Decision authority: Mainly decentralized / local
5
Q
- Sourcing Management (Bottleneck)
A
- Procurement focus: Bottleneck items (e.g. erlectronic parts, catalyst materials, out side services)
- Key Performance Criteria: Cost management and
reliable short term sourcing - Typical sources: Global, predominantly new suppliers with new technology
- Time horizon: Variable, depending on availability vs. short term flexibility trade-offs
- Items purchased:Mainly specified materials
- Supply: Production based scarcity
- Decision authority: Decentralized but centrally coordinated
6
Q
- Supply Management
A
- Procurement focus: Strategic items (e.g. benzol cyclohexane, scarce metals, high value components)
- Key Performance Criteria: Long term availability
- Typical sources: Established global suppliers
- Time horizon: Up to 10 years, governed by long term strategic impact (risk and contract mix)
- Items purchased: Scarce and /or high value materials
- Supply: Natural scarcity
- Decision authority: Centralized
7
Q
4 steps of Kraljic portfolio
A
- Classification
- Market analysis
- Strategic Procurement
- Action Plans
8
Q
- Classification
A
- Strategic items.
Main tasks:
- Accurate demand forecasting
- Detailed market research
- Development of long-term supply relationships
- Make-or-buy-decisions
- Contract staggering
- Risk analysis
- Contingency planning
- Logistcs, inventory and vendor control
Required information:
- Highly detailed market data
- Long-term supply and demand trend information
- Good competitive intelligence
- Industry cost curves
Decision level: Top level (e.g.; vice president purchasing)
- Bottleneck
Main tasks:
- Volume insurance (at cost premium if neccessary)
- Control of vendors
- Security of inventories
- Back-Up plans
Required information:
- Medium term supply / demand forecast
- Very good market data
- Inventory costs
- Maintenance plans
Decision level: Higher level (e.g.; department head)
- Leverage items
Main tasks:
- Exploitation of full purchasing power
- Vendor selection
- Product substituton
- Targeted pricing strategies/ negotiations
- Mix of contract/spot market purchasing
- Order volume optimization
Required information:
- Good market data
- Short-to-medium term demand planning
- Accurate vendor data
- Price/transport rate forecasts
Decision level: Medium level (e.g.; chief buyer)
- Non Critical items
Main tasks:
- Product standardization
- Order volume monitoring/standardization
- Efficient processing
- Inventory optimization
Required information:
- Good market overview
- Short term demand forecast
- Economic order quantity
- Inventory levels
Decision level: Lower level (e.g.; buyer)
9
Q
- Market analysis
A
Supply strength - Company strength
- Market size vs. supplier capacity - Purchasing volume vs. capacity of main units
- Market growth vs. capacity growth - Demand growth vs. capacity growth
- Capacity utilization or bottleneck risk - Capacity utilization of main units
- Competitive structure - Market share vis-a-vis main competition
- ROI and/or ROC (return on investment, costs) - Profitability of main end products
- Cost and price structure - Cost and price structure
- Break-even stability - Cost of non delivery
- Uniqueness of product and technological stability - Own production capability or integration depth
- Entry barrier (capital and know-how requirements) - Entry costs for new sources vs. cost for own production
- Logistics situation - Logistics
10
Q
- Strategic Positioning
A
Y - Company strength
X - Supply market strength
Exploit - Make the most of your high buying power to secure good prices and long-term contracts from a number of suppliers, so that you can reduce the supply risk involved in these important items. (top 3)
Do:
- Reasonable agressive strategy
- Favorable pricing & contract agrements
- Positive profit contribution
Dont:
- Do not jeopardize long-term supplier relationsship
- Do not provoke counterreactions
- Do not insist on rock-bottom prices
BALANCE - Take a middle path between the exploitation approach and the diversification approach described below
DO:
- Neither risks nor benefits
- Defensive posture would be over-conservative and costy
- Use intermediate / well balanced strategy
DONT:
- Agressiveness could damage supplier relation and lead to retaliation (Vergeltung/ Vergeltungsschlag)
Diversify - Reduce the supply risks by seeking alternative suppliers or alternative products. (bottom 3)
DO:
- Start defensive
- Look for substitutes and new suppliers
- Invest in market research and supplier relations
- Consider backward integration
(e. g.; through major investments in R&D or creating new production capacities)
DONT:
Do not stay with the monopoly situation
11
Q
- Action Plans
A
Exploit (Reduce costs) /Balance/Diversify (Ensure supply)
- Volume (Spread/ Keep or shift careful/ Centralize)
- Price (Press for reductions/ Negotiate oppotunistically/ Keep low profile)
- Contractual coverage (Buy spot market/ Balance contracts and spot markets / Ensure supply through contracts)
- New suppliers (Stay in touch/Selected vendors/Search vigorously)
- Inventories (Keep low/ Use stocks as „buffer“/ Bolster stocks)
- Own Production (Reduce or don´t enter/Decide selectively/Build up or enter)
- Substitution (Stay in touch/ Pursue good opportunities/Search actively)
- Value Engineering(Enforce Supplier/Perform selectively/
Start own program) - Logistics (Minimize costs/Optimize selectively/Secure sufficient stocks)
