Week 8: Procurement and Outsourcing: strategic perspective on purchasing and supply management Flashcards
What is purchasing and supply management?
Design, initiation, control and evaluation of activities within and between organizations aimed at securing inputs from suppliers at the most favorable conditions
What are the 6 steps in the purchasing process?
Tactical purchasing:
1. Define specifications
2. Select supplier
3. Contract supplier
Operational purchasing:
4. Order
5. Expedite and monitor
6. Follow up and evaluate
In what two ways does purchasing and supply management impact sustainability?
- Social impact
- Working conditions
- Access to work
- Community/capacity building - Environmental impact:
- CO2 emission during production and transportation
- Energy consumptions during utilization
- Animal treatment
Name the three hot topics in purchasing and supply management?
- Big impact of digitalization and AI
- Global trade dynamics
- Climate countdown
Name the two basic points of category sourcing?
- Organizations buy a variety of products and services
- Not all items are equally important
- Not all items are available under same market conditions - Many purchasing organizations explicitly differentiate purchasing approach by group of purchase items: category sourcing strategies
Name three ways in which category sourcing strategies can differentiate themselves?
- Kind of value buying firms seek to achieve
- Number of suppliers to work with
- Extent and form of collaboration
What are the two factors for plotting a category in the portfolio analysis of the Kraljic matrix?
- Impact on business value
- Spend of the product
- Impact on profitability
- Impact on business growth
- Impact on overall strategy
- Influence of production interruption and shortage - Supply risk:
- Number of potential suppliers
- Competition in supplier market
- Capacity in the market
- Dependency of buying organization on one or few suppliers
What are the four main category sourcing strategies?
- Leveraged products (high impact on business value / low supply risk)
- Strategic products (High impact on business value / High supply risk)
- Routine products (low impact on business value / low supply risk)
- Bottleneck products (low impact on business value / high supply risk)
What are the characteristics and recommended action for the category sourcing strategy Leverage products?
- Alternative sources of supply available
- Substitution is possible
Competitive bidding
What are the characteristics and recommended action for the category sourcing strategy Strategic Products?
- Critical for product’s cost price
- Dependence on supplier
Performance based partnership
What are the characteristics and recommended action for the category sourcing strategy Routine Products?
- Large product variety
- High logistics complexity
- Labor intensive
Systems contracting + e-procurement solutions
What are the characteristics and recommended action for the category sourcing strategy Bottleneck Products?
- Monopolistic market
- Large entry barriers
Secure supply + search for alternatives
What is outsourcing?
company divests itself of the resources to another company to focus more effectively on developing its own core competencies.
Name three essential considerations of outsourcing?
- Specifications (partly) determined by buying organization
- Internal production also option
- Outsourcing part of sourcing, but sourcing also covers other purchasing arrangements
What are the main forms of outsourcing?
- Outsourcing for capacity (always partial / temporary)
- Outsourcing for knowledge
Name 6 outsourcing motives?
- Cost reduction / economies of scale
- Reduced capital investment
- Increased flexibility
- Improved quality
- Increased innovativeness
- Management focus on core competencies
What is the difference between incidental and structural flexibility?
- Incidentally: in terms of capacity
- Structurally: in terms of technology
How can outsourcing increase innovativeness?
- Improving functionality of final products
- Frequency and speed of new product introductions
Name four fundamental risks of outsourcing?
- Increased dependence and vulnerability
- Loss of critical competences and skills
- Loss of internal synergy (less cross-fertilisation within hollow corporation)
- Stickiness of knowledge (hard to transfer tacit knowledge)
Name the five elements of the hierarchical model of outsourcing considerations?
- Importance of component to customer
- Component ‘clockspeed’ (technology change) compared to other system components
- Competitive position
- Capable suppliers
- Product architecture
