1.
PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e
CENGAGE LEARNING
Monczka – Handfield – Giunipero – Patterson
Purchasing and Supply
Strategy Trends
Chapter 20

2.
Chapter Overview
 Expanding the mission, goals, and
performance expectations
 Developing category strategies
 Developing and managing suppliers
 Designing and operating multiple
supply networks
 Leveraging technology enablers
 Collaborating internally and externally
Purchasing & Supply Chain Management, 4e
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3.
Chapter Overview
 Attracting and retaining supply
management talent
 Managing and enabling the future
supply management organization and
measurement systems
 Twelve high-impact sourcing and
supply chain strategies for 2009 - 2015
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4.
External Forces
 Global competition
 Mergers, acquisitions, and supply
market consolidation
 Increased governmental regulation
 Technology advances
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5.
External Forces
 Customer and channel dynamics
 Increased product/service variety and
shorter life cycles
 Social responsibilities
 Environmental responsibilities, such as
sustainability
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6.
Focus on Future Performance
 Accelerating and obtaining more
innovation from suppliers
 Leveraging supplier capabilities and
know-how
 Identifying and mitigating supply risks
 Expanding the breadth and depth of
cost management
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7.
Examples of Potential Supply Risks
 Price volatility
 Potential supply disruptions
 Financially troubled suppliers
 Negative impacts on sustainability and
the environment
 Protection of intellectual properties
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8.
Applications of Cost Management
 Outsourcing/insourcing
 Non-traditional purchases
 Purchase item standardization and
complexity reduction
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9.
Purchasing Objectives
 Continuous improvement in purchase
unit cost, quality, and delivery
performance
 The reduction of time, particularly
during product and process
development
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10.
CAPS Research Question - 2007
 Assessment question:
 “For your most important purchases (80-
20 rule) over the past twelve (12) months,
indicate the magnitude of measurable
performance improvements and/or
business contribution achieved through
sourcing and supply chain strategies at
your business unit.”
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Source: Supply Strategy Implementation: Current State and Future Opportunities

11.
Exhibit 20-1
Performance Area Average Improvement Results
Unit purchase price 4.1% ↑ 20% - ↓ 18%
Transportation and logistics costs 2.6% ↑ 6% - ↓ 20%
Total cost of ownership 3.5% ↑ 16% - ↓ 20%
Overall inventory investment costs 2.0% ↑ 10% - ↓ 30%
Supplier quality 3.3%
Supplier on-time delivery 3.6%
Supplier responsiveness and flexibility 2.3%
Supplier diversity 3.1%
Operating earnings 7.6% ↑ 30% - ↓ 10%
Fixed asset utilization 2.6% ↑ 16% - ↓ 8%
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Note: ↑ = Improved; ↓ = Worsened; Range

12.
Time Reduction
 Transmission of requirements to
suppliers
 Suppliers’ ordering and manufacturing
cycle time
 Delivery from suppliers
 Incoming receiving and inspection
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13.
Category Strategies
 Essence is to maximize value by
leveraging external resources and
capabilities
 Need to
 Look globally for new suppliers
 Define strategies for new categories
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14.
Creating a Robust Category Strategy
 Multiple and concurrent initiatives
 Low-cost country sourcing
 Design specification change
 Switching suppliers to increase product
innovation
 Supplier development
 Need to define “value”
 Increase in breadth and scope of
category strategies
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15.
Creating a Robust Category Strategy
 Supply base reduction
 Global sourcing
 Increasing focus on total cost and
value creation
 Product/service design and complexity
reduction
 Supplier improvement initiatives
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16.
Creating a Robust Category Strategy
 Design for supply chain effectiveness
 Enhanced collaboration between
suppliers to improve performance and
achieve sustainability
 Supply network focus vs. individual
supplier focus
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17.
Outsourcing Non-Core Competencies
 Severe pressure to reduce costs
 Specialization in product and process
technology by individual firms
 Greater outsourcing in areas of non-
expertise
 Need for responsiveness
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18.
Outsourcing Non-Core Competencies
 Higher pressure for ROI improvement
 Improved computer simulation tools
and forecasting software
 Sensitivity analysis
 Globalization, i.e., finding lower-cost
suppliers in emerging economies
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19.
Use of Category Strategies
 Define the supply base (internal and
external)
 Sourcing allocations
 Contracting approaches
 Supplier development
 Product/service designs
 Physical supply chain considerations
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20.
Category Strategies
 Push beyond volume aggregation or a
unit price reduction focus
 Driven by elements of value
 Use more effective teams
 Will become more complex
 Are used to influence supply markets
and supply networks
 Block competition and provide an early
warning system
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21.
Developing and Managing Suppliers
 Increasing availability of information
 Importance of strategic partners
 Collaborative supplier networks
 Buyer-driven development of
philosophies, attitudes, and practices
within these networks
 Selective information transparency
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22.
Developing and Managing Suppliers
 How many suppliers do we want for
this category (and in the supply base),
and what role should each play?
 What current and future capabilities are
required, and where in the world should
the supplier(s) be located?
 Which suppliers should we work with
and why?
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23.
Developing and Managing Suppliers
 Do we want to lead and/or manage
supplier networks at the Tier 2 and 3
levels?
 Which suppliers do we want to
collaborate with, or have them
collaborate with other suppliers, and
why?
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24.
Improving Supplier Relationships
 Supplier segmentation
 Supplier scorecards and feedback
 Supplier capability matrices
 Rewards to best performers
 Joint executive exchange
 Supplier councils and conferences
 Process improvement and innovation
workshops
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25.
Improving Supplier Relationships
 Two-way performance evaluations and
satisfaction surveys
 Supplier suggestion systems
 Risk/reward sharing
 Executive engagement
 Trust
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26.
Supply Base Management
 Supply management will have to clearly
understand company needs and align
with capable suppliers
 Working relationships must improve
between buyer and supplier
 Future will require more bilateral (or
multilateral) and collaborative
approaches
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27.
Multiple Supply Networks
 Seamless supply chains driven by end
user or customer needs
 Organized around length of product life
cycle
 Requires the ability to sense and
respond quickly to changing market
conditions (agility)
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28.
Supply Chain Excellence
 Anticipate changes worldwide in
customer requirements, product
offerings, supply conditions,
regulations, and competitor actions
 Adapt to the changes by configuring
existing supply chains or creatively
assembling new ones
 Accelerate implementation of the
transformed supply chain
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29.
Leveraging Technology Enablers
 Continuing improvements to existing
systems
 Technological advantages integrating
applications and data, people’s
personal effectiveness, and
collaboration
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30.
Technology Applications
 Analytics
 Reduced data cleansing
 Contract management
 Collaboration
 Performance monitoring and capability
mapping
 Cross-enterprise visibility
 Role-based access
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31.
Evolving Technology Tools
Spend management
Sourcing
Contracting
Procurement
Supplier
management
Product lifecycle
management
Source: Succeeding in a Dynamic World: Supply Management in the Decade Ahead
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• Collaboration
networking
• User-defined
dashboards and
analytics
• Knowledge
management
2007 2008 - 2017
Stand-alone,
serially-connected
applications
Integrated,
collaboration-based,
flexible systems

32.
Themes of Collaboration
 Internal collaboration and integration
should be enhanced to meet future
company needs
 External collaboration will signal a shift
from pure competition to cooperation
for some segments of a company’s
supply base
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33.
Themes of Collaboration
 Technology is required to enable an
increase in collaboration – both internal
and external information transparency
 Management risk and protecting
intellectual property may limit
collaboration with suppliers
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34.
Obtaining Innovation
 Need to use collaboration to keep the
innovation pipeline filled
 Interface supply management with
internal product development staff and
suppliers
 Link internal technological advances to
demands of external customers
 Complexity of linking customer needs
to supplier capabilities
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35.
Supply Management Talent
 Understand and interpret supply
market dynamics
 Analyze complex supply options and
risks
 Develop innovative value acquisition
strategies to support business and
functional strategies
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36.
Future Supply Management Skills
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Leadership Ability
Collaborative Style Innovative Spirit
International
Experience
Foreign Language
Skills
Broad Business
Knowledge
Multi-disciplinary
Experience
Supply Market Knowledge Supply Process Expertise
“Soft-side”
Skills
Cross-
cultural
Cross-
functional
Current and
Future
Source: Succeeding in a Dynamic World: Supply Management in the Decade Ahead

37.
Current and Future Skills
Current
 Supply market
knowledge
 Supply process
expertise
 Competitive market
structure
 Price and cost models
Future
 Emerging supply
markets sustainability
 Merger and acquisition
activity
 Potential new entrants
 Technology trends
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38.
Cross-Functional Skills and Teaming
 Broader general business skills
 Multi-discipline skills
 Business fundamentals
 Cross-discipline exposure
 Supplier market competition
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39.
Cross-Functional Teams
 Broader base of knowledge for
decision making
 Cooperative sharing of expertise
 Category and supplier strategy
development
 Process and system improvement
 Global system development
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40.
Cross-Cultural Skills
 Include foreign language fluency
 More suppliers in emerging markets
 Broader business perspective
 Understanding of how to work in
different settings and cultures
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41.
“Soft-Side” Skills
 Exhibiting and fostering a collaborative
style of working
 Possessing an innovative spirit that
challenges the status quo and seeks
new solutions to problems
 Having the ability to lead others
effectively
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42.
Organization & Measurement Systems
 Increasing importance of the center-led
model
 Decreasing importance of decentralized
supply strategies
 How to integrate supply management
with the rest of the organization
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43.
Organization Alternatives
Supply Chain
Management
Supply
Management
Operations Distribution
Product /
Service
development
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Supply
Management
supports
Source: Succeeding in a Dynamic World: Supply Management in the Decade Ahead

44.
Organization Alternatives
Supply
Management
Strategic
Sourcing
Tactical
Buying
Contract
Manufacturers
Outsourced
Operations
Product /
Service
Development
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Supply
Management
leads
Source: Succeeding in a Dynamic World: Supply Management in the Decade Ahead

45.
Process Organizational Structure
45
Purchasing Engineering Operations
Supply Chain
Processes
• Emphasis on functional knowledge,
skills, and abilities
• Vertical flows, decisions, and
measurement
• New product
development
• Integrated supply
chain logistics
• Demand / supply
planning and
execution
• Customer order
fulfillment
• Supplier evaluation
and selection
• Supplier management
and development
Shifting from a vertical structure….
….to a horizontal structure
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46.
Measuring Performance
 Align supply measures to corporate
and business unit measures
 Develop common metrics across
trading partners
 Supply measures should be customer-
centric
 Utilize a balanced scorecard approach
 Link to economic value add (EVA) and
return on invested capital (ROIC)
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47.
High Impact Strategies for 2009-2015
1. Continuous outsourcing determination
and globalization of supply with
greater focus on risk management
with key suppliers
2. Enhanced supply chain integration
and collaboration with strategic
suppliers
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48.
High Impact Strategies for 2009-2015
3. Increased information sharing and
transparency internally and with
suppliers
4. Sourcing becoming more integrated
with other functions, processes, and
customers including external
customer-facing activities
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49.
High Impact Strategies for 2009-2015
5. Enhancing the quality, number, and
execution of written purchase family/
supplier category strategies with a
focus on value, including the total
supply network
6. Selectively ensuring the adequacy of
sourcing and supply strategies as a
means to accelerate and obtain
innovation from suppliers
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50.
High Impact Strategies for 2009-2015
7. Requiring suppliers to take a greater
cost management role by providing
value adding services in R&D,
manufacturing/operations, customer
order fulfillment, and system
integration
8. Common measurement and metrics
across the supply chain
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51.
High Impact Strategies for 2009-2015
9. Development of an e-sourcing and
supply applications portfolio including
digitized and paperless supplier
invoicing, e-sourcing (with the Internet
and global data warehouses providing
the backbone), knowledge
management systems combined with
internal applications focused on
analytics
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52.
High Impact Strategies for 2009-2015
10. Supply taking a leading role in
sustainability with suppliers
11. Strategic sourcing and supply chain
activities primarily center-led, with
appropriate activities being located at
sites worldwide, with decentralized
execution on a global basis
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53.
High Impact Strategies for 2009-2015
12. Human resources strategies and
dedicated personnel focusing on
identifying, hiring, and developing
highly talented, flexible, and globally
oriented personnel, who can
immediately contribute – a critical
success factor
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54.
Rapid Change and Competition
 Develop the skills of purchasing
professionals
 Actively using information technology
across the supply chain
 Pursue activities and practices that
capture the full benefit of a world-class
supply base
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55.
Rapid Change and Competition
 Create responsive new organizational
structures
 Establish the most effective purchasing
and supply chain measurement system
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