Chapter 2

Supply Strategy

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Key Questions Addressed in Chapter 2

1. How can supply and the supply chain

contribute effectively to organizational
objectives and strategy?
AND
2. How can the organizational objectives and
strategy properly reflect the contribution and
opportunities offered in the supply chain?

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 Key Questions for Supply Decision Marker

Should we
• Become more concerned about the balance sheet?
• Develop a strategic plan for purchasing and supply
management?
• Spend a major part of our time on strategic, rather than
operational, issues?

How can we
• Anticipate the professional changes we will face in the next 10
years?
• Ensure supply is included as part of the organization’s overall
strategy?
• Generate the information needed to do strategic planning?
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 Level of Strategic Planning

Three levels:
 Corporate
 What business are we in?
 How we allocate our resources among these businesses?
 Business unit
 The plans of a particular business unit to contribute to the
corporate strategy
 Functional
 How how of each functional area’s contribution to the business
strategy and involve the allocation of internal resources

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Supply Strategy Interpreted in
Organizational Strategy

Supply Organizational
Objectives Objectives

Supply Organizational
Strategy Strategy

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

Current Future
Markets Markets

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Organizational, Financial and Supply
Objectives
Organizational Financial
Supply Objectives
Objectives Objectives
1 Survival Size of budget Quality

2 Growth Surplus or Profit Quantity

3 Financial Return on investment Delivery

4 Environmental Return on asset Price

5 Earnings per share Terms and conditions

Increases in each of
6 Service
these or combination
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 Major challenges in setting supply
objectives and strategies
1. The effective interpretation of corporate objectives
and supply objectives.
2. The choice of the appropriate action plan or strategy
to achieve the desired objectives.
3. The identification and feedback of supply issues to
be integrated into organizational objectives and
strategies.

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Six Major Supply Strategy Areas
1. Assurance‐of‐supply strategies

2. Cost‐reduction strategies

3. Supply chain support strategies

4. Environmental‐change strategies

5. Competitive‐edge strategies

6. Risk‐management strategies

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 Three Categories of Supply Risk

1. Operational:
Risk of interruption of the flow of goods or services

2. Financial:
Risk that the price of the goods or services acquired
will change significantly

3. Reputational:
Risk that the organization’s reputation will be harmed
by a supply decision

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Strategic Purchasing Planning Process

Restate
organizational goals Identify and
analyze alternatives

Determine supply Determine

objectives to contribute supply strategy
to organizational goals
Review implementation
Isolate factors affecting factors
achievement of
supply objectives Gain commitment
and implement

Evaluate

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 Supply Strategy Questions

• What?
• Quality?
• How much?
• Who?
• When?
• What Price?
• Where?
• How?
• Why?

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 Supply Strategy Questions

• What?
– Make or buy, insourcing and outsourcing.
– Standard versus special.

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 Supply Strategy Questions

• Quality?
– Quality versus cost
– Supplier involvement

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 Supply Strategy Questions

• How much?
Large versus small quantities (inventory)

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 Supply Strategy Questions

• Who?
– Centralize or decentralize
– Location of staff
– Top management involvement

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 Supply Strategy Questions

• When?
– Now versus later
– Forward buy

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 Supply Strategy Questions

• What Price?
– Premium
– Standard
– Lower
– Cost-based
– Market-based
– Lease/make/buy

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 Supply Strategy Questions

• Where?
– Local versus regional
– Domestic versus international
– Large versus small
– Single versus multiple sourcing
– High versus low supplier turnover
– Supplier relations
– Supplier certification
– Supplier ownership

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 Supply Strategy Questions
• How?
– Systems and procedures
– E-commerce
– Negotiations
– Competitive bids
– Fixed bids
– Blanket orders/open orders
– Systems contracting
– Group buying
– Materials requirements planning
– Long-term contracts
– Ethics
– Aggressive or passive
– Purchasing research
– Value analysis

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 Supply Strategy Questions

• Why?
– Objectives congruent
– Market reasons
– Internal reasons
1. Outside supply
2. Inside supply

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