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Procurement Chain Management: A Strategic Implementation Process
Procurement Chain Management: A Strategic Implementation Process
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Product supply management is nothing but Procurement Strategy, which is integral to corporate strategy. A corporations corporate strategy and procurement strategy must fit with each other or otherwise, both will fail. We will discuss the strategic decision making issues of procurement and also how managers make decisions related to both corporate and procurement strategy. The discussions should facilitate understanding of the issues of strategic implementation.
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Let us briefly go over how selling a simple box of detergent through a retail store involves so many parties and contractual arrangements and why each one must function effectively to make the process efficient.
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Wal- Mart
Customer
Corn manufacturer
Plastic Producer
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While managing procurement process is important for managing costs and profits and delivering value to the customer, it is not easy to do.
It requires understanding, cooperation, coordination, and information sharing among several trading partners both internal and internal. And, given that there are so many parties, it is indeed a formidable task to make all of them work towards a common objective.
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While we agree on the importance of procurement, how does it translate into a corporate strategy?
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Operations
Distribution
Service
procurement Strategy
Supplier Strategy
Operations Strategy
Logistics Strategy
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Understanding the customer and procurement uncertainty Understanding the procurement capabilities Achieve strategic fit
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First, take a look at two types of uncertainties Demand Uncertainty and procurement chain uncertainty
Demand uncertainty: arises because of changing customer needs predicting demand for a product or service absolutely is impossible. This is an external factor controlled by the customer. Procurement chain uncertainty, in contrast, arises because of uncertainties within a procurement process. While a firm would like to meet 100% of customer demand, it may not be able to do so because its procurement is unable to because of multiple reasons that were listed under procurement uncertainty.
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Procurement chain uncertainty, on the contrary, arises due to constraints within a procurement
procurement uncertainty: The portion of uncertainty introduced by procurement attributes such as: production breakdowns, low product yields, poor quality and rework, procurement capacity is limited (because of limited production facilities, availability of raw materials, labor, and numerous other factors); Supply capability is inflexible and cannot increase with increased product demand; Also, changes in production process could lead to bottlenecks.
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Identify the needs of the customer segment being served (retail, wholesale, discount, high-end customers) Quantity of product needed in each lot (large, small) Response time customers will tolerate Variety of products needed Service level required Price of the product Desired rate of innovation in the product
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Where do we compromise?
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Low High
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Low
Cost
Modularity to allow postponement Higher margins Capacity flexibility Buffer inventory Aggressively reduce even if costs are significant
Lower margins High utilization Minimize inventory Reduce but not at expense of greater cost
Transportation strategy
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