Sourcing Strategy – Exercise

Imagine you are going to start manufacturing diesel engines of your company’s own
design. You have a short time to production and do not have time to do market
research on grease pumps, so you ask your regular supplier to propose a new
grease pump for your engines. The supplier proposed its latest model, which is both
high quality and high cost. You redesigned your engine frames according to this
supplier’s grease pump. Production started on time, but now you are over the budget
and have a case of single sourcing. Your share of the supplier’s revenue is 15%. The
supplier’s share of your total spend is 8%.

Q. Based on the four dependency criteria discussed in the class, please

assess supplier and buyer (your) bargaining power and fill the scores in the
following table-

Sourcing Strategy Exercise

Evaluation Criteria (0, 1, 2) Buyer Power Supplier Power

Business Dependency 1 0

Supplier Competition & Ease to Replace 0 2

Component Complexity & Ease to Replace 1 2

Innovation & Technology Dependency 1 2

Total 3 6

Please give the reasons in brief to justify your assessment