Strategic Purchasing Control of the Industrial

Enterprise: Digitalization and Logistics

Approach

I. A. Toymentseva(&), N. P. Karpova, and T. E. Evtodieva

Samara State University of Economics, Samara, Russia

tia67@rambler.ru

Abstract. Economic instability of our time especially touches industrial

enterprises, which results in decreasing of product competition and flexibility of
the logistics system response of industrial enterprises for environmental chan-
ges. That is why business managers are increasingly paying attention to modern
methods and ways of doing business, based on the principles of logistics and
digitalization. Within the existing enterprise management system, it is impos-
sible to study the running business processes. In addition, there is no integrated
information system that can take into account the changing needs of end cus-
tomers. There is still a breach of delivery terms and a high percentage of
spoilage in enterprises, which lead to the enterprise efficiency decrease. To solve
these problems, we need a clearly formulated strategy that will allow us to make
right management decisions and develop logistics measures. Digital transfor-
mation is a way to improve the product competitiveness. Russian heavy engi-
neering industry needs to use digital tools both in production and business
models, which will allow to maintain its presence in the world market and not
lose share in the national market.

Keywords: Digitalization
Information system
Logistics strategy

Suppliers
Supply

1 Introduction

The relevance of the study is not in doubt because industry is of strategic importance
for Russia. National heavy industry is just beginning the digitalization process, while as
western companies are already profiting from innovations. Digitalization allows to lead
to a new level such processes as design, production and enterprise management. The
human labor proportion is declining and it is possible to move on to autonomous digital
production cycles.
Supply plays a huge role in achieving the enterprise strategic goals, as it is nec-
essary to constantly improve the product quality and customer service. Therefore, the
main supple chains include the coordination of input and output flows in the enterprise,
development of a constantly updated database of suppliers, minimizing costs in the
supply situation and providing high quality customer service.
To achieve these strategic goals, it is necessary to build partnerships with all
participants of the logistics system of industrial enterprises [8, 15]. A well-managed
© Springer Nature Switzerland AG 2020
S. I. Ashmarina et al. (Eds.): ISCDTE 2019, LNNS 84, pp. 398–407, 2020.
https://doi.org/10.1007/978-3-030-27015-5_48
 Strategic Purchasing Control of the Industrial Enterprise 399

supply chain develops strategic and operational objectives, comparing the participants’
actions at each level [10, 12].
It is the use of logistics in strategic management of the industrial enterprise that
leads to the optimization of both quantitative and qualitative parameters of logistics
processes. Thus, to increase a competitive position in the industrial products market, it
is necessary to apply logistics to control resource flows in the supply chain [1, 9].
Therefore, it is important to adopt the strategic management concept, which is the main
activity of leading companies.
The authors of the paper studied the procuring activity of OAO “Volgotsemmash”.
They defined strategic guidelines in the supply management process and interaction with
material and technical resources suppliers, identified strategic objectives, offered the
economic indicators system and gave an integrated assessment of functional subsystems
of supply logistics in industrial enterprises, based on the mathematical modeling.

2 Methodology

To identify the sources of industrial enterprise efficiency in the supply chain, the
following experimental and theoretical methods were used: functional and cost method,
integrated assessment, statistical method, economic and mathematical method and
others.
To determine strategic guidelines in the supply management process of OAO
“Volgotsemmash”, strategic management tool was used - Balanced Scorecard, BSC,
developed by Kaplan and Norton [4–6].
To form the method of evaluation of suppliers in OAO “Volgotsemmash”, the
expert method with the involvement of specialists from the Center of competitive
procurement arrangements was used. The tendencies of heavy engineering enterprises
providing for conjuncture-forming factors, which influence the development, were
revealed based on SWOT-analysis.
The experimental base of the study to identify the sources of industrial enterprise
efficiency in the supply chain was OAO “Volgotsemmash”.
The study included several phases. At the first phase, the authors identified the
problem of the research. The second phase involved the analysis of scientific literature
on the research problem, as well as the choice of research methods. The third phase was
directly related to the study: the definition of strategic guidelines in the supply man-
agement process and interaction with material and technical resources suppliers,
identification of strategic goals in the industrial enterprise development and elaboration
of the functional strategic planning for purchasing department in the industrial
enterprise.

3 Results

There are many ways of classifying purchases in the scientific researches on supply
activities in the enterprise. The authors’ classification of purchases in industrial
enterprises most fully corresponds to the supply objectives (Fig. 1).
400 I. A. Toymentseva et al.

Features of
classification

Type of
Purchases Frequency of Shipment
requirements and Ways of resupply Cash cost
modification purchases capacity
purchases

Fig. 1. Features in classification of purchasing (Source: compiled by the authors)

1. Type of requirements and purchases. Purchases are divided into following types:
raw materials, components, energy resources, additional services and goods for sale.
2. Ways of resupply. They include one-time purchases, repeat purchases and urgent
orders, which can lead to the disbalance in working capital.
3. Purchases modification. These are new purchases related to the emerging needs for
the new product manufacturing, or the purchase of material resources from a
substitute supplier.
4. Frequency of purchases. Basically, purchases are carried out frequently, that is to
say repeatedly, and the supplier offers a large discount. On the other hand, there are
also one-time purchases.
5. Shipment capacity. They are small shipments and large quantities of products
transported over long distances by the best carriers who were identified in the
course of their rating.
6. Cash cost. This type of classification is based on Pareto curve, or ABC analysis.
This extended classification of purchasing presented by the authors will contribute
to the efficient choice of raw materials and components according to their type,
transportation volume, orders frequency and minimum cost, which will ensure the best
rationalization and coordination of supply activities in the industrial enterprise.
The studies have helped to identify many factors that have a serious impact on the
work of national industrial enterprises. They are low frequency of purchases, high
degree of equipment deterioration, low technological level of production capacity,
insufficient investment, inequality in the territorial distribution of production capacity
and low life cycle of equipment.
The industrial enterprise efficiency depends on how efficiently planning, manage-
ment and control of the supply process is carried out, and this also affects the financial
stability, strong competitive positions in the industrial equipment market and the
enterprise profits received from the sale of manufactured products.
The acquisition process for each industrial enterprise is individual and depends on
the product specifics, industry and production capacity. Therefore, a stepwise algorithm
on supplier selection in industrial enterprises was developed (Fig. 2).
According to the presented algorithm, at the stage “ Identifying intra-firm needs and
(or) nomenclature of material resources”, the need for material resources, raw materials
and components in all enterprise departments is revealed, taking into account the
production schedule and minimum prices.
At the stage “Identifying and evaluating requirements imposed on suppliers”, it is
necessary to develop a list of evaluation criteria: weights, sizes, frequency and volumes
of deliveries, as well as service and warranty obligations at the hands of both suppliers
and manufacturers.
 Strategic Purchasing Control of the Industrial Enterprise 401

Identifying intra-firm needs and (or) nomenclature of material resources

Identifying and evaluating requirements imposed on suppliers

Analysis of market behavior

Identifying the type of procurement arrangements of material resources

Supplier market analysis

Evaluation of direct suppliers of Evaluation of the feasibility

Intermediary
material resources in supplier selection
No Yes

The final selection of a supplier

Approval of a conjunctural list of suppliers

Negotiating and making deals

Monitoring the implementation of contractual obligations

Certification of suppliers

Fig. 2. Algorithm of supplier selection (Source: compiled by the authors)

At the stage “Analysis of market behavior”, it is important to conduct a full review

of raw materials markets, determine the existing market opportunities and demand,
evaluate the offers from existing suppliers and new suppliers, as well as substitutes
suppliers. It is also essential to solve the problem of organizing your own production or
external procurement, taking into account the ratio of service level and costs.
At the stage “Identifying the type of procurement arrangements of material
resources”, based on characteristics and complexity of products as well as a production
type, and according to the authors’ classification of purchasing, the sort of purchases is
established. If suppliers or parameters of bought material resources change, the type of
“modified purchases” is used, while as the type of “new purchases” is caused by the
needs of a new internal user. A portfolio of orders is made.
At the stage “Supplier market analysis”, it is necessary to make a preliminary
assessment of possible sources of purchases. At the same time, it is important to
compare the material resources quality and their price, in accordance with intra-firm
needs. Such an assessment should be carried out with the assistance of independent
experts. At this stage, intermediaries offers should be considered and an economic
assessment of their performance should be made.
At the stage “Final selection of a supplier”, an integrated assessment of price,
quality, reliability and delivery terms is carried out.
At the stage “Negotiating and making deals”, all the details of upcoming deals are
discussed, and the final delivery terms and prices are adjusted and approved. After that,
the contract is signed.
402 I. A. Toymentseva et al.

At the final stage, the implementation of contractual obligations is monitored, and

the issue of extension or termination of contractual relations with them is resolved.
The main condition in selecting the resources supplier in OAO “Volgotsemmash” is
supplies quality [11]. The level of delivery reliability in the company can be charac-
terized by such parameters as compliance with the terms schedule and delivery volume,
spoilage reduction and warranty service of the delivered material and technical
resources. Supplier’s loyalty can be estimated by means of efficiency of response on
claims, taken measures and elimination of the revealed defects [3].
In order to determine the strategic guidelines in OAO “Volgotsemmash” in pur-
chasing control and supply chain management, it is recommended to define strategic
objectives, activities and key indicators of supply efficiency on the basis of Balanced
Scorecard methodology (Fig. 3) [4, 7].

Supply strategy mission

Minimum of total costs in supply chain management with high quality of service

Objective of supply strategy

Purchase of necessary goods within strictly defined volume, in the shortest
possible terms, of high quality and with minimal costs

Tasks
1. To conduct a detailed analysis of the purchasing market, calculation of the suppliers
rating and the selection of the best ones
2. To control delivery variability, spoilage level, time cycle reducing of supply and
prices optimization for purchased goods
3. To minimize the delivery cost and storage of equipment and supplies

Development of the rational supply strategy

Pricing strategies of purchases Alternative supply Suppliers cooperation

strategies strategies

Fig. 3. The algorithm of supply strategy development in purchasing (Source: compiled by the
authors)

Figure 3 shows the algorithm of the rational strategy development in supply from
among the alternatives.
The best results are achieved by those companies that base their activities on
logistics management methods. It contributes to strengthen interaction between the
parts of the logistics system “purchases - production – sales”. Therefore, integrated
logistics provides end-to-end management of resources flow in the enterprise, bringing
together all its structural units, which will improve the efficiency of the entire supply
chain [2].
SWOT analysis of supply activities defined that the situation in the studied
enterprises is almost the same. According to experts, the strengths of their activities are
a flexible payment system, developed network of suppliers, qualification level of staff
 Strategic Purchasing Control of the Industrial Enterprise 403

involved in the supply sector and the availability of intermediaries in this system. The
weaknesses of the enterprises include the long delivery terms of equipment and sup-
plies, lack of computerized inventory control system and high level of the fleet dete-
rioration. The threats for enterprises include price increase of raw materials and
competition from foreign manufacturers. Among the favorable factors in the supply
process, we can identify the availability of modern information technology, reduction
of customs duties and state support of national producers.
Considering supply as a functional area of logistics, the following strategic areas of
economy management (SAEM) are identified:
– SAEM 1 – purchases,
– SAEM 2 – shipment,
– SAEM 3 - warehousing and storage.
The integrated (complex) index for each SAEM is calculated by the following
formula (compiled by the authors):

X
n X
n X
n X
n
Si ¼ k i Sij11 þ ki Sij21 þ ki Sij31 þ ki Sij41
i¼1 i¼1 i¼1 i¼1

Where
Sij11 - is total estimated figures of the supply activity level,
Sij21 - total estimated figures of delivery variability,
Sij31 - total estimated figures of shipment quality,
Sij41 - total estimated figures of supply efficiency,
ki - significance ratios of i-group (SAEM)

Table 1 presents the calculations of integrated indicators for each strategic area of
economy management.

Table 1. Integrated assessment according the strategic areas of economy management in OAO
“Volgotsemmash”
SAEM Purchases Shipment Warehousing
and storage
k1 k2 k3
Item Rank 0.5 0.17 0.33
P ij
S11 Total estimated figures of 3 1.5 0.51 0.99
the supply activity level
P ij
S21 Total estimated figures of 2 1 0.38 0.25
delivery variability
P ij
S31 Total estimated figures of 2 1 0.34 0.66
shipment quality
P ij
S41 Total estimated figures of 1 0.5 0.17 0.33
supply efficiency
Integrated assessment 4 1.4 2.23
Source: compiled by the authors.
404 I. A. Toymentseva et al.

Based on a strategic matrix, a map of functional strategies in the main logistics

chains, such as purchases, shipment, warehousing and storage, has been developed
(Table 2). The map represents the matrix, where the vertical line is the strategic areas of
economy management (SAEM) and the horizontal line is scores.

Table 2. Strategy map (compiled by the authors)

Score Purchases Shipment Warehousing and storage
4–5 Long-term partnership Strategy based on the Strategy focused on the
strategy environment consumer
protection
3–4 Strategy of forming Strategy of Strategy of improved
alliances with suppliers diversifying services productivity
and customers
2–3 Price discount strategy Strategy based on Strategy based on time
time parameters parameters
1–2 Strategy of minimizing Best value strategy Strategy of minimizing
overall logistics costs (or economic cost overall logistics costs
strategy)
0–1 Active search strategy Logistics outsourcing Strategy of minimizing
strategy investment in logistics
infrastructure
Source: compiled by the authors.

This strategy map allows you to choose the optimal strategy for each SAEM. The
implementation of the developed functional strategies is associated with evaluation of
group of strategic and operational actions in the supply chain in the industrial enter-
prise. The optimal strategy depends on the square of the matrix, in which the calculated
value of the integrated index for a particular SAEM falls.
Thus, according to the developed strategy map and the calculations of integrated
assessment for each strategic area of economy management, the following optimal
strategies for OAO “Volgotsemmash” are determined:
– SAEM 1 (purchases) - long-term partnership strategy,
– SAEM 2 (shipment) - best value strategy,
– SAEM 3 (warehousing and storage) - strategy based on time parameters.

4 Discussion

The main purpose of the paper is to determine the sources of efficiency in purchasing in
industrial enterprises in course of their interaction with material and technical resources
suppliers and end consumers. According to scientists, operation of enterprises should
not be isolated. It is necessary to unite all participants’ efforts in the supply chain for the
best results. This reaffirms that industrial enterprise management should use integrated
 Strategic Purchasing Control of the Industrial Enterprise 405

digitization. It helps to specify the readiness degree of individual parts, availability of

materials for product manufacture and employment rate of workers at each stage of a
production process. It also facilitates to obtain information about product cost, planned
and actual costs. All this allows managers to show a more flexible approach to
enterprise management. Therefore, we consider it reasonable to extrapolate the con-
clusions obtained in the course of the study of the activities in OAO “Volgotsemmash”
to the entire market of metallurgical products.
Developing the theory of strategic interaction with key suppliers of material and
technical resources, the authors proposed a method for developing evaluation of sup-
pliers in OAO “Volgotsemmash”. The authors developed a stepwise algorithm to select
suppliers for industrial enterprises, which will contribute to the achievement of high
quality supplies.
According to analysts, the production of competitive industrial equipment needs the
development of rational management decisions (strategies) in all functional areas of the
enterprise. The study showed that ensuring the effective operation of the industrial
equipment manufacturer is largely determined by purchasing activities including
variability, reliability and consistency in procurement management and control, which
have a significant impact on the financial stability, production efficiency and compet-
itiveness in the enterprise. According to the strategy map, developed by the authors,
and results of the integrated assessment for each strategic area of economy management
(SAEM), the optimal development strategies were determined.
Thus, only a competent logistics approach and digitalization will eliminate the
identified problems in operation of the industrial enterprise in the supply chain.
Logistics in purchasing material resources for production needs helps improve rela-
tionships with suppliers and the purchased resources quality, reduce costs and time for
their shipment and increase the efficiency of logistics processes, as well as the pro-
duction of high-quality industrial equipment at competitive prices.
The use of digital technologies gives companies a new impetus to develop and
change the production paradigm. The key objective today is not risk assessment, but
the adoption to the principles of digitalization, due to the revision of basic management
algorithms, optimization of production processes and the development of new tech-
nological regulations [13, 14].

5 Conclusion

The successful operation of any industrial enterprise depends on the availability of raw
materials, goods and services supplied by other organizations. Supply activities to
arrange and control purchases are aimed to provide the enterprise with necessary
quantity and quality of raw materials, goods and services at the right time, in the right
place, from a reliable supplier, with good service and at a reasonable price. Purchasing
(supply) is a main functional area of logistics and is of paramount importance in every
organization.
The study allowed to determine a group of actions to improve the efficiency of
purchasing activities in the supply chain of industrial enterprises. For this purpose, the
authors developed an extended classification and typology of purchasing of the
406 I. A. Toymentseva et al.

industrial equipment manufacturer, which most fully corresponds to the objectives in

the sphere of the activity under question. The paper also presents the main stages of
purchasing in industrial enterprises and their role in the logistics system.
In order to improve purchasing activities, the authors propose to comply with the
following recommendations:
– constantly search for new sources of supply of raw materials in the context of
financial appeal and product quality,
– to adopt the principles of “Industry 4.0”, which means the transfer to digital format
of both vertical processes in the enterprise and horizontal relations of the manu-
facturer with customers, contractors, partners, shipping companies, etc.,
– to determine the best purchasing option by forecasting, developing the most rational
schemes and conditions for the resources delivery to the enterprise,
– to identify the compliance degree of the bought resources with the strategic
objectives of the purchasing activities in the industrial enterprise, and to carry out
the purchasing modeling based on the economic and mathematical methods.
In order to identify problems and sources of efficiency in the activities of industrial
enterprises, a map of the functional strategies for purchasing department in the
industrial enterprise was developed, which allows you to choose the optimal strategy
for each SAEM.

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