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Procurement and Supply Chain

Management
Tenth Edition
Chapter 2
Strategic procurement
By: Mr. Ibrahim Hassan Mohamud
Lysons & Farrington, Procurement and Supply Chain Management, 9e © Pearson Education Limited 2016
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Outline
This chapter aims to provide an understanding of:
• strategic procurement and its contribution to corporate strategy

• the origins and development of strategic theory
• corporate, business and functional/operating strategies
• strategy development using Mintzberg’s ten schools

• strategic management
• business growth strategies
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Cont.…
• strategic analysis
• procurement, portfolio management
• strategy formulation – rational planning or incremental

• the evaluation of alternative strategies
• strategy implementation
• the post implementation, evaluation, control and review of
strategies.
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5. Intent 1. System
focus perspective
Strategy
thinking –
4. Thinking the five 2. Intelligent
in time opportunism
elements
3. Hypothesis-driven
Figure 2.1 The elements of strategic thinking
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Cont.…
1. Systems perspective – A ‘system’ is a set of independent and
interrelated parts that is dependent for survival on its environment.
Strategic thinking, from a systems perspective, requires an
understanding of:
➢ the external, internal and business ecosystem
➢ how corporate, business and functional strategies relate

vertically to the external environment and horizontally across
departments, functions, suppliers and buyers;
➢ interrelationships between the individual parts of the system;
➢ individual roles within the larger system, and how individual

behaviour impacts on other parts of the system and the final
outcome
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2. Intent focus – Strategic thinking is concerned with the

identification of goals and devising strategies for their
achievement.
3. Intelligent opportunism – Strategic thinking is ‘openness
to new experiences which allows one to take advantage of
alternative strategies that may emerge as more relevant to a
rapidly changing business environment’.
4. Thinking in time – Strategic thinking is concerned with
‘bridging the gap’ between current reality and future intent.
5. Hypothesis driven – Strategic thinking accommodates
both creative and analytical thinking. Hypothesis generation
poses the creative question ‘What if . . .?’ Hypothesis testing
follows up with the critical question ‘If . . ., then . . .’ and
evaluates the data relevant to the analysis
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Definitions of strategy
As a plan, strategy is some sort of consciously intended course of

action, a guideline (or set of guidelines) to deal with a situation.
As a ploy, strategy is a special manoeuvre intended to outwit

an opponent or competitor.
As a pattern, strategy is a stream of actions demonstrating

consistency in behaviour, whether intended or not intended.
(See Chapter 2 – Section 2.2 for more

definitions)
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Eight characteristics of
strategy
Concerned with long-term
direction
Trying to achieve some advantage over competitors
Concerned with scope of an organisation’s activities
Matching of resources and activities of an organisation to
the environment in which it operates
Building on or stretching resources and competencies
May require major resource
changes
Likely to affect operational decisions
Strategies also affected by values and expectations of
those who have power
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Strategy development – schools headings
How strategies should

Prescriptive schools be formulated
Representing how
Descriptive schools strategies are formulated
Configurations and
Configuration school transformation
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Strategy development – the ten schools classification
Design
Prescriptive schools Planning
Positioning
Entrepreneurial
Cognitive
Learning
Descriptive schools Power
Cultural
Environmental
Configurations
Configuration school Transformation
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● The configuration school emphasises two aspects of

strategy:
➢ The first describes ‘organisational states’ and their
surroundings as configurations. An organisation ‘state’
implies entrenched behaviour. Configurations are
therefore relatively stable clusters of characteristics
relating to a particular school.
➢ The second aspect is concerned with
transformation. The configuration school sees
strategy formation as a process of transformation or
‘shaking loose’ entrenched behaviour, so that the
organisation can make the transformation or
development to a new state or configuration.
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Levels of organisational strategy
•What business should we be in?
Corporate strategy •Deciding grand strategies
•Determining values
TOP TIER
•Coordinating and managing major resources
•Deciding business locations and structures
•Coordinating and integrating unit strategies

Business strategy •Developing distinctive competencies
MIDDLE TIER •Identifying product market niches
•Monitoring products and markets
Functional/operational •Ensuring skills and competencies are utilised effectively

strategies •Integrating activities, e.g. procurement/marketing
LOWER TIER •Providing information and expertise
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Corporate strategy is concerned with
● Determining what business(es) the enterprise should be in

to maximise profitability
● Deciding grand strategies
● Determining the values of the enterprise
● Coordinating and managing major resources and
relationships
● Deciding on business locations and structures
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Growth strategies
Corporate growth
strategies
Integration Intensive Diversification

strategies strategies strategies
Product Innovation and

Concentric
Vertical development
Conglomerate
Horizontal Market penetration
Horizontal
Market development
Figure 2.3 Growth strategies
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Business-level strategies
‘How are we going to compete in this particular business area?’
Business-level strategies concerned with
Coordinating and integrating unit strategies
Developing distinctive competencies

and competitive advantages
Identifying product market niches
Monitoring products and markets
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The cycle of strategic management
Figure 2.4 The cycle of strategic management
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Strategic analysis and tools of scientific analysis
Definition of strategic analysis
Developing a theoretically informed understanding of the environment in

which an organisation is operating together with an understanding of
the organisation’s interaction with its environment in order to improve
organisation efficiency and effectiveness by increasing the
organisation’s capacity to deploy and redeploy its resources intelligently.
Tools of scientific analysis

•Environmental scanning
•Porter analysis
•Scenario analysis
•Organisational appraisal
•Critical success analysis
•Gap and SWOT analysis
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Organisational strategy – impact of environmental factors
•Private
•Public
Sector impact •Voluntary
•Entry barriers
•Determinants of supplier power
•New entrants
Industry impact •Rivalry
•Substitution threat
•Buying power
•Legal restrictions
Refer to changes in:

•Political
•Economic
Macro-environmental •Social
•Technological
•Environmental
•Legal environments
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Internal scrutiny
Essential to scan:
Resources • Money
• Physical facilities
• Human resources
• I.T. resources
Cultur
e
Value chains and structure
Critical success factors
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Strategy formulation
This articulates a realistic, credible and positive projection of
Vision statement the future state of an organisation or functions or operations
within that organisation
Mission statement Answers the question ‘What is our business?’
Explicit statement of the results the organisation wishes to

Objectives achieve
Application of Strengths, weaknesses, opportunities and threats analysis

SWOT analysis
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Evaluation of alternative strategies

Four principles
Consistency The strategy must not present mutually inconsistent policies
The strategy must represent an adaptive response to the

Consonance external environment and critical changes therein
The strategy must provide for the creation and/or

Advantage maintenance of a competitive advantage
The strategy must neither overtax available resources nor

Feasibility create insoluble problems
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Kraljic portfolio management

● First introduced in 1983
● Aims to guide managers to recognise the weakness of their organisation and

formulate strategies for guarding against supplies disruption
● Profit impact defined in terms of:

● Volume purchased
● Percentage of total cost
● Impact on product quality or business growth
● Supply risk assessed in terms of:

● Availability
● Number of suppliers
● Competitive demand
● Make or buy opportunities
● Storage risks
● Substitution opportunities
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The main stages of strategy implementation

Communicate strategic plans to everyone in the organisation
Obtain commitment from those concerned
Framing policies and procedures
Setting operational targets and objectives
Assigning responsibilities and commensurate authority
Changing, where necessary, organisational structures
Allocation of resources and agreeing budgets
Providing training for employees
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Post-implementation evaluation, control and review

• Internal consistency
• Environmental fit
Evaluation criteria • Resource fit
• Communication and implementation
• Establish performance standards

• Measure performance
Control process • Compare actual with planned
• Take appropriate corrective action
• General strategy
Review • Alternative strategy
• Alternative methods
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Slide 2.

Procurement and Supply Chain

By: Mr. Ibrahim Hassan Mohamud

• strategic procurement and its contribution to corporate strategy

• strategy development using Mintzberg’s ten schools

• business growth strategies

• strategy formulation – rational planning or incremental

Figure 2.1 The elements of strategic thinking

➢ how corporate, business and functional strategies relate

➢ individual roles within the larger system, and how individual

2. Intent focus – Strategic thinking is concerned with the

As a plan, strategy is some sort of consciously intended course of

As a ploy, strategy is a special manoeuvre intended to outwit

As a pattern, strategy is a stream of actions demonstrating

(See Chapter 2 – Section 2.2 for more

Strategy development – schools headings

How strategies should

Strategy development – the ten schools classification

● The configuration school emphasises two aspects of

•Coordinating and integrating unit strategies

Functional/operational •Ensuring skills and competencies are utilised effectively

Corporate strategy is concerned with

● Determining what business(es) the enterprise should be in

Integration Intensive Diversification

Product Innovation and

Figure 2.3 Growth strategies

‘How are we going to compete in this particular business area?’

Business-level strategies concerned with

Coordinating and integrating unit strategies

Developing distinctive competencies

Identifying product market niches

Monitoring products and markets

The cycle of strategic management

Figure 2.4 The cycle of strategic management

Strategic analysis and tools of scientific analysis

Definition of strategic analysis

Developing a theoretically informed understanding of the environment in

Tools of scientific analysis

Refer to changes in:

Critical success factors

Mission statement Answers the question ‘What is our business?’

Explicit statement of the results the organisation wishes to

Application of Strengths, weaknesses, opportunities and threats analysis

Evaluation of alternative strategies

Consistency The strategy must not present mutually inconsistent policies

The strategy must represent an adaptive response to the

The strategy must provide for the creation and/or

The strategy must neither overtax available resources nor

Kraljic portfolio management

● Aims to guide managers to recognise the weakness of their organisation and

● Profit impact defined in terms of:

● Supply risk assessed in terms of:

The main stages of strategy implementation

Obtain commitment from those concerned

Framing policies and procedures

Setting operational targets and objectives

Assigning responsibilities and commensurate authority

Changing, where necessary, organisational structures

Allocation of resources and agreeing budgets

Providing training for employees

Post-implementation evaluation, control and review

• Establish performance standards

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