Intorduction To Procurement Management - pp01

Slide 2.
Chapter 2
Strategic Procurement
Lysons & Farrington, Procurement and Supply Chain Management, 9e © Pearson Education Limited 2016
Slide 2.2
Strategic Procurement
Week 2 - Session Outline:
1. Strategy: Procurement Excellence
2. Strategy: Strategic Sourcing-Procurement Process Model
3. Strategy thinking – the five elements
4. Definitions of strategy
5. Eight characteristics of strategy
6. Strategy development – schools headings (ten schools)
7. Incremental Strategy Development
8. Levels of organisational strategy (corporate, business, functional/operational)
9. Corporate strategy
10. Growth strategies
11. Business level strategies
12. The cycle of strategic management
13. Strategic analysis and tools of scientific analysis
14. Organisational strategy – impact of environmental factors
15. Internal scrutiny
16. Strategy Formulation
17. Evaluation of alternative strategies (Rumelt's four principles)
18. Kraljic portfolio management-matrix
19. The main stages of strategy implementation
20. Post-implementation evaluation, control and review
21. Strategic procurement and supply chain process - CIPS model key points
Slide 2.3
Learning Outcomes (1/2)

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
Slide 2.4
Learning Outcomes (2/2)

• 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.
Slide 2.5
Key Ideas (1/2)

• Mintzberg, Johnson and Scholes and the definitions of strategy.
• Mintzberg’s ten schools of strategic development.
• Rational planning, incremental and emergent views of strategy.
• Growth, stability, combination and retrenchment strategies.
• Strategic procurement and procurement strategy.
• Environmental and internal scanning to strengthen strategic
formulation and challenge.
• Linking procurement strategies to corporate strategic objectives.
• Critical success factors.
Slide 2.6
Key Ideas (2/2)

• Vision and mission statements and business, procurement and supply
objectives.
• Lifecycles, scenario planning, cost–benefit, profitability and risk
analysis as approaches to the evaluation of strategies.
• Portfolio planning with special reference to Kraljic and Kamann.
• Policies and strategy implementation plans.
• The CIPS procurement and supply chain model.
Slide 2.7
Why/When Procurement Management?

• Project Procurement Management
Slide 2.8
Strategy: Procurement Excellence
Source: www.PwC.com/Procurement_Excellence (2015)
Slide 2.9
Strategy: Strategic Sourcing
Source: www.coursera.org/Supply Chain Principles/Strategic Sourcing (N.D.)
Slide 2.10
Strategic procurement
5. Intent 1. System
focus perspective
Strategy thinking –
4. Thinking the five elements 2. Intelligent
in time opportunism
3. Hypothesis-driven
Figure 2.1 The elements of strategic thinking
Slide 2.11
Definitions of strategy
As a plan, strategy is a 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, thereby building and achieving goals.
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)
Slide 2.12
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
Slide 2.13
Strategy development – schools headings
How strategies should

Prescriptive schools be formulated
Representing how
Descriptive schools strategies are formulated
Configurations and
Configuration school transformation
Slide 2.14
Strategy development – the ten schools classification
Design
Prescriptive schools Planning
Positioning
Entrepreneurial
Cognitive
Learning
Descriptive schools Power
Cultural
Environmental
Configurations
Configuration school (Transformation)
Slide 2.15
Design
Planning
Positioning
Entrepreneurial
Cognitive
Learning
Power
Cultural
Environmental
Configurations
(Transformation)
Slide 2.16
Levels of organisational strategy
• What business should we be in?
• Deciding grand strategies
Corporate strategy
• 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 (niche market)
• Monitoring products and markets
Functional/operational • Ensuring skills and competencies are utilised effectively

strategies • Integrating activities, e.g. procurement/marketing
• Providing information and expertise
LOWER TIER
Slide 2.17
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
Slide 2.18
Growth strategies
Corporate growth
strategies
Integration Intensive Diversification

strategies strategies strategies
Product Innovation Concentric

Vertical
and development Conglomerate
Horizontal
Market penetration Horizontal
Market development
Figure 2.3 Growth strategies
Slide 2.19
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
Slide 2.20
The cycle of strategic management
Figure 2.4 The cycle of strategic management
Slide 2.21
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
Slide 2.22
Organisational strategy – impact of environmental factors
• Private
• Public
Sector impact • Voluntary
• Entry barriers
• Determinants of supplier
power
Industry impact • New entrants
• Rivalry
• Substitution threat
• Buying power
• Legal restrictions
Refer to changes in:
• Political
• Economic
Macro-environmental • Social
• Technological
• Environmental
• Legal
environments
Slide 2.23
Internal scrutiny
Essential to scan:
Resources • Money and financial/fiscal flow
• Physical facilities
• Human resources
• I.T. resources
Culture
Value chains and structure
Critical success factors (or Corporate KPIs reflecting

positive yield/output)
Slide 2.24
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
Slide 2.25
Evaluation of alternative strategies

Four principles (Rumelt)
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
Slide 2.26
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
Slide 2.27
Kraljic portfolio’s matrix
Source: Wikipedia, Kraljic matrix (2020) Source: Forbes, What Is The Kraljic Matrix? (2017)
Slide 2.28
Kraljic portfolio’s matrix: example
Expert Program Management – EPM (2022) The Kraljic Matrix Explained with Example.
Slide 2.29
Recap?
Slide 2.30
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
Slide 2.31
Post-implementation evaluation, control and review

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

• Measure performance
Control process • Compare actual with planned
• Take appropriate corrective action
• General strategy
Review • Alternative strategy
• Alternative methods
Slide 2.32
Strategic procurement and supply chain process
CIPS model key points
Organisation’s vision, mission and values
Organisation’s overall strategy
Strategic sourcing analysis
Proactive demand management
Acquisition pre-contract
Acquisition post-contract
Review contract and/or relationship or end contract and/or relationship
Slide 2.33
Questions ?
Slide 2.34
Thank You
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Slide 2.

Learning Outcomes (1/2)

Learning Outcomes (2/2)

Key Ideas (1/2)

Key Ideas (2/2)

Why/When Procurement Management?

Strategy: Procurement Excellence

Source: www.PwC.com/Procurement_Excellence (2015)

Strategy: Strategic Sourcing

Source: www.coursera.org/Supply Chain Principles/Strategic Sourcing (N.D.)

Figure 2.1 The elements of strategic thinking

As a plan, strategy is a consciously intended course of

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

• 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 Concentric

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

Value chains and structure

Critical success factors (or Corporate KPIs reflecting

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

Explicit statement of the results the organisation wishes to

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

 First introduced in 1983

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

 Profit impact defined in terms of:

 Supply risk assessed in terms of:

Kraljic portfolio’s matrix

Kraljic portfolio’s matrix: example

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 (KPIs)

Organisation’s vision, mission and values