Lecture Purchasing and supply chain management (3rd/e): Chapter 2 - W. C. Benton

Chapter 2 - Purchasing decisions and business strategy. In chapter 2, a framework for linking purchasing decisions with the firm’s competitive strategy is presented. The framework offers a systematic approach for designing purchasing strategies consistent with a firm’s competitive strategy. Supply management can play a significant role in making a firm competitive.

3rd edition

1

Chapter 2:

Purchasing Decisions and Business Strategy

• In most industrial firms,

• material constitutes 60–80 percent of the total revenue dollars.

• Competitive leverage can be developed through 

purchased inputs

• Link the competitive strategy with the purchasing policy

Components of Purchasing Strategy

• Purchasing actions are determined by 

• the firm’s competitive priorities

• its resource capabilities

• the environment

• Purchasing strategy must consider 

• competitive priorities

• organization’s strengths and weaknesses

• competitive environment

Example

• Must reflect firms’ competitive priorities

• Cost priority

• high priority to purchasing costs

• Flexibility priority

• high priority to lead time in buying material

• Environmental Factors

• Inflation rate

• Monetary policy

• Fiscal policies

• Technological development

• Industry capacity

• Market growth

• Global stability

• Reasons for the emergence of supplier partnerships as a  competitive weapon:

• Increased competition

• Deregulation

• Relaxed antitrust requirements

• Increased use of electronic data interchange (EDI) 

• Increased just­in­time (JIT) manufacturing

Supplier Partnerships

• Companies participate in a variety of supplier 

relationships and roles

• A supplier

• A customer

• An end­user of products

• Supplier partnerships can be categorized using five  factors:

(1) degree of risk/reward

(2) type of relationship

• In buying decisions,

• multiple goals must be satisfied 

• within the constraints

Cost

Quality

Supplier Lead Time

• The purchasing function must be integrated into the 

firm’s overall strategic plan.

• A strategic sourcing plan requires:

• A complete understanding of corporate strategies and marketing  plans 

• An extensive evaluation/study of current suppliers, how 

performance is measured, and the expectation of suppliers  relative to the industry

Questions?