BSM2144 Strategic Sourcing

and Procurement
B.Sc. (Hons) in Transportation and Logistics
B.Sc. (Hons) in Supply Chain Management
School of Transportation and Logistics
Supply Chain and Commodity
Strategy Development
Aligning Objectives
• What Markets will the firm compete in and on what basis?
• What are the long-term and short-term business goals?
• What are the budgetary and economic resource constraints and how
will these be allocated to function groups and business units?
Why the need to align?
• Giving the company competitive advantage
• The procurement department should also make a crucial contribution in this area by
implementing a procurement strategy that prioritizes finding innovative and
competitive suppliers. With such a strategy, companies can develop products of
better technical quality and with a reduced social or environmental impact by
collaborating with partners better suited to these endeavors.
• Managing Risks
• Managing supplier risks, whether they relate to logistics, finance, legal matters,
quality, standard compliance, the company image or CSR, is a key factor in a
company's success. In this context, the procurement department must put a strategy
in place that safeguards supply and supplier relations, and therefore the work of 75%
of procurement professionals focuses on these areas[
Aligning Supply Management
and company objective
• Six Steps to Align Supply Chain with Corporate Strategy
1. Define and communicate a clear corporate strategy
2. Identify the areas of your corporate strategy that are enabled by the supply
chain.
3. Align supply chain performance metrics with the corporate strategy.
4. Structure your supply chain to optimize the strategic goals.
5. Align incentives end to end.
6. Keep refreshing the strategy and alignment process.
• In conclusion, the procurement strategy must be harmonised with the
company strategy.
Integrative Strategy
Development
• A corporate strategy entails a clearly defined, long-term vision that
Corporate Strategy organizations set, seeking to create corporate value and motivate the
workforce to implement the proper actions to achieve customer
satisfaction.

• When it comes to strategy, each business unit has a role to play in the
Business Unit Strategy company’s grand plans and enterprise strategy. Each line of business
or sector must align with and contribute value to the primary
corporate business strategy.

Supply Management • Supply chain management (SCM) involves the movement of products
and services from suppliers to distributors. SCM involves the flow of
Strategy information and products between and among supply chain stages to
maximize profitability.

• A commodity strategy is the purchasing plan for a specific product or

Commodity Strategy service (commodities) that facilitates the management of the
supplier base, avoids and/or proactively solves potential problems,
and is the basis of future Postal Service business practices
surrounding a purchase of the commodity involved.
Integrative Strategy
Development
• Integrative strategies identify the underlying common aims and needs
among competing strategies, communities and sectors in order to
effectively address the social and environmental impacts of today's
unsustainable production/consumption systems and practices.
Vertical Integration
• Vertical integration refers to the degree with which a business unit is
integrated with its suppliers and buyers.
• Suppliers are typically referred to as existing “upstream” from the
organization, while buyers are considered “downstream.”
• Vertical integration strategies in strategic management are typically used
when organizational leaders have identified a need or desire to expand into
new industries.
• For example, the vertical integration strategies of a fast food chain might
include the purchase of a cup factory or a bun factory in order to cut the
costs of those supplies. Benefits of vertical integration strategies include
enhanced product quality and increased profitability.
Horizontal Integration
• Horizontal integration in strategic management is typically a single-
industry strategy.
• Horizontal integration often includes the practice of acquiring and/or
merging with other businesses within the same industry to achieve
organizational objectives.
• For example, a shoe company may decide to acquire a competitor in
order to obtain a greater share of the market. Some of the benefits of
horizontal integration strategies include a lower cost structure,
reduced industry rivalry and increased product differentiation.
Considerations
• The strategic management of integrative strategies is essential for
identifying all possible factors which may contribute to or hinder the
success of the multi-business corporation.
• Organizational leaders must consider a variety of factors when choosing
the appropriate strategies for their individual situation.
For example, while a horizontal integration strategy might improve the
corporation’s market share, too much horizontal integration may lead to
anti-trust issues.
• The strategic management process is designed to identify such issues in
advance through the use of such tools as the PEST analysis, which identifies
the political, economical, societal and technological factors that impact the
organization as a whole.
Translating supply chain
management goals
• The importance of Supply Chain Management
• A well-managed supply chain will is essential for any manufacturing organization that
is looking to maximize its profits and reduce any disruptions.
• If you are looking to improve your operations and implement supply chain
management strategies, it is important to explore some of the main goals of supply
chain management.
• These strategic goals include ensuring efficiency, improving quality, and optimizing
transportation.
• These goals will help you reduce costs, increase efficiency and profits, and can even
help you gain a competitive advantage within your industry.
• You will be able to meet your customer’s needs and foster brand loyalty among
them.
• We will discuss these strategic goals and objectives and how they can benefit your
overall production facility and operations to ultimately enable you to reduce costs
and increase profits.
Translating supply chain
management goals
• Top Three Strategic Goals and Objectives of Supply Chain
Management
• Ensuring Efficiency - For obvious reasons, efficiency is one of the most
important aspects of supply chain management. In manufacturing, efficiency
is defined by the ability to fulfill customer orders in a timely manner while
using the least amount of inventory or WIP.
• Optimizing Transportation and Logistics - Another key component within
supply chain management is optimizing transportation and logistics.
• Focusing on Quality Improvement - It is important to keep in mind that the
goal is not only to provide consumers with a product but to provide them
with the absolute best value possible. This goal should be shared by you and
your supply chain partners.
Category Sourcing
• Category as a grouping of materials or services that have similar
supply and usage characteristics to meet business objectives.
• Managing by categories is a strategic approach which organizes
procurement resources to focus on specific areas of spend categories.
Category Sourcing
• Best practice for effective and seamless transition process in strategic
sourcing as follows;
1. Develop the logical categories for your business by bringing together products or
services that have the same features and are bought from similar supply markets.
2. Build an in-depth understanding of the organization’s plans and business strategies
and ensure that the categories are aligned to business goals
3. Develop category benchmarks so that you can more easily identify additional
improvement opportunities
4. Use big data and business analytics to undertake continuous analysis of spend,
(direct and indirect), market data and performance against benchmarks
5. Undertake a program of constant price analysis on local and international markets
and the monitoring of trends in the category
Category Sourcing
• Best practice for effective and seamless transition process in strategic
sourcing as follows;
6. Invest in a process of gathering supplier performance data for more quality
and service improvements
7. Monitor and track all the savings that have been achieved through
substitutions, better compliance or contract negotiations
8. Engage with your stakeholders and have continuous discussions and reviews
to ensure that all stakeholders are involved in decisions on the category
Category Sourcing
• Implementing and sustaining an effective category management
process can deliver great benefits, which usually lead to:
• Raising the profile and competency of the procurement function within the
organization
• Significant savings, typically 10-30 per cent
• Reduced risk in the supply chain and preparedness for supply chain disruption
• Improved stakeholder relations
• Improvements in service levels, quality, availability and value
• The revelation of other sources of value and innovation from the supply base
• Re-usable processes to leverage across other categories
• More effective sourcing, leading to even more value from constantly
optimizing the resulting contracts
Category Strategy
Development
• The Category Management Value
Chain (combining three
interdependent procurement
practices), is a well proven and highly
effective approach to managing 3rd
party spend, and supply relationships.
• Category Strategy Development is the
first of these three practices within
the value chain.
• It concerns procurement working
closely with the business to identify
new areas of potential value that can
be extracted from a given category,
increasing its contribution to business
performance.
Category Strategy
Development
Category Strategy
Development
Category Strategy
Development