Article: Purchasing Must become supply management

Supply Strategy Planning Phases
Classification, market analysis, strategic positioning, action plans
Phase 1: classification
The profit impact of a certain supply chain item can be assessed in terms of the volume purchased, percentage of total purchase cost, or impact on business growth or product quality. The supply risk can be assessed in terms of availability, number of suppliers, competitive demand, make-or-buy opportunities, substitution possibilities and storage risks.
Four categories of supply chain items.
• Strategic items: high profit impact, high supply risk;
• Bottleneck items: low profit impact, high supply risk;
• Leverage items: high profit impact, low supply risk;
• Noncritical items: low profit impact, low supply risk.
Phase 2: market analysis
In this phase, the company needs to weigh the bargaining power of its suppliers against its own strength as a customer.
Six criteria of supplier and company strength when conducting a market analysis.
1: Suppliers’ break-even stability
2: Suppliers’ capacity utilization
3: Annual volume purchased and expected growth in demand
4: Uniqueness of suppliers’ products
5: Potential costs in the event of inadequate quality or non-delivery
6: Past variations in capacity utilization Of main production units
Phase 3: strategic positioning
The company positions the materials identified in the first phase as strategic in the purchasing portfolio matrix. With this, areas of opportunity or vulnerability can be identified, supply risks can be assessed, and basic strategy thrusts for these items can be derived.
purchasing portfolio matrix
company buying strength is plotted against supply market strength; this can be used to develop counterstrategies vis-å-vis key suppliers – also called reverse marketing
Phase 4: action plans
In the short term, the company needs to consolidate its supply position by concentrating fragmented purchased volumes in a single supplier, accept high prices, and cover the full volume requirements through supply contracts.