Logistics Final Project

Topics: Procurement, Supply chain management, Supply chain Pages: 9 (2458 words) Published: May 16, 2013
Purchasing Strategies

the purchasing activity is one of the corporate functions affected by a change to supply chain management and significant cost savings are possible through reductions in total purchase expenditures and inventory. Surveys of manufacturers indicate that total purchases account for 55 to 60 percent of total costs. Further, it has been suggested that purchasing has already evolved to supply management. Due to the growing importance of purchasing, and of its linkages within a firm's supply chain, several authors have suggested that firms have sought to improve their performance in this crticial area. Competitive advantage depends on firms' skill to establish superior purchasing strategies in complex inter-organizational setting of numerous suppliers. This is because the traditional way in which economic activities are carried out is changing, as business practitioners and academics alike are being encouraged to adopt a multi-firm network context. Firms are no longer able to develop major product or service innovations alone because of the dispersion of knowledge and technological resources driven by organizational specialization. In addition, the growing need for greater effectiveness in their operation has forced more companies to focus on their core competencies, leading to the externalization of the activities to partners and business actors, and thus, to increased dependence on each other's resources and capabilities. The development is especially noticeable in the supply chain management philosophy; managers of companies face the fact that no organization is an expert in everything and the integration of processes essential in delivering value to their customers require intense collaboration among several actors in the supply network. Consequently, the purchasing function of companies has increased its strategic importance. Since the strong focus on developing purchasing strategies in the late 1980s and early 1990s, the purchasing function has lacked attention in both business and academic literature for a long time. However, after a period of neglect it has become a new source of competitive advantage for a firm. Contemporary purchasing in the twenty first century is strategic and can be called "procurement". Due to the active encouragement by buyer organizations, the collaboration among suppliers is now greater than before. The purchase of components and services has direct effects on the business. According to prior studies (e.g. Chisnall, 1985; Brandes, 1994; Gadde and Ha°kansson, 1994; Hutt and Speh, 1998; Cavinato, 1999) industrial purchasing involves many activities: identifying the supplier-base, establishing bidding competition, creating tools for managing the purchasing activity, minimising supplier-related risk, evaluating and comparing the potential supply partners, and forming supply contracts. Despite the complexity of the purchasing process the essential choices are manifested in companies’ purchasing strategies in different contextual buying settings (Faes et al., 2001; Hutt and Speh, 1998, pp. 70-75). Key dilemmas in strategy formulation relate to the nature of exchange and to the selection of suppliers among the plethora of potential actors

Dealing with both single and multiple sourcing is a classic issue in purchasing strategy (Gadde and Ha°kansson, 1994). According to Richardsson (1993), the buyer’s primary considerations in the purchasing process are whether to prefer single, parallel, or multiple sourcing strategies. Single sourcing takes place when a company has only one supplier for each product or service (Richardsson, 1993). A company choosing this strategy is seeking scale advantages through lower-cost products in a dyadic relationship. Parallel sourcing is a strategy in which the buyer simultaneously purchases conventional products from a group of suppliers – each specialised in a single product category (Richardsson, 1993). However, in the case of...
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