Article Review 2:
Purchasing Must Become Supply Management
Many companies are finding purchasing to be a routine business function and face challenges concerning purchasing decisions involved in their supply chain which often includes accepting or ignoring disruptions and is managed with annual negotiations with suppliers or sources. Years ago, purchasing managers developed skills in an environment based on stability. Today, however, companies are facing issues such as threats of resource depletion, raw materials scarcity, political turbulence and government intervention making it difficult to adjust. Worldwide environmental and economic changes as well as fluctuations in demand and supply patterns have caused organizations to accept that their days of no surprises were over. Also, realizing their purchasing departments should adjust quickly has caused companies to avoid falling behind and incurring more expenses. Particularly, disruptions in the supply chain have become one of the major causes of failure for corporations averaging approximately $15 million in losses.
This article addresses the following question: “How can companies guard against disastrous supply interruptions and cope with the changing economics and new opportunities brought on by new technologies? Also, what capabilities will a profitable international business need to sustain itself?” The article answers these questions by providing step by step advice to top managers on how to effectively manage its supply management and also provides solutions and strategies on properly identifying and managing their own supply weakness along the supply chain. The article also suggests that manufactures switch perspectives in order to ensure long term availability of critical materials from that of purchasing (an operational function) to that of supply management (a strategic one). *
Supply management is relevant whenever manufacturers involved in complex conditions procure a volume of critical items competitively. Conditions such as supply side uncertainties, technological advancements and physical item availability have made supplier management an important topic for companies to constantly evaluate. The article discusses two specific variables top managers and senior purchasing executives should consider in determining the right supply strategy a company needs to exploit its purchasing power and reduce risks. These variables include: *
Strategic Importance: which includes aspects such as value added to the product line, cost and total cost of the item, profitability, etc.) and *
Complexity of Market: which includes supply scarcity, pace of technology, market barriers, entry cost, etc.)
Other aspects to be considered which assesses the company’s overall situation include: *
Consolidation of purchase: when means in order to increase the total buying clout, corporations should consider consolidating the supply requirements of different divisions. *
Avoidance of anticipated bottle neck and interruptions: meaning companies should implement new strategies to address the bottleneck and improve on sections that are slowing down the overall process and are providing the most slack and *
Risk: which means companies should consider actions to take such as “evergreen contracts” (annual agreements) to manage the amount of risk in the process. *
Make vs. buy/ cost vs. flexibility: this means companies will be in a better negotiating position against competitors and will be able to cover outside requirements if they initially cover a large percentage of supplies from sources own themselves. *
Long term relationships with suppliers: this is a part of backwards integration which as a result reduces supply side vulnerability. *
Four Stage Approach to Shaping the Supply Strategy:...
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