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Chapter 6 Category Strategy Development - Coggle Diagram
Chapter 6
Category Strategy
Development
What is a category strategy?
Conducting a Spend Analysis
Did the business receive right amount of products and services, given what it paid for them?
What suppliers received majority of business?
What did the business spend its money
on over the past year?
Spend Analysis Spreadsheet
Chart top 10 by descending $ spend
Find number of suppliers by category
Find total spend by category
Chart top 10 by descending number of
suppliers
Sort data by category
Find average spend/supplier/category
Apply Pareto analysis for opportunities
Aligning supply management and
enterprise objectives
How Companies Create
Shareholder Value
Increase revenues
Decrease costs
Integrative Strategy Development
Business unit strategies
Supply management strategies
Corporate strategies
Category/Sourcing strategies
Michael Porter’s Value Chain
Components of Integrative Strategy
Purchasing and
supply chain goals
Purchasing and supply chain strategies
Cross-functional businessobjectives
performance measurement system
Company
objectives
performance measurement review
continuous improvement
Enabling Effective Category Strategies
Validate savings
Initiative
Allocate resources
Translating Objectives Goals
Supply base reduction objectives
Supply assurance objectives
Technology/new product development
objective
Quality objectives
Cost reduction objectives
Category strategy development
Step 1: Build the Team
and the Project Charter
Identify key people and subject matter experts
Assign knowledgeable project leader
Define scope of category strategy
Publish project charter
Develop work and communication plan
Project summary document
Consider stakeholder needs
Draw map of stakeholders and verify with
key stakeholders
Identify success criteria for each
stakeholder
Ensure success criteria are mutually
consistent and deliverable
Check perceptions of each stakeholder’s
success criteria
Check and amend success criteria on
ongoing basis
Work with stakeholders to reconcile gaps
and differences
Step 2: Conduct Market Intelligence
Research on Suppliers
Understand purchase requirement
relative to business unit objectives
Conduct thorough spend analysis
Identify specific business units
Identify current suppliers
Research supply marketplace
Porter’s Five Forces Model
Triangulation – explore, compare, and
contrast data from multiple sources
Information required
Supplier analysis
SWOT analysis
Step 3: Strategy Development
Portfolio analysis
Critical category – strategic supplier
Leverage category – preferred supplier
Bottleneck category – transactional
supplier
Routine category
Determine strategic importance of
category to buyer
Step 4: Contract Negotiation
Establishing tasks and time lines
Assigning accountabilities and process
ownership
Ensuring adequate resources are made
available to process owners
Strategy communicated to all
stakeholders
Market and price analysis
Conduct negotiation
Preferred supplier lists
Preference in future contracts
Proven performance and capabilities
Types of final supplier selection
Competitive bidding
Negotiation
Create contingency plan
Sign contract
Develop negotiation plan and ideal
contract
Step 5: Supplier Relationship
Management
Continuous monitoring of both strategy
and supplier
Continuous monitoring of supplier’s performance using predetermined criteria on goals and objectives
Supplier scorecard
Update, usually quarterly
Review results with supplier
Evolving Sourcing Strategies
Phase 1: Basic Beginnings
Supply management characterized as lower-level support function
Short-term approaches
Reactionary to complaints
Impetus for change is driven by
management
Ensure adequate supply capacity
Adversarial supplier relationships
Limited resources for improvement
Transaction-based information systems
Supply base optimization
Focus on price reduction
Efficiency-related performance
measures
Mid-level reporting
Phase 2: Moderate Development
Some centralization of supply
management function
Category management
Company-wide databases
Single sourcing with long-term agreements
Company-wide agreements to leverage volumes
Limited cross-functional integration
Recognition of strategic supplier relationships
Supplier viewed as resource
Evaluated on achievement of competitive objectives
Informal internal integration
Phase 3: Limited Integration
Concurrent engineering
Early supplier involvement
Supply management strategies
Lead-time reduction
1st/2nd tier suppliers more involved
Supplier development
Supply management evaluated on
strategic contribution
Focus on building competitive
advantage
Strong external customer focus
Global databases
Extensive functional integration
Total cost modeling
Phase 4: Fully Integrated
Supply Chains
More aggressive development of
supplier capabilities
Full-service suppliers
Systems thinking approach over entire
supply chain
Global suppliers
Demand higher performance from
suppliers
Automated non-value-adding activities
Developing global supplier capabilities
Greater focus on strategic objectives
and activities
Supply management assumes strategic
orientation
World-class performance expectations
Types of Supply Management Strategies
Supply Base Optimization
Process of determining the appropriate number and mix of suppliers to maintain
Usually refers to a smaller supply base
Requires in-depth analysis of current and future number of suppliers needed
Longer-Term Supplier Relationships
Generally > 3 years
Use with suppliers that have exceptional performance or unique technological expertise
Could include joint product development with shared development costs and intellectual property
Early Supplier Design Involvement
Key supplier participation at the concept or predesign phase of NPD
Cross-functional teams
May be informal
Simultaneous engineering approach
Global Sourcing
Supplier Development
Inadequate supplier performance
Work directly with supplier to facilitate performance improvement
Long-term benefits to both buyer and supplier
Supply Risk Management
Greater levels of outsourcing in low
cost countries
High cost impact
Potential for operational disruption
Volatility of prices
Growth of enterprise risk management
systems
Total Cost of Ownership
Process of identifying cost considerations beyond unit price, transportation, and tooling
Need to determine costs associated with late delivery, poor quality, or other supplier nonperformance
Determine cause of variances