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The greater the uncertainty of supplier relationships, technological developments, and/or physical availability of those items, the more important supply management becomes.A company’s need for a supply strategy depends on two factors: (1) the strategic importance of purchasing in terms of the value added by product line, the percentage of raw materials in total costs and their impact on profitability, and so on; and (2) the complexity of the supply market gauged by supply scarcity, pace of technology and/or materials substitution, entry barriers, logistics cost or complexity, and monopoly or oligopoly conditions (see Exhibit I).In this article, the author offers pragmatic advice on how top management can recognize the extent of its own supply weakness and treat it with a comprehensive strategy to manage supply.He leads the reader step by step from the roots of the problem to the implementation of a solution.Italy’s Alfa Romeo and Japan’s Nissan share the production of certain critical car components that they could not produce cost-effectively on their own.General Motors is increasingly involving suppliers early in the design process in order to ensure better quality, lower cost, and “just in time” production.In many companies, purchasing, perhaps more than any other business function, is wedded to routine.
Attractive new options, or serious vulnerabilities, or both, may come to light as the assessment explores questions like these: 1.
To minimize their supply vulnerabilities and make the most of their potential buying power, a number of European companies have successfully used a four-stage approach to devise strategies.
The approach has given them a simple but effective framework for collecting marketing and corporate data, forecasting future supply scenarios, and identifying available purchasing options as well as for developing individual supply strategies for critical items and materials.
This calls for nothing less than a total change of perspective: from purchasing (an operating function) to supply management (a strategic one).
Whenever a manufacturer must procure a volume of critical items competitively under complex conditions, supply management is relevant.