23 - 24 719N1 Workshop 3

Workshop 3
Purchasing and business strategy

Learning objectives
• The changing international business context and how

companies strategically respond.
• The strategic role of the purchasing function.
• How to develop purchasing excellence.
• How purchasing can support the company’s business
strategy.
• How to develop a differentiated purchasing and supplier
strategy.
The changing international business
context
• The gravity of world economic growth has shifted from the US and
Europe to the Far East and South America.
• Long term strategy of US and Europe companies focus on “selective

growth” (i.e. a combination of enhancing the core activity of the
company and new business development and innovation)
• Outsourcing and Subcontracted: manufacturing, service, logistics

activities, etc.
• As a consequence, the activities of suppliers and the firm became

increasingly intertwined.
• Suppliers in many industries have a business-critical position in their

customer’s value chain
Activities:
Case study:
“Harnessing the power of the network to

deliver results”
Task:
Please think about the steps she has taken
to deliver cost savings during her tenure.
Source: https://www.bkux.com/wp-
content/uploads/2020/07/Barbara-Kux1.pdf
What is strategy?
“Broad objectives that direct an enterprise towards its

overall goal.”
- Slack, Brandon-Jones & Johnston (2019)

What is strategy?
“Competitive strategy is about

being different. It means
deliberately choosing a different
set of activities to deliver a
unique mix of value.”
“Strategy requires you to make

trade-offs in competing—to
choose what not to do.”
Michael E. Porter,
Professor Harvard Business School ---Porter (1996)
Image source: https://www.hbs.edu/faculty/Pages/profile.aspx?facId=6532

Strategy-Definition
• Setting broad objectives that direct an enterprise towards
its overall goal.
• Planning the path (in general rather than specific terms)

that will achieve these goals.
• Stressing long-term rather than short-term objectives.
• Dealing with the total picture rather than individual

activities.
• Being detached from, and above, the confusion and

distractions of day-to-day activities.
Porter's generic strategies
“Stuck in the middle”
Image Source: IfM https://www.ifm.eng.cam.ac.uk/research/dstools/porters-generic-competitive-strategies/

Reference: Porter, Michael E.(1985), Competitive Advantage. Ch. 1, pp 11-15. The Free Press. New York .
British Airways vs Ryanair
British Airways vs Ryanair
Source: https://www.telegraph.co.uk/travel/travel-truths/british-airways-finally-beating-ryanair-on-price/
Porter's generic strategies
Cost focus strategy Differentiation focus Strategy
Question
XYZ Corp. has recently launched a line of premium, handcrafted

furniture made from sustainable materials. Each piece is unique,
with intricate designs and patterns. The company specifically
targets affluent consumers who appreciate exclusivity and are
willing to pay a premium for environmentally-friendly, one-of-a-kind
furniture pieces.
Based on the information provided, which of Porter's generic

strategies is XYZ Corp. primarily employing?
A) Cost Leadership
B) Differentiation
C) Cost Focus
D) Differentiation Focus
How to align the procurement
strategy?
Figure 1: Strategic procurement in context
Source : Mena, C., Van Hoek, R., & Christopher, M. (2018).

Leading procurement strategy: driving value through the
supply chain. Kogan Page Publishers.
Strategic planning and marketing theories: BCG Matrix
BCG matrix (aka growth-share/product

portfolio matrix) is a framework created
by the Boston Consulting Group in
1970 to evaluate the strategic position of
the business brand portfolio and its
potential. It classifies business portfolio
into four categories based on industry
attractiveness (growth rate of that
industry) and competitive position
(relative market share).
"The portfolio composition is a function
of the balance between cash flows. High
growth products require cash inputs to
grow. Low growth products should
generate excess cash. Both kinds are
needed simultaneously.“
—Bruce Henderson (1970)
BCG Matrix
1.Low Growth, High Share. Companies

should milk these “cash cows” for cash to
reinvest elsewhere.
2.High Growth, High Share. Companies
should significantly invest in these “stars”
as they have high future potential.
3.High Growth, Low Share. Companies
should invest in or discard these
“question marks,” depending on their
chances of becoming stars.
4.Low Share, Low Growth. Companies
should liquidate, divest, or reposition
these “dog.”
BCG Matrix
1.Cash Cow: Low Growth, High Share. Companies
should milk these “cash cows” for cash to reinvest
elsewhere.
This Photo by Unknown Author is
licensed under CC BY-NC-ND
2.Stars: High Growth, High Share. Companies

should significantly invest in these “stars” as they
have high future potential.
This Photo by Unknown Author is licensed
under CC BY-SA-NC
3.Question Marks: High Growth, Low Share.

Companies should invest in or discard these
“question marks,” depending on their chances of
becoming stars.
This Photo by Unknown Author is licensed
under CC BY-SA
4.Dog: Low Share, Low Growth.

Companies should liquidate, divest, or reposition
these “dog.”
This Photo by Unknown Author is licensed under CC BY
BCG Matrix
Competitiveness
Market attractiveness
Cash Flows and Desired Movement in BCG Matrix
Picture source: https://www.business-to-you.com/bcg-matrix/

BCG Matrix and Product Life Cycle
Product lifecycle management (PLM)

refers to the handling of a good as it
moves through the typical stages of its
product life: development and
introduction, growth, maturity/stability,
and decline.
This handling involves both the

manufacturing of the good and the
marketing of it. The concept of product
Figure : BCG Matrix and Product Life Cycle
life cycle helps inform business
decision-making, from pricing and
promotion to expansion or cost-
cutting.
Picture source: https://www.business-to-you.com/bcg-matrix/

Activity: BCG Matrix
How would you assess the following

Samsung product:
1. Phone
2. Monitor
3. TV
4. Watch
5. Fridge
6. Washing machine
7. Printer
Strategic management thinking
The strategic role of purchasing
Transaction cost economics theory (Williamson, 1981):
Companies can benefit from economies of scale, learning effects and lower cost by
purchasing supplies externally.
The strategic role of purchasing
Transaction cost economics theory (Williamson, 1981):
Companies can benefit from economies of scale, learning effects and lower cost by
purchasing supplies externally.
Outsourcing:
Due to the increased outsourcing of business activities, purchasing and supply
management has developed into a functional domain of strategic relevance.
Suppliers are becoming more important for competitive positioning of companies.

'Strategic purchasing' focuses on integrating the purchasing and supply function
with other domains in the firm.
The purchasing and supply domain still focuses on purchasing's 'bottom line'
impact through cost reduction, quality development and technology as companies
are unsure of how much involvement they want from suppliers.
- How do companies create value for their supplier networks?
- How do they mobilize their supplier networks to create sustainable competitive
advantage?
Kraljic’s (1983) purchasing portfolio
Kraljic’s (1983) purchasing portfolio
Purchasing turnover and the

supplier base are analysed on two
variables:
❖ Financial impact:
cost of materials, total costs,
volume purchased and percentage
of the total purchase cost, etc.
❖ The supply risk:

short-term and long-term product
availability, number of suppliers
available, cost of changing
suppliers, etc.
Financial impact: Starbucks’ Coffee Beans
Supply risk: Tesla
Lithium for Lithium-ion Batteries
Purchasing product portfolio
Leverage: Steel for General Motors
Bottleneck
Natural flavours Vitamins Pigments

Routine product
Strategic item
Purchasing product portfolio
Purchasing supplier portfolio
• Buyer-dominated segment imposed on the supplier by the buyer/manufacturer.
• Supplier-dominated segment: Through its technology and marketing strategies the supplier
has the customer ‘locked in’ a relationship.
Table 7.2 Basic characteristics of the
four supplier strategies
Reading
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of
management, 17(1), 99-120.
Ketokivi, M., & Mahoney, J. T. (2020). Transaction Cost Economics As a Theory of
Supply Chain Efficiency [https://doi.org/10.1111/poms.13148]. Production and
Operations Management, 29(4), 1011-1031.
Porter, Michael E. "How Competitive Forces Shape Strategy", Harvard Business
Review, May 1979 (Vol. 57, No. 2), pp. 137–145.
Salancik, G. R., & Pfeffer, J. (1978). A social information processing approach to
job attitudes and task design. Administrative science quarterly, 224-253.

23 - 24 719N1 Workshop 3

Uploaded by

Copyright:

Available Formats

23 - 24 719N1 Workshop 3

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

23 - 24 719N1 Workshop 3

Uploaded by

Copyright:

Available Formats

Workshop 3

Purchasing and business strategy

• The changing international business context and how

• Long term strategy of US and Europe companies focus on “selective

• Outsourcing and Subcontracted: manufacturing, service, logistics

• As a consequence, the activities of suppliers and the firm became

• Suppliers in many industries have a business-critical position in their

“Harnessing the power of the network to

“Broad objectives that direct an enterprise towards its

- Slack, Brandon-Jones & Johnston (2019)

“Competitive strategy is about

“Strategy requires you to make

Image source: https://www.hbs.edu/faculty/Pages/profile.aspx?facId=6532

• Planning the path (in general rather than specific terms)

• Stressing long-term rather than short-term objectives.

• Dealing with the total picture rather than individual

• Being detached from, and above, the confusion and

“Stuck in the middle”

Image Source: IfM https://www.ifm.eng.cam.ac.uk/research/dstools/porters-generic-competitive-strategies/

XYZ Corp. has recently launched a line of premium, handcrafted

Based on the information provided, which of Porter's generic

Figure 1: Strategic procurement in context

Source : Mena, C., Van Hoek, R., & Christopher, M. (2018).

BCG matrix (aka growth-share/product

1.Low Growth, High Share. Companies

2.Stars: High Growth, High Share. Companies

3.Question Marks: High Growth, Low Share.

4.Dog: Low Share, Low Growth.

Cash Flows and Desired Movement in BCG Matrix

Picture source: https://www.business-to-you.com/bcg-matrix/

Product lifecycle management (PLM)

This handling involves both the

Picture source: https://www.business-to-you.com/bcg-matrix/

How would you assess the following

Suppliers are becoming more important for competitive positioning of companies.

Purchasing turnover and the

❖ The supply risk:

Natural flavours Vitamins Pigments

• Buyer-dominated segment imposed on the supplier by the buyer/manufacturer.

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.