Procurement strategy

from Wikipedia, the free encyclopedia

The procurement strategy as part of the Materials Management of a company sets the medium term, the distribution of procurement of goods and services to individual suppliers fixed.

The central goal of a procurement strategy is to ensure that the company is supplied with all the necessary resources. On the other hand, there are the associated costs and the company's economic interest in keeping these costs as low as possible.

Concrete areas of regulation of the procurement strategy are:

Quantity decision What amounts ...
Range decision ... which goods ...
Quality decision ... in what quality ...
Price decision ... and at what price ...
Supplier decision ... which suppliers should be obtained from.

Since this is a strategy, these decisions do not relate to the specific purchase of a certain quantity, but rather are understood as a guideline for procurement to purchase a certain proportion of the total purchase volume from a certain supplier or, for example, in a local market.

Description and delimitation

The efficient procurement of raw materials , consumables and supplies , components , finished goods and services makes an important contribution to securing the company's profit . Large companies and corporations , for example in the automotive industry , were the first to recognize the enormous optimization potential through shorter lead times and reduced inventories , and began to exploit them through precise planning of delivery and production (through the implementation of concepts such as " Just In Time ") ).

It was only in recent years that medium- sized companies began to pay increasing attention to procurement as an entrepreneurial success factor. It was recognized that potential gains from optimization are not only to be found in the delivery and in-house processing of goods. Right from the start of the procurement process , unnecessary expenses can be avoided by precisely determining the required quantities and qualities of goods. Careful selection of suppliers with regard to price , reliability (both in terms of contract fulfillment and adherence to deadlines) and, last but not least, transport costs is essential.

Closely related to this are the questions of in-house production or external procurement ( make-or-buy ) and purchase directly from the producer or indirectly through the trade . In addition to all these decisions, social and political considerations can also play a role, which is reflected, for example, in the preference given to local suppliers or Fairtrade products.

Delimitation:

  • The identification and determination of needs deals with questions of product range selection and the quality of goods to be procured.
  • The delivery and the efficient internal transport fall into the field of logistics .
  • The targeted selection of individual suppliers is an operational (not a strategic) activity that supplier management deals with.
  • The determination of explicit supplier-related order quantities for individual cases is the subject of the order policy .

On the other hand, decisions about make-or-buy, procurement from the producer or dealer, the interaction of purchase prices , transport costs and customs duties , storage costs , security of supply, preferences for local or fair trade goods, and compliance with the company's mission statement are topics of the procurement strategy .

The importance of procurement is therefore not limited to the mere activity of purchasing . Creating a procurement strategy has become a management task.

Since the decisions about the procurement strategy have a great influence on the costs of the company, the question of costs is a good starting point for the creation of the strategy. Trade-offs between individual cost factors such as low purchase price and high transport costs or costs of warehousing represent a particular difficulty and costs of possible undersupply that require careful consideration.

Recently, the consideration and optimization of the procurement process has increasingly come to the fore compared to the pure consideration of the suppliers' purchase prices. One instrument for this is material group management , for example .

Procurement strategies

The following strategies introduce different procurement concepts with their respective advantages and disadvantages. In practice there are often mixed forms between these models. (The concepts described here are based on external procurement. In other words, the make-or-buy decision was anticipated; only the purchase from external suppliers is up for discussion.)

Single Source Procurement ( single sourcing )

Single source procurement (also single sourcing ) describes the procurement of a defined range of goods / services from a single provider .

advantages
  • Lower purchase price due to the purchase of large quantities from a single provider ( discount ).
  • The formation of long-term business relationships is possible. With increasing trust, hedging transactions become superfluous and orders can be processed as routine processes.
  • Low negotiation, communication and logistics costs for purchasing, especially when framework agreements are concluded.
  • Preferred treatment on the part of the provider in the event of delivery bottlenecks, special requests, in the processing of urgent orders as well as in the event of material defects or disruptions in the quality of service .
  • Close bond
Disadvantages / risks
  • Strong dependency on a single supplier.
  • Risk of delivery problems in the event of production failures.
  • Fixation on the single-sourcing strategy can lead to the fact that not the cheapest product is bought on the market (supplier loyalty; costs of changing suppliers; products that are outside the core competence of the supplier).
  • Little flexibility in the event of fluctuations in demand.

Double source procurement ( dual-sourcing )

With dual sourcing (also: dual , double sourcing ), the same good is obtained from two different providers.

advantages
  • Securing the supply against failure of a supplier
  • less risk of exceeding providers' capacity
  • others as with single sourcing
disadvantage
  • Even with two providers, there is still a strong dependency on their economic performance
  • Danger of the suppliers outbidding each other among competitors (it can be profitable for each supplier to get the lower order volume at a higher price.)
  • possibly lack of attention to the market development and resulting favorable offers

Multi-source procurement ( multiple sourcing ; also: multi-sourcing )

Multi-source procurement means having several to many suppliers for a product. The quotas for the production share of individual suppliers can be kept stable over a longer period of time ( quota reference ) or change depending on the situation. The focus here is on the use of short-term favorable market conditions.

advantages
  • Use of the most favorable market price in each case (through competition among suppliers).
  • Maintaining the competition .
  • Security against delivery difficulties of individual providers.
  • Greater flexibility in the event of fluctuations in demand.
  • Avoidance of dependencies.
disadvantage
  • High need for information.
  • Only useful for exchangeable goods, as otherwise adjustments to the manufacturing process or the product as such are necessary.
  • Great communication and logistics effort for purchasing . This leads to high procurement process costs.
  • Negotiating favorable conditions is difficult due to lower purchase quantities and changing orders.

Global sourcing ( global sourcing )

The term is not clearly defined in the literature. Often global sourcing is defined as the procurement of the cheapest product on the world market . In terms of the procurement strategy, this means the efficient use of global resources / international sources of supply. International procurement is therefore a strategic element for generating competitive advantages. In practice, global sourcing often goes hand in hand with multiple sourcing. The customer has a cheap supplier for every product on the world market. In global sourcing strategies, however, it is also common to maintain relationships with a few important suppliers.

advantages
  • Due to globalization more and more comprehensive information and easier access to international procurement markets.
  • Exploitation of business cycle, growth and inflation differences
  • Reduction of dependencies
  • Obtaining resources that are not available in their own country or are very expensive.
  • Benefit through specializations of individual regions or providers.
  • Creation of new markets
  • Costs and pressure to perform on domestic Suppliers
disadvantage
  • High need for information.
  • High coordination and logistics effort.
  • Favorable purchase prices can be negated by transport costs, exchange rate fluctuations, customs duties and other trade barriers.
  • Risks from political instability in the reference country.
  • Occurrence of cultural communication problems.
  • Often long delivery times.
  • Complicated damage settlement in the event of a defective delivery.
  • Currency risks.
  • Loss of know-how.
  • possibly unclear legal situations.

Local procurement ( local sourcing )

Local sourcing means the opposite of global sourcing: the conscious reference to procurement sources that are geographically close to the company. The term domestic sourcing is sometimes used synonymously, and in this case means domestic sourcing . On the one hand, this can relate to the company's home market. On the other hand, it can be a matter of procurement in the respective national / regional sales market of a multinational company. (Example: a fast food company that buys meat from Austria and uses it to produce burgers for the Austrian market .)

In the literature there are also 'intermediate stages' between global and local sourcing, such as Euro Sourcing , which describes the search for the best supplier in Europe or the Eurozone . Such forms of regional sourcing exist for every major economic area .

advantages
  • Risk reduction of transport failures and deficiencies through shorter transport routes and times
  • Low transportation costs.
  • Logistics concepts such as just-in-time or just-in-sequence are easy to use.
  • Low risk of communication problems regarding the nature and properties of the product.
  • Positive image by giving preference to local providers and securing jobs.
  • In some cases ecologically advantageous production (compared to alternatives available on the world market ).
disadvantage
  • Higher prices than in international markets.
  • Often limited resources and limited production capacities .
  • Disturbances from the interests of the local population and politics .

Development involvement ( forward sourcing )

Forward sourcing literally means " forward-looking procurement ". The process is systematically prepared for the procurement of future series material and is an integrative approach to the procurement strategy: Suppliers can already be involved in the product planning. The manufacturer develops the product together with the manufacturers of individual components.

The goal of the forward sourcing process is the timely and cost-effective procurement of new parts for vehicle projects. For this reason, compliance with the milestones and deadlines along the process is particularly important. In addition to procurement, technical development, quality assurance, logistics, sales and financial controlling are also involved in the process.

advantages
  • Use of technical and process-related optimization potential through empirical values .
  • Building long-term relationships with suppliers. (See also: Single Sourcing.)
  • Greater ability to innovate.
disadvantage

Monopoly procurement ( sole sourcing )

Situation: Suppliers with a monopoly position on the market

Causes:

  • government regulatory measures
  • Exclusive usage rights
  • Result of cutthroat competition
  • only one supplier masters the necessary technologies

Consequence for the procurement management: complete dependence on the business policy of the supplier (monopoly supplier)

Procurement policy strategies:

  • Long-term framework agreements
  • Search for substitute products
  • Change in market structures on the supplier side

Module procurement / system procurement ( modular sourcing / system sourcing )

Modular sourcing includes the purchase of finished modules ( assemblies ). Industries such as the automotive industry, construction industry or the electronics processing industry often buy pre-assembled assemblies with a relatively large range of functions instead of individual parts. B. Dashboards in automotive engineering .

In contrast to modular sourcing, system sourcing requires an even more intensive customer-supplier cooperation, which also extends to other functional areas, in particular research and development. A system primarily represents a functional, development-related unit, whereas a module is more of a production-related unit. Several modules can form a system together.

advantages
  • The manufacturer can concentrate on his core competencies .
  • Reduction of suppliers .
  • Use of the know-how of the supplier, who may have specialized in these complete systems.
  • Reduction of the effort for quality assurance .
  • Limitation of the vertical range of manufacture and simplification of the manufacturing process.
  • Reduction of the variety of articles and purchasing processes, since instead of many individual parts only one or a few modules have to be procured.
disadvantage
  • Dependence on the module suppliers, as a very close relationship must be entered into.
  • possible loss of know-how, as the innovation must come from the supplier in the future
  • higher coordination effort through the formation of cross-company development and quality control teams

Further procurement concepts

In addition to these basic strategies, there are other concepts that are helpful in creating a procurement strategy and that can act as guidelines.

The ABC analysis is an instrument for classifying all procurement goods according to their contribution to the overall product. A-goods have only a small proportion of the product, but the highest proportion of value. C-goods, on the other hand, make up a large proportion of the finished product , but add up to very little value. The procurement strategy can be based on the results of an ABC analysis.

Implications

A single or dual sourcing strategy is often recommended for A goods, while multiple sourcing is often particularly suitable for C goods.

Quota regulations

The "60/30/10 model" is widely used in the industry and recommends that 60% of the demand for an item be met with one major supplier, another 30% with a second major supplier, and the remaining 10% with small suppliers to distribute.

The "30% model" strongly recommends not using more than 30% of a supplier's production capacity. This is to prevent delivery delays occurring directly in the event of fluctuations in the supplier's production. In addition, the supplier does not become completely economically dependent on the customer.

literature

  • W. Appelfeller, W. Buchholz: Supplier Relationship Management . Wiesbaden 2005, ISBN 3-409-12687-2 .
  • Ulli Arnold: procurement management . Stuttgart 1995, ISBN 3-7910-9181-6 , p. 96 ff.
  • Gerhard Heß: Supply strategies in purchasing and procurement, systematic approach and practical cases . 2nd Edition. Wiesbaden 2010, ISBN 978-3-8349-1991-5 .
  • Florian C. Kleemann: Global Sourcing . Saarbrücken 2006, ISBN 978-3-86550-528-6
  • Oskar Grün: Industrial materials management. In: Marcell Schweitzer (Ed.): Industriebetriebslehre. 2nd Edition. Munich 1994, ISBN 3-8006-1755-2 , pp. 447-568
  • J. McMillan: Market Design: The Policy Uses of Theory . (PDF) In: Impact of Modern Economic Theory on Policy and Empirical Research . Stanford 2003 ().
  • Thomas Andreßen: System Sourcing - Potential for Success in System Procurement: Management and Controlling of Cooperations . Wiesbaden 2006, ISBN 3-8350-0328-3
  • Gerd Kerkhoff: Purchasing Agenda 2020: Procurement in the future - secure and expand competitive advantages through visionary purchasing . 1st edition. Wiley-VCH, Weinheim 2009, ISBN 978-3-527-50501-2

Web links