purchasing_strategy-1

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Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008

Retail Purchasing & Supply Chain Management

Purchasing Strategy

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• Explain the growth in the strategic role of purchasing and supply

• Appreciate the importance of purchasing within the organisation’s structure

• Identify various forms of purchasing strategy aimed at gaining competitive advantage and to examine influences on strategic choice

Learning objectives

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A proactive purchasing operation can give the retailer a competitive advantage by reducing waste in the value chain

Purchasing strategies, however, cannot be developed in isolation, they need to be integrated with corporate strategy to succeed

Purchasing strategy

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Levels of strategy within an organisation

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Note: The examples are for the purpose of illustration only. A complete statement of the scope would be very lengthy, and would vary greatlybetween one organisation and another

The scope of the purchase function

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Growth in the strategic role of purchasing and supply (a)

• Purchasing is seen as an area for adding value, not just reducing costs

• Rapid product innovation requires cooperation from all business functions

• Greater integration of the flows of materials and information (e-retail, ERP (enterprise resource planning)

• Growing awareness that supplier involvement can increase efficiency (VMI vendor managed inventory)

• Developing awareness that the strategic costs of supply, as opposed to short-term price, are important

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Growth in the strategic role of purchasing and supply (b)

• Influence of leading Japanese companies promoting purchasing and supply as important strategic functions

• A recognition of the growth in purchased materials and services by retailers

• Increased recognition of the profit potential in purchasing (purchasing profit multiplier)

• Growth and development of the Chartered Institute of Purchasing and Supply (CIPS)

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Source: Based on Lynch, 2002

The interrelationship between mission statements, results required and strategies

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Mission statements

• Asda: to be the UK’s best value retailer exceeding customer needs. Always

• Waitrose: aims to combine the convenience of a supermarket with the expertise and service of a specialist shop whilst offering a price commitment to ensure that the customer always gets good value for money when shopping at Waitrose

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What is category management?

Continual monitoring of expenditures and supplier performance in specific buying categories with the intent of driving ongoing cost or supplier performance improvements.

Category management (a)

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Category management (b)

Categories consist of items of:

• similar supplier sources;

• similar production processes;

• similar internal use;

• similar material content/complexity;

• similar specifications;

• similar underlying technology.

Categorisation looks at the inherent properties of categories

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Examples of tools of analysis

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Product life cycle

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Porter’s five forces model

Source: Reprinted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter. All rights reserved

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Developing the SWOT cruciform

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Analysis of cost reductions

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Factors affecting the choice of a purchasing strategy

• The position of the business in its supply chain (competitors, manufacturers?)

• The number of effective sources in the retailer’s supply market

• The pace of technological development in the supply and consumer markets

• The volatility of the supply and/or consumer markets• The degree of government involvement in the market• The ability of the company to manage a strategy

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A framework for strategy development

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Figure 2.17 Some inflences on strategy decisionsNote: *Strengths, Weaknesses, Opportunities, Threats

purchasing_strategy-1

Business

procurement principles

strategy baily

important baily

organisation baily

strategicchoice baily

strategic costs of supply

strategic role

supply cipsbaily