Procurement & Materials

Management - Strategy
Arvind Tiwari
Guest Faculty IIFT

Overview

What is Strategy?
Organisation Objectives & Strategy
Supply Chain Objectives & Strategy
Procurement Objectives
Procurement Strategy
Strategy in Practice
Tools
Drivers

What is Strategy ?
We are here current situation baseline
We want to reach there objective
How do we get there ?
Long term objective with series of milestones
or
Series of Objectives
In either case the timeframe is long with short
and medium term checkpoints

What is Strategy
Long Term & Dynamic Business Conditions can
& do impact the Objective
Mid term course corrections may be become
necessary
Elements
Roadmap
Timeline
Resources
Review Mechanism

Organisation Objectives

Long , Medium & Short Term

Revenues , Growth
Volumes , Market Share
Profits , Profitability
Current Products, New Products
Customer Service
Quality
Productivity
People practices
Sustainability
CSR

Organisation Strategy
Growth
Organic
Inorganic

Markets & Market Scenarios

International is the product good for the
relevant market. E.g.: M&M SUV US market entry
Domestic
Regional

Big impact of Parent Company strategy in case

of MNCs

Organisation Strategy
Products
Existing E.g.: the best typewriter
New

Technology
Expected changes
Current life cycle
Acquisition , collaboration, JV

Organisation Strategy
Positioning
Premium
Niche
Quality
Volume

Profitability
Price
Cost

Customer focus

Supply Chain Objectives

Long , Medium & Short Term

Aligned with Organisations Objectives
Customer Service
Distribution network improvement
Outbound Logistics
Outsourcing / Insourcing
Quality
Cost
Inbound Logistics
New Product Development
Supplier Development / Rationalisation
Value Analysis / Value Engineering

Supply Chain Strategy

Aligned with Organisation Strategy
Customer facing
Distribution effectiveness
Logistics efficiency

Operations
Outsourcing
FG, WIP, RM Inventory

Supply Chain Strategy

Quality
Cost
Delivery
New product development
To be discussed in more detail under
Procurement Strategy
Inbound logistics
Warehousing

Procurement Objectives
Should be
Based on Organisation & Supply Chain Objectives
Time frame to be aligned with organisation
Quantifiable as far as possible
Specific & time-bound
The basis for the Commodity Groups objectives
The basis for individual KRAs

Procurement Objectives
Cost
Reduction in Rupee or % of spend terms

Localisation
No of parts / value

Global sourcing
No of parts / value

Procurement Objectives
Quality
Improvement in terms of ppm
Warranty failure reduction

Delivery
Achieve a % fill rate

Inventory
Target number of days

Procurement Objectives
New Product Development
As per the NPI plan

Supplier base rationalisation

Target number of suppliers

New Supplier approval

If necessary commodity and number

Supplier Development
Number of suppliers and improvement target

Procurement Objectives
Innovation
Introduction of new process / improvement of
existing

Value Analysis / Value Engineering

Joint target with PE for specific projects / savings

Resource development
Training internal and external of team members
target number of days per person

Commodity Objectives /
Individual Objectives
Commodity
Derived from Procurement Objectives
Allocated across commodities based on spend,
potential, market conditions, complexity etc

Individual
Derived from Commodity / Procurement
Objectives
Finalised based on individual spend, potential,
market conditions, complexity etc

Procurement Strategy
To achieve Organisations objectives
Has a long term but with focus on short term
milestones
Course corrections based on change in
organisation strategy as well as achievement
or non achievement of objectives
Each Commodity group has its own objectives
and strategy based on this

Procurement Strategy - Information

Ground work required
Commodity grouping
Spend analysis
Supplier wise spend
Commodity wise number of suppliers and spend
Supplier information

Performance
Capability
Capacity
Financials

Spend Value v/s Supplier Risk

Spend Value (Profit Impact) v/s Supplier Risk
Analysis
Categorisation into
Strategic
Leverage
Bottleneck
Non Critical

Strategic
Strategic items require the most involvement
with
Clear objectives
Regular monitoring
Course correction if/when required
Personal interaction at highest level in
procurement

Leverage
Leverage items
Careful handling to maximise benefit without
exploiting supplier long term view
Spend value is high so close monitoring essential
to take advantage of market conditions and avoid
impact in unfavourable conditions
Avoid single source to take price advantage

Bottleneck
Bottleneck Items
Spend value low but high supplier risk make these
items critical
Ensuring supply continuity is most important
Develop new suppliers
Or propose specification change to a more easily
available commodity

Non critical
Non critical items
Reduce buying effort by simplification and
automation
Less frequent review
Minimum purchasing effort

Strategy in Practice
Strategy has elements at function level and
some at commodity level
It has to be in line with the long term strategy
In a particular period it may be more or less
aggressive depending on
Organisation position
Suppliers position
Business scenario - Global & local market trends
Many other factors

Strategy in Practice
Organisation (customer) strength
Brand name
Current business - volume
Potential business volume
Geographical proximity
Business growth
New market potential exports
New products technology
Fair business practices , support supplier
development

Strategy in Practice
Supplier strength
Technology
Capability
Capacity
Cost competitiveness
Geographical proximity
Financial strength ability to invest

Strategy in Practice
Business conditions
Market

Growing overall
Growing in your segment
Stable
Declining

Commodity market trend

Financial conditions
Forex rates
Consumer confidence
Job market

Tools
Supplier
Outsourcing
Global sourcing
Localisation
Supplier base rationalisation
Exit
Entry
Reorganisation

Supplier development

Tools
Supplier
Relationship management
Share of business
Satisfaction

Cost
Negotiation
Commercial / Payment terms
Taxation

Quality

Tools
Delivery
Third party logistics
Information management
Forecast accuracy
Information sharing

Inventory
VMI

Packaging review
Returnable packaging
Customised packaging

Tools
Value Analysis / Value Engineering
Hedging
Forex
Commodities

Drivers
Procurement strategy will always be driven by
Corporate & Supply Chain strategies
Expand capacity without large Capex
Outsourcing
E.g.: JCB India

Best in class Quality

Highest priority to quality
Other parameters become secondary
E.g.: Toyota

Drivers
Cost leader
Focus on cost
E.g.: Videocon

Frequent new product introduction

Suppliers able to support this requirement needed

Volume player
Suppliers with capacities to support and to invest
in more
E.g.: Hero MotoCorp, Reliance Mobile

Drivers
Premium positioning
Suppliers who understand this and have required
capability
E.g.: Mercedes ,BMW , Audi, Apple

Export led growth strategy

Quality and reliability of prime importance
More elbow room on cost
E.g.: Bajaj Auto

Geographical location
Logistic barriers
E.g.: Sricity , Bhuj, Baddi etc

Drivers
Current and projected volume of business
Size of parts
(No) logistic barriers
E.g.: Mobile , Automobile companies

Entry into new product segment

Suppliers with required mindset & capabilities
E.g.: Tata Motors CV to PV

Drivers
Business Conditions
Growing market
High demand from all segments
Most Suppliers running to capacity or extra
Customers willing to pay to get supplies in time

Declining market
Suppliers with idle capacity
Willing to do extra
Competition amongst suppliers for whatever available

Ensuring availability of Supplier Capacity is a

key strategy requirement

Drivers
Increasing commodity prices
Cost pressure on suppliers

Adverse forex trend

Cost pressure on imported commodities and parts
Local commodity players taking advantage
E.g.: Steel Industry

Drivers
Risk appetite of the customer
Single source strategy
E.g.: Supplier bankruptcies in US/Europe
E.g.: Customers asking Motherson to acquire
supplier

Over dependence on supplier(s)

E.g.: Mahindra, Rubber supplier

Over dependence of supplier(s) on customer

E.g.: Mahindra, Casting supplier
E.g.: Tata Motors, Tube supplier

Impact on Parameters
Top priority to one parameter does not mean
that others will be ignored
Top parameter will drive the strategy and in
cases of conflict it will override other
considerations
Other key parameters will remain with
reduced weightages
Ongoing efforts to improve others without
adversely impacting the top