Supply Chain Management

Submitted By: Soniya Agnihotri Roll No 72 EPGDIB - 2012 - 14 Indian Institute of Foreign Trade, New Delhi Course: Supply Chain Management Faculty: Dr. Nitin Seth

Supply Chain Management

Statement: What should be the strategy for those materials: Which are low cost and large number of suppliers are present to supply that material? (Assume that material is available) Cost of material is high and large number of suppliers are present Cost is low, few suppliers are available Cost is high, few suppliers are available Strategies: Typically a sourcing model can be defined on a two by two matrix with Spend / Cost on Y axis (high/low) and number of suppliers on the X-axis (high/low) [Scenario 1] Cost is low and large numbers of suppliers are available: When there are many of suppliers and the amount spend on the product is low, the strategic intent for a buyer should be to 'Leverage buying power'. This means that although the total spends on the product is low, but there could be competition in the market among suppliers to sell their product. In this type of scenario, we may need to: 1. Leverage the volume to consolidate volume with few suppliers 2. Create open competition between the suppliers One of the typical ways of leveraging buying power could be to conduct open biddings or auctions where their relative price levels are known during the process. This process would make sure that the suppliers are able to offer prices at the lowest margin possible. And then have short term contract with suppliers to create a threat on suppliers to keep their prices at the lowest possible. [Scenario 2] Cost is high and large numbers of suppliers are available: When there are many suppliers and the amount spend on the product is also high, we may need to 'partner' with the suppliers to ensure the security of delivery and also obtain best price from the supplier under trust. Under this strategy we may need to evaluate the supplier economics and interest to partner. Based on the market scenario the suppliers can be negotiated for long term relationships/contracts.

Supply Chain Management

[Scenario 3] Cost is low, few suppliers are available: When there are few suppliers and the amount spend on the product is low, the strategic intent of the buyer should be to buy material from the market with 'reduced processing costs'. Typically the purchasing of these types of materials should be shop for the material from the market with least number of suppliers following the probable ways: 1. Annual contracts / blanket agreements with suppliers 2. Buy products on spot if no market hedging exists or speculations. [Scenario 4] Cost is high, few suppliers are available: When there are few suppliers and the amount spend on the product is high, the primary goal of the supplier should be to 'manage risk of supply'. In this scenario it is really very essential for a buyer to: 1. Secure volumes from limited number of suppliers would be the primary objective of the supplier and typically though contracts. 2. Create transparency and trust with the suppliers and share risks 3. Develop a back-up plan for supply of material 4. Make v/s buy decisions: Identify opportunities to in source the production of the material wherever possible.