Wayne L. Douchkoff
Wayne L. Douchkoff, Executive Vice President, Professionals for Technology Associates, Inc. 2273 Palm Beach Lakes Blvd., West Palm Beach, FL 33409, 407/687-0455.
Introduction and explanation of the Material Positioning Grid and how to use it in the formulation of successful Supply Management strategies. Description of the process successfully used by companies from varied industries to develop and monitor their strategies and tactics. Thorough demonstration of the relationship between material and marketplace conditions.
At a recent in-house training session for a client, we were covering the material in the second chapter of our book, Supply Management Toolbox (ISBN: 0-945456-11-5; PT Publications, West Palm Beach, FL), as a way to demonstrate how they could achieve improved customer satisfaction. We were going over how to develop commodity teams which would be responsible for supplier relations when a buyer interrupted us and said, "All this stuff about supplier certification, improved quality and reduced cycle times is great, but you don't understand our business. Our customers always want something special. Maybe if we made a standard product, we could do what you are telling us. Otherwise, it's going to be extremely difficult, if not impossible."
My reply was this: "Yes, it's going to be very difficult to develop a supply management strategy in your company, but it's not impossible. We are here to help you mold a supply strategy that matches your corporate strategy. If your market strategy is to offer the market exactly what it wants, then our job is to help you find suppliers capable of meeting that high mix. If the strategy is to make custom products, then we need to link the supply strategy to those goals."
Unknowingly, the buyer had anticipated the section we were about to teach next. Let me show you how I responded.
KEYS TO SUCCESS.
The key to devising a successful supply strategy is to align it with your overall company strategy. Companies must select a supply base which allows them to meet their market requirements. All too often today, companies jump right into sourcing suppliers, services or materials without a strategic plan. To rectify that situation, we have provided our clients with some simple tools which require their companies to develop a proactive process. The Material Positioning tools described below make Supply Management useful on a day-to-day basis as they aid companies in the choice of an effective supply strategy.
The Material Positioning tools were developed based upon the recognition that two of the most important factors which determine supply strategy are: 1) influence on company results and 2) procurement risks. We feel that it is extremely important to understand your market and the level of procurement risk.
Briefly, these are the steps a company needs to take to develop a supply management strategy:
TOOL #1. Use the first tool, Influence on Company Results, as a way to determine on a scale of 0-5 what degree of influence the selected material/commodity has on your competitiveness. For each of the categories, describe the factors which affect it and rate their degree of influence. These factors and their weights may be different for different end-products. This tool helps you identify the pressures we sometimes don't see and consequently don't address.
TOOL #1: Influence on Company Results
(A x B)
Total 1.0 Sum of C's = Influence Index
TOOL #2. The second tool, Procurement Risk, is used to chart on a scale of 0-5 the varying levels of procurement risk. An assessment of the four competitive forces of bargaining power, substitution, rivalry and entry barriers determines the procurement risk you face. The strength/weakness of these forces may be different for each material/commodity.
TOOL #2: Procurement Risk MATERIAL/COMMODITY Procurement Risk (Scale 0-5)
BARGAINING POWER buyer seller 0 1 2 3 4 5
SUBSTITUTION easy difficult 0 1 2 3 4 5
RIVALRY intense mild 0 1 2 3 4 5
BARRIERS weak strong 0 1 2 3 4 5
Below are some examples of what competitive forces might be listed under the categories in Tool #2:
MATERIAL POSITIONING MATRIX.
After you have scored the Influence on Company Results and Procurement Risk tools, position the material/commodity on the Material Positioning matrix. The quadrant it occupies will determine the most appropriate strategies for this material/commodity.
When you have completed Tool #1 and #2, then you can select a strategy. For example, if completion of Tool #1 and #2 indicated that the selected material/commodity was in the top, right quadrant of the Material Positioning Matrix, then you would look under the possible dominant strategies listed in the table below.
|Consolidate with other Divisions||x||x|
|Cross Commodity Leverage||x||x|
|Internal Price Benchmarking||x||x||x|
|Resource to New Suppliers||x|
Definitions of the typical strategies listed above are given here:
SELECTING A SUPPLY STRATEGY. When selecting your supply strategy, be aware that the following factors influence strategy selection:
In the diagram on the next page, write in the name of the material, commodity or sub-commodity in the space provided. Place an "x" in the Classification box. Fill in the Influence and Risk Indices. Note the selected strategies, who is responsible for each, and due dates.
Clients which have used the tools described in this article find that they are much better able to attain customer satisfaction. This makes sense because our clients have sourced suppliers which help them to attain overall company goals. Successful Supply Management programs rest upon a foundation which is comprised of the correct supplier strategy for a given situation.
NOTE: This article is missing charts. For a complete copy of the article, please call the NAPM Information Center.