Phase 4: Action Plans
Each of the three strategic thrusts has distinctive
implications for the individual elements of the purchasing
strategy, such as volume, price, supplier selection,
material substitution, inventory policy, and so
on (see Exhibit V).
In the short term, for strategic items where the
supplier’s strength outweighs the company’s and the
indicated strategy is diversification, the company
should consolidate its supply position by concentrating
fragmented purchased volumes in a single
supplier, accept high prices, and cover the full volume
requirements through supply contracts. To reduce
the long-term risk of dependence on a single source,
however, the company should also search for alternative
suppliers or materials or even consider backward
integration to permit in-house production. On
the other hand, if the company is stronger than the
suppliers, it can spread volume over several suppliers,
exploit price advantages, increase spot purchases,
and reduce inventory levels.
In this phase, then, the company should explore
a range of supply scenarios in which it lays out its
options for securing long-term supply and for exploiting
short-term opportunities; clearly define respective
risks, costs, returns, and strategic implications;
and develop a preferred option with objectives, steps,
responsibilities, and contingency measures laid out
in detail for top management approval and implementation.
The end product will be a set of systematically
documented strategies for critical purchasing
materials that specify the timing of and
criteria for future action.