Diagnosing the Case
A company’s need for a supply strategy depends
on two factors: (1) the strategic importance of purchasing
in terms of the value added by product line,
the percentage of raw materials in total costs and
their impact on profitability, and so on; and (2) the
complexity of the supply market gauged by supply
scarcity, pace of technology and/or materials substitution,
entry barriers, logistics cost or complexity,
and monopoly or oligopoly conditions (see Exhibit
I). By assessing the company’s situation in terms of
these two variables, top management and senior purchasing
executives can determine the type of supply
strategy the company needs both to exploit its
purchasing power vis-à-vis important suppliers and
to reduce its risks to an acceptable minimum.
Attractive new options, or serious vulnerabilities,
or both, may come to light as the assessment explores
questions like these:
Diagnosing the CaseA company’s need for a supply strategy dependson two factors: (1) the strategic importance of purchasingin terms of the value added by product line,the percentage of raw materials in total costs andtheir impact on profitability, and so on; and (2) thecomplexity of the supply market gauged by supplyscarcity, pace of technology and/or materials substitution,entry barriers, logistics cost or complexity,and monopoly or oligopoly conditions (see ExhibitI). By assessing the company’s situation in terms ofthese two variables, top management and senior purchasingexecutives can determine the type of supplystrategy the company needs both to exploit itspurchasing power vis-à-vis important suppliers andto reduce its risks to an acceptable minimum.Attractive new options, or serious vulnerabilities,or both, may come to light as the assessment exploresquestions like these:
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