Diagnosing the CaseA company’s need

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 gauge by supply
scarcity, pace of technology and/or materials substitution,
entry barriers, logistics cost or complexity,
and monopoly or oligo 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: