PURCHASING DECISIONS AND BUSINESS STRATEGY

Introduction to Purchasing Strategy

 In most industrial firms, material constitutes 60-80 percent of the total revenue dollars. Purchased inputs offer a potential source for helping a company develop leverage against its competitors. Purchasing can give the firm advantages over its competitors. In essence, firms must design their purchasing actions to emphasize the competitive strategy.

Purchasing and Competitive Strategy Linkage

 Purchasing profesionals are expected to develop options that can help business units remain competitive. Purchasing managers need to devise purchasing actions such that they are consistent with each other and with the firm's competitive strategy. The buyer performance measures or reward criteria are other factors that influence the purchase criteria.

Strategic Purchasing

 Purchasing decisions or actions that constitute purchasing strategy are determined by the firm's competitive priorities, its resource capabilities, and the environment. In the formulation of purchasing strategy, the organization's competitive priorities, the organization's strengths and weaknesses, and the competitive environment must be considered. 

Competititve Strategy

 A firm can compete in two broad alternate ways. It can either seek competitive advantages on cost or choose to differentiate itself from its competitors on some attributes of the product or in the way it markets its product.

• Cost and differentiation : It is important but too broad to be useful for management faced with day-to-day decision making.
• The competitive strategy must be articulated in terms of copetitive priorities. Key environmental factors also must be considered.

Supply Chain Strategy

 As competitive forces increase, customers demand better product, faster delivery, increased service, and decreased cost. As firms become more competitive, a rippling effect is experienced by the suppliers. As inventory levels are reduced throughout the supply chain, each member becomes less insulated from demand variation.

 Companies participate in a variety of supplier relationships and take on a variety of roles. Each company can be supplier, customer, or end-user of products. Supplier partnerships can be categorized using five factors : 

1. Degree of risk/reward
2. Type of relationship
3. Information
4. Planning 
5. Asset ownership