When practice met kraljic 130814

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  • 1. When Practice Met Kraljic A Case Study Exploring the Theoretical Assumptions 14th August 2014Róisín Killeen
  • 2. 14th August 2014Róisín Killeen When Practice Met Kraljic - A Case Study Exploring the Theoretical Assumptions Research Questions 1. How does a procurement conform to Kraljics’ product classification/matrix positioning? 2. What is the assumed buyer/supplier relationship for that product classification; is it sustained? 3. What is the assumed strategic direction and is it viable in all circumstances? 2 The Literature Theoretical Assumptions Underpinning; Product Classification, Buyer Supplier Relationship, Strategic Direction 3 Research Methods Embedded Case Study – National Procurement Service; Multi Supplier Framework Agreement 4 Findings Leverage ≠ Buying Power; Asymmetric relationship observed, Blended Strategy observed 5 Discussion Product Positioning is dynamic; Purchasing strategies are contextually and relationally dependent. 6 Motivation – Challenging Assumptions Mats Alvesson - Guiding ambition not to reproduce assumptions but to challenge them 1
  • 3. KRALJIC EXHIBIT I (1983) - STAGES OF PURCHASING SOPHISTICATION - 14th August 2014Róisín Killeen HIGH IMPORTANCEOFPURCHASING LEVERAGE ITEMS Performance Criteria -Cost/price and materials flow management Typical Sources -Multiple suppliers, chiefly local Time Horizon -Varies, typically 12-24 months Supply -Abundant Decision Authority -Mainly Decentralized STRATEGIC ITEMS Performance Criteria -Long-term avaliability Typical Sources -Established global suppliers Time Horizon -Up to 10 years, governed by long-term strategic impact Supply -Natural scarcity Decision Authority -Centralized NON-CRITICAL ITEMS Performance Criteria Functional efficiency Typical Sources Established local suppliers Time Horizon Limited, typically 12 months or less Supply Abundant Decision Authority Decentralised BOTTLENECK ITEMS Performance Criteria Cost management and reliable short-term sourcing Typical Sources Global, predominantly new suppliers with new technology Time Horizon Variable, depending on availability vs. short-term flexibility Supply Production-based scarcity Decision Authority Decentralized, but centrally co-ordinated. LOW COMPLEXITY OF SUPPLY MARKET HIGH
  • 4. CANIELS AND GELDERMAN (2005) - POWER AND DEPENDENCE - 14th August 2014Róisín Killeen HIGH PROFITIMPACT LEVERAGE ITEMS 6 5 STRATEGIC ITEMS 7 8 9 3 4 NON-CRITICAL ITEMS 2 1 BOTTLENECK ITEMS LOW SUPPLY RISK HIGH 1. Reduce dependence and risk, find other solutions. 2. Accept the dependence, reduce the negative consequences. 3. Pooling of requirements 4. Individual ordering, pursue efficient processing. 5. Exploit buying power (“partner of convenience”). 6. Develop a strategic partnership. 7. Maintain strategic partnership. 8. Accept the lock-in “partnership”. 9. Terminate partnership, find new supplier.
  • 5. WHEN PRACTICE MET KRALJIC: THE CASE STUDY TO EXPLORE THE THEORETICAL ASSUMPTIONS 14th August 2014Róisín Killeen • WHY?• WHAT? • WHERE?• WHOM? Centralised Public Procurement Unit – National Procurement Service Natural Gas Market – Framework for the Supply of Natural Gas to the Public Sector in Ireland Purchasing Portfolios - Establish the Practice & Challenge the Theory Purchasing Portfolio Model – SUPREM Product Positioning
  • 6. WHEN PRACTICE MET KRALJIC: PRELIMINARY FINDINGS 14th August 2014Róisín Killeen PRELIMINARY FINDINGS - SUPPLY RISK POSITIONING BY SUPREM HIGH RELATIVE VALUE HIGH SUPPLY RISK
  • 7. WHEN PRACTICE MET KRALJIC: - FINDINGS - PRODUCT CLASSIFICATION  “Suggesting the actual conditions present a leverage situation is simplistic.” “If the understanding of “leverage” is that; should you go to the market en- masse, you have got good buying power, and then the market will respond and respond kindly; is too simple a characterisation, especially in this market.” BUYER/SUPPLIER RELATIONSHIP  “If large buying power is perceived to mean high value as a customer such a direct and simple correlation is crude and naïve.”  “The suggestion that buying power gives you all the power in the market is also too simple. The reality is that power lies in many places, and in this market it exists on the supply side.” “Power exists with suppliers in their knowledge and the inherent complexity of this market.” 14th August 2014Róisín Killeen STRATEGIC DIRECTION  A strategy to develop a strategic partnership requires longer term commitments.  “The market, from both a practical and commercial perspective is geared towards longer- term arrangements.” This provides the opportunity for suppliers to acknowledge and commit to the business relationship; thereby achieving greater certainty and allow investment in enhancing the systems and relationships.
  • 8. Expected Conditions • Leverage Product • High Relative Value – Low Supply Risk Product Classification • Supplier Dependence > Buyer Dependence, or • Supplier Dependence = Buyer Dependence Buyer/Supplier Relationship • Hold Position – Exploit Buying Power • Move Position – Develop Strategic Partnership Strategic Direction Observed Conditions • High Relative Value – High Supply Risk • Strategic Product? Product Classification • Buyer Dependence > Supplier Dependence Buyer/Supplier Relationship • Hold Position - Reduce Dependence and Risk Strategic Direction 14th August 2014Róisín Killeen WHEN PRACTICE MET KRALJIC: - CONCLUSION -
  • 9. WHEN PRACTICE MET KRALJIC: THE CASE STUDY TO EXPLORE THE THEORETICAL ASSUMPTIONS THANK YOU ANY QUESTIONS? 14th August 2014Róisín Killeen