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Procurement strategy-based supplier relationships

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Procurement strategies like all other business related strategies are developed through environment assessment using models.

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The most common models for relationship strategies are the purchasing portfolio matrixes and supplier referencing matrix that focus of supplier relationships.
The purchasing portfolio matrix firstly considers the products in relationship to the markets whereas the supplier referencing matrix assesses the different relationships for suppliers for appropriate development of a procurement strategy.

We shall explore facets of purchasing portfolio matrix in supplier relationship related procurement strategies.

The purchasing portfolio matrix considers two elements of profit impact of a product or commodity bought that represents the strategic importance of an item of purchase in terms of value added by the product line and the percentage of raw materials in total cost and their impact on profitability.

The other variable of supply risks that represent the complexity of the supply market gauged by supply scarcity, pace of technology and or material substitution, entry barriers, logistics costs or complexity, and monopoly and oligopoly conditions.

High value and low risk items are standard items that could have many alternative sources and are regarded leverage items, in line with the model.

Non critical items are the low value and low risk items easily substituted and having alternative sources of supply.

Bottleneck items are low profit impact items, but with high supply risk characterised with monopolistic market and products without close substitutes.

Strategic supplies are the high profit impact, high risk items without close substitutes and limited sources of supply. Why then is it important to understand these categories?

The purpose is to establish the level of supplier relationship management (SRM) required, namely purchasing strategy, supplier selection and development, and collaboration with suppliers.

The solution out of this assessment is not a one size fit all and does not suggest solutions based on an integrative concept, as they focus only on domain-specific problems.

To overcome this limitation, a framework for an integrative SRM system by analysing comprehensive approaches to overall SRM functions is necessary.
Given the limitations, the framework however can play a major role in enhancing the efficiency and effectiveness of SRM by adopting an integrative concept because the functions of SRM are highly interrelated.

The framework allows the purchasing staff to scrutinise key features of SRM before and during the SRM system operation.

To this effect, it is evident that procurement is becoming highly technical if organisations are serious about being competitive and would require staff with specific knowledge and skills on the subject matter to be effective.

The truth of the matter is that it is not business as usual and a lot of investment is required in procurement qualified and skilled staff to sustain businesses.

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