Notesale: Turn your study into money

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Critical Items
What are they?
They are non-standard
There are few suppliers
Few alternatives exist
The risk to your company is high
Your annual expenditure on the item is high
Your relatively high expenditure makes your purchases
attractive to suppliers
ITC

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2-1

Developing a partnership:
Partnerships involve time & effort and are based on trust
You need to be willing to work closely with the supplier and to
share information
Select a partner with which you can develop a competitive
advantage
The contract is more of an expression of
long-term commitment and one that
states the ground rules

ITC

GOAL

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3-1

Supply strategy for critical purchases
Give examples of bottleneck items from your company
Current
Current number of
Purchased item
contractual
suppliers
basis

ITC

Appropriateness of the
proposed strategy

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4-1

Operational Strategies
for Critical Items (II)
Organisational learning & communication strategy - how to
continuously develop and improve the relationship?
Capture the supplier’s expertise & innovation capabilities to
optimise design
Protect future costs & availability (e
...
, of replacement items &
spares for capital goods)
Joint approaches to quality assurance
ITC

QUALITY

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4-3

Which operational strategy to use? (I)
Selecting operational strategies for critical items
Value
Analysis/
Value
Engineering

• Cost
• Lead-time
• Conformance to
specification

• E
...
: new product development, high cost
elements or subject to quality
problems and business processes

Process reengineering

• Lead-time
• Conformance to
specification

• Processes account for a significant
proportion of total lead-time or are
ineffective

Demand
forecasting

• Purchase price
• Lead-time

• Price is sensitive to volume
• Capacity is limited or lead-times long

Phased release of • Lead-time
specification
information
ITC

• Long lead-times and short time

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4-5

Which operational strategy to use? (II)
Strategy

Supply targets

Quality
assurance

• Conformance to
specification

• Product or service quality is poor or
variable

Supplier
development

• Cost
• Lead-time
• Conformance to
specification

• Where your company has knowledge &
expertise that can help the supplier to address
an area of poor performance

Supplier
account
manager

• Can indirectly
affect various
supply targets

• All partnerships

Total cost of
ownership
modelling

• Cost

• Capital items with significant post-purchase
costs

ITC

Circumstances

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4-7

Action Point

7
...
4-8

Suppliers of Critical Items
- desirable characteristics
Be financially stable and have a sustainable
market position
Understand & agree to the concept of partnership
Not seek to exploit their situation
Not have a similar relationship with a competitor
Be cost & technologically competitive in the medium and long term
Have a business strategy that is compatible and aligned with yours
Be able to benefit from the relationship
Be able to reduce any upstream supply risk if applicable
ITC

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5-2

Exceptions to the proposed strategy
Your business is not attractive to suppliers:
this will create a bottleneck situation
Suppliers are unwilling to enter into partnerships: this could be the
case in certain industries or supply markets
Exceptional reliance of the supplier on your company - don’t
destroy creativity & innovation by using power
Unpredictable supply market leaders: you may not want to have a
partnership if technology leaders change frequently
If you can’t find a suitable supplier: use joint ventures and
backward integration
ITC

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7-1

Supply Strategy for Critical Items
- Summary
Supply strategy for continuous critical items
Number of suppliers:
Nature of relationship:
Type of contract:

One
Partnership
Long term “partnership” contract

Type of supplier
Must be particularly capable in those areas which pose the greatest risk to your company
...

Your required products and services must be core business to the supplier
...

The supplier must be financially stable and have a sustainable market position
...

It should not seek to exploit your company’s position
...
8-1



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