Prepared by
LECTURE FOUR
CHALLENGES IN PURCHASING AND SUPPLY RELATIONSHIPS
Supply positioning model and its impact on supplier buyer relationship
Supply positioning is a tool used to analyze the goods, works, materials, supplies and services
used by many organizations in different sectors to determine purchasing strategies and tactics
and enable the purchasing teams to work within their organization and within the supply chain to
successfully meet their business objectives. The supply positioning model has four quadrants
Analysis of each quadrant
Strategic critical
- Items in this category are those which are critical to the success of the business both
in terms of their availability and their impact on its competitive edge, cost structure
and profitability.
- Availability is constrained by such factors as limited supply sources, long lead-times
and technical complexity
- Values of individual items are high and collectively are likely to represent the greatest
proportion of an organization’s total expenditure on goods, works materials and
services
- In terms of items this group is the smallest, in terms of spend it is the largest. For this
type of items the emphasis is on developing and managing long-term close
relationships with suppliers whereby both parties will establish their objectives,
agreement on relationship values, practices and continuous improvement programs
Strategic security
- These low cost items have the greater potential to stop the job. Availability of items
in this category is constrained by such factors as long lead-times, limited supply
sources, complex technical features and they offer little opportunity for cost reduction
or significant profit contribution. The value of an item is insignificant compared to
the potential cost of disruption to the business through failure of supply
- The approach to managing supply arrangements for these items is to seek to minimize
the constraints that affect their availability. This may be done through;
Establishing safety or consignment stocks
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Developing alternative supply sources
Developing closer supplier relationships to provide greater security of supply. This
may involve establishing long term contractual or relationship agreements with these
suppliers
Tactical profit
- These are items which through timely action in the market place provide an
opportunity for making significant savings on costs thus contributing to profit
- These items are readily available from a number of alternative sources and don’t
require any special action in the selection or management of supply sources
- They are regarded as commodity products and may be of medium or high value.
Management of supply arrangements for these items is based on taking maximum
advantage of the competitive marketplace.
- There is limited value to be added by developing close long-term relationships with
the selected suppliers as this may lead to lost ability to take advantage of short term
market opportunities
- The emphasis is therefore short term commitments with suppliers and maintaining
flexibility to purchase from whichever sources offer the best terms. The relationship
therefore continues to exist but the supply is dependent on the sellers ability to
compete on each occasion
Tactical acquisition
- These are the numerous low value, low risk items typically required by most
businesses to satisfy their routine requirements. Items in this category accounts for
70% of volume of the number of items purchased
- The total value of this area in terms of spend may be no more than 5% of the total
spend of the organization
- Items would normally be available on short lead-times from a relatively large number
of supply sources and would be to standard designs or specifications
- The low level of expenditure and risk associated with these items doesn’t justify
anything other the minimum effort of managing supply arrangements and inventory
levels ensuring that they are available when required with minimum of attention
inconvenience and cost
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LECTURE FOUR
CHALLENGES IN PURCHASING AND SUPPLY RELATIONSHIPS
Supply positioning model and its impact on supplier buyer relationship
Supply positioning is a tool used to analyze the goods, works, materials, supplies and services
used by many organizations in different sectors to determine purchasing strategies and tactics
and enable the purchasing teams to work within their organization and within the supply chain to
successfully meet their business objectives. The supply positioning model has four quadrants
Analysis of each quadrant
Strategic critical
- Items in this category are those which are critical to the success of the business both
in terms of their availability and their impact on its competitive edge, cost structure
and profitability.
- Availability is constrained by such factors as limited supply sources, long lead-times
and technical complexity
- Values of individual items are high and collectively are likely to represent the greatest
proportion of an organization’s total expenditure on goods, works materials and
services
- In terms of items this group is the smallest, in terms of spend it is the largest. For this
type of items the emphasis is on developing and managing long-term close
relationships with suppliers whereby both parties will establish their objectives,
agreement on relationship values, practices and continuous improvement programs
Strategic security
- These low cost items have the greater potential to stop the job. Availability of items
in this category is constrained by such factors as long lead-times, limited supply
sources, complex technical features and they offer little opportunity for cost reduction
or significant profit contribution. The value of an item is insignificant compared to
the potential cost of disruption to the business through failure of supply
- The approach to managing supply arrangements for these items is to seek to minimize
the constraints that affect their availability. This may be done through;
Establishing safety or consignment stocks
Page 1 of 7
, Prepared by
Developing alternative supply sources
Developing closer supplier relationships to provide greater security of supply. This
may involve establishing long term contractual or relationship agreements with these
suppliers
Tactical profit
- These are items which through timely action in the market place provide an
opportunity for making significant savings on costs thus contributing to profit
- These items are readily available from a number of alternative sources and don’t
require any special action in the selection or management of supply sources
- They are regarded as commodity products and may be of medium or high value.
Management of supply arrangements for these items is based on taking maximum
advantage of the competitive marketplace.
- There is limited value to be added by developing close long-term relationships with
the selected suppliers as this may lead to lost ability to take advantage of short term
market opportunities
- The emphasis is therefore short term commitments with suppliers and maintaining
flexibility to purchase from whichever sources offer the best terms. The relationship
therefore continues to exist but the supply is dependent on the sellers ability to
compete on each occasion
Tactical acquisition
- These are the numerous low value, low risk items typically required by most
businesses to satisfy their routine requirements. Items in this category accounts for
70% of volume of the number of items purchased
- The total value of this area in terms of spend may be no more than 5% of the total
spend of the organization
- Items would normally be available on short lead-times from a relatively large number
of supply sources and would be to standard designs or specifications
- The low level of expenditure and risk associated with these items doesn’t justify
anything other the minimum effort of managing supply arrangements and inventory
levels ensuring that they are available when required with minimum of attention
inconvenience and cost
Page 2 of 7
