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  • 8/9/2019 PMM Strategy

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    Procurement & Materials

    Management - Strategy

    Arvind Tiwari

    Guest Faculty IIFT

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    Overview

    • What is Strategy?

    • Organisation Objectives & Strategy

    Supply Chain Objectives & Strategy• Procurement Objectives

    • Procurement Strategy

    • Strategy in Practice – Tools

     – Drivers

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    What is Strategy ?

    • We are here –

     current situation –

     baseline

    • We want to reach there – objective

    • How do we get there ?

    • Long term objective with series of milestones

    or

    • Series of Objectives

    • In either case the timeframe is long with short

    and medium term checkpoints

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    What is Strategy

    • Long Term & Dynamic Business Conditions can& do impact the Objective

    • Mid term course corrections may be become

    necessary• Elements

     – Roadmap

     – Timeline

     – Resources

     – Review Mechanism

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    Organisation Objectives

    • Long , Medium & Short Term

    • Revenues , Growth

    • Volumes , Market Share

    • Profits , Profitability

    • Current Products, New Products• Customer Service

    • Quality

    • Productivity

    • People practices

    • Sustainability

    • CSR

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    Organisation Strategy

    Growth – Organic

     – Inorganic

    Markets & Market Scenarios – International – is the product good for the

    relevant market. E.g.: M&M SUV US market entry

     – Domestic

     – Regional

    Big impact of Parent Company strategy in case

    of MNCs

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    Organisation Strategy

    • Products

     – Existing – E.g.: the best typewriter

     – New

    • Technology

     – Expected changes

     – Current – life cycle

     – Acquisition , collaboration, JV

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    Organisation Strategy

    • Positioning

     – Premium

     – Niche

     – Quality

     – Volume

    • Profitability

     – Price

     – Cost

    • Customer focus

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    Supply Chain Objectives• Long , Medium & Short Term

    • Aligned with Organisations Objectives

    • Customer Service

    • Distribution network improvement

    • Outbound Logistics

    • Outsourcing / Insourcing

    • Quality

    • Cost

    • Inbound Logistics• New Product Development

    • Supplier Development / Rationalisation

    • Value Analysis / Value Engineering

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    Supply Chain Strategy

    • Aligned with Organisation Strategy

    • Customer facing

     – Distribution effectiveness

     – Logistics efficiency

    • Operations

     – Outsourcing

     – FG, WIP, RM Inventory

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    Supply Chain Strategy

    • Quality

    • Cost

    Delivery• New product development

    To be discussed in more detail under

    Procurement Strategy• Inbound logistics

    • Warehousing

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    Procurement Objectives

    • Should be

     – Based on Organisation & Supply Chain Objectives

     – Time frame to be aligned with organisation

     – Quantifiable as far as possible

     – Specific & time-bound

     – The basis for the Commodity Groups objectives

     – The basis for individual KRAs

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    Procurement Objectives

    • Cost

     – Reduction in Rupee or % of spend terms

    • Localisation

     – No of parts / value

    • Global sourcing

     – No of parts / value

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    Procurement Objectives

    • New Product Development

     – As per the NPI plan

    • Supplier base rationalisation

     – Target number of suppliers

    • New Supplier approval

     – If necessary – commodity and number

    • Supplier Development

     – Number of suppliers and improvement target

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    Procurement Objectives

    • Innovation

     – Introduction of new process / improvement of

    existing

    • Value Analysis / Value Engineering

     – Joint target with PE for specific projects / savings

    • Resource development

     – Training – internal and external of team members

     – target number of days per person

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    Commodity Objectives /

    Individual Objectives

    • Commodity

     – Derived from Procurement Objectives

     – Allocated across commodities based on spend,

    potential, market conditions, complexity etc

    • Individual

     – Derived from Commodity / Procurement

    Objectives

     – Finalised based on individual spend, potential,

    market conditions, complexity etc

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    Procurement Strategy

    • To achieve Organisations objectives

    • Has a long term but with focus on short term

    milestones

    • Course corrections based on change in

    organisation strategy as well as achievement

    or non achievement of objectives

    • Each Commodity group has its own objectives

    and strategy based on this

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    Procurement Strategy - Information•

    Ground work required – Commodity grouping

     – Spend analysis

     –

    Supplier wise spend – Commodity wise number of suppliers and spend

     – Supplier information

    • Performance

    • Capability

    • Capacity

    • Financials

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    Spend Value v/s Supplier Risk

    • Spend Value (Profit Impact) v/s Supplier Risk

    Analysis

    • Categorisation into

     – Strategic

     – Leverage

     – Bottleneck

     – Non Critical

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    Strategic

    • Strategic items require the most involvement

    with

     – Clear objectives

     – Regular monitoring

     – Course correction if/when required

     – Personal interaction at highest level in

    procurement

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    Leverage

    • Leverage items

     – Careful handling to maximise benefit without

    exploiting supplier – long term view

     – Spend value is high so close monitoring essential

    to take advantage of market conditions and avoid

    impact in unfavourable conditions

     –

    Avoid single source to take price advantage

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    Non critical

    • Non critical items

     – Reduce buying effort by simplification and

    automation

     – Less frequent review

     – Minimum purchasing effort

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    Strategy in Practice

    • Strategy has elements at function level and

    some at commodity level

    • It has to be in line with the long term strategy

    • In a particular period it may be more or less

    aggressive depending on

     – Organisation position

     – Suppliers position

     – Business scenario - Global & local market trends

     – Many other factors

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    Strategy in Practice

    •Organisation (customer) strength – Brand name

     – Current business - volume

     –

    Potential business –

     volume – Geographical proximity

     – Business growth

     – New market potential – exports

     – New products – technology

     – Fair business practices , support – supplier

    development

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    Strategy in Practice

    • Supplier strength

     – Technology

     – Capability

     – Capacity

     – Cost competitiveness

     – Geographical proximity

     – Financial strength –

     ability to invest

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    Tools

    • Supplier

     – Outsourcing

     – Global sourcing

     – Localisation

     – Supplier base rationalisation

    • Exit

    • Entry• Reorganisation

     – Supplier development

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    Tools

    •Delivery – Third party logistics

     – Information management

    • Forecast accuracy

    • Information sharing

    • Inventory

     – VMI

    • Packaging review

     – Returnable packaging

     – Customised packaging

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    Tools

    • Value Analysis / Value Engineering

    • Hedging

     – Forex

     – Commodities

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    Drivers

    • Procurement strategy will always be driven by

    Corporate & Supply Chain strategies

    • Expand capacity without large Capex

     – Outsourcing

     – E.g.: JCB India

    • Best in class Quality

     – Highest priority to quality

     – Other parameters become secondary

     – E.g.: Toyota

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    Drivers

    • Cost leader – Focus on cost

     – E.g.: Videocon

    • Frequent new product introduction – Suppliers able to support this requirement needed

    • Volume player

     – Suppliers with capacities to support and to investin more

     – E.g.: Hero MotoCorp, Reliance Mobile

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    Drivers• Premium positioning

     – Suppliers who understand this and have required

    capability

     – E.g.: Mercedes ,BMW , Audi, Apple

    • Export led growth strategy – Quality and reliability of prime importance

     – More elbow room on cost

     – E.g.: Bajaj Auto

    • Geographical location

     – Logistic barriers

     – E.g.: Sricity , Bhuj, Baddi etc 

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    Drivers

    • Current and projected volume of business

    • Size of parts

     – (No) logistic barriers

     – E.g.: Mobile , Automobile companies

    • Entry into new product segment

     – Suppliers with required mindset & capabilities

     – E.g.: Tata Motors –  CV to PV

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    Drivers

    Business Conditions – Growing market

    • High demand from all segments

    • Most Suppliers running to capacity or extra

    • Customers willing to pay to get supplies in time

     – Declining market

    • Suppliers with idle capacity

    • Willing to do extra• Competition amongst suppliers for whatever available

    • Ensuring availability of Supplier Capacity is a

    key strategy requirement

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    Drivers

    • Increasing commodity prices

     – Cost pressure on suppliers

    • Adverse forex trend

     – Cost pressure on imported commodities and parts

     – Local commodity players taking advantage

    E.g.: Steel Industry

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    Drivers

    Risk appetite of the customer• Single source strategy

     – E.g.: Supplier bankruptcies in US/Europe

     –E.g.: Customers asking Motherson to acquiresupplier

    • Over dependence on supplier(s)

     –

    E.g.: Mahindra, Rubber supplier• Over dependence of supplier(s) on customer

     – E.g.: Mahindra, Casting supplier

     –

    E.g.: Tata Motors, Tube supplier

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    Impact on Parameters

    • Top priority to one parameter does not mean

    that others will be ignored

    • Top parameter will drive the strategy and in

    cases of conflict it will override other

    considerations

    • Other key parameters will remain with

    reduced weightages

    • Ongoing efforts to improve others without

    adversely impacting the top