341 Transportation Logistic Management
Procurement Outsourcing Stratagies
You are the Supply Manager for Wonderful Widgets. The company produces one product, widgets. The company can procure its widgets parts from various suppliers or use its current equipment, facility, layout, and materials to produce the component in-house.
As the Supply Manager you see the operational costs increase each month. You need to reduce these costs and streamline processes before the end of the quarter. Corporate will see these costs on the quarterly reports. You need to be proactive.
As the Supply Manager you are responsible for making all decisions pertaining to procurement. Wonderful Widgets can produce the parts needed to OR assemble the widgets or the can outsource the parts to a variety of suppliers.
Remember, Wonderful Widgets can produce the components internally or buy them from their suppliers. Based on historical data and knowledge of customers, you know:
- Value is not attached to the component
Clock speed is slow
No competitive advantage exists
Based on this information, do you look at procurement strategies (outsourcing)?
Yes OR No
This would be the optimal decision based on the current information. Wonderful Widgets does not need to worry about competitive advantage, clockspeed, or value placed on this component. As such, outsourcing is a viable option at this time.
As the Supply Manger, you decide to outsource or produce the component from one or multiple suppliers. Now, you must think about supply risk and profit impact. You decide the following:
- Supply risk is low
Profit impact is low
Based on what you know, the component is a functional part/product versus an innovative product. Likewise, this fits with low supply risk and low profit impact. You also realize that using multiple suppliers is the best option.
As the Supply Manager, you decide to outsource or produce the component from multiple suppliers. Based on what you know at this time, which procurement strategy is the best option?
A. Minimizing Total Landed Cost
B. Reducing Lead Times & Supply Flexibility
This would be the most appropriate procurement strategy. The component is a functional product and the supply risk and profit impact are low. Therefore, this approach will assist Wonderful Widgets in reducing their overall operating costs.
Wonderful Widgets would be best served if they outsource and use a minimizing total landing cost strategy. They have the capability to produce the component internally, but this adds to their operational costs due to fixed and variable costs associated with producing this particular component. Wonderful Widgets does not need to worry about competitive advantage, clockspeed, or value place on this component.
Go through the scenario.
Your task is to determine which procurement strategy is best for the company.
Choose a solution and in one paragraph make a clear and specific recommendation based on the readings in the class so far. In a second paragraph, describe how the company can implement your recommendation. Write your recommendation/implementation in third person. Include a cover page.
At the end, discuss the questions that are presented below.
Answer the following questions:
What did you find challenging in completing the scenario?
How do strategic alliances impact procurement outsourcing strategies ?
Provide your response by uploading a Word document using this format:
Recommendation – First