Manufacturing procurement management strategies

Manufacturing procurement is the process of sourcing different products or services from different stakeholders of a supply chain. On the other hand, management procurement is the way by means of which this procedure is seamlessly performed. Manufacturing procurement process across various industries has become increasingly complicated due to the fiercely competitive market ambience. This calls for procurement management strategies that are properly managed (Hong and Kwon, 2012).

Systematically designed procurement management strategies help an organization to establish a healthy relationship between its purchasing department and suppliers. This enables effective management of all procurement-related functions like ordering, receiving, reviewing and approving or the products or services (Kafile and Fore, 2018).

Different manufacturing procurement strategies

Different organizations implement different manufacturing procurement management strategies in order to ensure procurement of the right products or services at the right time and in the most cost-effective manner (Pyke and Johnson, 2005; Cousins and Lawson, 2007). Among the most commonly used manufacturing procurement strategies include the following:-

Sourcing by the pure-play strategy

In this method, a retailing firm directly sources products from a manufacturer who has conducted research and development in securing raw materials and transforming them into the final products that can be readily sold. In this method, the retailer looks into the right kinds of products that are secured from suppliers that would optimally satisfy the end-users. Businesses that follow this type of manufacturing procurement management strategy imply to their customers that they are exclusive retailers offering products of a specific type and from specific brands (Guercini and Runfola, 2004; Ashworth, 2012). 

Sourcing by industrial retailer

The distinctive feature of this form of manufacturing procurement management strategy is that the semi-finished products are first sourced by the industrial retailers. They are brought to their own finishing establishments and finally made available to the end-users. The Spanish footwear and textile retailer Inditex follows this manufacturing procurement management strategy. About 40% to 50% of the production of garments takes place at the factories belonging to this firm while the remaining is outsourced (Guercini and Runfola, 2004).

Single sourcing strategy

This is a manufacturing procurement management strategy in which the retailing depends upon a sole provider for sourcing the product that it wants to offer to its end users. This method of product procurement is non-competitive in nature because the product provider does not have any other provider to compete with (Zeng, 2000). The main pillar of this procurement management strategy is trust and commitment between the retailer and the supplier. Therefore, greater knowledge of the accurate product manufacturing process of the supplier helps the retailer in achieving reduced production cost and economies of scales. However, overdependency upon a single supplier increases the risk of supply interruptions in this process (Costantino and Pellegrino, 2010).

Toshiba is a well known internationally acclaimed electronics retailer that follows single-sourcing as its management procurement strategy for producing its 300mm Fab semi-conductors. The company has collaborated with Asyst Technologies Inc. as its exclusive product supplier for the project (EDN Network, 2004; Wang, Gilland and Tomlin, 2010).

Dual sourcing strategy

Dual sourcing management procurement is the strategy in which a retailing firm collaborates with two suppliers for product procurement. Some retail firms that follow this strategy do not collaborate with any supplier. However, when the procurement of products is concerned, they do not look beyond their two chosen suppliers. Honda and Toyota are acclaimed automobile companies where a dual sourcing strategy is followed (Wang, Gilland and Tomlin, 2010). While 44% of the automobile parts of  Honda are manufactured by two suppliers, Toyota also maintains two specific suppliers for source 38% of its parts (Kristianto and Helo, 2009).

Multiple sourcing procurement strategies

Multiple sourcing strategies offers a direct contrast to the single-sourcing strategy the retailing firm maintains a buyer-supplier relationship with multiple product suppliers. Under this management procurement procedure, the retailer contacts respective suppliers of its choice as per the needs of the customers (Zeng, 2000). Thus there is always a competition among the suppliers as far as price, delivery, product innovation and negotiation power of the buyers is concerned. Moreover, bottlenecks arising due to inefficient production capacity during phases of peak customer demands or risk of supply interruptions do not occur in this method as lots of suppliers are connected to the retailer (Costantino and Pellegrino, 2010).

Manufacturing procurement management strategies
Figure 1: Manufacturing procurement management strategies

Nature of business determines the right manufacturing procurement strategy

Manufacturing procurement management strategies are cardinal for the present dynamic and highly competitive business environment.  They help in systematizing product sourcing procedure and meeting customer requirements right on time. Among the strategies that have specifically presented here are pure-play strategy, sourcing by the industrial retailer, single sourcing, dual sourcing and multiple sourcing. Manufacturing companies implement specific management procurement strategies as per the nature and size of their business as well as customer needs in order to ensure quality and timeless as far as their product sourcing is concerned.

References

  • Ashworth, C. J. (2012) ‘Marketing and organisational development in e-SMEs: Understanding survival and sustainability in growth-oriented and comfort-zone pure-play enterprises in the fashion retail industry’, International Entrepreneurship and Management Journal, 8(2), pp. 165–201. doi: 10.1007/s11365-011-0171-6.
  • Costantino, N. and Pellegrino, R. (2010) ‘Choosing between single and multiple sourcing based on supplier default risk: A real options approach’, Journal of Purchasing and Supply Management, 16(1), pp. 27–40. doi: 10.1016/j.pursup.2009.08.001.
  • Cousins, P. D. and Lawson, B. (2007) ‘Sourcing Strategy, Supplier Relationships and Firm Performance: An Empirical Investigation of UK Organizations’, British Journal of Management, 18(2), pp. 123–137. doi: 10.1111/j.1467-8551.2006.00506.x.
  • EDN Network, E. (2004) ‘Toshiba Installs Asyst Automation Tools in 300mm Fab’, EDN Network, 18 June. Available at: https://www.edn.com/electronics-news/4334941/Toshiba-Installs-Asyst-Automation-Tools-in-300mm-Fab.
  • Guercini, S. and Runfola, A. (2004) ‘Sourcing Strategies in Clothing Retail Firms: Product Complexity versus Overseas Supply Chain’, Journal of Customer Behaviour. Westburn Publishers, 3(3), pp. 305–334. doi: 10.1362/147539204323366417.
  • Hong, P. and Kwon, H. B. (2012) ‘Emerging issues of procurement management: A review and prospect’, International Journal of Procurement Management, 5(4), pp. 452–469. doi: 10.1504/IJPM.2012.047199.
  • Kafile, M. and Fore, S. (2018) ‘Effects of Procurement Processes on Project Execution in A Project Management Company in Cape Town, South Africa’, International Journal of Business and Administrative Studies, 4(4). doi: 10.20469/ijbas.4.10005-4.
  • Kristianto, Y. and Helo, P. (2009) ‘Strategic thinking in supply and innovation in dual sourcing procurement’, International Journal of Applied Management Science, 1(4), pp. 401–419. doi: 10.1504/IJAMS.2009.026200.
  • Pyke, D. F. and Johnson, M. E. (2005) ‘Sourcing Strategy and Supplier Relationships: Alliances Versus eProcurement’, in The Practice of Supply Chain Management: Where Theory and Application Converge. Springer-Verlag, pp. 77–89. doi: 10.1007/0-387-27275-5_5.
  • Wang, Y., Gilland, W. and Tomlin, B. (2010) ‘Mitigating supply risk: Dual sourcing or process improvement?’, Manufacturing and Service Operations Management, 12(3), pp. 489–510. doi: 10.1287/msom.1090.0279.
  • Zeng, A. Z. (2000) ‘A synthetic study of sourcing strategies’, Industrial Management and Data Systems. Emerald Group Publishing Ltd., 100(5), pp. 219–226. doi: 10.1108/02635570010304798.

Apara Bhattacharya

Research analyst at Project Guru
Ardent passion has helped Apara into a career that involves writing on varied subjects and expressing different contemporary issues around the World. A Masters in English and a diploma in Business English are her academic strengths that have helped her in shaping her career as an analyst. She started her career with an NGO that imparts soft skills and communicative English. Her association with reputed research firms of India gave her a break as a researcher scholar was .
Apara Bhattacharya

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