HBS Strategy 101: Procurement Strategy Development in an Competitive Landscape

To foster innovation, we must ensure the right conditions are in place, such as timing and strategy development participation strategic sourcing. Ensure sufficient time allocated by senior executive team throughout the process.. Contributors in the strategic sourcing session should be from a diverse mix of focus areas, involving both internal and external stakeholders, and should have intimacy with the issue at stake. Coming up with a new strategic sourcing on an annual basis is in fact unproductive; on the other hand, conduct a complete ground-up strategic sourcing every 3 years depending on market conditions. A diverse team bringing varying perspectives will contribute better results for strategy development. Separate strategy development effort from fiscal planning.

In developing a strategic sourcing template, there are several core end goals strategic sourcing. You should measure major improvement strategic sourcing opportunities for the organization. You should provide the basis for measuring the ROI and tracking immediate benefits to the bottom line during the implementation stage. You should develop the rational basis for instilling change a requirement. You should make sure project resources are allocated to the areas of highest economic.

When you do not have enough price data points, your alternative is to quantitatively derive pricing sensitivity strategic sourcing. Pick those price drivers that are most relevant. Determine the impact of each penetrating pricing driver. Consumer driven substitute products can vary by consumer buyer segment, by scenario, and other relevant price drivers. Calculating a mathematical equation for strategic sourcing is a multi step process, beginning with deriving the key drivers to sensitivity. Switching costs effect typically will pulled by customer price sensitivity. Reference price effect is a widely applicable strategic sourcing driver. The higher the product-specific cost of investment to the consumer applied to find alternate suppliers, the less price sensitive that buyer is when forcing down between alternatives. Buyer’s price sensitivity for any given product becomes higher the higher the product’s price relative to perceived substitute products. However, depending your offering, only a subset of these drivers are relevant.

At the end of the Opening stage, that is a is the most saturated strategic sourcing. Despite stable revenue growth, profitability is often a different story. Due to competitive price pressures, many companies inside Scale stage get into the “profitability trap,” which prevents or severely constraints future growth down the Endgame curve. By Balance & Alliance, no more than 10% of these companies remain. Continuous throughout Scale and Focus, we have seen an instant consolidation process. Company profitability changes noticeably from each stage to another location. Revenue growth is highest with the onset, as companies make territorial claims. Smaller companies can be swallowed up, merged, or close shop. Revenue growth remains relatively stable with the Consolidation curve.

The appropriate strategy for a business unit relies on the strategic sourcing for the industry sourcing strategy. The introduction stage is typified by slow growth. Initial strategic sourcing is minimal in the introduction stage, so the focus is on informing consumers to encourage a trial usage. The increase in volume sold more than compensates for the decrease in pricing ,driven by experience curve effects, during the growth stage, resulting in increasing profits. In the introduction stage, there are heavy expenditures across the areas of advertising, selling, sampling, distribution to create brand awareness of and demand for the product. Some players maintain strong financials during the decline stage by being the niche competitor with specialized offerings. The growth stage is characterizied by a noticeable increase in sales growth and financials. The strategic sourcing is defined by a decline in rate of sales growth and a further reduction in unit costs. During the decline phase, the product will see a further lessening in unit sales, cash flows, and profitability. Net cash flow and profitability are negative during this stage. In the growth stage, expenses will stay relatively high, however, the focus transforms into creating and holding loyal customers.

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