Aligning Purchasing Strategy with Business Strategy for Mnaufacturers

• Main Author: Lee, Dong Myung
• Published: University of Liverpool 2009
• Subjects: 338.6041
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.507792

The importance of aligning purchasing strategy with business strategy is argued through a literature review. Different business strategies will lead to different competitive priorities, some purchases will have a greater impact on the competitive priorities of the business and suppliers cannot be expected to achieve optimal performance in everything they do, especially at day one. To analyse these differences in priorities in the context of strategic purchasing, current portfolio models have been introduced. However, weaknesses are seen in the exiting models. This thesis develops a purchasing portfolio model to support competitive advantage through purchasing strategy. The research considers five case studies in South Korea; four elevator manufacturers and one electric water boiler manufacturer. The thesis presents the application of the Analytic Hierarchy Process (AHP) to prioritise the components of an electric traction elevator in the context of their importance to the business strategy of the manufacturer. This is the first step in the formulation of the manufacturers' purchasing strategies. The relative importance of the competitive elements in the form of quality, cost, availability and time are first established for the manufacturers' business strategies, along with the relative importance of the subcriteria used to measure these elements. The components of the elevator are then assessed to see which have the greatest impact on these sub-criterion measures to establish component priorities and groupings to guide those forming the purchasing strategy. Secondly, a purchasing portfolio model is developed for purchasing strategy. Two dimensions are used, one related to the importance of a purchase, 'component value' and one related to the nature of the supply, 'supply risk'. It is argued that 'component value' is a relative measure based on qualitative measurement whereas 'supply risk' is an absolute measure. For 'component value' the AHP is suited. However, the AHP is not appropriate for assessing the supply risk associated with an individual component, which should be measured independently or directly, so the 'supply risk model' is introduced. Two case studies in the elevator manufacturing industry are used to demonstrate the application of the portfolio model. This reveals how two companies that appear on the surface to be facing the same situation actually face different situations that require different purchasing strategies. Finally, the 'lean & agile component model' is developed using two dimensions, 'leanness' and 'agility'. The model is applied to one of the elevator manufacturers and the electric boiler manufacturer to demonstrate how functional and innovative products require different component purchasing strategies. This reveals some notable differences in the component characteristics in the 'lean & agile component models' of the two different manufacturers, and therefore differences in the purchasing strategies derived for the companies. The case studies support the argument that when purchasing strategies are developed, a manufacturer must consider its components' characteristics to support its business strategy, and therefore its manufacturing strategy, for competitive advantage.