Management

Please complete the following “Procurement Outsourcing Strategies” scenario.

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

Implementation

Questions

ANSWER

Many businesses and organizations face various challenges in making decisions concerning the supply chain and procurement. It is usually a question of the product’s cost-effectiveness, customer demand, quality, supply reliability, transportation cost, and taxes. Organizations have since developed various systems and technologies capable of positively influencing decision-making and accumulating data used in formula calculation to minimize/mitigate cost and expenditure increment and maximize extensive profit-making by acquiring quality components. This article intends to do detailed research on the most suitable procurement strategy, discuss and do a recommendable to the company in question.

The best and most suitable procurement strategy for the Wonderful Widgets Company would be the Minimization of Total Landed Cost. Because of the constant increasing monthly operational costs, the company should, in this case, invest in cost-effective components, enhancing a significant reduction in costs and expenses. The company will have to outsource the component from multiple suppliers using the recommended procurement strategy to ensure a low supply risk and a low-profit impact on the supply chain. The component (widget), having been considered to be a functional product versus an innovative product, will make it fit with the low supply risk and low profit, which will be the center of decision making concerning procurement and the supply chain (González et al., 2020). The major determining factors in making this decision is the achievement of low supply risk and low profit impact in the supply chain. In reference to historical data and customer experience, it is sensible to say that the product value is not attached to the component, clock-speed is slow and finally there is no existence of competitive advantage hence the decision on the recommended strategy.

Experts and researchers have described the minimization of total landed cost as the sum of all costs related to manufacturing/making and delivering products to their stipulated revenue production points. For Wonderful Widgets to implement this strategy, it will first note the key determinant factors of calculating the strategy; transportation cost, unit price, taxes, risk/quality/ service-related costs, corporate income tax, and inventory carrying costs, amongst other factors which will have to be taken into consideration. The company will then decide whether to use internally developed tools and spreadsheets or use commercial tools like Transportation Management Systems (TMS), Enterprise Resource Planning (ERP) systems, and Supply chain programs to calculate the minimization total landed cost. IN this case, the TMS will be the most suitable tool to apply due to its ability to calculate the TLC using the provided accumulated data. Parameters like the payment terms, manufacturing lead time, and transit time will contribute towards completing a formula that will work best for the company. Finally, the company will have to develop a landed cost model that will increase the efficiency and cost-effectiveness of the TLC (Pumpe & Vallée 2017).

Challenges Encountered in Scenario Completion

One of the challenges encountered is the failure to get timely data, resources and time to enhance the calculation. Several other factors contribute to the equation, most of which are difficult to obtain, considering the time factor. All the factors must be determined and slotted perfectly before solving the calculation; otherwise, failure might lead to underbidding and underquoting the product price. The second challenge is the lack of knowledge on the extent of inclusion of supply chain to the equation; this is because there is no substantial or known formula for calculating the strategy, thereby making it difficult to know whether all the factors that need to be included have been slotted in the equation for quality results and cost optimization as expected. Finally, the monotony of having to update the constantly landed cost model and the likelihood of failing to understand its value might become a serious hiccup since consistency and punctuality will play key roles in the success of the intended calculation (Sandhu, Shamsuzzoha & Helo 2018).

Impact of Strategic Alliances on Procurement Outsourcing Strategies

Strategic alliances impact procurement outsourcing in various ways, some of which are highlighted herein. Economies of scale is the first impact which will impact positively on procurement outsourcing by assembling multiple orders, thereby reducing both purchasing and manufacturing costs; procurement outsourcing will enhance risk pooling since the demand uncertainty will be transferred to the supplier, and the supplier, in turn, will reduce the uncertainty by the risk pulling effect. Reduction in capital investment since it will be transferred to the supplier which in turn shares its high investment amongst the customers; the company will be able to focus on its core competency by being able to exploit its core strength hence distinguishing itself from its competitors.

Procurement outsourcing will enhance increased flexibility, thus attending to changes in customer demand. The buyer will also be able to use the suppliers’ technical knowledge to hasten product development cycle time; finally, the buyer will gain access to new technologies and innovation. Apart from the positive highlighted impacts, procurement outsourcing may lead to loss of the company’s competitive knowledge, especially when it outsources critical components, thereby opening up opportunities for competitors; the company will also lose its ability to introduce new designs based on their plan and finally the company will in no position to explore new insights, innovations, and solutions. Finally, the company will experience conflicting objectives by outsourcing procurement due to variation of demand in different economies. In a good economy, it will be able to experience high demand, and the vice versa will be experienced in a slow economy; it will also encounter product design issues since it will be insisting on flexibility to match customer demand while the supplier will be focusing on cost reduction activities to foster high sales and minimize operational costs (Warner & Sullivan 2017).

In conclusion, the benefits which come with outsourcing procurement strategies overweigh the challenges, thereby making it one a recommendable option for large companies with extensive customer demand. The procurement strategy discussed herein proves to be one of the most suitable strategies that a company would adopt when considering outsourcing the procurement strategies. Procurement managers should ensure steady and reliability of the required data and information to enhance the successful and effective implementation of the strategy. All the determining factors should be taken care of to minimize/mitigate operation costs, leading to high production and supply costs.

References

González-Ramírez, R. G., Villalobos, J. R., & Meneses, C. (2020). The strategic design of port services based on a total landed cost approach. International Journal of Logistics Management, The.

Ho, C. T., & Wei, C. L. (2016). Effects of outsourced service providers’ experiences on perceived service quality. Industrial Management & Data Systems.

Pumpe, A., & Vallée, F. (2017). A typology for selecting an appropriate Total Landed Cost method in international supplier selection decisions. Transportation Research Procedia, 25, 853-869.

Sandhu, M. A., Shamsuzzoha, A., & Helo, P. (2018). Does outsourcing always work? A critical evaluation for project business success. Benchmarking: An International Journal.

Warner, M., & Sullivan, R. (Eds.). (2017). Putting partnerships to work: Strategic alliances for development between government, the private sector and civil society. Routledge.