Reforms Essay

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Purchasing must become Supply management

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Harvard Business Review, september-oktober 1983 Peter Kraljic

Purchasing Must Become Supply Management

Peter Kraljic

Harvard Business Review
No. 83509

SEPTEMBER–OCTOBER 1983

HBR
Peter Kraljic

Purchasing Must Become Supply Management

The stable way of business life many corporate purchasing departments enjoy has been increasingly imperiled. Threats of resource depletion and raw materials scarcity, political turbulence and government intervention in supply markets, intensified competition, and accelerating technological change have ended the days of no ...view middle of the document...

This reflects a long-term approach to supply security that other chemical companies like Dow Chemical in the United States and BASF in Europe have used to good advantage.

In many companies, purchasing, perhaps more than any other business function, is wedded to routine. Ignoring or accepting countless economic and political disruptions to their supply of materials, companies continue to negotiate annually with their established networks of suppliers or sources. But many purchasing managers’ skills and outlooks were formed 20 years ago in an era of relative stability, and they haven’t changed. Now, however, no company can allow purchasing to lag behind other departments in acknowledging and adjusting to worldwide environmental and economic changes. Such an attitude is not only obsolete but also costly. In this article, the author offers pragmatic advice on how top management can recognize the extent of its own supply weakness and treat it with a comprehensive strategy to manage supply. He leads the reader step by step from the roots of the problem to the implementation of a solution. Mr. Kraljic is a director in the Düsseldorf office of McKinsey & Company, Inc., the international consulting firm.

Copyright © 1983 by the President and Fellows of Harvard College. All rights reserved

o Cabot Corporation, faced with growing scarcity of chromium, vanadium, niobium, titanium, and other metals critical to its operations, set up a mineral resources division that developed an overall corporate supply strategy and explored new options, ranging from the purchase of ore in the ground to the start-up of joint ventures for primary metal processing. Cabot also acquired a London-based trading company to supplement existing purchasing skills with special trading expertise and access to the London metals market. o U.S. auto manufacturers who customarily relied on domestic materials procurement are now reevaluating their supply schemes and broadening their scope of potential suppliers. Ford not only manufactures parts of its “world car,” Erika, in several foreign subsidiaries but also buys transmission axles from its Japanese subsidiary, Toyo Kogyo. Chrysler, which was sourcing 1.7-liter Omni engines from Volkswagen as long ago as 1978, now buys 2.6-liter engines from Mitsubishi. Predictions are that by 1990 the U.S. car industry will source 35% to 40% of its parts and components from abroad; 15 years ago it sourced only 5% from other countries. To ensure long-term availability of critical materials and components at competitive cost, a host of manufacturers will have to come to grips with the risks and complexities of global sourcing. Others that already source on a global basis must learn to cope with uncertainties and supply or price disruptions on an unprecedented scale. Instead of simply monitoring current developments, management must learn to make things happen to its own advantage. This calls for nothing less than a total change of perspective:...

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