Page 179 - Operations Strategy

CHAPTER 5 • PuRCHAsing And suPPly sTRATEgy
Chapter
5 Purchasing and supply strategy

introduction
No operation works in isolation – it is always, directly or indirectly, part of a larger
value network. It follows that no operations strategy can work in isolation – it must
always consider the role of the operation in its supply network. Some would argue
that, in today’s globalised and technology-enabled economy, purchasing and supply
decisions are often the most critical set of operations strategy decisions. Think about
Apple’s phenomenally successful iPhone. The firm has world-class operations – it
designed the phone, created the operating software, runs the Apps (applications) store
and so on. But it is Apple’s suppliers that undertake almost everything else. Firms,
large and small, from around the world provide a range of, often extremely sophisti-
cated, inputs into the product. So, Apple’s phenomenal recent success has been built
as much on the back of its purchasing and supply strategy as its research and develop-
ment. In fact, when the consultancy AMR generates its annual list of the world’s best
supply chain players it is no surprise to discover that Apple has been consistently rated
very highly (this in spite of having not been in the top 25 in 2005). In other words,
underlying performance is increasingly determined through those decisions relating
not only to what an organisation does by itself, but also what it purchases, where it
buys from and how it manages these crucial external connections. Figure 5.1 illustrates
the coverage of this chapter.

KEy quEsTions

● What is purchasing and supply strategy?
● What should we do and what should we buy?
● How do we buy; what is the role of contracts and/or relationships?
● How do we manage supply dynamics?
● How do we manage suppliers over time?
● How do we manage supply chain risks?

What is purchasing and supply strategy?
At the heart of purchasing and supply strategy is the deceptively simple concept of
buyer–supplier interaction. Buying and selling is not new, of course, but in recent years
shifts in the business environment have led to an increased strategic emphasis on more

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