Overview of the Purchasing Strategy Cube

Apr 4, 2025

Lecture Notes: Purchasing Strategy Cube

Introduction

  • Speaker: Julian Throme
  • Topic: Purchasing Strategy Cube
  • Purpose: A thought model for purchasing strategies, based on 25 years of experience as a purchasing and supply chain director.
  • Target Audience: Professional buyers, Chief Purchasing Officers, Purchasing Managers.

The Purchasing Strategy Cube

  • Concept: A tool used to strategize how to buy products and approach suppliers.
  • Foundation: Builds upon the Project Matrix by Mr. Crolick, a former McKinsey consultant.

Project Matrix Basics

  • Two Axes: Financial Impact & Supply Risk
    • Financial Impact (Vertical Axis): Represents the value of products/services purchased.
    • Supply Risk (Horizontal Axis): Represents the risk of obtaining these products/services.
      • High supply risk: Monopoly situations, scarce products.
      • Low supply risk: Abundance of products and suppliers.

Categories of Items

  • Routine Items (Blue):
    • Characteristics: Low supply risk, low financial impact.
    • Example: A pack of milk.
  • Bottleneck Items:
    • Characteristics: High supply risk, low financial impact.
    • Example: A cheap but critical component like a bolt.
  • Leverage Items (Green):
    • Characteristics: High financial impact, low supply risk.
  • Strategic Items (Red/Pink):
    • Characteristics: High financial impact, high supply risk.
    • Example: Product/service with few suppliers.

The Back Side of the Cube: Strategies

  • Routine Items Strategy:
    • Focus on efficient processing with suppliers.
    • Introduced a third axis: Supplier Dominance

Efficient Processing for Routine Items

  • Vendor Managed Inventory (VMI):
    • Suppliers manage customer’s stock.
    • Cost and investment implications for suppliers.
  • Collaborative Planning Forecasting Replenishment (CPFR):
    • Detailed in a future discussion.
  • Electronic Data Interchange & Consignment Stock:
    • Basic methods to manage inventory.

Leverage Items Strategy

  • Strategy: Exploit power.
  • Approaches:
    • Auctions: Creating competition among suppliers.
    • Tender 2.0:
      • Organized dialogue between suppliers and potential customers.
      • Focus on value addition by suppliers.

Conclusion

  • Further details on CPFR and the tender process to be discussed in future communications.
  • Focus: Using the purchasing strategy cube to optimize purchasing operations and supplier interactions.