Supply Chain and Supplier Relationship - Essay Example

Supply chain and supplier relationship management Extensively, there has been a wide application of the portfolio models in the strategic procedures of decision-making and the support of decisions for allocating resources. The application of the portfolio models helps in the identification of which suppliers, groups of products and relationships ought to have superior focus than others (Brewer et al., 2013). Portfolio models application is, therefore, an indispensable integral tool for management. Purchasing portfolio models are therefore required for the sustainability of the relationships with suppliers, looking from the viewpoint of efficacy of purchasing. The selected conceptual framework for application in this essay is the Kraljic matrix for purchasing that first made an appearance in the year 1983 in the Harvard Business review. Wagner (2013) says that the creator of this model is Peter Kraljic, and it has become a widely used model internationally for its usefulness in companies. Padhi & Aggarwal (2012) suggest that the rationale for choosing this model rides on the premise of its suitability for helping purchasers in the reduction of costs while helping in the maximization of supplies security, through empowerment of the purchasers in exercising the best of their buying power. Thus, the function of procurement transitions from a simple transactional undertaking to becoming an activity that is strategic. Hence, when purchasing becomes strategic, it resonates with Kraljic’s assertion according to Sarkar et al. (2012), “Purchasing has to become supply management”. This essay focuses on Supply chain and supplier relationship management of Deutsche Post DHL Logistics Company as a case study in respect to the Kraljic matrix. DHL being a big logistics company conducts diverse services of transportation and delivery of goods in large scale has several transportation methods covering ground, Seaway, and air transport modes. Every sector of the organization has individual purchasing procedures and acquires fuel on the department level, which is costly to the organization. Kraljic matrix is applicable in this case with an objective of reducing the costs incurred on the fuel purchased at different departmental levels. According to Giunpero et al., (2012), purchasing is a very crucial and an enormous managerial segment with very significant outcomes on the profitability of an organization. For this reason, there is a need for application explicit and studious models for the purchasing function. Kraljic matrix is important and useful in this course. The other importance of Kraljic matrix is its capability of creating distinct situations of purchasing accompanied by rational recommendations of the way of acting in these situations. In the Kraljic matrix, there is a clear classification of the purchasing stages and the related sophistications existing in organizations, and there exist explanations of the four stages within this matrix. In the matrix, the existing stages include the management of materials, the management of purchasing, supply, and sourcing management. Kraljic, the originator of this matrix, held an argument that when there is complexity in the market, and the importance of purchasing is high, the supply management becomes critical. Deutsche Post DHL Logistics Company, therefore, has to carry out actions that accrue advantages. For the achievement of the advantages, there in need for a paradigm change in from the operating function of purchasing strategic function of purchasing, that is the supply management strategy. According to Aloini et al., (2013), the relevance of supply management hinges on the procurement of critical items throughout composite circumstances. Basing on the Kraljic matrix, more importance emanates from the supply management with an increase in the buyer-supplier relationship uncertainty. The implication here is that there are two crucial factors for the supply strategy. The proportion of the raw materials in relation to the total costs and the value accrued from a specific product line in relation to profitability of the firm form the strategic significance of purchasing. The other set of important factors has connections to the supply market complexity quantified by the scarcity of supply, the rate of technology or substitution of materials, barriers to entry, costs of logistics and related complexities and the supply risk conditions such as monopoly (Pagell et al., 2010). According to Caniëls & Gelderman (2005), clear comprehension of the two sets of factors, which are the supply risk, and the dimension of profitability enhances the understanding of the ways in which appropriate supply strategies can be achievable from the top purchasing executives. Deutsche Post DHL Logistics Company, therefore, can have strategies in place of improving power balance between the company and its suppliers and, therefore, the organization is empowered towards exploitation of its purchasing power against its crucial suppliers. The approach also has the prospect of reducing the risks related to scarcity of materials, contractual issues of coverage and geographical spread of sources of supply Gelderman & Mac Donald (2008). For the achievement of the advantages, Deutsche Post DHL Logistics Company needs to practice several strategies. Deutsche Post DHL Logistics Company has to make use of prospects for concerted undertakings in different subsidiaries. Knight et al. (2014) say that another important need for the organization is to avoid the anticipated obstacles and interruptions while determining the range of acceptable risks and finding out whether it is tenable purchasing or creating some products. This is a policy strategy that helps the company determining the policies that would prospectively earn it the most appropriate strike of balance between flexibility and cost. Giunipero et al. (2012) say that the final emphasis on the Kraljic matrix is identification of the extent to which cooperating with Deutsche Post DHL Logistics Company’s suppliers or the competitors of its suppliers would bolster the long-term relationships of supply or make the most out of joint resources. The first major step is the classification of the fuel products for the different transport segments within the company in accordance with profit impact and risk potential each segment poses. In the case of fuel for use by Deutsche Post DHL Logistics Company, it has high profit impact because of its integral role in the core objective of the business, which is uninterrupted transportation of goods. Applying Kraljic matrix, two approaches are most suitable for the purchase of the fuel. Since fuel is a strategic item for Deutsche Post DHL Logistics Company, it deserves high attention from the purchasing managers. The available options for the managers of purchasing in this company include regular analysis and management of risks and putting contingent plans in place specifically considering having fuel depots under the company’s ownership rather than depending on suppliers. Another potential approach by the purchasing managers is the use of Deutsche Post DHL Logistics Company’s full purchasing power. The organization may consider substituting the suppliers replacing those who charge higher with low charging suppliers per unit of the fuel requirements for use by the company. Deutsche Post DHL Logistics Company may order fuel for use in high volumes strategically aimed at enjoying the economies of scale and trade discounts. Ellström et al. (2011) suggest that with the use of porter’s five-analysis tool, the organization may carry out an evaluation that would enable it analyze how much buying power it has against the powers of the suppliers. After this procedure, the classification of fuel, which is a strategic item for the company, follows in accordance with the supplier and buyer power by entering the fuel item into the purchasing portfolio matrix. The final step for the organization is the development of action plans for the various types of fuel needed for its transport services into three strategies for purchasing. Deutsche Post DHL Logistics Company could exhaustively apply its high purchasing power for securing long-term contracts and good prices from various suppliers in order to reduce the losses associated with the supply risk of acquiring the fuel. Gelderman & Weele (2002) intimate that another available option would be buying the fuel in batches especially when the company can get specific suppliers with good deals for the different fuel types with precaution of avoiding being overly aggressive as changes may occur. The company may also conduct diversification aimed at reducing the supply risks through looking for substitute products and or even alternative suppliers. For instance, to facilitate the cost reduction, the company may opt for using rail for transportation while using substantially reducing the usage of trucks in its movement of goods. Another option under the Kraljic matrix usable by Deutsche Post DHL Logistics Company would be to increase its purchasing power through consolidation of all its fuel needs under a single supplier, to company owned depots for substantial reduction in fuel costs. Deutsche Post DHL Logistics Company needs to have purchasing function as part of its corporate strategy. Therefore, all the purchases for each segment of the organization’s fuel need to be under one umbrella. Thus purchasing all the fuel for use by the different segments should be under one unit and from a common source. Purchasing the fuel from a singular source would enhance the company’s risk evaluation and minimization of losses by adoption of the right procurement approach for the fuel. Kraljic matrix would help the purchasing department of the organization to understand the classifications of the procurement of oil in terms of profit contribution and supply risk and would be able to know whether the company possesses the balance of power, or whether the balance of power lies with its suppliers of fuel. With this knowledge, the organization has the ability of selecting the most appropriate strategy for cutting losses while purchasing the fuel for use by the different segments of the organization’s transportation sectors.Bibliography Aloini, D., Dulmin, R., & Mininno, V. (2013). A Fuzzy Decision Support System for Drawing Directions from Purchasing Portfolio Models. Brewer, B. L., Ashenbaum, B., & Carter, J. R. (2013). 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