Recommendation for the Best Procurement Strategy
Wonderful Widgets is confronted with three options for procurement of its widgets from which the company has to choose the most viable strategy. The first strategy is to manufacture the components internally. The second option is to outsource the components and start working on the reduction of lead time and supply flexibility. The company’s third option is to outsource and use a minimizing total landing cost strategy. Looking at the viability of the three strategies, the third strategy is the most viable, considering that there is no need for the company to worry about competitive advantage, clock speed and value placed on the component. Choosing the first strategy would result in increased operational and production costs which would adversely affect the company. The second option would also be possible. However, working to reduce the lead time and supply flexibility would add up significantly to the company’s expenses. Since the company has already determined that it has a functional product, this strategy might not be the most effective. According to Simchi-Levi, Kaminsky, &Simchi-Levi (2008), the best strategy is that which involves cost reduction, supply chain planning and that which is most efficient. It is therefore recommended that Wonderful Widgets should adopt the third strategy which is cost-effective and fulfills the company’s needs for profit maximization and cost minimization. The strategy is appropriate because it ensures optimum operational efficiency in the company’s logistics by reducing the cost of logistics, which is among the company’s top priorities. Wonderful Widgets is a big company which does a lot of shipping and the strategy is appropriate for ensuring that the company remains financially viable.
How to Implement the Strategy
Once the company has resolved to outsource the components using the strategy recommended above, it is important to agree with the logistics provider on some of the core issues that surround the supply chain so as to avoid misunderstandings and excessive costs. Both the client and the logistics provider should agree on the frequency and size of the shipments, handling of the components, specifications regarding packaging, and temperature control requirement among other issues. The company should also consider shipping goods in FCL (full container loads) rather than LCL (less than a container load). FCL shipping is more convenient, cost-effective and safer than LCL. Additionally the components will be loaded in accordance with the specifications in a space that is not shared with other vendor goods. This helps to avoid experiencing customs delays. There should be appropriate planning on the shipping schedules in order to make the process of shipping smooth and efficient. Prior planning takes into consideration the number of holidays and weekends. It also ensures that all the components are available whenever needed.
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Question 1: What did you find challenging in implementing the scenario?
The company’s outsourcing scenario presents a number of significant challenges which require careful consideration of solutions to achieve the intended results. Selecting the right vendor can be a challenging task, especially if the company has to catch up with its deadlines. The amount of information is quite staggering, even in the seemingly straightforward scenario. The complexity of the logistics related also presents another challenge. It is difficult to find a reputable supplier and even if the company establishes its best supplier, there is need to invest a huge bulk of resources in ensuring that the process of shipping proceeds in a smooth manner. The idea of sourcing may be interpreted as a threat among the current workforce. This increases chances that most of them will leave to hunt for greener pastures. Therefore, outsourcing requires development of an internal center of excellence that will ultimately equip the employees with skills in the required technology and core processes involved in outsourcing.
Question 2: How do strategic alliances impact procurement outsourcing strategies?
Strategic alliances form the basis of sharing ideas and resources for the achievement of a common goal among companies and organizations. Strategic alliances impact differently on the outsourcing strategies of a company. According to Harrigan (2015), the following are some of the possible outcomes of strategic alliance formation:
Sharing of Technical Expertise- Outsourcing requires investment in human resources to provide the required technical expertise. Different companies have different levels of expertise in different areas. When these companies come together in a strategic alliance, they also bring their expertise together, making it easier to counter existing challenges and find viable solutions to the existing problems. Such alliances are important in ensuring smooth outsourcing strategies which would have been otherwise difficult for a single company.
Efficiency in Outsourcing- One of the best outsourcing strategies is the adoption of full container loads (FCL) outsourcing strategy. Even if one of the companies would have opted for less than a container load (LCL) strategy which is potentially uneconomical, the companies can outsource their goods together in LCL for the purposes of its cost-effective nature.
Risk Sharing- Risk sharing enables companies to minimize losses that would have entirely belonged to them by sharing with other companies that form part of the strategic alliances.
Conclusion
Following the above suggested recommendation for the outsourcing of the company’s components, Wonderful Widgets is likely to succeed in its outsourcing strategy. Although there are some challenges involved in the process of outsourcing, such challenges can easily be overcome through adequate planning and utilization of the company resources, including human resources. Strategic alliance is also a great way of increasing efficiency while minimizing risks and possible losses.
References
Harrigan, K. R. (2015). Strategic alliances as agents of competitive change. Collaborative strategy a guide to strategic alliances. Cheltenham: Elgar Book Series .
Simchi-Levi, D., Kaminsky, P., &Simchi-Levi, E. (2008). Designing and managing the supply chain: Concepts, strategies, and case studies . Boston: McGraw-Hill/Irwin.
