MD2 MODULE 01
faith22
Scenario.docxProcurement Outsourcing Strategies
Scenario Description
You are the supply Manager for Wonderful Widgets. The company produces one product,
Widgets. The company can procure its widget parts from various suppliers or use its current equipment, facility, layout, and materials to produce the component in-house.
The problem
As the supply manager you see the operational costs increase each month. You need to reduce these costs and streamline processes before the end of the quarter. Corporate will see these costs on the quarterly reports. You need to be proactive.
Additional Information
As the supply manager you are responsible for making all decisions pertaining to procurement. Wonderful Widgets can produce the parts needed to assemble the widgets or they can outsource the parts to a variety of suppliers. Remember, Wonderful Widgets can produce the components internally or buy them from their suppliers. Based on historical data and knowledge of customers, you know:
1. Value is not attached to the component
2. Clock speed is slow
3. No competitive advantage exists
Decision point
Based on this information, do you look at procurement strategies outsourcing?
Answer: Yes - Outsource. This would be an optimal decision based on the current information. Wonderful Widgets does not need to worry about competitive advantage, clock speed, or value placed on this component. As such, outsourcing is viable option at this time.
Additional Information
As the supply Manager, you decide to outsource or procure the component from one or multiple suppliers. Now, you must think about supply risk and profit impact. You decide the following: 1. Supply risk is low 2. Profit Impact is low
Based on what you know, the component is considered to be a functional part/product versus an innovative product. Likewise, this fits with low supply risk and low profit impact. You also realize that using multiple suppliers is the best option.
Decision Point.
As the supply manager, you decide to outsource or procure the component from multiple suppliers. Based on what you know at this time, which procurement strategy is the best option?
Answer: Minimizing Total Landed Cost
This would be the most appropriate procurement strategy. The component is a functional product and supply risk and profit impact are low. Therefore, this approach will assist Wonderful Widgets in reducing their overall operating costs.
