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Requirement
Assignment based on Supply Chain Management
Solution
Introduction
In this present paper, we will discuss the supply chain of TELS international transportation company. It deals in freight forwarding and cargo transport services internationally. The company deals in the transportation of air, water, road and railway. The fuel purchased by every department is different. The Kraljic positioning matrix is used to solve the problem of cost cutting for the product and services in all the four segments. The segments include leverage items, Strategic items, bottleneck items, and non-critical items. After demonstrating the use of Kraljic positioning matrix, the portfolio of supply is analyzed at what extent it drives the sourcing strategy.
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The Kraljic positioning matrix was given by Peter Kraljic in 1983. It is first to represented in Harvard business review. It is mainly used by the logistics, manufacturing companies who are having the schedule for purchasing raw material. Kraljic suggested that the purchasing is many companies is based on routine. The strategic consideration is required for economic and political disruptions in a transactional activities for the supply of raw material. The Kraljic Portfolio purchasing model used four tools: Purchase classification, market analysis, strategic positioning, and action planning (Padhi, 2012).
Following are the four categories:
1. Purchase classification
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1. Leverage items:
The leverage items are defined as the items which are high profit impacted by the combination of low supply risk. The purchasing approach include using all the purchasing power by a company, substitute products and services, and the high-volume orders (Liew, 2014). The high impact profit is affected by a single value added, which changes the output of a company in high proportion. The low supply risk means the raw material is abundant in nature, its presence does not impact on any government regulations, its presence does not affected by natural disaster and the availability of supplier are high. The leverage items of a company are fuel of roadways which is petrol. -
2. Strategic items:
The strategic items are defined as the items which are high profit impacted by the combination of high supply risk. The high impacted profit means that the added value will impact the profitability of a company in high proportion. The supply risk is also high which means that the raw material is scare, the government instability is impacted by its availability, the delivery of logistics is also difficult and the suppliers are also having monopoly because of limited supplier of products (Quigley, 2014). The strategic items of a company is airways fuel oil which are highly profit impacted and the supply risk is also high because the suppliers are few, it will be affected by natural disaster and the manufacturing products are also scare. -
3. Bottleneck items:
The bottleneck items are defined as the items which are low profit impacted by the combination of high supply risk. The profit impacted is low which means the value added in the product will not impact on the profitability of a company in that proportion or more. The supply risk is also high which means that the availability of a manufacturing product is scare, the availability also impacts by the government instability and the suppliers are also scares. There is no bottleneck items in a company. -
4. Non critical items:
The non-critical items are defined as the items which are low profit impacted by the combination of low supply risk. The low profit impacted means the significant item added to the product will not impact the profitability in a high proportion (Cox, 2015). The low supply risk means there are many suppliers of a product, the raw material is abundant in nature, the availability is not affected by government inventions and the natural disasters are also not high impact on supply of a product. The non-critical item of a company is waterways oil.
2. Market analysis
Market analysis is used to analyze the market strategy used by a company. Following porters five model is used to analyze the market:
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1. Supplier’s force: The supply forces are defined as the force of suppliers on the prices, availability of product and services, cost and others. The supplier's force is high in Jet oil because the suppliers are limited (E. Dobbs, 2014). The supplier's force is low waterways oil because it is abundant in nature. The supplier's force of petrol is medium.
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2. Buyer’s force: It is defined as the force of buyers on the prices, choice of product and services. The buyer's force of jet oil is low because the suppliers have the monopoly over the supply of oil. The buyer's force of water oil is high because the oil is abundant in nature so the supplier's risk is low. The buyer's force of petroleum is medium because the suppliers are not scared and its availability is also medium.
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3. Threat of New Entrants: It is defined as the force of new entrants which creates a threat for the existing players in a market. The new entrant's threat is low in jet oil because the risk is also very high, so the new entrants don't to prefer enter into this market. The new entrant's threat in petroleum is medium and in waterways is also high because the new entrants can easily enter into waterways oil market.
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4. Threat of substitute: It is defined as the force of substitutes which affects the demand and supply of goods and services. It changes the mindset of consumers and forces them to change their opinion. The threat of substitute is low in jet oil because it is the expensive and high risk. The threat of substitute in petroleum is high and in ship oil the threat of substitutes are also high.
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5. Competitors force: It is defined as the force of new entrants which creates a threat for the existing players in a market. The competitors in jet oil are very low because the suppliers are limited in a market. The competitor's force in petroleum is high because competitors are available in the market. The competitor's force in waterways oil is also high because there are a number of competitors in a market selling similar oil.
3. Strategic positioning
The strategic positing is used to position the product according to the product classification and porters five model analysis (Sepulveda, 2014). The following table shows the classification:
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The jet oil is having low buyer’s strength and low supply market strength so the strategic position is Balance.
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The petrol is having medium buyer's strength and medium supply market strength, so the strategic position is also Balance.
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The waterways oil is having high buyer's strength and high supply market strength, so the strategic position is also low.
4. Action planning
The action plan is defined as the plan which is a sequence of all the activities performed in a more efficient and effective manner (Cadden, 2013).
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The action plan for the jet oil is used the oil in a more efficient and effective manner so that the resource are available for the future also. The jet oil is a more strategic element because it is more expensive as compare to the airways oil and petrol. The company should use it very carefully.
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The petrol and waterways oil can be procured easily because it is easily available in middle-east countries, so it requires less focus.
Analysis of the identified portfolio
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The jet fuel oil is the strategic item and the suppliers force is also high because of limited suppliers. The company should consider this item as a very important aspect because it is very expensive and scarce in availability. The company should maintained the stock of jet oil so that the oil will be used in the shortage of oil supply. The inventory management is very important because of high supply risk and limited buyers and it should be maintained in such a manner that the oil will be available in the future as well. The strategic item according to the strategic matrix should be used in a balance manner so that it will be available in the present as well as in the future (Ferreira, 2012). According to the strategy matrix the jet fuel is positioned in a balance category because the resources are scare in nature so the product should be used in an optimized manner. The jet fuel is considered as the high attention required item because of its high price and supply risk. The buyer’s purchasing power is also low and the supplier’s force is also high. The action plan made by the company requires highest attention on jet fuel oil so that the oil must be available in the future as well (Bäckstrand, 2015). The jet oil should be used in a sustainable manner. The inventory management should consider all the aspects so that the fuel will be available in the future as well.
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The waterways oil is a non-critical item because the profit impact and supply risk both are low. The water ways oil must not require much focus because it is available in abundance across the middle-east countries. The strategic position of oil according to the strategic matrix is balanced because the supplier risk is low and the impact of profit is also low. The supplier risk is low because of number of suppliers so the buyer’s purchasing power is high. According to the porters five model the waterways oil is having low suppliers force and high buyer’s force. The threat of entrant in this market is high and the competitors force is also high because there are number of competitors who are present in the market with the similar oil. The inventory management of a waterways oil should be balance so that it will be prevented from future risk and uncertainties.
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The petrol is a levered item of a company because the profit impacted is high and the supply risk is low. The petrol is abundance in middle-east countries. The petrol requires less attention then the jet oil but the inventory management of petrol should be in a sustainable manner so that the future will not be affected by the supply of oil. The supply risk is low and the profit impact is high which means that the suppliers are many in the market. According to the porters five forces the suppliers force is medium and the buyer’s bargaining power is also average. The competitors force is also above average and the threat of new entrants is also high. The future purchase of an oil must be done in a sustainable manner. The petrol according to the strategic matrix is positioned in a balance because the petrol is having medium buyer’s strength and medium supplier’s strength. The petrol oil is a medium level product which can be managed much focus.
Conclusion
According to the Kraljic Portfolio purchase model the product classified as leverage items is petrol, the strategic item is jet oil and non-critical item is waterways oil. The market analysis is done through porters five model in which the suppliers force is high in jet oil among all the three oils. The buyer’s force is high in waterways oil among the three oils. The threat of new entrants is high in waterways oil because the entry and exit is easy because of low risk. The threat of competitors is medium in petrol and high in waterways oil whereas the threat of competitors in jet oil is low because of less suppliers in a market. The strategic position of all the three oils are balance because the jet oil is having limited supply and buyer’s strength is also low whereas the market strength and buyer’s strength of petrol is medium. The market strength and buyers strength of waterways oil is high. The action plan of a company must focus on strategic item of a company which is jet oil because it is most expensive and scarce among the three oils. The other two oils are required less focus because they are abundant in middle-east countries. The analysis of all the three oils concludes that the most important item of a company is strategic item which is jet oil. The jet oil inventory management requires high attention because the supply risk is high and the resource is scare. According to the strategic matrix the jet oil must be used in a balance manner so that there will be no shortage of jet oil in a company. The future purchase must be done in a sustainable manner. The other two oil require less focus but the inventory management of both the oil must be done in a most efficient and effective manner.
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Padhi, S. S., Wagner, S. M., & Aggarwal, V. (2012). The positioning of commodities using the Kraljic Portfolio Matrix. Journal of Purchasing and Supply Management, 18(1), 1-8.
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Quigley, K., & Mills, B. (2014). An Analysis of Transportation Security Risk Regulation Regimes: Canadian Airports, Seaports, Rail, Trucking and Bridges. CIP Initiative. Accessed November, 9, 2015.
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Cox, A. (2015). Sourcing portfolio analysis and power positioning: towards a “paradigm shift” in category management and strategic sourcing. Supply Chain Management: An International Journal, 20(6), 717-736.
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Liew, J. G. L. (2014). Classify me!: A Kraljic Portfolio Matrix Exercise.
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Sepulveda, J., Derpich, I., & Bull, J. (2014, November). DETERMINING SUPPLIER MANAGEMENT STRATEGY BY MULTICRITERIA ANALYSIS. In MOSIM 2014, 10ème Conférence Francophone de Modélisation, Optimisation et Simulation.
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Cadden, T., & Downes, S. J. (2013). Developing a business process for product development. Business Process Management Journal, 19(4), 715-736.
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Ferreira, L. M., & Kharlamov, A. A. (2012). Application of Kraljic’s purchasing portfolio matrix in construction industry–A case study. In International Conference of Industrial Engineering and Operations Management.
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Bäckstrand, J., Tiedemann, F., & Hedén, E. (2015). Competitive advantage based purchasing matrix: A portfolio-approach to differentiated purchasing strategy. In Proceedings of the 24th Annual IPSERA Conference (pp. 1-10).
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E. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
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