Procurement Strategy Optimization:a Case Study For Company A

In order to sustain the brand competitive advantage, companies gradually concentrate on building core capabilities while transfer non-core capabilities to the upstream of supply chain. By this way, pursuing the optimal allocation of limited resources makes companies themselves exposed to risk environment and companies become increasingly reliant on suppliers. Therefore, companies take procurement strategy optimization as a priority under the new environment. On one hand, supply base needs to be reviewed and restructured with more potential vendors to improve the buyer’s capabilities in turn, on the other hand, suppliers need to be incentive to constantly improve supply levels after building the new supply base.Based on procurement management theory and the related researches, we launched a procurement strategy optimization project in Company A with the goal of solving problems in current supply base to explore how to improve the supply base in the actual business operations and reduce costs of sourcing materials, products and services. Firstly, procurement on the basis of materials classification is discussed to explain how to achieve multi-level categories division with the consideration of importance, total amount, room to improve, implementation difficulties and materials’ features. Secondly, supplier selection system is designed upon material classification to reengineer selection processes, phase evaluation indexes and selection methods in a certain period, and then restructure the supply base. Lastly, we assign orders initially based on multi-game and introduce an incentive mechanism to promote the continuous improvement of suppliers during long-term cooperation.By practice Company A chooses potential suppliers to work with and terminates partnership with some incumbent suppliers having low willingness to improve. Through these methods Company A establishes new supply base and achieves order allocation on base of material characteristics. The results show that the optimization project reduces costs and shortens supplier evaluation time, while ensures both the quality and service levels. In both the efficiency and effectiveness, we have achieved great success. All these show great support for researches in this paper helping improve supply base, save costs and develop strategic relationships with suppliers.