PSM 203: STRATEGIC PURCHASING MANAGEMENT
Meaning of Strategy
Johnson and Scholes
Strategy is the direction and scope of an organization over long term which achieves advantage for the organization through its configuration of resources within a changing environment and to fulfill the stakeholder expectation.
Harvard Business School
Its is the pattern of objectives, purpose and goals stated in such a way as to define what business the organization is in or is to be in and the kind of organization it is or is to be.
Evaluating the concept of strategic management
The strategic management is a complex undertaking. The logical and rational approaches while still in use do not provide appropriate solutions to strategic corporate planning. Most organizations rely upon adaptation and a process similar to logical instrumentalism as the strategies emerge as a result of environmental changes. This understanding raises important point in strategic management:
There is probably no one right way to develop a strategy us as there is no best way to manage. Different situations and environment would call for flexibility and alternative approaches.
The process of strategic development would change over time and in different contexts turbulent environment call for rapid change and necessitate different strategic processes from steady state situations where change is slowly and predictable.
The strategists have different perceptions relating to strategic process due to cultural and social influences. Due to these factors it is difficult to agree on a particular strategy since it will often depend on the type of the organization and its environment.
The strategic processes are different in each organization and also vary from one situation to another.
A. Corporate strategy
Generally corporate strategies are concerned with:
Determining what business the enterprise should be in order to maximize profitability Deciding ‘grand’ strategies
Determining the ‘values’ of the enterprise and how it is to be managed Coordinating and managing major resources and relationships between the enterprise, its markets, competitors, allies and other environmental factors Deciding on business locations and structures
These are adopted when an organization seeks to expand its relative markets share by increasing its level of operations. It can be classified as shown in the figure below: a. Integration strategies
Vertical integration strategies reflect the extent to which an organization expands upstream into industries that provide inputs (backward integration), such as a car manufacturer acquiring a steel rolling mill, or a downstream (forward integration) into industries that distribute the organization’s products, such as a car manufacturer acquiring a car distribution chain.
b. Intensive strategies
These are termed ‘intensive’ because they are ‘vigorous’ efforts to improve an organization’s competitive position in relation to its competitors in areas such as Product innovation and development seek to increase sales by improving present products or services or developing new ones. Purchasing can contribute to this strategy in such ways as advising on specifications, value management and suggesting alternative materials, components and production methods. Market penetration seeks to enhance the market share for existing products or services by greater marketing efforts. Market development seeks to increase the demand for product by discovering new uses for it or introducing it into new geographical areas. c. Diversification strategies
These seek to reduce dependence on a single industry or product. Such strategies may include: Concentric
That involves adding new, but related, products to the existing range Conglomerate
That involves adding new, unrelated products and services
That involves adding new, unrelated products or services for existing customers, such as a car distributor...
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