Using the product life cycle concept to formulate actionable purchasing strategies
Rink, David R
Increasing demands on cost reduction, continuity of supply, and materials quality together with rapidly changing technology and intensifying competition have significantly broadened the scope of procurement, and elevated its stature at the corporate level. Modern purchasing managers may do more forecasting and planning, command greater decision-making authority, develop and implement strategies for different functions within the company, and participate in formulating corporate strategies. These new responsibilities require a reconceptualisation of procurement. Most important is the need for a set of carefully conceived purchasing strategies sequenced according to some workable framework. The authors discuss how the product life cycle (PLC) concept can be used to gauge market conditions, and the subsequent impact this has on the development and implementation of timely procurement strategies. Finally, purchasing is depicted in a systems perspective by organising selected procurement strategies according to five PLC stages and selected intradepartmental (for example, purchasing policy and technical analyses), intracompany (for example, R & D, production, and accounting/finance), and external relationships (for example, vendor relations).
In view of fluctuating costs and recurrent shortages among essential materials, increasing demands on product quality, rapidly evolving technology, and intensifying global competition, administrators in many companies are placing greater emphasis on the purchasing function (Watts et al, 1992; Heberling, 1993; Gadde and Hakansson, 1994; Dobler and Burt, 1996; Leenders and Fearon, 2002). Physical resources have become a crucial factor when executives screen ideas for new products, make “go-no go” decisions, allocate promotional support selectively, and retire items from the line. “We have always assumed that if we could sell it, we could get the materials,” says Robert Parker of Navistar International Corporation, which manufactures heavy- and medium-duty trucks, severe service trucks, school buses, and diesel engines. “That is just no longer true. It’s changing the style of our business plans. Now supply of materials is an equal consideration with finance and markets.”
Hand-to-mouth buying, which was nurtured to near perfection in the 1950s and 1960s, is giving way to a longer planning horizon. In order to forestall supply problems, numerous manufacturers now cultivate sources on a long-term basis, integrate backwards, or simplify their products. This is not to say that hand-to-mouth buying has been eliminated. Managers still use this practice whenever feasible. But the debacles of the mid-1970s and early 1980s (for example, materials shortages, spiraling inflation), and the prospects of similar upheavals in the future caution against its indiscriminate use.
In the wake of sudden unavailabilities of various commodities and components, rapidly rising costs, speculation, drain of cash necessary for operation, distress sales, and huge losses, managers seek ways of averting such threats to corporate survival (Freeman and Cavinato, 1990; Pearson and Gritzmacher, 1990; Rajagopal and Bernard, 1993). Hence, a framework that dovetails the dynamics of supply with those of demand is timely. Discussions with numerous purchasing executives have elicited that the model to be presented summarises the type of organised approach for which many had been searching. A few purchasing managers had previously instituted a subset of these guidelines. Some executives were sceptical. Clearly, the overall approach and the constituent details are not universals, but a point of departure for custom-tailoring purchasing to the conditions facing a particular firm.
Sales Trends as Management Guides
Unit sales of goods or services typically persist in a given direction for a long or short period of time (Kotler, 2002). Production, finance, and other departments prepare to fill the resultant needs. Of course, sales trends do not just happen. They result from marketing efforts (Thorelli and Burnett, 1981; Swan and Rink, 1982; Kotler, 2002; Perreault and McCarthy, 2002). Hence, marketers are familiar with the concept of distinguishable sales trends. They call it the product life cycle (PLC) notion.
The practicality of forecasting distinctive unit sales trends or life-cycle stages has been demonstrated at Corning, Inc (makers of optical fibre and cable, optical hardware and equipment, and photonic components for the telecommunications industry), Sundstrand International Corporation (producers of industrial machinery and equipment), and elsewhere. Surveys of consumers (one’s own customers or customers’ customers) and other methods enable researchers to forecast effectively the sales trends of a very wide variety of products. Such forecasts help coordinate all business functions (Kotler, 2002). When applied to procurement, they need be only reasonably accurate. An indication of the likely direction and duration of the sales trends of major products gives the purchasing executive sufficient lead time for external arrangements and internal organization affecting those matters that vary by life -cycle stage.
In practice, separate life-cycle stages require changes in most operations and even in management styles (Fox, 1975; Kotler, 2002). “Different personnel skills, qualities, and motivations are optimum for the various phases of product and enterprise life cycles,” explains John Moore, corporate vice president of McDonnell Douglas, which manufactures commercial aircraft and jetliners designed to meet a broad spectrum of passenger and cargo requirements for domestic and foreign airlines. “Early phases require creativity and informality. Growth phases require emphasis on operational planning, staging, training, optimism, problem solving, and stamina. Mature phases demand emphasis on efficiency, administration, judgement, and conservation. Whereas cutback phases place a premium on ‘hard-nosed’ decisiveness, objectivity, judgement, and courage,… it is often necessary to change management.”
Product Life Cycle Stages
A five-stage model will be used for present purposes-Design, Introduction, Growth, Maturity, and Decline. The stages are not necessarily consecutive. Nor does each product necessarily experience all stages (Swan and Rink, 1982). Typical unit sales and profit trends are displayed in Figure 1.
The Design stage comprises all pre-market activities. The company is developing a good or service that it has never sold with full-scale efforts. Except for revenues incidental to possible test marketing, the developer realises no sales in the Design phase. A wide variety of materials are needed in small, experimental quantities. Because of the embryo’s uncertain future, the purchasing manager’s paramount consideration is flexibility. Tentative or reversible purchasing decisions are desired.
The Introduction stage commences with full-scale marketing of the new good or service in its intended market or in a large section. Now the purchasing department focuses on adopted materials and suppliers. Procurement policy seeks to balance the high likelihood of an innovation’s failure with the urgency of adequate resources if it succeeds. The Introduction phase ends when management decides either to withdraw the new product or to support it as part of the company’s regular line.
When unit sales increase at an increasing rate or at more than 1 per cent monthly, the product or service is in the Growth stage. The purchasing department tries to enforce quality standards on vendors even while pleading with them for quicker deliveries.
The Maturity stage occurs when sales volume increases at a decreasing rate, and eventually levels off or drops slightly. Purchasing joins other departments in a company-wide quest for efficiency. Also, it stabilises the company’s materials commitments.
The fifth stage-Decline- sees unit sales decreasing at an increasing rate or at more than one percent monthly. Retrenchment (with respect to the goods or services in the Decline phase) is mandatory. Unless management has high self-discipline, a long delay may ensue until executive decision or market erosion halts further efforts.
Purchasing Activities across Product Life Cycle Stages
The dependence of procurement activities on a product’s sales trend was originally recognised by Berenson (1967). He formulated 34 normative purchasing strategies across the PLC that procurement executives should consider implementing. Other writers also used PLC as their integrating concept for developing organisational buying models (Fox, 1973; Farmer, 1975). Fox and Rink (1977) developed a PLC-purchasing strategy (PS) model that organised 83 prescriptive procurement strategies according to various functions (for example, production) and PLC stages.
On the basis of this past research, business experience, and discussions with purchasing managers, the authors developed 135 normative purchasing strategies categorised according to: five PLC stages; and intradepartmental (for example, purchasing policy and technical analyses), intracompany (for example, R & D, production, and accounting/finance), and external relationships (for example, vendor relations). The basic criterion for classifying strategies within this model is the purchasing department’s contribution to company-wide profitability. For example, instead of a narrow focus on each responsibility centre, purchasing policy in the Design stage emphasises prompt service on trial orders for a wide variety of items in lieu of unit costs. During the Introduction phase, the purchasing executive favors subcontracting, whereas during the Growth stage, he or she reaches back for materials to be processed in the company’s own facilities. Opting for variable costs when sales are low reduces losses and risk; shifting to fixed costs when sales are growing enhances profit. This is the familiar principle of operating leverage. The point is that this model slots purchasing in a systems perspective.
The structure of this model is aligned vertically and horizontally. Within each stage, all functions are mutually consistent. Across the five phases, procurement (for example, policy and technical analyses), intracompany (for example, R & D, production, and accounting/finance), and external activities (for example, vendor relations) follow a logical path in conformance with the total profitability criterion. For example, during the Design stage, the purchasing department evaluates new vendors. In the Introduction period, it builds a list of preferred and standby suppliers. When the product’s sales grow, the purchasing department selectively deepens supply sources without disrupting established arrangements. Overdue purchase orders are cancelled as the product matures. And, during the Decline stage, the purchasing department engages subcontractors as quickly as the company’s facilities can be converted to more lucrative production.
Thus far, the need for a systematic model of purchasing operations has been established. An abbreviated explanation of product life cycle provided the point of departure. Some for examples of procurement applications illustrated the general approach. Based on this background, a stage-by-stage exposition of purchasing practices follows.
Ideas for new products come from many sources. An increasingly important source is the purchasing department. “Suppliers frequently present new ideas for consideration which will influence what motor vehicle manufacturers will be making years hence,” notes David Newbury-Ecob, manager of purchasing services, Vauxhall Motors Ltd, which is one of the long established motor manufacturers in the world, a wholly owned subsidiary of General Motors Corporation, and a producer of passenger cars and light commercial vehicles. Procurement analysts identify trends in materials and processing that will lead to new product designs.
Of course, many projects in the Design stage may never materialise. Yet, the purchasing department cooperates by obtaining a wide diversity of materials for testing. Its policy is to de-emphasise unit costs, because vendors’ cooperation in furnishing small quantities is more important. Much of this buying can be delegated to a junior member of the department, while an analyst assesses make-or-buy alternatives, determines short- and long-term supply and demand of major materials, and evaluates vendors’ quotes. Meantime, senior purchasing administrators monitor the progress of the new product effort. If the new item will supplant existing goods or services, they pare commitments to present vendors.
Each product carries its peculiar challenges in inter-departmental relations. Cross-functional teams, in which multiple stakeholder groups (internal and external) pool their talents, may be warranted (Dobler and Burt, 1996). During this pre-market introduction stage, representatives from the purchasing department contribute their expertise in numerous meetings and reviews. For example, purchasing managers urge the design department to formulate new product specifications that will reduce future supply problems. They try to have the developing product incorporate materials and components already in satisfactory use on existing lines. In addition, purchasing gets quotations and estimates of lead times for design engineers, participates in developing quality standards and specifications, and helps in formulating procedures to monitor materials quality.
Elsewhere within the company, purchasing suggests in-house manual assembly of original designs to prevent disclosure to competitors. It also helps prepare a materials management plan. If toxic or other dangerous materials must be used, purchasing makes sure that the company has the required licences or permits. It cooperates in planning how the firm will handle, store, and dispose of hazardous materials. It also screens the new product and materials for compliance with ecology, health, and safety regulations. “Product changes to meet legislative regulations are increasingly pervasive and important in the structuring of product programs and have in many ways become the most important parameter of market response,” reveals Dr Thomas Staudt, director of marketing, Chevrolet Motor Division of General Motors Corporation, which is the world’s number one manufacturer of cars and trucks of different sizes, types, models, and brands for different customers (for example, consumers, businesses, etc).
Further, purchasing joins other departments in financial planning for the prospective innovation and in evaluating proposals for the purchase of equipment. With respect to the latter, the purchasing department uses life-cycle costing; it considers the initial outlay plus the expenses of maintenance and service over the asset’s useful life. A related task is to assess capital requirements of new vendors that the innovator may have to finance. Vendors may be unwilling or unable to risk their own funds in an unproven product idea.
At the request of the marketing department, purchasing analysts find exotic materials that can be romanced in promotional efforts. Purchasing also consults marketing about sales expectations and market plans for the new item. Finally, the purchasing department approves the emergent product’s specifications on the basis of expected materials availability and stable cost. In some firms, for for example The 3-M Company (a diversified industrial materials supplier producing adhesives, bonding materials, coatings, and specialty materials for the industrial, transportation, healthcare, consumer and office, communications, and specialty materials markets), a project group takes over these purchasing functions for developing products.
Vendor relations in this stage emphasise flexibility, but are also future-oriented. The purchasing department evaluates custom shops and supply houses as prospective vendors of materials and services either not bought before or bought in small quantities. It selects vendors who have the necessary experience, equipment, and permits for handling, storing, and disposing of hazardous materials. Purchasing obtains samples for testing purposes. It educates suppliers concerning specifications and quality standards. Purchasing asks suppliers to identify their start-up and tooling costs. Prior to manufacturing custom-designed equipment, it asks potential vendors to conduct a prepurchase survey of the firm’s needs. Plans are formulated with vendors for sudden or erratic input needs.
Purchasing develops a list of suppliers who can meet the firm’s specifications and quality standards. It also assists suppliers in developing and implementing quality assurance programs. If necessary, the firm furnishes tooling to vendors. Anticipating that requirements will change as its product’s sales trend varies, purchasing executives insist on various options in early supply contracts. Some specific for examples are: buyer’s right to change specifications, shipment acceleration or delay, cancellation or return, vendor’s performance bonds or liquidated damages, and a schedule of declining unit costs reflecting the supplier’s learning curve. In some companies, purchasing uses various tools (for example, bill of materials, Program Evaluation and Review Technique, etc) to assemble all essential raw materials and components for new products. Thanks to these practices, the purchasing department is in an effective position to support the fledgling’s launch.
Despite much laboratory and market testing, a new product typically harbors many problems that only actual use and larger-scale distribution can reveal. Purchasing’s primary task in this stage is to balance the high likeli-hood of failure of the innovation with the urgency of adequate resources if it succeeds.
The policy of the purchasing department during the Introduction phase is to work closely with vendors to resolve material defects and implement engineering changes. Field reports from customer service personnel and other direct inputs from procurement pinpoint specific complaints. Purchasing prepares itself to handle an avalanche of engineering modifications. It consults the marketing department concerning special orders and potential design changes.
Along with engineering and accounting, purchasing develops preliminary standards for cost, quality, yield, and other factors pertaining to the new product. It assists in establishing lead times, minimum stocks, and reorder points. Purchasing also monitors sales research reports for clues about eventual growth or discontinuance. It prepares for changing state and federal regulations based upon amounts of hazardous materials handled. It participates with other departments in determining whether to implement a Total Quality Management (TQM) programme and just-in-Time (JIT) manufacturing.
Until the product’s market acceptance has been demonstrated, the purchasing department uses subcontractors and rents facilities. Where feasible, it arranges for leases with options to buy. Of course, many parts, components, and technical services are bought, but only in small quantities. These small orders are consolidated with other incoming materials.
Based upon experience with new vendors and their capacity to deliver during the expected sales growth, purchasing develops a list of preferred and standby sources. A senior procurement executive culls the preferred vendors and establishes long-term relationships with them. Suppliers are encouraged to develop new technologies that can be incorporated into the firm’s operations. Many companies give special consideration to small businesses. In some cases, the purchasing department orders their raw materials from them.
When signals of impending sales growth have been confirmed, purchasing plans an orderly shift from subcontractors to owned facilities. Near the end of this stage, purchasing develops and implements a supplier certification program to improve materials quality as well as reduce inventory, order processing, and inspection costs.
During the Growth period, the purchasing department is liable to be plagued with temporary shortages, shipping delays, and similar rapid growth problems. But, as a matter of policy, purchasing maintains strict service and quality standards on procured items despite pressure from others in the company for speedy deliveries (Leenders and Fearon, 2002). It furnishes and monitors replacement tooling, a special arrangement with small vendors and some others. Purchasing managers enlist their high-level contacts at suppliers and transportation companies to obtain needed goods promptly. They also urge the accounting department to pay vendors’ invoices promptly to help maintain the flow of shipments.
Purchasing expands its department staff to process an increasing volume of requisitions, follow-ups, etc. It uses blanket purchase orders, traveling requisitions, and other methods to minimise repetitive ordering. Purchasing assists in revising lead times, minimum stocks, and reorder points as well as participates in the installation of Economic Order Quantities (EOQs). It also builds substantial inventories of raw materials and goods-in-process. Yet purchasing avoids overbuying when some managers extrapolate or exaggerate this period’s steep sales increase. “The difference between a shortage and a surplus is just one pound,” notes E F Andrews, vice president of Allegheny Ludlum Industries, Inc, which is a diversified producer of specialty materials in three areas: flat-rolled steel products, high-performance metals, and industrial products.
In addition, purchasing phases out some subcontractors in favour of in-house production. This strategy can contribute to the company’s profit in three ways. The department saves “exchange” costs (Zenz, 1994): its own buying and liaison efforts as well as the subcontractors’ selling and follow-through expenses. Most important, in the Growth period, the company benefits from operating leverage. On the other hand, in-house production raises the purchasing department’s “transaction” costs (Williamson, 1996) of contacting vendors, processing orders, coordinating inbound shipments, and so forth. Elimination of subcontractors requires development of more basic sources. Purchasing selectively widens supply sources without disrupting desirable established relationships, procuring some inputs and services from local or minority vendors. Finally, it performs a make-or-buy analysis for the product, conducts ABC inventory analyses on materials, and participates in determining whether to expand existing manufacturing facilities.
Since demand for the company’s product is growing, temporary shortages may occur. Purchasing shifts to suppliers with large capacity. If necessary, it uses brokers to find scarce items for immediate delivery (Dobler and Burt, 1996). To assure long-term supply, purchasing determines whether to buy ownership interest in a key supplier or obtain control of a major material previously bought from a vendor. Also, much effort is devoted to expediting vendors’ shipments (Zenz, 1994). An “outstanding supplier” award and incentive, as Norton Company gives, can be effective. When extraordinary circumstances make concessions to vendors expedient (for example, rapidly increasing demand for the firm’s product), purchasing gets legal advice to ensure that the company’s rights are not waived for future occasions. Most of these problems subside or are replaced by a new set of challenges when the company’s product matures.
The purchasing department’s policy in the Maturity period is to stabilise materials’ commitments and improve the efficiency of department members’ routines. Under this policy, purchasing designates regular and alternate sources, installs automatic reordering of standard quantities, and provides for product variants as well as enforces vendors’ adherence to quality standards, consistent customer service levels, and related activities. Purchasing personnel perform make-or-buy appraisals for products with stable demand, new product extensions, and subcontracted jobs. They also conduct research about substitute materials and alternative sources. At the 3-M Co and at the Pillsbury Co (a manufacturer and distributor of various food products, including sauces, soups, baked products, frozen vegetables, and ready meals), commodity specialists trace the availability of a given item all the way back to its primary source. Other investigations ascertain the feasibility of long-term contracts with fewer sources. Pressure for cost reduction is intense. Occasionally, the department picks up bargains from insolvent companies. But the main emphasis is on reducing costs from long-term vendors.
Stabilisation of demand opens new opportunities for administrative improvements. Whatever work is routine, senior purchasing managers delegate to junior executives or use as a model in on-the-job training programmes for new buyers. An internal suggestion system is developed to elicit ideas to make purchasing operations more productive. Systematic cost-reduction efforts (for example, learning curve analysis) are conducted within the purchasing department to raise efficiency (Leenders and Fearon, 2002). The director of purchasing evaluates the usefulness of reports for controlling departmental functions and for informing top management. He or she also evaluates the efficiency of the purchasing department by reviewing its organisation, policies, and procedures.
Some procurement may be centralised at headquarters (for example, national contracts). However, if production operations are decentralised, the director of purchasing may split up buying assignments the same way (Zenz 1994). One purpose of these organisational realignments is promotion of closer interdepartmental cooperation. For instance, purchasing participates in the revision of product standards and specifications. It urges design engineers to specify interchangeable parts on new sizes, attachments, and other modifications of the product. This is especially important during Maturity when uncontrolled proliferation in models, sizes, and other product variants would fractionate purchasing requirements.
Mounting competitive pressures trigger various reviews of objectives and operations. Insistence on reciprocity recurs with increasing frequency. Techniques of negotiation with vendors are improved so as to result in lower prices. Overdue orders from the Growth period are cancelled. Purchasing adjusts input quality and service standards to conform with customers’ buying criteria, subject to societal requirements.
Purchasing also participates in production decisions, such as determining whether to revise the firm’s materials management plan and replace obsolete equipment or tooling. Two off-shoots of such intracompany cooperation are: a benchmark study of the firm’s major competitors’ products and processes to identify ways to improve the firm’s existing product and operations; and a series of broad-scope efficiency studies and value analyses (Dobler and Burt, 1996). Purchasing redirects value analysis to reduce the use of critical materials and to shift as much as possible from the use of nonreplaceable to replaceable resources.
After value analysis, purchasing screens substitute materials and the redesigned product for compliance with various state and federal regulations; makes sure the firm acquires proper licences for use of these substitute materials; and participates in planning how the firm will handle, store, and dispose of these materials. The department’s proposals of substitute materials (or new features) may open new markets, or give the company a competitive advantage. These projects may lead to exploring possible importation of labourintensive parts or acquisition of vendors.
Purchasing arranges for a suitable mix of geographically dispersed sources. It monitors vendors possible absorption by rival firms or possible shutdown due to ecological restrictions, strikes, etc with consequent threat to continuity of its supply. Foundries are a case in point. As a safeguard, the purchasing department awards orders regularly to several medium-sized suppliers. A monthly “lead time list” summarises for each commodity the current outlook for delays, possible strikes at suppliers and transportation companies, recent accidents, fires, and so forth, for use by inventory control and production scheduling.
In relations with vendors, the emphasis on lowest total cost is stronger than ever. Purchasing encourages suppliers to propose simplifications of component materials and other cost-saving ideas for the existing product. If necessary, it replaces obsolete or worn-out tooling at vendors (Leenders and Fearon, 2002). New buying techniques (for example, prepaid purchase orders) reduce lead times or eliminate the need to stock maintenance items. Purchasing searches for ways to improve the efficiency of information exchange between itself and vendors as well as among vendors (for example, tie purchasing data base to vendors’ data bases via computer hook-ups). In general, purchasing tries to shift inventories to vendors. It presses for systematic price reductions based on vendors’ experiences. Yet, despite drives for lower total costs, purchasing insists on preserving quality standards adopted in this period. In any disputes, it defends, more vigorously than before, the company’s rights.
In addition, purchasing supports the efforts of shippers associations to lower freight rates on incoming shipments. Purchasing works with traffic specialists to determine cost-reduction possibilities by consolidation of shipments and other special arrangements available from shippers (for example, lower-cost freight class).
Purchasing executives visit trade shows to establish new contacts and examine new ideas. Purchasing is also alert to information concerning competitors, which vendors’ representatives may provide. Additional tidbits are gleaned at meetings of professional associations, from trade journals, and other sources. Along with their appraisals, purchasing executives forward this information to the company’s intelligence section.
The stress on lower costs also spurs creative exploitation of trade associations and other neutral organisations. They are enlisted as clearinghouses for excess or needed materials. Moreover, purchasing compiles and disseminates industry statistics. The latter, along with the firm’s sales volume information, signal purchasing when decline of the product is imminent.
As the product’s sales trend turns down, most of the aforementioned pressures intensify. Purchasing must concentrate on true cost eliminations, not cost reassignments. Consequently, some of the earlier decisions are reversed. For for example, purchasing reduces inventories and services. Most purchasing specialists are transferred to other duties or newer products.
Economic order quantities are no longer serviceable. Accurate forecasts of production and sales are especially important; in the Decline phase, ordered materials may lack alternative uses. A cautious, controller-type purchasing executive is needed to screen all requisitions. As cut-throat competition for decreasing volume makes some vendors desperate, purchasing strictly enforces quality and service standards.
If the company’s equipment can be either exported or converted to other burgeoning products, purchasing reverts to subcontracting. It also maintains adequate sources for spare parts to serve users of the product. The purchasing department is instrumental in obtaining finished goods from abroad or from competitors. Suppliers are notified and perhaps helped as quickly as new arrangements are assured (for example, assist in disposal of vendors’ inventories). Purchasing cooperates in determining whether to sell raw materials, goods-in-process, and finished goods inventories to branch plants, suppliers, or brokers. Trade associations are used as clearinghouses for excess materials. ] If the company licenses another firm to manufacture the faltering product, purchasing asks the legal department to review and transfer procurement commitments. Purchasing also spearheads the implementation of the firm’s plan for the disposal of recycled or scrap materials, obsolete tooling, surplus machinery, and hazardous materials. After the firm retires the product, liability for personal or ecological harm continues. The purchasing department stores its records so that they can be retrieved in case of lawsuits or legislative proceedings.
Systems Perspective of PLC-PS Model
An important aspect of the authors’ PLC-purchasing strategy (PS) model is the systems perspective it provides for procurement planning. In addition to classifying 135 purchasing practices across five PLC stages, the authors’ model organises these strategies according to various intradepartmental, intracompany, and external procurement relationships. By way of illustration, Table 1 summarises “selected” purchasing practices across PLC phases for six of these procurement relationships-Procurement
Policy, Technical Analyses, Vendor Relations, R & D, Production, and Accounting/Finance. (Table 1 can be easily expanded, thereby making it a more comprehensive model, by incorporating additional relationships, for example, Procurement Organisation/Administration, Marketing, Inventory/ Stores, Transportation/Logistics, Human Resource Management, Legal Affairs, and Trade Associations, and their associated purchasing strategies.)
Summary and Conclusions
By using the authors’ PLC-purchasing strategy model, procurement executives can ascertain the set of prescribed purchasing strategies they should consider implementing in each stage of a product’s sales cycle. These strategies, in turn, can serve as references for continuous reprogramming of purchasing activities across the PLC.
Adoption of a purchasing activities classification system of the type discussed above can proceed piecemeal. Most urgent is procurement management’s attention to goods or services in their early phases. These are more volatile and often require more radical departures from operational routines. During a stable Maturity period, seasonal patterns may be more decisive on procurement practices. When the product’s sales volume declines, management’s attention passes to successor entries.
The life cycle concept does not apply to organisations whose output has a steady long-term trend (for example, unbranded hardware) or has balanced diversity such that no one product line’s sales and purchase patterns justify special attention. The biggest obstacle to product life cycle adoption encountered in practice has been a lack of product or product line sales forecasts. Some purchasing departments use production schedules. Most work from requisitions. But wherever the above framework can be serviceable, it validates a department’s “need to know” sales forecast. After some trial adoptions, if results warrant more extensive use of this tool, procurement executives can integrate it into departmental objectives, position descriptions, and work schedules. If other departments’ activities follow these same guidelines, its effectiveness is maximum.
The PLC-purchasing strategy model also provides a panoramic perspective of the procurement function across the phases of a product’s sales cycle. Because this representation affords an overview of the procurement function in terms of a workable framework, it can be useful in executive training programmes for purchasing personnel.
Finally, the authors’ model, which depicts procurement in a systems perspective, makes explicit purchasing’s relationship with other functions of the firm in the decision-making process. This is especially timely, because procurement is currently assuming top-management stature in many firms. Purchasing managers interact almost daily with executives from other functions either on an individual basis or as part of cross-functional teams. Since one of the major advantages of the PLC concept is that it helps integrate thinking in all functional areas (MacKenzie, 1971; Fox, 1975; Kotler, 2002), the authors’ model can be invaluable in illustrating the interrelationship of procurement with other functions of the firm. This can assist managers of purchasing and other departments to dovetail their operations.
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Dr David R Rink
School of Business
Indiana University Kokomo, USA
Dr Harold W Fox
Department of Marketing, Finance, and General Business
Pan American University, USA
Copyright Singapore Institute of Management 2003
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