Reference no: EM133980898

Case Study: transition from Purchasing towards strategic category management

HI-TECH Electronics makes highly complex electronic test equipment for the PC and telecoms industry. HI-TECH has identified that to remain competitive in the global market it needs to cut costs and better leverage the potential of its significant global spend. HI-TECH has focused on its Procurement Function and has begun to review the biggest cost and risk areas with spend on printed circuit boards (PCB's) identified as a priority. HI-TECH Electronics is organised around the products it supplied. The product teams report out of the R&D Function who assume full responsibility for specification and supplier selection for key components and develop and maintain relationships with the key suppliers they want to work with. Purchasing is regarded as a support function whose role is largely to conclude the commercial arrangements. Product teams have little need to work cross-functionally. PCB's are critical items, many using highly complex multilayer technology, and product teams therefore work closely with their chosen supplier to optimise PCB design to the PCB manufacturing process. The company has a total of 15 different PCB suppliers, all in one country, of which around half maintain a close relationship with one or more product teams. Purchasing ensure the contractual and commercial arrangements are defined in an agreement and respond to a weekly planning schedule and ensure PCB orders are placed in good time. Purchasing also attempt to defend any price increases and have carried out some benchmarking that suggest HI-TECH is paying too much for these products. Various ideas for reducing PCB spend has been proposed by the Purchasing Function, including aggregation of spend and sourcing from emerging markets, but these ideas have gained little traction with product teams who are reluctant to move away from existing arrangements.

Set out in detail how strategically important data, high impact strategies, strategic implementation, and approach to new supplier selection will enhance the transition of their Purchasing Department towards strategic category management.