Course Work Example on Management: Kraljic Matrix

In the case of customer demand increase the implications shall be as follows:

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Safety stock maintained shall increase since the demand for customers is certain and the firm should not risk a stock out.

Order lead time should be increased since the safety stock levels have been increased and with a small lead time then the company risks excessive and dead stock.

The new reorder level is the product of lead time and the daily usage, this implies that the new reorder level should increase since the lead time has increased and the average daily usage is high. Moreover, it should increase since the safety stock maintained has been increased and the order lead time has been increased meaning that a small reorder level risks the firms stock levels that need to be sufficient to meet the customers needs.

Optimal order quantity; this shall be affected negatively since it will be difficult to retain a low quantity of the stock meaning there shall be an increase in the holding cost and ordering cost as reorder quantity increased.

Question 1 (b)

In the case where the customer demand uncertainty increases:

Safety stock maintained by the firm reduces since the demand cannot be fully evaluated and relied upon. The risk of a stock out is not certain and therefore the firm shall opt to cut on some other costs thus reduce the safety stock quantity.

Order lead time shall be reduced since the firm needs to avoid conflicts with then customers due to stock outs as demand may hike at an unexpected time.

The new reorder level shall reduce since average daily consumption is low and the lead time has also been reduced. Furthermore, the firm should try to avoid excessive stock leading to costs such as the holding and storage costs.

Optimal quantity shall be positively influenced since the company shall minimize holding costs and the ordering costs. This means that the company shall retain a low optimal quantity as the demand levels are uncertain.

Average inventory level is the mean value of the inventory over a given period of time, this shall be reduced since the general inventory levels have been reduced to meet the demand uncertainty.

Question 2 (a)

Kraljic Matrix

This helps businesses and individuals to develop purchasing strategies for products and other services for the organization. The matrix aims at removing aspects of supply vulnerability to the maximum while maximizing the potential on the purchasing power. This model originated from the Harvard Business Review in the year 1983; however it was already under use at the BASF by that time. The Matrix allows businesses and individuals to work and operate in a smarter manner with the already existing suppliers. It allows one to be in a position to determine on a per supplier or a per product basis, the right type of relationship that should be fostered between the suppliers and the businesses (Michalski, 2009). This model is implemented through mapping of the profits impact of products on one axis on the graph while the vulnerability of the business to the supplier is mapped on the other axis. This gives rise to the matrix below;

Supply Risk High Bottleneck

(pumps and joineries) Strategic

(Precious Metals)

Low Non-Critical

(Office Supplies) Leverage

(Welding Machines)

Low High

Financial Risk

Strategic Plans

These are part of the items that have greater influence on the impact on the businesses, they are said to have a high profit impact and a high supply risk. This probably occurs because the organization spends more money on the items entailed here are have a direct link to the businesses differentiation and profits. These are the items that are also scarce for the organization, the strategic items quadrant usually contains items that are of high value for instance precious metals that come from a single supplier. Whereas the strategies for purchasing that would be used for the items in this quadrant are strategic partnerships and collaborations. For organizations that need to develop comprehensive supply management chains then this should be the area of main concern.

Leverage Items

These items have a similar trait with the strategic items whereby they have a huge financial impact on the organization however the items are abundantly supplied. They are described as the items with a high profit impact and a low risk of supply. Since they have a huge financial contribution to the organization then they are considered to be of high importance to the organization. The most efficient purchasing strategies that would be implemented for this cluster of items would be competitive bidding and tendering. Examples are Welding equipment for an assembly company where without the equipment the profitability of the company is adversely affected while the equipment are readily available in the market.

Bottleneck Items

These are the items that result to have a low financial impact towards the company but on the other hand they have a high risk of supply. This usually occurs in cases where there is a new supplier supplying a new form of technology. These types of items require a twofold form of purchase by first ensuring that there is continuity of supply and secondly developing a strategy that would reduce the level of reliance on the supplier by adapting on the products and researching on possible new suppliers . Example for these items is; in the case where a company has a hydraulic pump that is popular in mining activities, each of the pumps is comprised of 100 different parts such as bolts, nuts and other piping sections. Each of the sections such as the bolts and the nuts comprise of the bottleneck items.

Non-critical Items

These are the items that have minimal financial impacts to the company and also tend to be in abundance when it comes to supply levels. However, they cannot be ignored despite their low costs and abundance since the cost associated with handling them may exceed the cost that is involved in their production. Therefore the strategy used in the purchase of these commodities focuses mainly on the reduction of the administrative costs and the logistical complexities. Examples of these items include the office supplies.

The Kraljic Matrix operates through the mapping of profits impacts from a product on one of the axis while the other axis takes the vulnerability of the commodity towards the supplier. The matrix basically provides the required portfolio for the approach in the management of the many supplies that are associated with the organization.

Question 2(b)

The terms Push and Pull came from the supply chain management under logistics but also apple widely in marketing strategies. Push-pull system describes the movement in which the product or information is handled in a company between two subjects. In the case for the markets, the buyers are usually the ones who pull the commodities that they desire while the sellers push the goods and the commodities towards the consumers. The production on the basis of Push referred to as the push production is the form of production that relies on forecasted demand while the pull production is the production of the goods that is on the basis of actual consumer demand (Muller, 2011).

Push Based Supply

This incorporates distribution channels that are based on the decisions arrived at on the long-term forecasts of consumption behaviors. The manufacturers and the suppliers forecast the demand levels based on the history of orders that they receive from the retailers and distributors. However, this strategy takes a longer time for reaction towards the dynamic and highly changing marketplace due to a few factors;

This mode faces limitations in meeting the constantly changing demand behaviors and patterns.

Brings about the aspects of obsolescence in the supply chain inventory since the demand for some other products disappears with time.

The bullwhip effect brings about more variability in the orders that are received than the variability that occurs in the demand by the customers because of some inherent traits such as excessive inventory as the company needs larger safety stock, undesired service criteria, variability in the production batches and finally the aspect of product obsolescence.

Pull-based supply

The production of commodities under this criterion is driven by demand levels. The production is coordinated with the actual demand from the customers rather than on the basis of forecasts. Companies that follow this strategy do not hold any stock but instead they respond to the specific order and demand from the customers. This platform is intuitively attractive to firms as it brings about the aspect of reduced lead time by effectively anticipating the upcoming orders from the consumers or the customers. It also brings about an aspect of reduction in inventory since the levels of inventory increase with respect to the lead time. The system also brings about an aspect of reduced variability that decreases the inventory.

The pull-based system is mostly difficult to implement since the lead time is long thus making it impractical for the producer to react to the information on demand that they have. It also brings a setback when the producer wants to take advantage of the economies of scale.

The Push-Pull strategy is new strategy that implements both strategies to increase efficiency. The strategy incorporates a layout in which the initial stages of supply chain are run under the push-based strategy while the remaining strategies are run under the pull-based strategy. The interface that exists between the two stages is called the push-pull boundary.

Supply Chain Timeline

The general strategy that is involved is making of generic products whereby part of the products is made into stock. Then the point of introduction of differentiation is the push-pull boundary and is based on the extent to which customization takes place so that the boundarys position on the time line can be decided.

Determination of appropriate strategy for the supply chain

Impact of Demand Uncertainty

High levels of demand uncertainty lead to the producers preferring the pull-strategy, this is because the producers cannot undertake production without the guarantee for market of the products and they therefore opt to wait for incoming demand requests from the customers so that they can start producing. When the demand uncertainty is lower, then the producers prefer to manage their supply trends via the long-term forecasts which is the push strategy. Slide 12

The case of Tesco

Question 3(a)

Tesco is globally acknowledged as a crucial segment o the retail marketplace in that, there exists one a single retailer and many of the suppliers will conduct operations with numerous partners. In this aspect, TIE provides the capability to enhance the efficacy of the connection between the multiple business parties and Tesco. However, when excluding the retail parties it is difficult to adopt this type of system, thus the suppliers may be inclined to conduct their operations by use of traditional systems. The traditional systems are the fundamentals of the talents and the knowledge of the employees embedded in the suppliers and their main reason for successful achievements. In most cases, successful companies do not concern themselves with the necessity to change their operations up until when their competitors begin to exploit their advantage points and strengths to their benefit. Otherwise, the executives feel that they have invested adequately and rewarded for exhibiting a business style therefore they do not see the need to change.

For instance, if a business enterprise has no competitors, the company may not acknowledge the benefits accrued from making alterations in its business operations. Further, the suppliers may also not fe...