Eskom Procurement Book 2015

PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES

logically part of this quadrant. Any negotiation that occurs in this quadrant is lower level and focuses on price and delivery. Price rather than cost analytic techniques usually work best when obtaining these items. Competitive bid or price comparisons, spot buys, shorter-term contracting, reverse Internet auctions and blanket purchase orders are the techniques used when obtaining market items. Relationships with the providers of market items are typically competitive (i.e., win-lose) and price focused. Some of the buying approaches employed in this quadrant may increase the number of suppliers with which a buying firm does business, something that seems to counter a broader objective that most firms have of reducing their overall supply base. Like the transaction quadrant, it might be counterproductive to get too caught up with supplier numbers here. The big dollars and returns lie in the upper, not the lower, half of the portfolio matrix. The upper right quadrant, or the leverage quadrant, includes those items where consolidating purchase volumes and reducing the size of the supply base should lead to a range of benefits. This quadrant features the extensive use of longer-term contracts. Examples of leverage items include any grouping or family of items whose volumes can be combined for economic advantage, such as plastic injected moulded parts, transportation services, electric wiring harnesses and facility maintenance services. Market quadrant items that are grouped into commodity families can be treated as leverage quadrant items. Since leverage items are often candidates for longer-term agreements, supply managers should engage in intense negotiations with suppliers over issues beyond price. The development of longer-term contracts should lead to discussions about cost, quality, delivery, packaging, logistics, inventory management and service, all factors that can affect supply chain performance. Supply chain managers leverage their requirements not only to obtain favourable pricing, but also to gain advantages in other non-price areas. Depending on the leveraged item, a cost rather than a price focus should begin to emerge in this quadrant. The management of leverage items, particularly owing to the longer- term nature of the contract, will benefit from relationships that are co-operative. The critical quadrant includes goods and services that consume a large portion of purchase dollars, are essential to a service or product’s function, or the end customer values highly the differentiation offered by the good or service. This quadrant also features fewer suppliers that can satisfy a purchaser’s requirements, which often involves customisation rather than standardisation. At times a supplier is critical simply because it has a patent right to a good or service that the buying company must have.

4.4.2.3 Leverage Quadrant

4.4.2.4 Critical Quadrant

Although critical items usually represent a small portion of total transactions

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