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This comparison is the basis for understanding the money to be spent according to category, availability and type of supplier, as well as the internal users in order to establish sourcing approaches to be used by the purchasing team. (Pereira, Christopher, & Silva, 2014).
Deployment of Cash Spending According to category
Assuming that the amount shown represent the total annual spend (Amount/Total Amount)
calculate the percentage of spend for each category.
Classify each spend category as either low or high complexity and summarize your reasoning.
In relation to sourcing complexity, production machinery spend category presents a high level of complexity because of the extent of issues encountered to procure these machines, maintain and service them, with this being evaluated by consideration of effects on production machinery procurement activities that create high complexity to the business due to production machine criticality to company mission, extensive total cost of ownership for the production machines and production machines also being high value, alongside tough market dynamics as a result of very limited number of suppliers with only two available making them business critical. (Monczka, Handfield, Giunipero, & Patterson, 2016)
The Maintenance spend category is classified as a high complexity category due to the requisites of procurement provisions which are in terms the degree of extensive sourcing processes as well as their scope including issues considered when sourcing of maintenance supplies for goods and services. (Pereira, Christopher, & Silva, 2014). Here also the metrics considered in view of sourcing decisions are, both internal and external effects of maintenance sourcing decisions and activities on business mission and strategy including business risks, supplier market dynamics, availability, reliability, lead times, stock keeping costs and quantities together with total cost of ownership. (Monczka, Handfield, Giunipero, & Patterson, 2016).
The Hardware spend category is mainly transactional in terms of the high availability of both goods and suppliers, low level of requisite sourcing and business processes, costs involved Low‑value and low‑risk transactions with the approval of available suppliers being readily managed. (Monczka, Handfield, Giunipero, & Patterson, 2016). This sourcing spend category has been assessed as low complexity and transactional because it involves simple development of sourcing processes for generally widely available and frequently used goods and services in very competitive market that enables easy procurement for the organisation while still offering the ability for driving value for this Standard good and related services. (Monczka, Handfield, Giunipero, & Patterson, 2016)
Sheet Metal Spend category is also of low complexity classification because this category presents simple competitive supply market existing generally with various alternate goods and services suppliers competitively supplying the entire existing market, with these alternate goods and services or suppliers enabling procurement of the materials from the market in a way that impact the business competitively . (Monczka, Handfield, Giunipero, & Patterson, 2016). The potential for impact on local business is non-critical with total costs on this spend being the lowest resulting in low business impact and low complexity. (Monczka, Handfield, Giunipero, & Patterson, 2016). Minimal procurement support is required making the sheet metal spend category to be at a low level of commercial involvement and demand as well as price impact and service quality the good typically being an ‘off‑the‑shelf’ good of medium criticality to business. (Monczka, Handfield, Giunipero, & Patterson, 2016)
Electronics Components spend category is high complexity category with the complexity evaluation revealing this is the highest spend category in the amount of annual spend taking up 57.1% after first level deployment for each spending category out of the total annual categories spend by the business. In addition to this aspect on this category being the highest after deployment of total annual, the attributes of the category goods and services, the low and almost limited number of suppliers in the market making it difficult to achieve the value created from sourcing and procurement processes, identification of appropriate suppliers, mitigating against risks to critical operations and business processes while also considering the total cost of ownership, supplier market dynamics and controlled by market complexity drivers for frequently used, highly speciialized goods and services with very rigorous specifications in a market which is not competitive and procurements by many organisations. (Monczka, Handfield, Giunipero, & Patterson, 2016).
Create a 2x2 Risk/Value matrix showing each of the five spend categories placed in either “High” or “Low” Risk group.
Explain why you placed each item in the selected category.
Production Machinery spend category is a high risk high value classification as there are only two suppliers in the market whereas the spend category itself accounts for the second largest share of the total annual spend on all spend categories in addition to production machinery being critical to the company operations and being strategic capital equipment with specialized technical requirements, delivery lead times. (Monczka, Handfield, Giunipero, & Patterson, 2016)
The maintenance spend category is as well a high risk and high value category because it needs total life cycle cost strategy that requires availability of proper internal as well as the external relationships with suppliers who possibly serve reliably for years. The associated risk relating to costs, probability of supply disruptions and uncertainty as well as lead time risk are involved. (Monczka, Handfield, Giunipero, & Patterson, 2016)
The hardware spend category is a low risk low value category because there is a competitive supplier market through which sourcing decisions may result in successful market advantages. Several suppliers exist in a competitive marketplace meaning that it is less risky for both critical business operations and mission. This competitive market having multiple, reliable suppliers in addition to low quantities of standard specification products with low demand ensures that low inherent risk to business. could deliver the commodity equally well. (Monczka, Handfield, Giunipero, & Patterson, 2016)
The sheet metal spend category also has low risk is associated with it because of the minimal potential impact on strategic operations and overall business mission. The suppliers are readily and competitively available in a well balanced market which is tied to this specific spend product. This spend category presents low inherent risk to business because of the diversity of suppliers and low priority materials. (Monczka, Handfield, Giunipero, & Patterson, 2016).
The electronics spend category is a high risk spend category because they are frequently used products and associated services which are sourced in a procurement market which is not competitive because of very limited suppliers and wide scope of specifications. The category is also the highest spend and being critical to key operations and business mission renders this category as high risk and high value. (Monczka, Handfield, Giunipero, & Patterson, 2016).
Monczka, R., Handfield, R., Giunipero, L., & Patterson, J. (2016). Purchasing and Supply Chain Management (6th ed.). New York: Cengage Learning.
Pereira, C. R., Christopher, M., & Silva, A. L. (2014). Achieving supply chain resilience: The role of procurement. Supply Chain Management: An International Journal, 19(5/6), 626-642.
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