The Purchasing Chessboard (Christian Schuh)
Problem
Disconnected spending activities reduce financial control.
Action
Connect planning, purchasing, payment, and review into one managed process.
Outcome
Spending control improves.
Chapter: Sourcing Strategy Generator - Manage spend - Demand management - Closed-loop spend management
Problem
Purchases made outside approved processes increase costs and risk.
Action
Require every purchase to follow approved procurement policies.
Outcome
Purchasing compliance improves.
Chapter: Sourcing Strategy Generator - Manage spend - Demand management - Compliance management
Problem
Contract value is lost when agreements are not actively managed.
Action
Monitor contract terms and obligations until the agreement ends.
Outcome
Contract performance improves.
Chapter: Sourcing Strategy Generator - Manage spend - Demand management - Contract management
Problem
Unnecessary purchases increase total spending.
Action
Confirm that every purchase supports a real business need.
Outcome
Overall spending decreases.
Chapter: Sourcing Strategy Generator - Manage spend - Demand management - Demand reduction
Problem
Limited purchasing volume weakens negotiating power.
Action
Pool purchasing demand with other organizations.
Outcome
Commercial terms improve.
Chapter: Sourcing Strategy Generator - Manage spend - Co-sourcing - Buying consortia
Problem
Purchasing volume spread across many suppliers reduces leverage.
Action
Increase business with selected strategic suppliers.
Outcome
Supplier relationships become stronger.
Chapter: Sourcing Strategy Generator - Manage spend - Co-sourcing - Mega supplier strategy
Problem
Internal procurement resources are limited.
Action
Transfer appropriate procurement work to specialized providers.
Outcome
Procurement efficiency improves.
Chapter: Sourcing Strategy Generator - Manage spend - Co-sourcing - Procurement outsourcing
Problem
Procurement knowledge remains isolated.
Action
Exchange sourcing experience with trusted procurement partners.
Outcome
Sourcing capability improves.
Chapter: Sourcing Strategy Generator - Manage spend - Co-sourcing - Sourcing community
Problem
Purchasing demand is fragmented over time.
Action
Combine current and future demand into larger purchasing volumes.
Outcome
Volume discounts increase.
Chapter: Sourcing Strategy Generator - Manage spend - Volume bundling - Bundling across generations
Problem
Common purchases are negotiated separately.
Action
Aggregate demand across multiple product lines.
Outcome
Negotiating leverage increases.
Chapter: Sourcing Strategy Generator - Manage spend - Volume bundling - Bundling across product lines
Problem
Independent site purchasing reduces economies of scale.
Action
Coordinate purchasing across all business locations.
Outcome
Purchasing costs decrease.
Chapter: Sourcing Strategy Generator - Manage spend - Volume bundling - Bundling across sites
Problem
Too many suppliers increase purchasing complexity.
Action
Reduce the supplier base to the best-performing suppliers.
Outcome
Supplier management becomes simpler.
Chapter: Sourcing Strategy Generator - Manage spend - Volume bundling - Supplier consolidation
Problem
Supplier prices cannot be challenged without cost insight.
Action
Analyze detailed supplier cost data before negotiating.
Outcome
Negotiations become more effective.
Chapter: Sourcing Strategy Generator - Manage spend - Commercial data mining - Cost-data mining
Problem
Poor data leads to poor purchasing decisions.
Action
Keep supplier and purchasing master data complete and accurate.
Outcome
Decision quality improves.
Chapter: Sourcing Strategy Generator - Manage spend - Commercial data mining - Master data management
Problem
Hidden spending prevents effective management.
Action
Collect and classify all purchasing transactions.
Outcome
Spending patterns become visible.
Chapter: Sourcing Strategy Generator - Manage spend - Commercial data mining - Spend transparency
Problem
Unnecessary variation increases costs.
Action
Use common products, specifications, and purchasing standards.
Outcome
Operational complexity decreases.
Chapter: Sourcing Strategy Generator - Manage spend - Commercial data mining - Standardization
Problem
Critical supply shortages disrupt operations.
Action
Develop plans to secure supply for bottleneck materials.
Outcome
Supply risk decreases.
Chapter: Sourcing Strategy Generator - Change nature of demand - Risk management - Bottleneck management
Problem
Poor contract structures create unnecessary business risk.
Action
Design agreements that allocate risk appropriately between both parties.
Outcome
Commercial stability improves.
Chapter: Sourcing Strategy Generator - Change nature of demand - Risk management - Intelligent deal structure
Problem
Political events can disrupt supply.
Action
Monitor political conditions in sourcing regions.
Outcome
Supply resilience improves.
Chapter: Sourcing Strategy Generator - Change nature of demand - Risk management - Political framework management
Problem
Dependence on suppliers reduces strategic control.
Action
Assess whether critical activities should move inside the organization.
Outcome
Strategic control increases.
Chapter: Sourcing Strategy Generator - Change nature of demand - Risk management - Vertical integration
Problem
Cost reduction efforts lack focus.
Action
Break products into their major cost elements.
Outcome
Savings opportunities become clearer.
Chapter: Sourcing Strategy Generator - Change nature of demand - Innovation breakthrough - Core-cost analysis
Problem
Product designs restrict supplier choice.
Action
Include sourcing requirements during product development.
Outcome
Sourcing flexibility improves.
Chapter: Sourcing Strategy Generator - Change nature of demand - Innovation breakthrough - Design for sourcing
Problem
Innovation efforts lack direction.
Action
Present specific business challenges to suppliers.
Outcome
Useful innovation increases.
Chapter: Sourcing Strategy Generator - Change nature of demand - Innovation breakthrough - Invention on-demand
Problem
Innovation depends on too few contributors.
Action
Collaborate with multiple external innovation partners.
Outcome
Better solutions are developed.
Chapter: Sourcing Strategy Generator - Change nature of demand - Innovation breakthrough - Leverage innovation network
Problem
Complex products create avoidable costs.
Action
Eliminate unnecessary technical variation.
Outcome
Efficiency improves.
Chapter: Sourcing Strategy Generator - Change nature of demand - Technical data mining - Complexity reduction
Problem
Technical alternatives are difficult to compare.
Action
Compare complete technical solutions against leading alternatives.
Outcome
Technical decisions improve.
Chapter: Sourcing Strategy Generator - Change nature of demand - Technical data mining - Composite benchmark
Problem
Weak process performance remains hidden.
Action
Compare key processes with leading organizations.
Outcome
Process performance improves.
Chapter: Sourcing Strategy Generator - Change nature of demand - Technical data mining - Process benchmark
Problem
Competitive product differences are not well understood.
Action
Compare products with competing alternatives.
Outcome
Product improvements are identified.
Chapter: Sourcing Strategy Generator - Change nature of demand - Technical data mining - Product benchmark
Problem
Manufacturing complexity increases production costs.
Action
Simplify product designs for efficient manufacturing.
Outcome
Manufacturing costs decrease.
Chapter: Sourcing Strategy Generator - Change nature of demand - Re-specification - Design for manufacture
Problem
Unnecessary features increase product costs.
Action
Remove functions that do not support customer needs.
Outcome
Product value improves.
Chapter: Sourcing Strategy Generator - Change nature of demand - Re-specification - Functionality assessment
Problem
Competitor design advantages are not fully understood.
Action
Disassemble competing products to study their design.
Outcome
Improvement opportunities increase.
Chapter: Sourcing Strategy Generator - Change nature of demand - Re-specification - Product teardown
Problem
Product specifications may create unnecessary costs.
Action
Challenge every specification before approval.
Outcome
Requirements become more efficient.
Chapter: Sourcing Strategy Generator - Change nature of demand - Re-specification - Specification assessment
Problem
Production locations are selected without considering overall value.
Action
Evaluate sourcing locations using total business benefits.
Outcome
Competitive advantage improves.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Globalization - Bestshoring
Problem
Local supplier markets limit competition.
Action
Search worldwide for qualified suppliers.
Outcome
Supplier options increase.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Globalization - Global sourcing
Problem
Purchasing costs remain higher than necessary.
Action
Assess qualified suppliers in lower-cost regions.
Outcome
Cost competitiveness improves.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Globalization - Low-cost country sourcing
Problem
Production decisions rely on assumptions.
Action
Compare internal production with external sourcing before deciding.
Outcome
Resources are used more effectively.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Globalization - Make or buy
Problem
Traditional bidding limits negotiation options.
Action
Allow suppliers to submit alternative bid structures.
Outcome
Better commercial solutions emerge.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Tendering - Expressive bidding
Problem
Market competition is not fully used during purchasing.
Action
Run reverse auctions when qualified suppliers are available to compete.
Outcome
Purchase prices improve.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Tendering - Reverse auction
Problem
Supplier evaluations lack consistent information.
Action
Collect comparable supplier information through formal requests.
Outcome
Supplier selection improves.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Tendering - RFI/RFP process
Problem
Limited market knowledge weakens negotiations.
Action
Continuously gather information about supplier markets.
Outcome
Commercial decisions improve.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Tendering - Supplier market intelligence
Problem
Target prices are difficult to justify.
Action
Estimate fair prices using supplier cost structures.
Outcome
Negotiations become more objective.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Target pricing - Cost-based price modeling
Problem
Future costs are difficult to predict accurately.
Action
Analyze historical cost data with regression techniques.
Outcome
Cost estimates improve.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Target pricing - Cost-regression analysis
Problem
Major price drivers remain unclear.
Action
Analyze prices by individual cost components.
Outcome
Pricing transparency improves.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Target pricing - Factor cost analysis
Problem
Prices do not reflect delivered value.
Action
Define pricing based on agreed performance measures.
Outcome
Value for money improves.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Target pricing - Linear performance pricing
Problem
Market changes create missed negotiating opportunities.
Action
Adjust negotiation timing to supply-and-demand conditions.
Outcome
Commercial results improve.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Supplier pricing review - Leverage market imbalances
Problem
Current supplier prices may exceed market levels.
Action
Compare supplier prices with reliable market benchmarks.
Outcome
Price competitiveness improves.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Supplier pricing review - Price benchmark
Problem
Purchase price alone hides total costs.
Action
Evaluate suppliers using all ownership costs over time.
Outcome
Sourcing decisions improve.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Supplier pricing review - Total cost of ownership
Problem
Bundled pricing hides individual cost elements.
Action
Request detailed prices for each component of the offer.
Outcome
Cost transparency improves.
Chapter: Sourcing Strategy Generator - Leverage competition among suppliers - Supplier pricing review - Unbundling prices
Problem
Independent capacity planning causes supply problems.
Action
Coordinate future production capacity with suppliers.
Outcome
Delivery reliability improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Integrated operations planning - Collaborative capacity management
Problem
Inventory planning consumes unnecessary effort.
Action
Allow suppliers to replenish agreed inventory levels.
Outcome
Inventory efficiency improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Integrated operations planning - Vendor-managed inventory
Problem
Poor inventory visibility reduces planning quality.
Action
Maintain shared visibility of inventory across the supply chain.
Outcome
Planning accuracy improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Integrated operations planning - Virtual inventory management
Problem
Limited process visibility reduces coordination.
Action
Share operational process information across organizations.
Outcome
Collaboration improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Integrated operations planning - Visible process organization
Problem
Partners pursue different financial goals.
Action
Create agreements that share additional revenue.
Outcome
Joint commitment increases.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Value chain management - Revenue sharing
Problem
All suppliers receive the same level of attention.
Action
Classify suppliers according to their business value.
Outcome
Supplier management becomes more effective.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Value chain management - Supplier tiering
Problem
Supply chains create environmental and social risks.
Action
Set shared sustainability expectations with suppliers.
Outcome
Responsible sourcing improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Value chain management - Sustainability management
Problem
Current value chain activities waste resources.
Action
Reorganize activities across supply chain partners.
Outcome
Overall value creation improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Value chain management - Value chain reconfiguration
Problem
Independent cost reduction misses shared opportunities.
Action
Work jointly with suppliers to eliminate waste.
Outcome
Shared costs decrease.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Cost partnership - Collaborative cost reduction
Problem
Supplier weaknesses limit business performance.
Action
Help suppliers strengthen their capabilities.
Outcome
Supplier performance improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Cost partnership - Supplier development
Problem
Supplier performance declines without regular improvement.
Action
Measure supplier performance and address weak areas.
Outcome
Supplier reliability increases.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Cost partnership - Supplier fitness program
Problem
Short-term decisions increase long-term costs.
Action
Evaluate costs across the complete product life cycle.
Outcome
Long-term value improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Cost partnership - Total life-cycle concept
Problem
Partners lack incentives to create additional value together.
Action
Distribute additional profits in accordance with the agreed-upon sharing rules.
Outcome
Partnership commitment increases.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Value partnership - Profit sharing
Problem
Important projects need stronger supplier commitment.
Action
Create dedicated partnerships for key projects.
Outcome
Project performance improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Value partnership - Project-based partnership
Problem
Transactional supplier relationships limit long-term value.
Action
Develop long-term alliances with selected suppliers.
Outcome
Strategic collaboration improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Value partnership - Strategic alliance
Problem
Choosing suppliers solely on price leads to poorer decisions.
Action
Evaluate suppliers using total business value instead of price alone.
Outcome
Business performance improves.
Chapter: Sourcing Strategy Generator - Seek joint advantage with supplier - Value partnership - Value-based sourcing