The concept of parallel sourcing (Figure 5.14) is quite difficult to describe. Richardson (1994) developed the concept in the early 1990s, and claims that the supply structure will give the buyer the advantages of both multiple and single sourcing without the disadvantages of each.
This model looks very complicated, although the principle is quite simple. It involves splitting the supply over a variety of models; thus Suppliers 1 and 2 supply the same component, but across different model groups – i.e. Supplier 2 supplies to model one, and Supplier 1 to model two. This allows the buyer to maintain competition
Parallel sourcing
2
4 3
1 Component
A
Component ComponentB
B
Component ComponentA
A
Component B Model 1
Model 2
across model groups; it also facilitates benchmarking of price and performance. This is a complex structure to manage, but does have the advantage of maintaining competition. This structure would generally be found in the ‘leverage’ box of the strategic positioning matrix.
SUMMARY
The area of purchasing and supply management is of growing importance to organizations. With the pressures of increased competi-tion, improved time-to-market and cost reduccompeti-tion, organizations have to respond by re-engineering their supply structures to match the strategic pressures and priorities that are being placed on the firm.
Firms can do this in a variety of ways, but they must consider the appropriateness of each of these approaches and in turn balance them with the other enabling elements with the strategic process.
Case study
‘No business as usual’
In British Petroleum’s principal area of upstream activity in the North Sea, drastic reductions in development costs had become imperative if the region was to continue to attract oil company investment in an increasingly competitive global market. BP Figure 5.14 Parallel sourcing.
recognized that advances in offshore technology alone would not achieve the company’s commercial targets; a fundamental cultural shift in the oil industry’s traditional and often adversarial contracting relationships was also essential to break through the cost barrier.
To serve as the breakthrough challenge, BP selected the Andrew field, an oil discovery that for 20 years had refused to show positive economics. The question now was, would a new way of working provide the necessary boost in business performance and drive Andrew to commercial development?
Together with its partners, BP formed a pioneering alliance in 1993 with seven contracting companies to develop Andrew’s offshore production facilities. Focused on a common business goal, the alliance resolved to step away from the constraints of
‘business as usual’ in its quest to transform Andrew into a valued producing asset. Corporate alignment to the challenge came through the sharing of risks and rewards, where company profits were firmly tied to the project’s financial outcomes. For individ-uals, the opportunity to work in a unified team with the freedom to question conventional solutions unlocked previously untapped potential for innovation and cooperation.
The power of the alliance was to surprise even its most ardent supporters by the unexpected magnitude of commercial success that it came to deliver, surpassing all anticipated levels of performance to set new benchmarks for the industry!
Key questions
1 What is the difference between purchasing as a tactical function, and supply as a strategic process?
2 Assume you are a consultant and have been asked to help in the development of a tactically focused purchasing organization to a strategically focused supply process. How might you approach this task? What do you see as the key problem areas?
3 Explain the different sourcing structures that can be used. Which structures should be used in which situations?
4 Discuss the concept of appropriateness within the supply wheel.
What is meant by strategic alignment?
Key terms
Lean supply management
‘Mega’ suppliers
Single, multiple, delegated and parallel strategies Strategic supply wheel
Strategic Transition model Supply structure and design Transition position matrix
References
Cousins, P. D. (1999). An investigation into supply base restructuring.
Eur. J. Purchasing Supply Man., 5(2), 143–55.
Cousins, P. D. (2000). Supply base rationalisation: myth or reality?’ Eur.
J. Purchasing Supply Man., 3(4), 199–207.
Ellram, L. and Carr, A. (1994). Strategic purchasing: a history and review of the literature. Int. J. Purchasing Materials Man., Spring, 23–35.
Harland, C., Lamming, R. and Cousins, P. (1999). Developing the concept of supply strategy. Int. J. Production Operations Man., 19(7), 650–73.
Kraljic, P. (1983). Purchasing must become supply management.
Harvard Bus. Rev., 5, 109–17.
Porter, M. (1980). Competitive Strategy. Free Press.
Reck, R. F. and Long, B. G. (1988). Purchasing: a competitive weapon.
Int. J. Purchasing Materials Man., Fall, 2–8.
Richardson, J. (1994). Parallel sourcing and supplier performance in the Japanese automobile industry. Strategic Man. J., 14, 339–50.
Wickens, P. (1987). The Road to Nissan. Macmillan.
Further reading
Browning, J. M., Zabriskie, N. B. and Heullmantel, A. B. (1983).
Strategic purchasing planning. J. Purchasing Materials Man., Spring, 19–24.
Burt, D. and Doyle, M. (1994). The American Keiretsu: A Strategic Weapon for Global Competitiveness. Irwin.
Burt, D. and Soukup, W. R. (1985). Purchasing’s role in new product development. Harvard Bus. Rev., Sep–Oct, 90–96.
Caddick, J. R. and Dale, B. G. (1987). The determination of purchasing objectives and strategies: some key influences. Int. J.
Physical Dist. Materials Man., 17(3), 5–16.
Cousins, P. D. (1997). Partnership sourcing: a misused concept. In:
Strategic Procurement Management in the 1990s: Concepts and Cases, (R.
Lamming and A. Cox, eds), p.35–43.
Cox, A. (1996). Relational competence and strategic procurement management. Eur. J. Purchasing Supply Man, 2(1), 57–70.
Farmer, D. and Van Ploos, A. (1993). Effective Pipeline Management.
Gower Publications.
Hines, P. (1994). Creating World Class Suppliers: Unlocking Mutual Competitive Advantage. Pitman Publishing.
Hines, P., Cousins, P., Lamming, R. et al. (2000). Value Stream Management. Financial Times Publications.
Lamming, R. (1993). Beyond Partnerships: Strategies for Innovation and Lean Supply. Prentice-Hall.
Lamming, R. and Cox, A. (1997). Managing supply in the firm of the future. Eur. J. Purchasing Supply Man., 1, 53–62.
Laneros, R. and Monckza, R. M. (1989). Co-operative buyer–supplier relationships and a firm’s competitive strategy. J. Purchasing Materials Man., 25(3), 9–18.
MacBeth, D. and Ferguson, N. (1994). Partnership Sourcing: An Integrated Supply Chain Approach. Pitman Publishing.
Nishiguchi, T. (1994). Strategic Industrial Sourcing: The Japanese Advan-tage. Oxford University Press.
Saunders, M. (1994). Strategic Purchasing and Supply Chain Management.
Pitman Publishing.
Speckman, R. (1989). A strategic approach to procurement planning.
J. Purchasing Materials Man., Winter, 3–9.
St. John, C. and Young, S. (1991). The strategic consistency between purchasing and production. Int. J. Purchasing Materials Man., Spring, 15–20.