5 min read
15 Apr

Maybe there is the problem, which is the procurement manager usually think about it, how do purchasers use the Kraljic Matrix to purchase glass processing production equipment or glass produce raw materials. This article will introduce the application of well-known procurement models in the glass processing industry, and gives a high-quality recommendation to the majority of glass processing manufacturers.

Karajek uses two dimensions to divide the matrix into four quadrants:

Second Quadrants: Strategic Project (high profit, high supply risk)

Strategic procurement projects generally involve the purchase of the product (material) from a single supplier. For such procurement projects, it is necessary to establish a balanced cooperative relationship between the purchaser and the supplier. When the supplier stops supplying, the procurement production behavior will also stagnate. In general, the procurement of raw materials belongs to this procurement category, and raw materials account for a large proportion of the cost of finished products. Status of buyers and sellers: balance of power and high interdependence.

Procurement strategy recommendation: strategic alliance, close contact, and fully consider vertical integration, focusing on long-term value.

For this type of project, the following methods can be used to reduce costs:

First: Establish Long-term Supply Partnership

It means that based on mutual trust and mutual support between the two parties, the supplier and the demander adopt a long-term mutually beneficial cooperation and win-win relationship to realize the common value goal of sharing risks and sharing benefits. Enterprises and suppliers establish good partnerships and maximize the value of the entire supply chain through joint design, joint development, joint site selection, joint production, and joint development of customers. The benefits of this kind of supply chain management are obvious: it can save costs, reduce inventory and purchase costs, shorten cycle times, increase revenue and profits, increase logistics speed, and reduce costs.

Jinan Lijiang Automatic Equipment Co., Ltd. has an international strategic vision and pattern. It is deeply engaged in the long-term development of the glass deep processing industry. It has established a cooperative and win-win agent dealer network all over the world and provides high-quality Distributors sell tools, provide ODM and OEM customized processing services, and is equipped with high-quality business and after-sales teams with many years of experience to help efficiently expand the global market.

Second: Suppliers Participate in ESI Early

In the early stage of product design, you can choose partner suppliers to participate in the new product development team. Through ESI, the new product development team can adjust its strategy very early based on the performance specifications proposed by the supplier, and use the supplier’s expertise to achieve The purpose of reducing costs.

Third: Designed to Facilitate Purchasing

DFP (Design for Purchase) means that when implementing the ESI strategy, in the design stage of the product, the standard manufacturing process and technology of the cooperative factory can be used, and industrial standard parts can be used to facilitate the acquisition of raw materials. This way, it not only reduces the need for self-made technical support also reduces the cost required for production.
04Make good use of contractsIn the procurement process, long-term contracts can be used to reduce procurement costs and ensure supply. For bulk products, we can also use "futures contracts" to reduce procurement costs.

Glass Production Workshop 

Third Quadrants: Daily Projects (low profit, low supply risk)

Non-critical projects refer to procurement projects with abundant supply, easy procurement, and low financial impact. By increasing product standardization, a lot of time and money can be saved. From a procurement point of view, the value of these items is usually low, and there are a large number of suppliers to choose from, which rarely cause technical or commercial problems. Such as cleaning materials, office supplies, maintenance supplies, and fasteners.

Status of buyers and sellers: balance of power and low interdependence.

Procurement strategy recommendation: by improving product standards and improving production processes.

For such projects, we generally don't spend too much energy. If there is a mature third-party procurement platform, the cost of direct outsourcing is the lowest. Procurement through third-party/non-core procurement outsourcing: that is, to increase the value of procurement by transferring inefficient assets or processes to a third party who can provide greater economies of scale, process efficiency, and expertise. Realize resource sharing through internal and external resource integration, help companies improve the efficiency of supply chain management and build their core competitiveness.

Fourth Quadrants: Bottleneck Projects (low profit, high supply risk)

Bottleneck procurement items are the weakest link in the supply chain. It does not mean high expenditure procurement. Such procurement materials are generally necessary materials in the production process but their supply channels are relatively simple. It is usually the supplier who dominates the negotiation.
The status of the buyer and seller: the seller takes the initiative, and the interdependence is normal.
Procurement strategy recommendation: Pay attention to the use of standardized products, monitor orders at any time, and optimize inventory levels, and try to find substitutes and potential suppliers.

For bottleneck projects, we can use to reduce this plan:

First: Develop New Technology / New Process / New Material Substitution

This method is suitable for the following situations: seeking opportunities in the product development stage to design the lowest possible material cost, increasing cost competitiveness during the product maturity period or when market competition is fierce, seeking environmentally friendly materials in line with green procurement trends, and actively applying new technologies. For materials that are scarce in supply, we should try our best to replace them in the product development stage to avoid excessive subsequent development costs.

Jinan Lijiang Automatic Equipment Co., Ltd. is committed to the development of new materials and equipment, with high efficiency, energy saving and environmental protection, and the efficiency is effectively improved by more than 20%. 

Second: Value Engineering / Value Analysis

VE/VA is suitable for new products, researches on the functions of products or services, with the lowest life cycle cost, through elimination, simplification, change, replacement, and other methods to achieve the purpose of reducing costs.

Third: Procurement Window Period

According to the actual situation, the use of the procurement window period for spot purchase, advance purchase, volatility purchase, or futures hedging, for such materials can be purchased in advance when the price is lower and inventory management can be effectively reduced.

No.Ways to Reduce Procurement CostsPercentage of Cost Reduction
1Improve the procurement process and price negotiation11%
2Suppliers improve quality14%
3Use suppliers to carry out just-in-time production (JIT)20%
4Utilize supplier's technology and process40%
5Supplier involvement in product and development42%

Source: Research Results of Michigan State University, USA

According to the above table, we can find that only with a deeper understanding of the process and the deeper involvement of core suppliers, the greater the room for cost reduction. Cross-departmental and cross-company collaboration is the prerequisite for cost optimization. To maintain a long-term strategic cooperative relationship, common profit and common development are the derivative requirements of the ecological environment of the supply chain system. All in all, reducing costs and increasing efficiency is a systematic project, not a task that can be accomplished by a single purchase.

When using the Karajek model, the procurement items should be distributed to the four quadrants to avoid a single supplier. The quadrant of the project needs to be agreed upon. A project belongs to only one quadrant, and then different procurement strategies should be made for each quadrant. The quadrant of the procurement project should be dynamically adjusted in time according to the changes in the supply market and the changes in the terms of cooperation with suppliers.

Related Articles: The Kraljic Matrix: The application of purchasing model in glass processing industry ①, please click here to read it.

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