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Invention
on demand
Patent-protected suppliers constitute a particularly difficult challenge to purchasing. Under the invention on demand strategy, which is based on the TRIZ method, alternative technical solutions are systematically developed, taking account of ideas from all scientific fields.

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Leverage innovation network
R&D is fostered through cooperation in a cross-company innovation network. This also allows the company to gain new insights into innovative technologies. By looking beyond its own backyard, the company frees itself from long-standing supply dependencies.

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Functionality assessment
The costs which each function of a product incurs are attributed to that function. An interdisciplinary team then identifies functions that are dispensable or that could be provided more cheaply.

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Specification assessment
Specification assessment means critically evaluating current specifications and asking whether they are in fact useful or merely increase cost and complexity. Specifications that are not necessary are amended accordingly.

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Value chain reconfiguration
Existing value chains are analyzed, broken down into their component parts, and then recombined in a new configuration. The aim is to acquire or maintain maximum control of key stages and processes, thus internalizing core competencies as a competitive advantage.

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Revenue sharing
A defined percentage of sales revenue is shared with the supplier. This makes sense especially in cases where a bought-in part contributes significantly to the overall perception of a product.

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Profit
sharing
Instead of the traditional method of paying suppliers a product-based purchasing price, one can agree to share the profit. This especially makes sense when the supplier has an overwhelming influence on the success of the business.

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Strategic alliance
Strategic alliances with suppliers, i.e. permanent collaboration with a partner, are appropriate where a company does not wish or is not able to maintain certain strategic capabilities internally, or has no possibility of vertical integration.

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Core cost analysis
In essence, core cost analysis is a "zero-based method" to product development. Instead of dragging along all the extras that have attached themselves to a product over the years, one goes back to basics and asks what functions are absolutely essential. The product is then radically optimized in line with these basic requirements.

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Design for sourcing
By fostering closer cooperation between R&D and purchasing, design for sourcing generalizes specifications to such an extent that they are no longer tailored to suit just one particular supplier.

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Product teardown
Product teardown means breaking down competitors' products into their component parts and comparing them with one's own solution.

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Design for manufacture
Design for manufacture is a systematic process for designing products (or modifying their design) so that they are easy and inexpensive to produce.

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Supplier tiering
Supplier tiering can work in two directions: it uses key suppliers to bundle upstream tier-2 suppliers, thus relieves the company of the need to manage a large number of suppliers; or it does the exact opposite by breaking up already existing structures and cutting out tier-1 supplier.

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Sustainability management
Sustainability management is the integrated management of the company and its value-creation chain in accordance with economic, social, and ecological principles. For example, environmental measures may enable the company to save costs or prevent damage to its image.

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Project based partnership
For companies and suppliers wanting to cooperate for a limited period and within a limited scope, a project based partnership is a suitable cooperation model.

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Value based sourcing
Value based sourcing is an approach whereby suppliers are selected in terms of their capabilities and are continually encouraged to innovate, the goal being value maximization.

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Vertical integration
In a seller's market with constantly rising prices and restricted supply, the long-spurned method of vertical integration is coming back into favor.

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Intelligent deal structure
Especially when purchasing from monopolistic suppliers, careful drafting of contracts is of paramount importance. Contracts skillfully designed to suit the specific demand structure of the company can be a competitive factor of considerable importance.

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Composite benchmark
In this case, a selection of competing products is sent to several suppliers for component analysis. The suppliers make proposals and submit offers at both the component and product level. By combining the best proposals, a "best of the best" concept is arrived at, while insight is also acquired into the suppliers' production costs.

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Process benchmark
Process benchmark is the comparison of costs for individual production steps, such as surface treatment of turned parts. The resulting figures provide a basis on which purchasing can negotiate processing costs directly with the supplier.

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Collaborative capacity management
Deficient communication between customer and supplier can lead to capacity bottlenecks and production losses, with sometimes serious consequences. Collaborative capacity management ensures ongoing reconciliation between demand and capacity with regard to a select, critical component volume.

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Virtual inventory management
All inventories at the supplier and customer locations, as well as in the hands of logistics partners (i.e. en route), are included in the inventory optimization process. If IT inventory systems do not supply integrated data, an auxiliary solution will be necessary.

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Total
lifecycle concept
The total lifecycle concept regulates in detail how sales revenue and costs are distributed between the company and suppliers over the entire product lifecycle.

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Collaborative cost
reduction
The company and suppliers jointly develop ideas for cutting costs and then share the savings.

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Bottleneck management
A combination of steps to facilitate proactive avoidance, early recognition and adoption of timely countermeasures against bottlenecks. The aim is to ensure the supply of end products to the customer under all circumstances.

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Political framework management
With skillful lobbying, it is possible to maneuver a monopolistically operating supplier into a position that works to the advantage of the dependent company.

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Product benchmark
Product benchmark allows the different design solutions that are available on the market to be compared.

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Complexity reduction
Product complexity is rendered visible and tangible through structured variant trees. The number of variants is systematically reduced.

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Visible
process organization
This is an innovative form of organization characterized by the permanent co-location of decision makers and the implementation of a dynamic re-planning process. Through improved information flows, the company avoids disruption costs.

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Vendor managed inventory
Here, inventory management is placed entirely in the hands of the supplier. The supplier usually has electronic access to consumption and inventory data. Greater planning freedom enables the supplier to cut costs.

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Supplier development
Supplier development has the aim of fostering attractive new suppliers and/or small incumbent ones, and developing them into key suppliers.

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Supplier fitness program
The supplier fitness program helps suppliers through targeted measures to eliminate weaknesses within their own value creation processes, thus making them more competitive.

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Sourcing community
Several companies, each with low demand power join forces in order to achieve sustained savings. Sourcing communities go beyond mere volume bundling arrangements: they are able to pursue complex strategies because they can share resources, e.g. analysts or infrastructure, with the other members of the sourcing com-munity.

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Buying consortia
Buying consortia are loose cooperations of firms aimed at obtaining advantages on the sourcing market. In contrast to sourcing communities, they are of limited duration (i.e. until the end of the respective project).

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Cost data mining
In this case, existing data on a sourcing category is analyzed in depth in order to identify any savings potential. For instance, this may include comparing the discount rates within a corporate group.

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Standardi-
zation
Replacement of custom specifications by standardized parts and industrial standards.

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RFI/RFP process
The RFI/RFP process encompasses the systematic preparation, dispatch, and evaluation of supplier information (RFI = request for information) and solicitations for offers (RFP = request for proposal).

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Expressive bidding
Expressive bidding refers to obtaining supplier offers while allowing for "if-then" conditions (e.g. delivery period, service levels).

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Total cost of ownership
This concept comprises the holistic identification, evaluation, and analysis of non-recurring costs, production costs, transport costs, complexity costs, and operating costs.

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Leverage market imbalances
In this method, the aim is to systematically identify market imbalances and exploit them for purchasing purposes. Market imbalances can come about as a result of variable capacity utilization across certain regions, differing price mechanisms, or fluctuations in factor costs.

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Procurement outsourcing
Responsibility for purchasing is delegated to an outsourcing partner with significantly greater demand power.

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Mega
supplier
strategy
Its primary aim is to make both the company and the supplier aware of how large the mutual business actually is. Instead of negotiating on the level of individual sourcing categorries (for which the company has little demand power), all purchases from the same supplier are negotiated together.

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Master data management
Classification of all material/supplier master data through the application of standardized logic, consistent link-up of master data to the ordering system and avoidance of loosely worded purchase orders.

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Spend transparency
Creating transparency for all spending within the company in the form of a spend cube. The main axes of the cube are sourcing categories, suppliers and sites, which sliced and diced across all dimensions.

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Supplier market intelligence
Supplier market intelligence comprises the systematic gathering, evaluation, and utilization of information on all incumbent and potential new suppliers.

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Reverse auctions
Through the use of web-based tools, reverse auctions can be used to accelerate the negotiating phase of the tendering process.

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Price benchmark
Price benchmark is a method of comprehensive comparison of product prices and contract terms.

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Unbundled prices
Unbundled prices aim at breaking down the total price of a product or service into the relevant cost elements (e.g. component vs. system costs, production vs. development costs), in order to invite separate bids for each of these elements during a tendering process.

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Compliance management
This primarily involves the increased use of master agreements and preferred suppliers, as well as compliance with company wide policies (e.g. travel policy).

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Closed loop spend management
The aim of this holistic approach is to permanently observe all areas where potential value losses could occur (e.g. unutilized payment terms) and take appropriate measures when required.

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Supplier consolidation
Bundling similar bought-in parts from one competitive supplier and cutting out the others. This specifically means eliminating smaller suppliers and strengthening ties to bigger or strategically important ones.

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Bundling across generations
Bundling across product generations is especially important for project-driven businesses. Concessions are obtained from the supplier for the current project on the basis of binding or non-binding promises for the subsequent generation.

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Make or buy
Except where core skills are concerned, internal production must be exposed to competition with the supplier market, and vice versa. Focusing attention on this topic often produces surprising results.

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Best shoring
Best shoring aims at evaluating what region and what supplier are particularly suited for outsourcing within the value-creation process. Along with a business case analysis, this strategy also involves holistic assessment of risks.

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Cost regression analysis
Cost regression analysis is a statistical method for determining target prices on the basis of several technical parameters.

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Factor cost analysis
Factor cost analysis is a method for systematically identifying, analyzing, and comparing relevant factor costs. It can be used as the basis for comparing the factor costs of various suppliers and thus determining target prices.

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Demand reduction
Objective analysis of the justification for a particular demand. (E.g., is it really necessary for someone to fly or could air travel be replaced by video conferencing?)

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Contract management
Even the best contracts are of little use if nobody is familiar with them. Contract management has the aim of creating transparency with regard to existing contracts throughout the company, as well as consolidating contracts, thus achieving better terms for all internal customers.

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Bundling across
product
lines
Bundling similar bought-in parts for all product lines, e.g. a white goods manufacturer consolidates sourcing of all electric motors.

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Bundling across sites
Bundling across individual company locations can be used specifically for those sourcing categories that could be supplied by the same supplier on global or regional markets.

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Global sourcing
Global sourcing aims at selecting the most competitive suppliers worldwide. This may sound obvious, but it is still true today that European companies mostly use European suppliers and US companies mostly use US ones, whereby this ignominious list could be continued almost indefinitely.

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LCC
sourcing
Low-cost country sourcing is primarily aimed at identifying, assessing, and utilizing suppliers from countries with low factor costs.

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Cost based price
modeling
Cost based price modeling is a process-oriented method for determining target prices. The bases for target prices are the individual process steps, to which reference values can be applied.

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Linear performance pricing
Linear performance pricing is a method for identifying the main technical cost driver for the product price of a group of materials.

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Supply power is driven by the following parameters:
  • How many credible suppliers are there?
  • What's the structure of market shares?
  • What is the merger and acquisition dynamics in the industry?
  • How easily can the market be entered by new companies?
  • How easily can suppliers be switched?
  • Are there substitutes and how easily are they available?
  • What about general availability of products?
Demand power is driven by the following parameters:
  • What is the market share in the relevant supply market in the relevant region?
  • What growth perspective can the company offer to its suppliers?
  • What opportunites for learning and knowledge increase does the company offer to suppliers?
  • What brand effect and image increase can the company offer to suppliers based on the cooperation?
 


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