DESIGNING A HYBRID GLOBAL SOURCING STRATEGY for TRITON LABS

ABSTRACT

Objective of the case is to analyse Triton’s

current purchasing mechanisms and provide

alternatives to Mrs. Donna Rock, who heads the

Global Sourcing Task force in formulating a

suitable hybrid sourcing policy. This includes

providing suggestions both on the sourcing

procedures as well as structuring the

performance evaluation framework of such a

policy.

By Sachin MathewsStrategic Supply Chain Management Trimester 2A, 2015

Table of Contents

Sl No. Title Page No

1. Introduction 2

2. Objective 2

3. Background 2

4. Recommendations in formulating the Hybrid Sourcing Strategy 3

6. Conclusion 4

7. References 5

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1. Introduction

The case under consideration “Designing a Hybrid Global Sourcing Strategy” is about

“supply chain rationalization” and “role-shifting” in terms of the changes that needs to be

incorporated in sourcing policies of Triton Labs, a key player in the pharmaceutical industry

that would help it reduce costs and improve efficiency at the same time. The sector was

undergoing major transition, mainly attributed to two raising issues, one the patent protection

of top selling drugs were ending affecting profit margins and the search for new drugs were

becoming more expensive. To increase the market power, reduce costs through budgets cuts

many top players were merging such as Glaxo-SmithKline, Pfizer-Warner Lambert. Triton

has to revisit and re-engineer it sourcing policies to stay afloat in this highly competitive

market.

2. Objective

The main objective of the case is to analyse Triton’s current purchasing mechanisms and

provide alternatives to Mrs. Donna Rock, who heads the Global Sourcing Task force in

formulating a suitable hybrid sourcing policy. This includes providing suggestions both on

the sourcing procedures as well as structuring the performance evaluation framework of such

a policy.

2. Background

Triton’s current purchasing mechanisms is revolved around a de-centralized strategy having 7

distinct purchasing groups located across Asia, Europe, Latin America and US. This has its

own benefits providing the firm with greater flexibility, especially in terms of the

responsiveness and the technical expertise it had gained in meeting the requirements of its

local operations. However on conducting an S.W.O.T analysis, there were opportunities for

cost reduction through a more centralized approach. The team felt this would offset the threat

of mergers and the increasing cost of “blockbuster” drugs by leveraging the collective

bargaining power it would gain by consolidation. It would also benefit from standardization

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of products, improved coordination, more purchasing control and lessen the duplication of

work. The saving seemed to be substantial. But there was also flip side, making this paradigm

shift would cost and considering the complexity it wasn’t possible to make a complete change

any time soon. Hence the team felt the best way forward would be to have “Hybrid” sourcing

strategy combing the benefits of both and reduce negatives of each.

3. Recommendations in Formulating the Hybrid Sourcing Strategy

First and foremost the team needs to decide what supplies needs to go through a centralized

purchasing structure and what needs to decentralized. This requires a degree of

“rationalization” as pointed out by (Fawcett 2006) which involves a process of supply-base

optimization involving decisions regarding “which” suppliers to choose from, “how many”

and “how much” depending on the firms current requirement. This must be done only once

supply chain is mapped, customer needs are identified and costing systems put in place

(Fawcett 2006). As for the decentralized sourcing, the focus should be on flexibility and

improving the responsiveness, while for centralized sourcing the focus should be to reduce

cost and achieve economies of scale. As mentioned in the case, there also needs to be a proper

mechanism to integrate and synergize the two in terms of people, processes, and technologies

(Faes 2000). In addition the roles and responsibilities for each of these structures have to be

identified and integrated smoothly without causing a “culture shock” in the organization.

Donna and her team could use various analytical techniques both for identifying the core

supplies as well as the core activities in terms of the affect it has on cost involved, lead time,

criticality etc. Techniques such as ABC Analysis derived from Pareto’s 80/20 rule, VED

(Vital, Essential and desirable), FSN (Fast, Slow and Non- moving), SOS (seasonal or off

seasonal) could help her team in laying the foundation of her purchasing structure. The

portfolio purchasing model" developed by (Kraljic 1983) is another technique which would

help her team to further classify supplies and activities performed under each structure based

on the profit impact and the supply risk as strategic, leverage, non-critical and bottleneck

supplies /activities. The leverage items that have low supply risk but high profit impact would

come under the centralized structure. However the difficulty in using this approach is that not

all strategic and bottleneck supplies or activities can come under the centralized structure as

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some of the risks can only be tackled through its local suppliers or the de-centralized

structure. The team would need to analyse the ability to handle uncertainty and risks both in

terms of the sourcing of supplies under the two structures as well as in the migration process.

It would require a cross examination of both the quantitative and qualitative factors and

appropriate techniques that combines the two, such as Analytic Hierarchy Process (AHP)

(Nydick 1992), or ones coupled with fuzzy logic method (Kahraman 2003) which would be

more suitable. As suggested by (Trautmann 2009), in addition to the strategic importance

Donna and her team needs to consider the synergy potential aspect as well while deciding the

kind of purchase under each structure. The centralized structure should focus on the strategic

and leverage items where the buying power can be better leveraged to gain higher margins at

the same time not severely impacting the responsiveness. As most of these supplies would be

related to the blockbuster drugs, Donna and her team should work on building stronger

relationships with these suppliers. With this the de-centralized teams would be able to better

collaborate and work closely with centralized teams and their suppliers in information and

knowledge sharing. The non – critical or the supplies needed for day to day activities should

come under the de-centralized structure. The team should also improve the relationships of

these suppliers even though they have lesser impact on profit or lower supply risk as they can

further improve their responsiveness and leverage other benefits such as to gain insights on

local market and technological trends. The intranet and extranet technologies already in place

could further facilitate the data-warehousing, data-mining and other data analysis techniques.

The improved sharing of this real time information can lead to better section and evaluation

of supplier’s performance and in implementing an optimal purchasing strategy.

The huge shift in purchasing structures at a global scale, will need to factor in the socio-

culture aspects of change in the organisation. This need to be done both at the internal,

functional level as well with suppliers under the new structure. It would require an investment

made in cross-cultural training and building global competencies (Steers 2013), that would

help employees across the organization to better adapt to new structure. In addition, to keep

the purchasing managers in the local operations interested, would require closer integration

and greater participation in the centralized mechanism, revision of the existing HR policies,

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incentive mechanisms for performance that would eventually lead to a higher role in the

centralized mechanism as well as in the organization.

4. Conclusion

Organization change is a necessary but is a complex process and various aspects needs to be

considered. As seen in this case study a shift in in the global sourcing structures from a de-

centralized to a hybrid sourcing structure requires careful analysis on what fits best in the

existing environment in terms of people, processes and performance. When done for the right

reasons and implemented properly, role shifting can provide significant benefits to an

organization both in terms of cost savings and efficiency.

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5. References

Faes, W.,Matthyssens,P.,Vandenbempt,K.,. 2000. “The pursuit of global purchasing synergy.” Industrial Marketing Management pp.539-553.

Fawcett, E.,Stanley.,Ellram,M.,Lisa.,Ogden,A.,Jeffrey,. 2006. Supply Chain Mangement: From Vision to Implementaion .

Kahraman, C.,Cebeci,U.,Ulukan,Z.,. 2003. “Multi-criteria supplier selection using fuzzy AHP,Vol.16.” Logistics Information Management pp.382-394.

Kraljic, Peter. 1983. “Purchasing Must Become Supply Management.” Harvard Business Review.

Nydick, R.,L.,Hill,R.,P. 1992. “Using the Analytic Hierarchy Process to structure the supplier selection procedure.” International Journal of Purchasing and Materials Management Vol.28 (2) pp.31-36.

Steers, M.,Richard.,Nardon,Luciara.,Sanchez-Runde,J.,Carlos. 2013. Management across cultures. Cambridge University Press.

Trautmann, Gerhard.,Bals,Lydia.,Hartmann,Evi.,. 2009. “Global Sourcing in integrated network structures: The case of Hybrid Purchasing Organisation.” Journal of International Management pp.194-208.

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