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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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