Procurement Strategy

In this assignment, each student will select an organisation – a business firm or a government agency – she/he is familiar with to develop a procurement (outsourcing) strategy for a production activity (-ies) that, in her/his view, should be contracted out rather than retained in-house.

Preparation

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This assignment will draw on the material covered during the first 10 weeks of the course. You may find it useful to peruse Domberger (1998), Part III, chs. 5-8 to structure your approach.

Tips/assistance/guidelines

The assignment should begin with a brief description of the selected organisation and an overview of what it presently sources from outside suppliers. Select a particular product line from the range of goods and services produced by the organisation and describe production activity (-ies) associated with this product line that, in your view, should best be outsourced. To develop an outsourcing strategy for this activity, you should address the following questions:

• What are this organisation’s distinctive capabilities in the selected product area?
• What productive activities are presently (at the time of the case) conducted in-house in support of this product line?
• Which of these activities should be regarded as core (and for which production should, by implication, be continued in-house)? Why?
• Which productive activities might best be contracted out? Why?
• Can deliverables be specified precisely enough to enable supply offers (e.g., tender bids) to be compared and ranked and for contracts to be written and enforced?
• Should the product deliverer/service provider be required to invest in contract-specific productive assets? Why? Could alternative arrangements be made?
• How should external suppliers/service providers for the organisation be selected?
• How should contract-related (supplier) performance be monitored?
• How vulnerable would the buyer organisation be to supply hold-ups? Should it rely on a sole source supplier (for each contracted out activity) or should it diversify its sources of supply? Why and how?
• Which type of contract should it use to ‘lock-in’ suppliers and deliverables (e.g., cost reimbursement plus profit margin; fixed price; incentive contracts)? Should it use a penalty clause (e.g., liquidated damages)? Why?
• How should the buyer organisation manage its relationships with suppliers? Should it keep suppliers at arm’s length, form partnerships with some suppliers or foster an alliance with all suppliers? Why?

• What other forms of (contract-related) risk management should it consider?
• What would be the likely impact of the proposed contracting out on other suppliers and customers of the organisation under consideration?
• How should the organisation manage the transition from in-house activity to an outsourcing arrangement? Should it adopt a ‘clean break’ approach, negotiate a transfer of the activity concerned to the supplier, or phase in the change gradually?

Presentation

As noted earlier, this should take a form of a report with a brief executive summary rather than an essay…………….