Leverage items

In Fig. 4.12 the different components have been characterized according to their importance. The specialized components are placed on top of the hierarchy. In our example the motherboard is a core element of the company and should therefore be kept in-house (make). The chipset is a strategic item with only a few specialized manufacturers on the market and therefore has to be outsourced (buy). The components which are placed underneath the core components in the hierarchy are not of strategic importance but are mainly specified components. Computer cases on the second level of the pyramid are therefore leverage items. The computer screen as well as the keyboard are noncritical items which are placed last on the hierarchy level. The components which are part of a mass... 

Leverage items stand for high profit at low supply risks. The transacted items can be commodities as well as more specialized items, and the time horizon of cooperation accounts for one to two years. Costs and material flow are the key criteria of the somcing action. 

Leverage items Computer case Strategic items Motherboard... 

The leverage items such as the computer case have a high profit impact but a small supply risk, since there are fewer buyers than suppliers. The computer case is a more or less standardized module in which the buyer does not have an advantage of information. 

The strategic suppliers are the most important suppliers here, since they are involved in the core competency of the company. The leverage item suppliers are the second-most important, followed by the bottleneck and noncritical suppliers. 

Gaps can furthermore be seen within the supplier area, where bottleneck and noncritical item and their buyer-supplier relationships are rather transaction based. Leverage items are standardized processed and information sharing is medium-low. The strategic items and their buyer-supplier relationship is based on a strategic alliance and their level of information sharing is high. The gap... 

Level of information sharing With suppliers of bottleneck as well as leverage items information sharing levels were found to be too low. 

Choosing the right relationship which relationship is appropriate in different circumstances - bottleneck items, strategic items, non-critical items and leverage items. 

Noncritical and leverage items Common products and service designs, many suppliers, highly redundant, automate and simplify acquisition processes, use electronic procurement systems, and standardize procurement processes. 

Leverage items Large number of suppliers, buyer has high spending power, push for lower prices and preferential treatment, and strive for efficiency and effectiveness. 

The several variants deriving from the items 1 to 4 are represented in the flow sheet given in Fig. 6.6. Common calibration by Gaussian least squares estimation (OLS) can only be applied if the measured values are independent and normal-distributed, free from outliers and leverage points and are characterized by homoscedastic errors. Additionally, the error of the values in the analytical quantity x (measurand) must be negligible compared with the errors of the measured values y. 

Examples from different industry segments show that moving from products to services is one way to build switching barriers (Fig. 13.3). Another option is to build a strong brand in the minds of the customers customers - as DuPont has done with Lycra, which itself has become a fashion item. But branding can only leverage - not replace - performance. 

Leveraging relationships, or collaboration. Most routine transactions are automated. There is increased exchange of information between customers and suppliers. Problem items get special treatment. Extended product services tailored to specific customers... 

The strategic importance is shown through the classiflcation of different purchasing items. These are, as already explained previously in this chapter, four different items -namely, strategic, leverage, bottleneck and noncritical items— as derived from the Kraljic matrix. The risks connected to these items can be derived from this model. Variables that impact these risks are availability, number of suppliers, competitive advantage, make-or-buy opportunities, storage risks and substitution possibihties (Kraljic 1983 Park et al. 2010). 

All the different product modules are source stocked products, which are prefabricated instead of custom made. All of these modules are not highly customized but sourced beforehand. Tec 1 is a PC where all of its modules, whether they are strategic, bottleneck, leverage or noncritical items, are prefabricated, but customized in delivery and assembly. The customer order is very late in the process, but the demand for parts has been forecast. 

Corrective action Changing the relationship management and information sharing of suppliers of leverage and bottleneck items. 

PC Manufacturing Inc. has identified information sharing as the most important gap within the analysis. This concerns mainly the suppliers of leverage as well as bottleneck items which need to have a higher level of information sharing. 

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