Commodity Study

8/2/2019 Commodity Study

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COMMODITY SOURCING STRATEGY PROJECT

Background:

Students will conduct a comprehensive commodity sourcing strategy project. The sourcing strategyproject will include significant research about the chosen commodity. A final commodity strategy report

will be due on the last day of class. Students are expected to fully utilize all relevant concepts presented

during lecture and in assigned readings in their preparation of the sourcing strategy papers. Groups

should select a buying firm and commodity and report them along with group members' names in writing

for approval by April 5. Approval of your choice of company and commodity will be on a first-come,

first-served basis; no two groups will be allowed to choose the same company and or commodity.

Project Description:

1. Assume that you are a buyer for a company that is interested in developing a sourcing strategy (or

strategies) for the commodity you have chosen to research. You may choose the company you work

for but it must be a real, non-fictional company. Your group may choose just about any commodity

except steel or lumber (commodity choice subject to instructors approval).

2. Also assume that the instructor is your immediate boss and has given you an assignment to a)

research the selected commodity and b) prepare a series of recommendations for a suitable strategy to

source this particular commodity. Recommendations must be supported by your research.

3. If the commodity market is somewhat volatile, you should include a contingency plan that outlines

alternative strategies which are based on varying market conditions. This plan should include

guidelines which detail when the contingency plans should be adopted in place of the original

strategy.

The sourcing strategy project will provide you with the opportunity to develop a comprehensive

sourcing strategy for a key input. The project will require that you:

Identify the firm's overall business unit and sourcing objectives.

Develop an in-depth understanding of the purchased input and its characteristics.

Develop a comprehensive sourcing strategy that meets overall business unit and sourcing

requirements and is appropriate for the purchased input under review.

The project will be done in three parts. The first two parts of the project are in a sense milestones, while

the third part is the complete project. Each milestone will be graded on a pass / fail basis. It is assumed

that you will use the information provided during the milestone grading to improve upon the final paper.

The final paper will include the first two milestones (improved as needed) as well as a third section. The

final paper will be graded on a traditional 100 point scale.

To develop an understanding of the specified purchased input, the research for all 3 parts shouldinclude, but not be limited to, past, present, and expected future information in the following areas

(However, keep in mind the specific issues will vary depending on the product/service being studied):

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Part 1 (due April 28): Will describe the company you are making the decision for as well as the

commodity (or commodity group) you are purchasing.

Company: Please provide a complete description of the company that may include issues such as:- Name

- Location(s)

- Ownership structure- Size in terms of employees and sales

- History

- Etc.

Strategy: Please describe the strategy of the company you are preparing the report for. This section

should make the following clear:

- What are the companys order winners? If they have multiple businesses with different order winners focuson the business that you are buying for

- What are order qualifiers in this industry?

- What is the role of the customer in this supply chain? How active / interested are customers in sourcing

decisions?

- What is the pace of technological change in this business? Does the pace of change have implications fororder winners and or qualifiers in the future?

- Will future environmental regulations and or customer expectations influence how the company does

business?

Commodity: Information on the commodity you are preparing the report for may include (butnot be limited to) the following:

- Customer perceptions of this input- how does this input influence the customers purchase decision

- Importance of the product or service to the buying firm

- How and where the product or service is used in / by the firm

- Price paid

- Product specifications

- Quality requirements- Delivery requirements / scheduling information

- Packaging requirements

- Transportation requirements

- Environmental impacts of the commodity throughout its lifecycle

- Substitution opportunities

- Standardization opportunities

- Volume requirements- Expected design changes

- Other pertinent, purchase-specific information

Part 2 (due May 19): Will provide a detailed description of the market for the commodity being

purchased and the suppliers available. This section should make it clear what the commodity costs,

trends in the industry, capacity in the industry and anything else that a buyer would want to now tomake a fully informed decision. Then you need to identify who the possible suppliers of the

commodity are.

Information: on the product (s) or service(s) you are buying may include (but not be limited

to) the following:- Production process used to make the commodity

- Component raw material situation: quantities, location, and supply & demand conditions

- Primary and secondary uses what is this product / service used for by other companies?

- Environmental impacts throughout lifecycle

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- Possible substitutable products or services

- Economics of substitution

- Availability does supply exceed demand?

- Cost structure

- Pricing method and trends- Price trends for industry

- Technology trends in industry- Type and level of competition within the industry and how it affects: price, quality, delivery, supply

availability, and number of suppliers

- Identification of major buyers within the industry

- Competing demand: current and projected: by industry, by end-product users, and by individual firms

- Capacity utilization within the industry: total capacity; and capacity utilization rate

- Supply origins: local; national; worldwide

Key potential suppliers: Please determine who all of the key potential suppliers for this commodity

will be for your company - not just the supplier the company is presently using. Be sure to specify:- How you determined who the primary suppliers were

- Why you eliminated potential suppliers from consideration at this point (if you did so)

For each potential supplier:please provide as complete a description of their strengths and weaknesses as apotential supplier as is possible. Some issues that may matter include:

- Supplier capabilities: management team, financial resources, work force composition, engineering, mfg,

logistical, research and development, responsiveness, flexibility, systems, environmental record,safety record

- Annual sales volume

- Supplier size: number of employees; and number, locations and size of plants / distribution centers

- Major customers of the supplier

- Market share information

- Organizational ownership

- Capacity utilization situation with the firm: total capacity, capacity utilization rate, and expected

increases / decreases in capacity

- Suppliers use of dangerous or toxic inputs- Working conditions at suppliers facilities

- Order backlog situation

- Pricing history

- Cost structure / trends

- Length of buying firm's relationship with the supplier (if they have used them in the past)

Part 3 (due on the last day of class): Recommendations: This is the most important part of yourpaper. You have gathered all the information listed prior to the Recommendations Sectionfor

the purpose of making recommendation. A commodity study is performed to provide

predictions about the short and long term supply environment for the purchased commodity.It is forward looking and strategic in nature. It provides answers for the manager who asks:

1. How do our firms product strategies for our end product (which contains this

purchased commodity), affect the strategies and methods we use to purchase the

commodity?

2. What must our organization do to ensure the efficient and effective procurement

of this important commodity over the next 1- 5 years?

3. How can we ensure the supply of this product/commodity and ensure that the

product received is high quality, low-cost, delivered on-time, technologically up-

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These questions will vary with the nature of your chosen commodity, but the strategic nature

of the study should not.

Examples of strategies that may be appropriate for the specific commodity include:

Make the item in-house Short-term contracting Single sourcing

Use a substitute item Long-term contracting Multiple sourcing

ESI during design phase Joint buyer / supplier projects International sourcing

Supply base optimization Acquisition of supplier etc.

Supplier development of existing supplier(s) Develop a new source of supply

Note- you can combine two or more of these- and in many cases you should

Expectations for part 3:

1. You will provide at least 3 alternative sourcing strategies. Each of these selections needs to be

explained in terms of the company strategy, the role the commodity plays in the strategy, marketconditions for the commodity, and available suppliers. In addition, the pros and cons of each

strategy must be discussed.

2. Your will then recommend one of the alternatives as the best. The recommendations sectionshould incorporate a justification of this selection. This justification should make use of all of theprevious information. There should be no doubt in the readers mind why you have made the

choice you have. If all you tell me is who you are going to buy from with little to no justification

your grade will suffer a great deal.

3. In order to do this well you will need to integrate all 3 parts of the paper. Groups that try and dothis assignment as 3 separate pieces that are not really linked tend to do very poorly.

The Final document you hand in will be a complete report that includes sections 1-3 (with sections 1&2

revised based on previously received comments). You are encouraged to lay out the paper in whatevermanner you think is best. However, I expect to see the following:

1. A cover sheet that tells me the team members, the company the report is prepared for, and the

commodity being bought

2. A table of contents

3. The first section following the table of contents should be a short (1-2 page) executive summary

that tells me the key points that will be found in the body of the paper.

After that the rest is up to you as long as the entire paper fits together into a coherent whole.

Grading: will be based on your clarity of thought; thoroughness of research; presentation and layout of

paper; and appropriateness and justification of your recommendations. Using terminology from class,the research is an order qualifier (you are expected to do this completely) while the recommendations

are your order winner.

Using the Library: Margaret Mellinger the business librarian has set up a website just for this project. It

is a great place to start your research so make use of it.

Website: http://osulibrary.oregonstate.edu/instruction/classign/ba457.html

How to Contact Margaret Mellinger:

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http://osulibrary.oregonstate.edu/instruction/classign/ba457.htmlhttp://osulibrary.oregonstate.edu/instruction/classign/ba457.html


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phone: 737-9642

e-mail: [email protected]

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mailto:[email protected]:[email protected]

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Commodity Study