Volvo Logistics: Analyzing Purchasing Approach and Commodity Placement

This case study examines Volvo Logistics' purchasing approach, focusing on a three-step model and the placement of commodities using the Kraljic matrix. It draws parallels with HCC's facility management approach, highlighting the importance of strategic sourcing and supplier relationships. The analysis emphasizes the shift from traditional procurement to collaborative innovation, detailing a four-phase activity analysis including stakeholder classification, supplier selection, expectation reconciliation, and co-creation analysis. Key aspects include leveraging commodities for cost reduction, managing bottleneck commodities, and adapting purchasing strategies based on market conditions. The study underscores the need for a dynamic approach to commodity placement, considering factors beyond production and commodities, such as service components and installation requirements.

Running head: “VOLVO LOGISTICS” CASE
“Volvo Logistics” Case
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Table of Contents
Purchasing approach........................................................................................................................2
Placement of commodities...............................................................................................................7
References......................................................................................................................................12

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Purchasing approach
Volvo Logistics utilized a 3 step purchasing model. Related three-step models might
have been seen in the records also. Olsen & Ellram, for instance, usage of an aanalogous design
in a different order. In their portfolio model, the primary phase would be to examine the business
original purchases by provision of responses to precise components after which put the analyzed
items or perhaps investments into their portfolio model. By doing this, a perfect policy for the
items is created.
HCC is a worldwide healthcare company that assists in a lot more than one hundred
nations employing over 50,000 people globally. Inside HCC, the facility management (FM) unit
is responsible for regulating all of those services required to operate the organization. The FM
management team includes agents of chief HCC internal stakeholders, viz., FM administration,
acquisition, economics, as well as HR. Even if this provider function had an outstanding mass of
its labor force outsourced over numerous services channels to provide suppliers, the present FM
revenue source was recognized to be incredibly organization-centric on account of an on-core
section whenever examined with external specifications.
HCC examined their FM facility help functionality to comprehend if this could be
administered in a further useful way. The study showed that the company favoured operating in a
regular procurement design wherein it had been high at supervising providers rather than toiling
beside them. HCC happened to face a strategic requirement to concentrate on the actual business,
modification shots and adjustment of costs to a lowering earnings stream. With this
circumstances, it became quite clear to the FM management team that assistance control was not
simply an on main trade action but probably a part wherein innovation is wanting.

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The survey of HCC moving to an organization resolution to develop the capacity of the FM aid
delivery. This anticipated the FM administration unit to concentrate on 2 significant goals: (i) to
generate a suitable obtaining model and vendor relations, and (ii) to redesign the resource
foundation to complement the continual requirements of the trade. The creative sourcing regular
that developed from the 4 stages of the activity analysis is dependent on the expansion of a
multi-supplier situation; that is recognized by the name "the FM ecosystem," in which HCC
served as part with its tactical FM assistance suppliers. Even though HCC has several vendors
providing commodities and services, operating and expanding a connection with some vendors
were considered superior to acquire potency and abilities improvements together with the FM
operations.
Phase 1: Classification of the internal shareholders and their hopes
An interdisciplinary model was developed. It involved agents from HCC (the in-house
consumer), operations, acquisition, economics, as well as HR. Every single one of these in-house
shareholders in FM had unique and various demands, concerning a provider development
program. The progression of FM management unit was a chief agency for settlement among the
various internal shareholders.
Phase 2: Provider selection
The FM management unit they conducted a multi-shareholder workshop to determine their
primary suppliers. The researchers (authors) chose to apply the Kraljic Portfolio matrix model
(Kraljic, 1983) to visualize this approach. Employing the Kraljic Portfolio matrix model for
supply as a microscope for dealer classification, the management unit classified each of the
present provider situations concerning gain effect and supply danger and balanced them over to

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the four quarters of the Kraljic matrix model. None of the FM supply divisions were labelled as
an equal for the tactical quadrant. It deserted the FM leadership team with the problems of
selecting vendors of non-strategic obtained object classifications and to function with them to
promote cooperative value-producing tactical guidance resolutions. It was ultimately decided
that, through both acquiring expense and classification extension potential, fifteen vendors had
the capacity to transform into strategic associates by partaking in a cooperative innovation goal.
Phase 3: Reconciliation of all shareholder anticipations
The initial step performed out by the FM service team when it comes to reconciling
Suppliers’ anticipations were to convey their objective to transition to fresh acquisition coverage
dependent on supportive innovation. They attained so by summoning each of the 15 selected
chief vendors to proffer for a single or multiple possible service systems recognized. The official
invitation for just one tender (RFT) report furnished particulars of HCC's understanding of the
production channel information of the recent program techniques. Everybody apart from

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certainly one of the providers consented to engage in the activity. One provider opted certainly
not to include and took the inevitable end result of non-participation: an important decline in
sales revenue from its collaboration with HCC.
The vendor agents travelled to a two-day workshop all through which the studio HCC FM
supervisors shared a candid overview of their creative objectives and enthusiasm in transforming
from consumer command-and-control to development of a comprehensive culture of cooperation
with essential providers.
Phase 4: Analysis of the co creation exercise by FM service scorebook
The representatives of FM ecosystem designed every three months to execute one "temperature
check" utilizing a 0–100 scale. This required agents of the 14 diplomatic providers, additionally
the HCC, FM management group, individually evaluating the effect of eight acts on 3 aspects,
viz . Dedication, collaboration and involvement, and reformation.
The activity added to scorebook:
• Customer satisfaction: enhanced degrees of in-house client satisfaction were discovered as an
instantaneous response to the augmented FM facility reserve.
• Employees fulfilment: the activity generated beneficial outcomes on the sensible commitment
of the entire FM Association and enhanced full FM capacity.
• Regular development: HCC explained that an existing operating structure for FM facility
provision had triggered purposeful service addition that have an important impact on the
profitableness.
• Commercial targets: the fresh business model promoted a far more efficient usage of non-core
resources and decreased investment on those and procedures by twenty million pounds within a

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year.
The evaluation allows choosing the strategic providers by recognizing the leading behavioural
scales and negotiating those by FM ecosystem program.
Certain particular purposes of HCC and its multi-shareholders were grown to be essential
regulatory option scales for assessing the strategic providers. The decision scales described
precisely how the organization should cooperate and take part with the suppliers to generally
uncover inclusion from the stock base, thus enhancing and reducing service danger.
However benefit co-creation has acquired a lot acknowledgment from scholars , its employment
in multi-shareholder conjunction perspective is yet under-researched. In contrast to conventional
specifications and techniques that scale suppliers' achievement utilizing positive methods , inside
the HCC ecosystem design vendor achievement is evaluated via personal behavioural scales
utilizing a pragmatic approach ( Nudurupati et al . , 2015).

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Placement of commodities
Time does not stand still, and it will be severe for any business if no improvement would
be performed in its technical basis. Throughout its survival, the Kraljic's prototype has
demonstrated its importance.
However, the model wants an efficient dynamic shape. It is not a flash shot but requires
fixing and verifying each time repeatedly in order to receive the most returns from it. The
customer should always remember what he aspires to accomplish. In accordance to Gelderman,
the heart of every purchaser’s movement should concern leverage commodities to make the
stockholders content by boosting gain by low costs. Tools could be obtained in reversed
auctions. For natural assets, profit is to be accomplished through decreasing treatment related
with procuring. Limited or no honor will be established with these assets, so it should be done
with fewer people. The devices in this matter are for example E-acquisition and E-ordering. In
regard to strategic studies Kraljic suggests an association with a provider. Easy to say than done.
Maximum efforts to install these designs will disappoint. Relations in procuring hold much in
common with social connections. Faith is usually the stumbling rock to construct anything
permanent. Yet partnership is the answer to profit in this section of the model. However like with
any circumstances with bottleneck commodities, one can encounter a challenging assignment.
Certain features go past control, and one can be too tiny to replace them. In this situation, the
single thing one can do is to admit and wish for a radiant future (Kraljic 1983).

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Figure 2
This Risk-Value Matrix of Kraljic is an exceptional idea of considering on the B2B
purchasing (i.e. supply chain, acquisition) and B2B retailing method. Plus it is very crucial to
recall to remember the assistance components of the both leverage and bottleneck things. It is
since the Kraljic design came around at a point where production and commodities were all one
was considering about, and permanent workers with companies performed many tasks. To
explain, thinking of a bottleneck object like a particular kind of stainless steel atmospheric valve
in a food producing factory in advanced country markets fits as a leverage article for new plants
in abroad expanding markets.
Being a leverage good: The valve businesspeople are very enthusiastic in trading masses
of pipes and could only obtain massive quantities in new markets where several valves are

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required for new plants. In those new plants that can be in international growth markets the pipes
are leverage objects according to the Kraljic Matrix. Consequently, there will be an RFP and
auctioning activity, and a bunch of B2B trades effort will be required with chances of a huge
payoff with engaging the significant transaction. The RFP may be simply for the pipes since
there may be a different agreement for establishing the factory and machinery that proceeds to a
separate installer/service supplier ("StratoServe", 2014).
Being a bottleneck article: The same pipe turns into a bottleneck product for surviving
plants in advanced nation markets. The pipe is not really costly as opposed to the tools but
generation would halt if the pipe collapsed, therefore, B2B supply peoples would admit having a
few additional valves so that no disaster is there.The pipe marketers are glad to export a few
pipes and may have greater pricing for small shipments. In this event, the ability and assistance
needed to repair the valve may not be accessible for workers in the operating factory because
subsistence can be outsourced to a constructor to lessen operation expense on full-time facility
maintenance associations (Padhi, Wagner, & Aggarwal, 2012).
B2B customers and clients should, therefore, reflect explicitly on how the valve will be
placed in (a) the leverage current factory conditions and (b) the bottleneck existing plant
conditions. Because the valve without perfect installation will not produce the answer, it is
assumed to provide.
The three procuring strategies showed by Kraljic are:
• Exploit – Getting the maximum of superior purchasing power to obtain excellent rates and
long-term deals from plenty of vendors, to lessen the supply peril associated with these valuable

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items. One may also be qualified to perform "spot purchases" of particular shipments of the
article if a specific vendor extends a problem ("www.linkedin.com", 2016).
The sole real discretion is not to use any competitive strategy too faraway, in case conditions
improve.
• Balance – Choose a middle path among the exploitation strategy and the diversification
strategy.
• Diversify – Decrease the supply hazards by exploring alternative providers or alternative
commodities. For instance, as a logistics standard, one can employ the train to send some
overland cargo alternative to depending entirely on trucking businesses.
One can also improve their purchasing power by merging with a particular supplier.
Moreover, in other circumstances, one could carry on the generation of the product in-house
("How to select strategic suppliers using portfolio analysis | Acuity (Consultants) Ltd", 2016).
Other subsequent 4-quadrant supply positioning models have tried to decide the policies
to a sole advancement for every quarter.
Gelderman and Van Weele projected strategic directions for every quadrants: inside the
tactical quadrant, the option is to locate a new provider, recognize the locked-in joint venture, or
preserve the strategic joint venture; mirroring Kraljic’s strategies exploit, diversify or balance.
They also finished off with saying that it is impossible to infer stratagems from a 2-dimensional
case examination. Other features required to be regarded are:
 The in general business policy
 The specific circumstances in supply markets

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 The capacities and intentions of individual suppliers
Where they anticipated finding equilibrium of supremacy inside the strategic quarter, they in
fact found that provider domination reigned ("Segmenting Supply Chain Using Kraljic Matrix",
2016).