TO: Hoby Darling
FROM: Bryant Jones, Mellissa Lopez Guillen
DATE: October 5th 2014
RE: Strategic Approach to Procurement
Background: Scullcandy has been recognized as a recognized competitor in the audio industry. We believe that taking this strategic approach to procurement, Scullcandy Inc. will bring about an opportunity to increase market share, improve financial performance, decrease risk factors, and develop a competitive advantage to industry leader such as Bose, Beats by Dre and Sony.
Statement of research problem or question: A strategic approach to procurement can be defined as a strategy that links strategic planning with operational and financial planning and management to achieve specific goals established by a firm or entity. Our team believes that by adopting a strategic approach to procurement, Scullcandy Inc. could improve overall performance.
Adopting a strategic approach to procurement can decrease your manufacturing cost After reviewing your financial statements for the 2013-year, one thing we noticed is that you have ten different manufacturing facilities outside of the United States. Although we understand your attempt to diversify your manufacturing facilities, by decreasing the number of manufactures used to produce your products, you can ultimately reduce your overall cost and increase your net profit. When looking at strategic procurement, a decrease in each dollar of purchase spend can result in an equal increase to the amount of revenue earned. Based of your financial statements from last year, you total cost of goods sold was equivalent to 55.67% of your gross sales for the year, leaving only a 44.43% gross profit margin to cover all of the remaining expenses accrued throughout the year. According to your annual report, Scullcandy Inc. has already created a manufacturer selection and qualification program used to determine which manufactures have the ability to produce the products you sell with the quality you demand. By using this scorecard, you have the ability to determine the best four or five of your current ten manufactures that have the capacity and technology to manufacture a majority of products. By reducing your current amount of manufactures, you can ultimately cut manufacturing costs while still maintaining geographical diversification. Ultimately, by decreasing the current amount of manufactures, you have the ability decrease the current cost per unit, by increasing the amount of units each manufacturing facility produces.
Developing long-term contracts with qualified manufactures can lead to a decrease in costs. According to your annual report, Scullcandy Inc. does not establish long term contracts with any of their current manufactures. We believe that if you can establish long term contracts with your most qualified manufactures, you can establish a beneficial supplier/buyer relationship, which can lead to lower contract costs.
With your current situation, Scullcandy Inc. or manufactures have the ability to cease services at any time. Not only does this increase business risks, it gives the qualified manufactures leverage when it comes to negotiating prices for the services provided. By establishing long-term relationships with suppliers, Scullcandy Inc. can work with manufactures to establish cheaper costs for services provided. Long term contracts can provide a sense of insurance for both the manufactures and Scullcandy Inc. Without establishing long term contracts with manufactures, the manufacturing companies take on more risk, which result in higher prices for their services.
Improved relationships with manufactures can decrease costs related to quality assurance and an increase product demand. Monitoring quality from manufactures can be costly to any organization. Scullcandy Inc. places high importance on the quality of their products. By improving the relationships with manufacturers, Scullcandy Inc.