Alpin Case Study

Definition of the purchase strategies

Author:
Giuseppe Stabilini, Università Bocconi

Reference: a.y. 0000/0000/G-LS/n° 0000

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Copyright© 07/2010 Università Bocconi – Author: Giuseppe Stabilini

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 Alpin Case Study

The Company

ALPIN was founded in 1889 in the village of Premana in the Valsassina region where it still has its headquarters.
Its founder, Nicola Codega, a skilled craftsman in wrought iron, worked in a small workshop with a few
assistants making products for the domestic economy in Premana and the neighbouring villages.

In 1920, the first ice-axes were produced for an order placed by an ex army officer. In the 1950s and 1960s,
thanks to its friendship with Riccardo Cassin, a world famous mountaineer, ALPIN started manufacturing other
products such as ice crampons and other iron tools. This person’s charisma led the new company owners to
increase their interest in this market that was already growing quickly at the end of the 1960s.

Today the company has a turnover of €19 millions and works successfully in three sectors:

• Hardware (mountaineering equipment: ice tools, climbing tools, harnesses, crampons, climbing helmets)
• Outdoor (clothing, sleeping bags, backpacks)
• Safety (equipment for safety in the workplace)

There are three manufacturing facilities, all fully autonomous in terms of operations management and all
coordinated financially and commercially. The main, historic facility is located in Premana (Lecco). The other
two were bought out in a merger with two other companies that already worked in the market, situated
respectively in Munich (Germany) and Chamonix (France). All three plants manufacture for the abovementioned
three sectors, with different commercial brands, but the share of turnover and costs is very similar.

Today, the company structure needs to consider the advisability of maintaining the autonomy of the
manufacturing plants, which may imply some inefficiency in the various activities they carry out. The company,
therefore, decides to launch an audit project for purchasing, which not only includes the problem of choosing
centralization/decentralization but also the more general sourcing strategies adopted. The working party,
consisting of the managers from Procurement, Production/Logistics, Sales and Technical, gathers a great deal of
information and meets to discuss all the data.

The information is analysed in the tables below.

Table 1. Turnover and purchases (total and for each product sector)

Amounts in millions of euros Total (euro)

Turnover 19

Total amount of expenditure 10

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 Alpin Case Study

Main product categories (% of expenditure consumed) Euro %

Standard steel (STD.ST) 2.6 26%

Special steel (SPC.ST) 2.4 24%

Technical isolating fabrics (ISO) 0.8 8%

Technical waterproof fabrics (WP) 1.3 13%

Accessories (ACS) 0.7 7%

Plastic Materials (PLA.M) 1.7 17%

Other (including indirect) (IND) 0.5 5%

10.0 100%

Table 2. Comments on the criticality found in the materials and characteristics of the supplies markets

Material Criticality

Standard steel (STD.ST) There have never been any problems with the quality of these materials
and production planning could allow the purchasing managers to
accurately forecast future consumption.

A well organized market with several service centres that manage to

deal with the heavy demand. The amount negotiated and requested by
the company for individual purchases, however, is often rather low,
which does not allow any negotiating power to be used to obtain
discounts on the prices applied.

Special steel (SPC.ST) The materials prove to be appropriate in terms of greater technicality
and product differentiation. Various types are used and often the
purchasing office works alongside the technical office in order to
define the correct specifications for the purchase.

With time, these specific and personalized requests have led to the
development of a privileged relationship with a handful of suppliers. In
particular, there is an agreement with the Swedish company Sandvik
for the development of new types of special steel.

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Technical isolating fabrics (ISO)
Technical waterproof fabrics (WP)
Accessories (ACS)
Plastic Materials (PLA.M)
Other (including indirect) (IND)
The material is not a niche product and there are alternative products
on the market all of excellent quality. Nevertheless, due to the decision
not to stock up on this material (a decision made by the management),
the number of purchasing orders is very high, and often involve small
quantities. There are many suppliers located throughout Europe.
The material is a highly specialised niche product (great power of the
suppliers’ commercial brand) supplied by large multinationals that
offer standard products.
It is widely known that there are very few suppliers (2 or 3) that have
great know-how and brand power.
Non-critical materials but some details, especially the zip, have in the
past caused goods to be returned by retailers and by end customers (for
these specific accessories – zip - the market has very few truly
excellent suppliers in terms of product quality, design and
performance). Furthermore, there have also been errors or difficulties
on the part of suppliers still used by the company to handle the various
versions of labels that the style includes (errors in the coding of the
label). In general, there are very many suppliers available.
Standard materials that are bought from suppliers’ catalogues. There
are several alternative suppliers in the market but the excessively
stringent technical specifications for the quality of the material (often
excessively and unjustifiably set by the technical managers) require
very specific plastics to be bought from markets with few alternative
suppliers (large multinationals) with whom the company has no
contractual power. In spite of this the service provided is good (no out-
of-stock or late deliveries).
Materials for consumption in the factory and by administration. A high
number of active suppliers and little spending control (who buys what).
At the moment there is a simple check of the final cost balance.
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 Alpin Case Study

After having analysed this information, the team outlines the analysis starting from the classification of the
materials proposed by Kraljic. To do this, they analyse each product category in terms of the segmentation
variables of the matrix.

As soon as this analysis is complete, the working party realizes that the three companies in the group have the
opportunity to exploit synergies that had never been considered before. They therefore decide to analyse the
criticality of the following categories of materials:
• Standard steel (STD.ST)
• Isolating technical fabrics (ISO)
• Accessories (ACS)
• Plastic Materials (PLA.M)

The group sets itself the objective of working out a company strategy. In particular, the group tries to provide
answers to the following for each category:
1. The type of strategy to follow, in other words keep the material in the box or try to move it to
other positions in the matrix;
2. The policy for the management of buying the materials and the consequent choices for
centralizing or decentralizing the decisions and criteria for selecting suppliers;
3. The allocation strategy for sharing supplying (number of suppliers);
4. The critical aspects of the relationship, in other words what elements of risk there are for the
success of the relationship