Chapter 6 - Strategic Sourcing
4 Sourcing Strategies
1) Insourcing 2) Outsourcing 3) Single-source 4) Multi-source
4 Sourcing Categories
1) Non-critical 2) Bottleneck 3) Leverage 4) Strategic
Reverse Auctions
A sourcing technique where pre-qualified suppliers enter a website and at pre-designated time and date, and try to underbid competitors to win the buyer's business.
Single-source
A sourcing strategy where there are multiple potential suppliers available for a product or service, however, the company decides to purchase from only one supplier.
Collaborative Negotiations
Both sides work together to maximize the outcome or create a win-win result. Requires open discussions and a free-flow of information between parties
Co-Managed Inventory (CMI)
an arrangement where a specific quantity of an item is stored at the buyer's location
Insourcing
Producing goods or services using a company's own internal resources
Multi-source
Purchasing a good or service from more than one supplier. Companies may use multi-sourcing to create competition between suppliers in order to achieve HIGHER QUALITY and LOWER PRICE
Supply Base Rationalization
Reduction in the supply base to the lowest number of suppliers possible WITHOUT SIGNIFICANTLY increasing risk
Distributive Negotiations
Refers to a process that leads to self-interested, one-sided outcome
Supply Base
The group of suppliers from which a company acquires goods and services.
Strategic Sourcing
a comprehensive approach for locating and sourcing key suppliers, so that an org. can leverage its consolidated purchasing power to find the best possible values in the marketplace
Supplier Co-location
a representative of the supplier is actually embedded in buyer's purchasing department to forecast demand, monitor inventory and place orders.
Utilitarianism
an ethical act is that which creates the GREATEST GOOD FOR THE GREATEST NUMBER OF PEOPLE, and should be the guiding principle of conduct
Leverage
commodity items where many alternatives of supply exist and supply risk is low. Spend is high and there are potential procurement savings
Strategic Alliance
is an agreement between a buyer and a supplier to pursue a set of agreed upon objectives, while remaining independent organizations
Ethical Sourcing
is that which attempts to take into account the public consequences of organizational buying or bring about positive social change through organizational buying behavior
Outsourcing
obtain (goods or a service) from an outside or foreign supplier, especially in place of an internal source.
Non-critical
routine items that involve a low percentage of the firms' total spend and involve very little supply risk.
Rights & Duties
some actions are just right in and of themselves, regardless of the consequences --> DO THE RIGHT THING
Strategic
strategic items and services that involve a high level of expenditure and are vital to the firm's success
Vendor Managed Inventory (VMI)
suppliers directly manage buyers inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer
Business Ethics
the application of ethical principles to business
Bottleneck
unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers.