Supply Chain Chapter 6 Strategic Sourcing
Functional products
MRO items and other commonly low profit margin items wth relatively stable demands and high levels of competition
single source supplier strategy
a buyer is likely to experience significant bargaining power, better transparency, easier relationship management and better supplier responsiveness. Also increased risk of supply problems and shortages which can result is a supply disruption for the company.
strategic sourcing
a comprehensive approach for locating and sourcing key suppliers which often incurs the business process of analyzing the total spend by material category. *Focus is on development of long term relationships with trading partners who can help the buyer meet profitability and customer satisfaction goals*
distributive negations
a process that leads to a self interested process that leads to a self interested one sided outcome
integrative or collaborative negotiations
a process where both sides work together to maximize the outcome or create value. A win win result.
JIT 2
a representative of the supplier is actually embedded in buyer's purchasing department to forecast demand, monitor inventory and place orders. on the payroll of the supplier.
reverse auctions
a sourcing technique where prequalified suppliers access a website at prearranged time and date and try to underbid competitors to win the buyers business.
preferred supplier
a supplier o choice that generally has achieved a specific and exceptional level of performance over time as measured by a set of criteria agreed upon by both buyer and supplier.
value engineering
activities help the buyers company to reduce costs, improve quality, and reduce new product development time. Satisfy the products performance at the lowest possible cost.
co-managed inventory (CMI)
an arrangement where a specific quantity of an item is stored at the buyers location. the supplier is just recommending as order which is not confirmed until and unless the buyer approves it.
utilitarianism
an ethical act that creates the greatest good for the greatest number of people and should be the guiding principle of conduct
vendor management inventory (VMI)
an inventory replenishment arrangement where the supplier directly monitors the buyers inventory and reds the stock automatically without the customer initiating a purchase order.
leverage
commodity items where many alternatives of supply exist and supply risk is low
supply base rationalization or supple base optimization
involves selectively and systematically determining the right number o suppliers with the right capabilities to achieve the company's overall business objectives.
strategic alliances
is an agreement between a buyer and a supplier to pursue a set of agreed upon objectives while remaining independent organizations. companies have agreed to share information and resources to achieve a mutual benefit.
non critical items
items are both low risk and low value, the strategy here is for procurement to reduce their level of effort and focus. most likely routinely purchases items which may be suitable candidates for delegating the transactional purchasing activities to users within the company based on some predetermined guidelines.
innovative products
items characterized by short product lifecycles, volatile demand, high profit margins and relatively less completion
Non critical
items that involve a low percentage of the company total spend and involve very little supply risk
bottleneck
items that present unique procurement problems. supply risk is high and availability s low and there are only a small number of alternative suppliers
objectives of strategic sourcing
the reduction of cost while simultaneously maintaining or improving quality
multiple sourcing supplier strategy
the risks of a major supply disruption may be reduced.
(pain and gain provisions) PAIN
using a penalty or punishment for a negative outcome of poor performance, cost overruns, and quality problems.
multiple sourcing
purchasing a good or service from more than one supplier. companies may use multiple sourcing to create competition between suppliers in order to achieve higher quality and lower price.
Outsourcing
purchasing an item or service externally, which had been produced using a company own internal resources previously. the concept of buying an item from an external source of supply regardless of whether the item had been produced using a company own internal resources.
rights and duties
some actions are just right in and of themselves regardless of the consequences. just do the right thing.
strategic
strategic items and services that involve a high level of expenditure and are vital to the company's success
strategic items
strategies to ensure the availability of supply and encourage process integration and innovation should help to reduce the risk of a supply disruption. Companies should develop a formal supplier relationship management program.
business ethics
the application of ethical principles to business.
supply base
the group of suppliers from which a firm acquires goods and services
leverage items
the main strategy for items in this category is to consolidate all of the volumes and use the competitive marketplace to generate the lowest total cost of ownership.
corporate social responsibility (CSR)
the practice of business ethics
spend analysis
the process of collecting, cleansing, classifying and analyzing expenditure with the purpose of decreasing procurement costs, improving efficiency, and monitoring compliance
Sourcing
the process of identifying a company that provides a needed good or service
early supper involvement (ESI)
the process of involving suppliers early in the product design activity and drawing on their expertise insights and knowledge to generate better designs in less time and designs that are easier to manufacture with high quality.
single sourcing
there are multiple potential suppliers available for a product or service, however the company decides to purchase from only one supplier.
bottleneck items
two major strategies are searching for alternative sources of supply that might be able to alleviate the unique sourcing problems and strengthen the relationship with each supplier.
(pain and gain provisions) GAIN
using a reward as a positive outcome from exceptional performance
external certifications
can be very beneficial to. company because having an independent third arty verify that the products or services provided meet requirements will add credibility. it is also a legal or contractual requirement in some industries.
drivers of strategic sourcing
1. improve long term financial performance 2. increase customer focus 3. improve product quality 4. reduce the cost of materials 5. reduce the deliver cycle times 6. optimize the number of global suppliers 7. deliver more innovative products in less time and less expensive
4 competences that enable strategic sourcing and create value throughout the supply chain
1. to meet current demand by ensuring that the goods are where they are needed, when they need to be there 2. to anticipate and meet future demand 3. to do so in a customer driven environment 4. to manage the few of information throughout the extended supply chain
Insourcing
Producing goods or services using a company's own internal resources
ethical sourcing
attempts to take into account the public consequences of organizational buying or bring about positive social change through organizational buying behavior
rewarding and recognizing supplier performance
motivates and encourages the supplier to continue to strive for excellence in their products, services, and operations.
supplier certification process
one of the elements for building a strong strategic supplier partnership is having a well defined and established supplier certification program. used to differentiate strategic supplier alliance candidates from others.