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.