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.