Strategic Sourcing

A supplier of choice:

-Achieved a specific and exceptional level of performance. -Typically a trusted partners. -Provides a higher value than their competitors and are characterized as reliable, responsive, flexible, and cost effective

Strategic Sourcing includes automation of:

-Request for Quote (RFQ) -Request for Proposal (RFP) -Electronic Auctioning (e-auction or reverse auction). -Contract Management

Reasons for a single supplier

-To establish a good relationship. -Less quality variability. -Lower cost [100% of volume] -Transportation economies. -Proprietary product or process. -Volume too small to split.

Sourcing Strategies

Analysis and ability to make adjustments based on price, evaluation of supplier performance, and the overall needs of the organization.

Functional Products

MRO items and other commonly low profit margin items with relatively stable demands and high levels of competition

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.

Sustainable Sourcing Should Seek To:

- Grow revenues. -Reduce costs. -Go Green. -Manage Risk. Build intangible assets.

Drivers of Strategic Sourcing

-Improve long-term financial performance -Increase customer focus. -Improve product quality . -Reduce the cost of materials. -Reduce delivery cycle times (i.e., Lead times) -Optimize the number of global suppliers. -Deliver more innovative products, in less time, and less expensively than competitors.

Reasons for Multiple suppliers

-Need more capacity. -Spread risk of supply disruption. -Create competition. -More sources of information. -Dealing with special kinds of business.

Criteria of Supplier selection:

-Product and process technologies. -Reliability . -Quality. -Order system and cycle time. -Cost.

Strategic Sourcing

A comprehensive approach for locating and sourcing key suppliers, which often includes the business process of analyzing the total-spend by material category.

Single Sourcing:

A strategy where there are multiple potential suppliers available for a product or service, however, the company decides to purchase from only one supplier.

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.

Strategic Alliance Development

An extension of supplier development which refers to increasing a key or strategic supplier's capabilities.

Strategic sourcing can be defined as

An institutional procurement process; "an approach to supply chain management that formalizes the way information is gathered and used so that an organization can leverage its consolidated purchasing power to find the best possible values in the marketplace.

Strategic sourcing requires

Analysis of what an organization buys, from whom, at what price and at what volume.

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

Supplier Certification:

Certification procedures verifying that a supplier operates, maintains, improves, and documents effective procedures that relate to the customer's requirements

Innovative Products :

Characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition.

Leverage

Commodity items where many alternatives of supply exist and supply risk is low. Spend is high and there are potential procurement savings.

A strategic alliance in sourcing

Is an agreement between a buyer and a supplier to pursue some agreed upon objectives, while remaining independent organizations.

Co-Managed Inventory (CMI)

Is 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.

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.

Supply Base Rationalization (also known as, Supply Base Reduction, Supply Base Optimization).

Reduction in the supply base to the lowest number of suppliers possible without increasing risk .

Rights and 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 buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer

Supply Base

The group of suppliers from which a company acquires goods and services.

Sourcing

The process of identifying a company that provides a needed good or service.

Supplier Selection

The process of selecting suppliers is complex and should be based on multiple criteria using evaluation forms or scorecards.

JIT2 (supplier co-location)

is actually embedded in buyer's purchasing department to forecast demand, monitor inventory and place orders.

Corporate Social Responsibility (CSR)

is the practice of business ethics

Outsourcing:

The traditional definition involves purchasing an item or service externally, which had been produced using a company's own internal resources previously.

Bottleneck

Unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers

Preferred suppliers provide:

-Product and process technology, and expertise. -Product development and value analysis. -Information on latest trends in materials, processes, or designs. -Capacity for meeting unexpected demand. -Cost efficiency due to economies of scale.

Five key areas of a typical spend analysis are:

-Total historic expenditure and volumes. -Future demand projections or budgets. -Expenditure categorized by commodity and sub-commodity. -Expenditure by division, department, or user. -Expenditure by supplier.

Steps of Spend Analysis:

1) Defining the scope. 2) Identify all of the data sources. 3) Gathering and consolidating all of the data into one database. 4) Cleansing the data (finding and correcting errors) and standardizing it for easy review. 5) Categorizing the data. 6) Analyzing the data For the best deals per supplier, to ensure that all purchases are from preferred suppliers, and to reduce the number of suppliers per category. 7) Repeating the process on a regular schedule.

Spend Analysis

Collecting, cleansing, classifying, and analyzing expenditure data for the purpose of decreasing costs, improving efficiency, and monitoring compliance.

Ethical Sourcing

Is that which attempts to take into account the public consequences of organizational buying, or to bring about positive social change through organizational buying behavior

Sustainability

Is the ability to meet current needs of the supply chain without hindering the ability to meet future needs in terms of economic, social, and environmental challenges.

Business Ethics

Is the application of ethical principles to business.

Non-Critical

Items that involve a low percentage of the firms' total spend and involve very little supply risk.

Distributive Negotiations:

Refers to a process that leads to self-interested, one-sided outcome

Objectives of Strategic Sourcing

Surround the reduction of cost while maintaining or improving quality: -Improve the value‐to‐price relationship. -Understand category buying and management process, to identify improvement opportunities.