Chapter 6: Strategic Sourcing
sourcing strategies
- 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 - 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
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
strategic alliance
A strategic alliance in sourcing, is an agreement between a buyer and a supplier to pursue some agreed upon objectives, while remaining independent organizations
spend analysis
Collecting, cleansing, classifying, and analyzing expenditure data for the purpose of decreasing costs, improving efficiency, and monitoring compliance
business ethics and ethical sourcing
Most companies today have some type of Corporate Social Responsibility program. Frequently these programs also require suppliers to agree to abide by a Supplier Code of Conduct in order to be considered an approved supplier - Corporate Social Responsibility (CSR) is the practice of business ethics - Business Ethics is the application of ethical principles to business - 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. - Rights and Duties: some actions are just right in and of themselves, regardless of the consequences. Do the right thing
sourcing categories
- non critical: routine items that involve a low percentage of the firms' total spend and involve very little supply risk - bottleneck: unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers - leverage: unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers - strategic: - strategic items and services that involve a high level of expenditure and are vital to the firm's success
strategic sourcing
A comprehensive approach for locating and sourcing key suppliers, so that an organization can leverage its consolidated purchasing power to find the best possible values in the marketplace
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 part
supply base rationalization
Reduction in the supply base to the lowest number of suppliers possible without significantly increasing risk - Buyer-supplier partnerships are easier to manage with a rationalized supply base
distributive negotiations
Refers to a process that leads to self-interested, one-sided outcome
vendor managed inventory
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
supplier certification
Verification that a supplier operates, maintains, improves, and documents effective procedures that relate to the buyer's requirements - Supplier certification programs are used to differentiate strategic supplier alliance candidates from others
ethical sourcing
attempts to take into account the public consequences of organizational buying, or to bring about positive social change through organizational buying behavior