Purchasing Chapter 11 - sourcing

conflicts of interest

Exists when supply managers must divide their loyalty between the firm which employs them and another firm Such conflicts always should be avoided in all source selection decisions

international source

Firm is headquartered outside of the buying firm's country, but this does not define the location of operations headquartered outside the buying firms country. Gives the potential advantages are superior quality, lower total costs, more advanced technology, broader supply base, expanded customer base (yes perhaps you can sell your product on countries where your firm buys)

lowest

Generally, the bid is awarded to the ___ bidder. In government, there is usually a requirement to award to the lowest bidder provided the lowest bidder is a qualified bidder

utilizing ESI

Get supplier inputs before the design is frozen Capitalize on the latest technology Save time since design cycles are getting shorter Let the supplier know that it is part of the team

scorecard

Good way to start the process of developing a supplier? It's starts the process of identifying improvement areas to address

ethical considerations

Be aware of potential conflicts of interest when sourcing! Make sure you disclose your relationships with any interested parties to an agreement. Excuse yourself from decision making if you have a conflict. Talk to Legal if there are issues!!! Many firms have Disclosure forms that are renewed annually.

competitive bidding

Competitive bidding tends to result in sacrifices in product quality, development efforts, and other vital services Bidding tends to put great pressure on suppliers to reduce their costs so they can bid a low price.

international

Considerations for multiple sourcing: Meeting local content requirements - there may be a need for an "" firm to source some of their product locally.

tactical

Development of a sourcing plan is driven by the recognition that "" sourcing will not succeed in developing a supply base that will yield the benefits of collaborative relationships and alliances.

supply base reduction

benefits include increased leverage with suppliers and better focus and supplier integration into product development.

price bidding

can take the form of negotiation or solicitation of pricing

strategic sourcing plan stages

discovery, evaluation, selection, development, management

70/30 approach

dual sourcing using the "" 70 % of the volume is awarded to one supplier 30% volume awarded to a second supplier Economies of scale are obtained from the "big supplier" The "little supplier" provides competition When the "big supplier" fails to perform the percentages may be reversed by the buyer

credit

in the form of payment terms, holding inventory.

supply base reduction

is achieved through both reducing variety and increasing consolidation Increased leverage is also due to the increased involvement with the suppliers which builds goodwill and trust

lack of clear specification

is often a deciding factor to negotiate pricing

special services

often a distributor can provide services such a tube cutting, bending, etc. They also maintain inventories for their customers.

social media

places like LinkedIn are becoming very commonplace areas to find suppliers.

RFP

request for proposal

ariba network

some software solution providers are creating supplier marketplaces for locating suppliers or for suppliers to locate you as a potential customer

traditional

the "" bidding process is usually one pass, meaning the buying firm only asks the market one time. All suppliers that wish to submit bids are permitted to do so.

suppliers

the strategic sourcing plan starts with the discovery of potential ____

70/30 approach

approach minimizes supply risks since more than one supplier are capable, and supplying product. The big supplier provides the cost benefits, and in the case it doesn't perform, work can be shifted to the little supplier. This approach started in Japan in the 1970's with just-in-time firms. Today it's used by lots of companies.

IFB

invitation for bids

early supplier involvement

is an approach in supply management to bring the expertise and collaborative synergy of suppliers into the design process find the win-win opportunities in developing alternatives. Normally the decision to use ESI results in a single supplier selection. is an accepted way of life at many proactive firms

technical advice

many have trained staffs with product expertise that can be utilized as needed

evaluating potential suppliers

sometimes an assessment isn't necessary you should consider "" if: 1. the supplier is strategically important - if their product is strategically important, you should take the time 2. if the product or service is strategically important 3. there are other short term alternatives available - if supply management can modify the request to allow another product, service, or supplier to be subsituted

technical proposals

step 1 in 2 step bidding/negotiation; IFBs for Step 2 are sent only to those sellers who submitted acceptable technical proposals

distributor

stock many manufacturers products. Buy there if you don't have significant volume to buy direct, since the products include the distributors margin. buy from distributors: tools, office products, MRO, some things in less than truckload quantity)

prerequisites to bidding

- dollar value must be large - specs must be clear -market must consist of an adequate number of sellers - time available must be sufficient ** dollar volume must be large enough to justify the expense of the process for both buying and the selling firm ** time - need to have time for both the buying and selling firms; sellers often need considerable time to prepare a submission, and this should be considered when deciding to conduct a competitive bid

John Deere

Two benefits of supply base reduction cited by __ __ are: increased leverage with suppliers better focus and supplier integration in product development

two step bidding

Used in situations where inadequate specifications preclude the initial use of traditional competitive bidding The two steps are: Step 1: Technical Proposals Step 2: Price Bidding (IFB)

reciprocity

___ exists when supply managers give preference to suppliers that are also customers It is entirely legal to buy from one's customers at fair market prices, without economic threat, and without the intent of restricting competition ___ can become illegal when the activity restricts competition and trade

15-25%

Many firms try to not exceed more than ____ of any one supplier's capacity

management

Reciprocity is a __ problem. If management believes is can expand markets permanently and add to the firms profit legally by means of reciprocity, this is a decision management should make.

blurred

The lines between local, national, and international sourcing have become __ in the last 30 years

weighted analysis factor

When the RFP comes back, you need to be able to compare Responses from the vendors. Some areas of the response are more important than others, so by weighting them the final scoring will compare the results based on the most important factors to help determine which Response more closely aligns to the needs of the business. When the RFP responses arrive, normally a group of evaluators evaluate the responses, and then they evaluations are compiled. Factors in the decision process often include technical, financial, managerial, quality, and capability factors.

strategic sourcing plan

World class Supply Management requires supply management to develop a "" that details how supply management will discover, evaluate, select, develop and manage a viable supplier base

consortium

____ group purchasing is an effective way to do sourcing too. Firms take advantage of the collective leverage they share to volume discounts from suppliers.

local source

Firm's headquarters and all facilities are located in the city or region where the materials or services will be used suppliers facilities are located in the city or region What are advantages? - closer cooperation, delivery dates, lower total costs due to freight Honda is an example of a company that employs local sourcing. Most suppliers have local facilities that supply parts on a JIT basis.

conditions demanding negotiation

Impossible to estimate costs with a high degree of certainty ** tech requirements, items that require a long time to develop and produce during times of uncertainty Price is not the only important variable ** sometimes quality, schedule and services may be of equal or greater importance Purchasing firm anticipates a need to make changes in the specification Special tooling of setup costs are major factors

progressive

In ___ companies, the selection process is based on intensive competition of the supplier based on prequalification requirements. (Normally 2-3 suppliers involved) ESI helps develop trust and communication between the supplier and buying firm. The results of ESO translate into tangible cost savings.

reverse auctions

In contrast to competitive bidding, ___ ___ produce "real-time" interaction. Though effective for achieving cost savings, reverse auctions are not appropriate for all situations. Reverse bid process can have an adverse affect on long-term relationships.

suppliers

Some areas firms develop __ in includes: training, project management, teamwork, quality, production processes, supply management.

Request for Bid

= request for quote = request for proposal ask the supplier to quote the price at which they will perform in accordance with the terms and conditions of the resulting contract if they become the successful bidder

prequalified

A Key Requirement for a Reverse Auction: Suppliers must be ___ .

outset

After the bids are received, you have the option of accepting a proposal and selecting a supplier, which is normally the low bidder, or using the bids obtained as the basis of the starting point of a negotiation. It's important to decide which option will be used at the __ .

untapped

Development of suppliers is one of the greatest __ frontiers in supply chain management Even suppliers recognized as the "best of the best" require investment on the part of the buying firm to realize the full benefit of the collaborative relationship

bidders

Do you think you can routinely solicit bids, and then negotiate? (___ get conditioned to knowing you will come back for negotiation, and will price just to get the chance to negotiate....you won't get the lowest costs)

demand analysis

In today's strategic sourcing models, most often you start with a Demand Analysis, where you discover the past and future needs for the products/services to be sourced. You challenge what's been purchased in the past for it's continuance, and for the future you consider changes that may happened to the product or services during the proposed life of any agreement you are sourcing, and often beyond. Failure to do this may result in selecting a supplier that may not be the best alternative for the future needs of the firm. this added first step avoids ready-shoot-aim issues

single vs multiple

Main concern is can one supplier supply in times of shortage, strikes, etc.

managing suppliers

Managers must ensure the suppliers perform as required. Suppliers must meet the firm's long-term needs. Areas of evaluation include reviews of suppliers general growth plans, it's future design capability in relevant areas, future production capacity, and financial support to support growth.

2000s

Many companies cancelled orders that had long supplier lead times, which resulted in suppliers being caught with, in some cases, hundreds of millions of dollars of work-in-process Cisco - they followed through on orders to maintain their good reputation as a business partner walmart - they controlled suppliers production facilities, creating tremendous risk for their suppliers

MWBE

Many firms have dedicated staffs to develop ___ firms as suppliers. The predominant certifier for minority businesses is the (NMSDC) National Minority Supplier Development Council with its 35-40 regional affiliates. Companies that can demonstrate minority supplier content in their products are more likely to receive business from minority customers.

minority & women owned businesses enterprises

Many forces motivate a buying firm to ensure that MWBE businesses receive a share of the firm's business

solicitation

Once it's been decided whether to use competitive bidding or negotiation, the following should be included in the "" of bids: IFB & RFP

distributor

Potential Benefits of a ___ over Buying Direct from the Manufacturer: Economy of scale Reduction of orders Reduction of paperwork Special services Technical advice Credit

negotiation

The "" process is far more likely to lead to a complete understanding of all issues of the procurement The improved understanding greatly reduces quality and schedule problems.

national source

The source is headquartered within the country and has facilities in multiple regions throughout the country within the country and has facilities in multiple regions What are advantages? - more efficient, superior technical assistance, greater production capacity, shortages less likely

green supply management

These issues need to be considered as part of sourcing processes. recycled materials, environmental issues, liability issues

strategic sourcing plan

This is a generic road map that details how you can develop a strategic sourcing plan. Before you do this, you first have to determine whether the product or service being sourced can be outsourced at all. In the Outsourcing discussion, we determined we shouldn't pursue outsourcing of core competencies.

RFI and Financial Condition Analysis

these are the first 2 steps that should be done first before going any further in evaluating potential suppliers The reason is, if the supplier doesn't look to provide the capability, products or services inquired about in the survey, or their financial condition is poor, you may wish to eliminate them from consideration to save your firm and the supplier from using additional resources when there is no plan to do business. After these 2 steps, you can continue to evaluate further by others steps on the slides in hopes of determining if a supplier is capable.

request for information

to evaluate a potential customer, many questions are answered in supplier surveys known as ""

discovery

to find suppliers, these are where to look: supplier web sites, supplier info files, trade journals, trade shows, sales people ** ariba network ** sociali media

sourcing strategy

today the term used for the next step in the process is "" ; selecting a supplier What should we be concerned about at this point? Size of the spend Number of potential suppliers Specifications of the items....do they lend themselves to a bidding situation Is there time to do sourcing tasks?

3-8

typically a firm , firms try to solicit competitive quotations from "" potential suppliers, depending on the dollar size and complexity of the purchase

IFB and RFP

usually consist of: Purchase description of the item or service Quantities Delivery Schedule Special Terms and Conditions Standard Terms and Conditions Sometimes you don't have all of these, but to the extent they can be provided they help focus the suppliers to provide a better technical proposal.

economies of scale

you get the benefit of the distributors buying power if you don't buy much.

reduction of orders

you may be able to combine orders for different manufactures with a distributor, reducing PO's and invoice processing