Supply Chain Chapter 6 - Strategic Sourcing

Sourcing

Process of identifying a company that provides a

needed good or service

Strategic Sourcing

Comprehensive approach for locating and

sourcing key suppliers, so that an organization can leverage its purchasing power to find the best possible values in the marketplace

In today's competitive business climate, supply chain management professionals are constantly seeking out creative ways to ____ costs, improve the ____of the final product and

achieve a ____ time to market

Reduce, Quality, Faster

Effective procurement managers consistently locate the ____ quality materials at the ____ possible cost from the most ____ suppliers.

Best, Lowest, Reliable

Consumers can drive the success of a company through their awareness and demand for ____ ____ ____

Ethical Business Practices

Recent expansion of global marketplace has made it necessary for companies to take a more ____ ____ to integration of supply chain processes and overall business growth

Holistic Approach

Strategic sourcing is a specialty area whose ____ and ____ is just beginning to be realized.

Potential, Profitability

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 delivery lead times

6. Optimize the number of global suppliers

7. Deliver more innovative products, in less time, and less expensively than competitors

Improving long-term financial focus is a/an (Driver/Objective) of Strategic Sourcing

Driver

Increasing customer focus is a/an (Driver/Objective) of Strategic Sourcing

Driver

Improving product quality is is a/an (Driver/Objective) of Strategic Sourcing

Driver

Reducing the cost of materials is a/an (Driver/Objective) of Strategic Sourcing

Driver

Reducing delivery lead times is a/an (Driver/Objective) of Strategic Sourcing

Driver

Optimizing the number of global suppliers is a/an (Driver/Objective) of Strategic Sourcing

Driver

Delivering more innovative products, in less time, and less expensively than competitors is a/an (Driver/Objective) of Strategic Sourcing

Driver

Objectives of Strategic Sourcing

1. Improve the value-to-price relationship

2. Understand the category buying and management process

3. Examine supplier relationships across the entire organization.

4. Develop and implement multi-year contracts

5. Leverage the entire organization's spend

Improving the value-to-price relationship is a/an (Driver/Objective) of Strategic Sourcing

Objective

Understanding the category buying and management process is a/an (Driver/Objective) of Strategic Sourcing

Objective

Examining supplier relationships across the whole organization to share practices is a/an (Driver/Objective) of Strategic Sourcing

Objective

Developing and implementing multi-year-contracts to standardize terms and conditions across the company is a/an (Driver/Objective) of Strategic Sourcing

Objective

Leveraging the company's spend is a/an (Driver/Objective) of Strategic Sourcing

Objective

Single Source

A sourcing strategy where there are multiple potential suppliers available for a product or service but the company only chooses one

Multi-Source

Purchasing a good or service from more than one supplier.

Establishing a good relationship is a reason for choosing (A Single Supplier/Multiple Suppliers)

A Single Supplier

Having less variability in quality is a reason for choosing (A Single Supplier/Multiple Suppliers)

A Single Supplier

Wanting lower costs is a reason for choosing (A Single Supplier/Multiple Suppliers)

A Single Supplier

Wanting transportation economies is a reason for choosing (A Single Supplier/Multiple Suppliers)

A Single Supplier

Having a proprietary (controlled under legal rights) product or process is a reason for choosing (A Single Supplier/Multiple Suppliers)

A Single Supplier

Having a volume too small to split is a reason for choosing (A Single Supplier/Multiple Suppliers)

A Single Supplier

Needing more capacity is a reason for choosing (A Single Supplier/Multiple Suppliers)

Multiple Suppliers

Spreading the risk of supply disruption is a reason for choosing (A Single Supplier/Multiple Suppliers)

Multiple Suppliers

Creating more competition is a reason for choosing (A Single Supplier/Multiple Suppliers)

Multiple Suppliers

Wanting more sources of information is a reason for choosing (A Single Supplier/Multiple Suppliers)

Multiple Suppliers

Dealing with special kinds of business is a reason for choosing (A Single Supplier/Multiple Suppliers)

Multiple Suppliers

Functional Products

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

Innovative Products

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

The Strategic Sourcing process requires an organized approach that allows the organization systematically work on ____ ____ or processes that can result in cost saving benefits.

Spend Areas

Framework for Sourcing Strategy Development

1. Identify the targeted spend area

2. Create the sourcing team

3. Develop a team strategy and communication plan

4. Gather market information

5. Develop a supplier portfolio

6. Develop a future state

7. Select suppliers and negotiate

8. Implement Supplier Relationship Management (SRM)

Spend analysis is categorizing and analyzing expenditure data for the purpose of

____ ____, ____ ____, and ____ ____

Decreasing costs, Improving efficiency, Monitoring compliance

Basic steps for spend analysis

1. Defining the scope (e.g., expenditures over a specific time period).

2. Identify all of the data sources.

3. Gathering and consolidating all of the data into one database.

4. Cleansing the data and standardizing it for easy review.

5. Categorizing the data

Key areas of a typical spend analysis

1. Total historic expenditures and volumes

2. Future demand projections or budgets

3. Expenditures categorized by commodity and sub-commodity

4. Expenditures by division, department, or user

5. Expenditures by supplier

6. Analyzing the data

7. Repeating the process on a regular schedule

Non-Critical Sourcing

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

Bottleneck Sourcing

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

Leverage Sourcing

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

Strategic Sourcing

Strategic items and services that involve a high

level of expenditure and are vital to the firm's success.

In terms of risk and value, Non-Critical items are ____ ____ and ____ ____

Low Risk, Low Value

In terms of risk and value, Bottleneck items are ____ ____ and ____ ____

High Risk, Low Value

In terms of risk and value, Leverage items are ____ ____ and ____ ____

Low Risk, High Value

In terms of risk and value, Strategic items are ____ ____ and ____ ____

High Risk, High Value

Supply Base

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

Supply Base Rationalization

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

A rationalized supply base can result in:

- Reduced purchase prices

- Fewer supplier management problems

- Greater levels of quality and delivery reliability

- Closer and more frequent interaction between buyer and supplier

Supplier Selection is typically conducted by a

cross-functional team

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

Multiple Criteria

AI in Suppler Selection

Used to improve supplier selection and increase the effectiveness of supplier relationship management

Preferred Suppliers

Suppliers that best meet a company's overall purchasing needs

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.

Strategic alliance

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

Benefits of Strategic Alliance

- Potential to increase revenue and profits for both parties.

- Potential to create a competitive advantage or block a competitor from gaining market share.

- Mitigate risks and ensure a continuity of supply.

- Position the partners for future strategic opportunities.

Strategic Alliance Development

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

Distributive Negotiations

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

Collaborative Negotiations

Both sides work together to maximize the outcome or create a win-win result.

Counterproductive (Distributive)

Parties work actively against the needs each other

Competitive (Distributive)

Parties try to maximize the advantage for their side

Cooperative (Collaborative)

Parties work together and share information

Collaborative

Congruence of goals exists between parties

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.

Vendor-Managed Inventory (VMI)

Suppliers directly manage buyer inventories to reduce the buyer's carrying costs and avoid stockouts for the buyer

Co-Managed Inventory (CMI)

Arrangement where a specific quantity of an item is stored at the buyer's location

Supplier Co-location

A representative of the supplier is actually embedded in buyer's purchasing department to forecast demand, monitor inventory and place orders.

Corporate Social Responsibility programs require suppliers to agree and abide by a ____ ____ ____ ____ in order to be an approved supplier

Supplier Code of Conduct

Utilitarianism

Ethical act that creates the greatest good for the greatest number of people

Rights and Duties

Doing the right thing regardless of consequences

Ethical Sourcing

Attempts to take into account the public consequences of organizational buying

Sustainability

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