Supply Chain Chapter 6: Strategic Sourcing Terms

Strategic Sourcing

A formal institutional procurement process that leverages consolidated purchasing power to find the best possible market values.

Sourcing

The specific process of identifying a company to provide a needed good or service.

Single-Source

A strategy where a company chooses to buy from only one supplier even though multiple potential suppliers exist.

Multi-Source

Purchasing a good or service from more than one supplier to create competition and spread risk.

Functional Products

Low-margin items with stable demand and high competition, such as office supplies.

Innovative Products

High-margin items with short life cycles and volatile demand, such as new technology products.

Spend Analysis

The process of collecting, cleansing, and analyzing expenditure data to decrease costs and monitor compliance.

Kraljic Matrix Categories

A framework for categorizing items based on supply risk and value

Kraljic Matrix Categories: Non-Critical

Low-risk, low-value routine items.

Kraljic Matrix Categories: Bottleneck

High-risk, low-value unique items with few suppliers.

Kraljic Matrix Categories: Leverage

Low-risk, high-value commodity items where many suppliers exist.

Kraljic Matrix Categories: Strategic

High-risk, high-value items vital to the firm's success.

Supply Base Rationalization

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

Preferred Suppliers

Suppliers who have achieved exceptional performance levels and are trusted partners for product development and capacity.

Strategic Alliance

An agreement between a buyer and supplier to pursue mutual objectives while remaining independent.

Pain and Gain Share Agreements

Formal provisions in a contract that spell out rewards (gains) for exceptional performance or penalties (pains) for poor performance.

Supplier Certification

Procedures used to verify that a supplier maintains effective and documented processes that meet customer requirements.

Reverse Auctions

A sourcing technique where pre-qualified suppliers bid against each other in real-time to win a buyer's business by offering the lowest price.

Vendor Managed Inventory (VMI)

A system where suppliers directly manage a buyer's inventory levels, including creating replenishment orders.

Supplier Co-location

An arrangement where a supplier's employee is embedded within the buyer's purchasing department.

Ethical Sourcing

Buying behavior that attempts to account for public consequences and bring about positive social change.

Sustainability

The ability to meet current supply chain needs without hindering the ability of future generations to meet theirs.