INSC 30653-082 Lecture 7: Sourcing and Supply Management

Vocabulary terms and definitions from Chapter 10 of Sourcing & Supply Management, including the LGL version of outsourcing decisions and category management strategies.

Supply Management

The process of identifying, acquiring and managing the inputs and supplier relationships

Sourcing

The process of acquiring actual goods and services from an outside source which support a company’s delivery of its own goods and services

Sustainability

A growing focus where companies publicly state goals that are then thrust on suppliers as requirements

Make or Buy decision

The fundamental consideration when determining a sourcing strategy, involving the comparison of outsourcing versus insourcing

Outsourcing Advantages

Benefits including capital not needed for equipment/facilities, easier capacity adjustments, lower costs via economies of scale/lower wages, increased flexibility, and better market info access

Outsourcing Disadvantages

Risks including communication difficulties, quality/delivery problems, potential cost increases, intellectual property loss, and integration difficulties

Supply Category Management

A process through which companies identify and develop supply management strategies for groups of related purchases

Strategic (Category)

Typical of unique purchases that are core to the firm’s performance, characterized by high supply risk and high category value

Leverage (Category)

Standard goods or services with many available suppliers, characterized by low supply risk and high category value

Bottleneck (Category)

High risk but low spend purchases that are typically NOT core to the firm’s performance

Non-critical (Category)

Purchases representing a small amount of spend with little impact on the firm’s performance

Sourcing Execution Process

A structured approach consisting of four steps: Define Requirements, Identify Viable Candidates, Compare Candidates to Criteria, and Monitor Performance

Define Requirements

The step in sourcing execution involving a list of needs from a supplier, which is often weighted or prioritized

Identify Candidates

Surveying the environment to define candidate suppliers that are capable and willing

Supplier Relationship Management (SRM)

Efforts to drive efficiency through performance monitoring via scorecards, ongoing risk assessments/audits, and contract administration