Chapter 6 Supply chain

Strategic Sourcing

comprehensive approach for locating and sourcing key suppliers to leverage its purchasing power to find the best possible values in the marketplace.

SCM professionals are constantly seeking out creative ways to

Strategic sourcing is one method that procurement managers can use to help achieve these supply chain goals.

Objectives of Strategic Sourcing

Improve the value‐to‐price relationship, Understand the category buying and management process, Examine supplier relationships across the entire organization, Develop and implement multi‐year contracts, Leverage the entire organization’s spend

Insourcing

Producing goods or services using a company’s internal resources.

Outsourcing

purchasing an item or service externally, which had been produced using a company’s internal resources previously.

Single-Source

where multiple potential suppliers are available for a product or service, but 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 to achieve higher quality and lower prices.

Successful sourcing strategies are almost always different for

functional products versus innovative products.

The Strategic Sourcing process requires an organized approach that

allows the organization to

systematically work on spend areas or processes that can result in cost-saving benefits.

Key areas of a typical spend analysis are:

Total historic expenditures and volumes, Future demand projections or budgets, Expenditures categorized by commodity and sub-commodity, Expenditures by division, department, or user, Expenditures by supplier

Bottleneck

unique procurement problems. Supply risk is high, availability is low, and few alternative suppliers exist.

Leverage

commodity items with many supply alternatives and low supply risk. Spending is high, and there are potential procurement savings.

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 “Supplier of Choice”

Typically trusted partners who know the buyer’s organization, processes, procedures, and requirements

strategic alliance in sourcing

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

Reverse Auctions

A sourcing technique where pre-qualified suppliers enter a website at a 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 inventory carrying costs and avoid stockouts for the buyer

Co-Managed Inventory (CMI)

an arrangement where a specific quantity of an item is stored at the buyer’s location.

Supplier Co-location

supplier representative is embedded in the buyer’s purchasing group to forecast demand, monitor inventory, and place orders

Utilitarianism

ethical act that creates the greatest good for the most significant number of people and should be the guiding principle of conduct

Ethical Sourcing

attempts to consider the public consequences of organizational buying or to bring about positive social change through organizational buying behavior.

Sustainability

ability to meet the current needs of the supply chain without hindering the ability to meet future needs in terms of economic, social, and environmental challenges.