Supply Chain Chapter 6

Sourcing

Identifying a company that provides a needed good or service.

Strategic Sourcing

A comprehensive approach for locating and sourcing key suppliers to leverage consolidated purchasing power to find the best possible values.

Insourcing

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

Outsourcing

Purchasing an item or service externally that was previously produced using internal resources.

Single-Sourcing

A strategy where a company decides to purchase from only one supplier even though multiple options are available.

Multi-Sourcing

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

Functional Products

Low-profit margin items with stable demand and high competition (e.g., office supplies).

Innovative Products

Items with short life cycles, volatile demand, and high-profit margins (e.g., high-end electronics).

Spend Analysis

Categorizing and analyzing expenditure data to decrease costs, improve efficiency, and monitor compliance.

Non-Critical Items

Routine items involving a low percentage of total spend and minimal supply risk.

Bottleneck Items

Unique procurement items with high supply risk and few alternative suppliers.

Leverage Items

Commodity items with high spend but many supply alternatives and low risk.

Strategic Items

High-expenditure items vital to a firm’s success that require relationship building.

Supply Base

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

Strategic Alliance

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

Reverse Auction

A technique where pre-qualified suppliers try to underbid competitors to win a buyer’s business.

Vendor Managed Inventory (VMI)

An arrangement where suppliers directly manage buyer inventories to reduce carrying costs.

Co-Managed Inventory (CMI)

A setup where the supplier recommends orders, but the buyer must approve them before they are confirmed.

Supplier Co-location

When a supplier representative is embedded within the buyer’s purchasing group.

Ethical Sourcing

Considering public consequences and social change through organizational buying behavior.

Sustainability

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

TCO (Total Cost of Ownership)

The emphasis on the entire life-cycle of a product, not just its initial purchase price.