sourcing materials and services

8/12/2019 Sourcing Materials and Services

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Sourcing materialsand services


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a) Purchasing

A method used by businesses to buy products and/or services.

Manages the entire acquisition process.

Introduction

Acquisitionprocess

Requisition PurchaseorderProductreceipt Payment


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Key component of effective inventory management by

Monitor existing stock

Help companies determine what to buy, how much to buy and when to

buy


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b) Procurement

Responsible for acquiring all the materials needed by an organization

Include different types of acquisition

Types ofacquisition

Purchasing Rental Contracting Others


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Procurement

Types ofacquisition

Purchasing Rental Contracting

Selectingsuppliers Negotiating

Agreeingterms Expediting

Monitoringsupplier

performance

Arrangingdelivery

Organizingtransport

Examples of processes which takes place underprocurement


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c) Strategic sourcing

Broader and more comprehensive than the procurement process

Focuses more on supply chain impacts of procurement and purchasing

decisions

Works cross functionally within the business firm to achieve the

organizations overall business goals

Systematic and fact- based approach for optimizing an organizations

supply base and for improving the overall value proposition


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Unique Aspects of Strategic Sourcing Consolidation and Leveraging of Purchasing Power

To concentrate larger volumes of purchases into fewer suppliers or fewer purchasing transactions.

Emphasis on Value

Rather than on acquisition cost alone

More Meaningful Supplier Relationship

Strategic sourcing benefits from developing more sound business relationships with many types of suppliers.

Attention Directed to Process Improvement

Strategic sourcing does not focus solely on effective purchasing processes but it also diverts attention to the business processes

which could be improved on.

Enhanced Teamwork and Professionalism

To include suppliers and customers, as appropriate


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The Sourcing Process Strategic Evolution


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Distinctives High risk, low value Example of distinctives

- Engineered items, parts that areavailable from only a limited number ofsuppliers

Criticals High risk, high value Gives a competitive advantage

Generics Low risk, low value

Do not enter final productExamples of generics

- Maintenance, repair and operatingitems (MRO)

Commodities Low risk, high value

Examples of commodities-Basic production materials, basicpackaging, transportation services

Types and Importance of Items and ServicePurchased

R i s k

Value or Profit Potential


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Types of Purchasing Activity


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Five core principles are recognized as key drivers to achieve the desiredlevels of value :

i. Assess the total value

ii. Develop individual sourcing strategies

iii. Evaluate internal requirements

iv. Focus on supplier economics

v. Drive continuous improvement

Strategic Sourcing Methodology


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Supplier Portfolio Screening Process


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Four-step approach to managing sourcing and procurement processes

1. Determine the type of purchase

Identify the type of purchase

2. Determine the necessary levels of investment

Two major types of investments : a) Time

b) Information

Managing Sourcing and ProcurementProcesses


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3. Perform the procurement process

Include activities which are necessary for an effective purchasing process to happen and

also to ensure customer satisfaction

Procurement professionals can collect data on the time and information actually spent in

the purchasing process.

4. Evaluate the effectiveness of the strategic sourcing process

Control step. Asks two questions :- a) Were the users needs satisfied?

b) Was the investment necessary?

If the process Is deemed as ineffective Identify the cause(s) and rectify the probl

If the customer is satisfied strategic sourcing process is said to be effective and it can

serve as reference in the future.


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Reliability

- On-time delivery

- Performance history

- Warranty

Risk

- Cost risk

- Potential for supply uncerta

- Lead risk time and uncertai

Quality

- Technical specifications

- Chemical and physicalproperties

- Design

- Product life- Ease of repair

- Maintenance

- Dependability

Overview of Supplier/Vendor Selection Criteria


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Desirable quantity

- Vendor attitude

- Training aids

- Packaging

- Vendor location

Capability

- Production capability

- Technical capability

- Management

- Operating controls

- Labor relations Financial

- Price

- Financial stability

Overview of Supplier/Vendor Selection Criteria


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Vital for the successful procurement strategies

Firm utilizes smaller number of suppliers/vendors partnership/allian

with suppliers/vendors

Firm needs to ensure that the supplier can accommodate to their needs

at all times and at an optimum total acquired cost

Supplier/Vendor Evaluation and Relationship


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Firms evaluate their potential suppliers level of excel lence in terms of process management and continuous improvement .

In order for them to determine their level of excel lence, three approaches have been developed.

a) Total Quality Management (TQM)

- A strategy in which whole organizations were focused on an examination of process variability and continuous improvement

- Included a goal of improving a companys quality to only three defects per mil lion through systematic incremental change in p

statistical measurement of outcomes

- Focuses on employee involvement

b) Six Sigma (6 )

- Similar to TQM but involves training experts (green belts and black belts) who work on solving important problems while they teach others in the

company

c) ISO 9000

- Ensures that companies have standard processes in place that they fol low: Document what you do and do what you document

- Involves a third party registration program certifying that companies are foll owing documented processes

Certifications and Regulations


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The Special Case of Procurement Price Four generic sources of prices in procurement situations

Sources of price

Commodity markets

Price lists

Price quotations

Negotiations

Traditional basic input costs The primary price of the products or materials as paid by the firms

Direct transaction costs Cost of detecting, transmitting the need for, and processing the material flow

Includes the process of detecting inventory need, requisitioning, preparing andtransmitting the order documentation to the supplier, receiving the acknowledgment,handling shipping documents, and receiving information about input to inventory

Supplier relational costs

Costs of creating and maintaining a relationship with a supplier

Determine potential vendors prices


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Hierarchy of Price Measurement Approaches


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Total Procurement Price (Purchaser)


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e-sourcing

Contractmanagem

ent

Requestquotations

Analyzespend

Definesourcingstrategy

Qualifysuppliers

e-Sourcing

Ensure the optimacontracts arenegotiated with su


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e-procurement

Identify

need

Createrequisition

Createpurchase

order

Shipping

Receivegoods

Paymentand

settlement

e-Procurement

Secure the optimalof goods and servi

based on thosecontracts


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Reduce procurement prices

Improve comparison shopping

Reduce overall prices paid

Lower operating costs

Reduce paperwork

Reduce sourcing time

Improve control over inventory andspending

Improve procurement and sourcingefficiency

Find new supply sources

Improve communications

Improve personnel use

Lower cycle time

Advantages of e-procurement


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Security

Vulnerability of credit card numbers transmitted over the Internet to theft

by a computer hacker

Lack of face-to-face contact between the buyer and seller

Disadvantages of e-procurement


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Four basic types of e-commerce business models used in procurement and sourcing

Sell-side system

Online businesses selling to individual companies or consumers

Electronic marketplace

Represents a seller-operated service that consists of a number of electronic catalogs from vendors within a market.

Provides a one-stop sourcing site for buyers who can examine the offerings of multiple vendors at one Internet location

Buy-side system

Buyer controlled e-procurement.

Housed on buyers system and is administered by the buyer, who typically pre -approves the suppliers who have access to the system, and proce

suppliers products and services that have been pre -negotiated

Online trading community

Maintained by third party technology vendor where multiple buyers and multiple sellers in a given market can conduct business.

e-commerce Models


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Expertise in the areas of purchasing, procurement, and strategic sourcing is essential to

the success of supply chain management.

The strategic sourcing process consists of seven steps that include project planning and

kickoff, profile spend, assess supply market, develop sourcing strategy, execute

sourcing strategy, transition and integrate, and measure and improve performance.

A number of key factors should be considered in the supplier selection and evaluationprocess, including certifications and registrations such as TQM, Six Sigma, and ISO 9000.

e-sourcing and e-procurement practices and technologies are helping to enhance the

effectiveness and efficiency of traditional buying processes.

Summary


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Thank you

sourcing materials and services

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