| In our personal lives we are constantly busy with sourcing (buying). At high level sourcing is
split into two main business activities. | The first on is selecting new suppliers.
The second main activity is then to manage the supplier over a period of time. |
| Effective sourcing benefits | 1. improved services to end costumers
2. cost reduction
3. cost improvement
4. ash flow improvement
5. reduced cycle times
6. development of process technology
7. development of product technology
8. improved quality. |
| Sourcing in product companies generally involves dividing product or services into two distinct
groups | Direct items: are directly related to the product’s manufacturing process.
Indirect items: describe all other products and services that are needed to run the company |
| Also known as the purchase-to-pay process. The purchasing process can be divided into two
parts: the ......... process and ....... process. | Also known as the purchase-to-pay process. The purchasing process can be divided into two
parts: the pre-order and post-order process. |
| Pre-order Steps | 1. Need Identification: Recognize the requirement.
2. Specification Development: Define detailed specifications.
3. Sourcing: Identify potential suppliers.
4. Tendering: Request bids or proposals.
5. Negotiation: Discuss and agree on terms.
6. Selection: Choose the best supplier.
7. Contracts: Formalize the agreement. |
| post-order steps | 1. Placing and Handling Orders: Issue and manage purchase orders, ensuring all details are correct and confirmed by the supplier.
2. Progressing and Delivery: Monitor the progress and ensure timely delivery, inspecting goods or services upon receipt and addressing any issues.
3. Payment and Review: Process payment and review the procurement process to identify improvements and evaluate supplier performance.
4. Performance Indicators: Measure and analyze procurement and supplier performance using KPIs to inform future decisions. |
| To help achieve the sourcing benefits described in the previous part an organisation can also
carry out tactical sourcing by; | Some examples are:
Market research
Commodity analysis
Forecasting requirements
Supplier performance analysis and benchmarking
Price and cost analysi |
| What is category sourcing (CS) ? | a concept where the products and organisation requires are broken
down into discrete groups of related products. A specific team is allocated for each product group or category. These categories can be operated as standalone businesses within the
organisation, often with their own profit or loss. |
| steps of category sourcing; | 1. Profile the category group = the CS team will establish how many suppliers there
are and what power they have. The more power a supplier has the more leverage they
have in negotiations.
2. Select the sourcing strategy = buyers can choose what strategy to use; do
theywork closely with suppliers in fate-to-face weekly meetings or over the phone only on a
monthly basis?
3. Generate the supplier portfolio = potential suppliers that satisfy the required
criteria, such as size, credit rating, company ethics, or sustainability requirements, are
recorded.
4. Follow the purchasing process = refers back to the pre- and post-order steps
5. Negotiation |
| Routine: | low expenditure items and if the suppliers fail to deliver, there is usually little risk to the business
Low impact, easily sourced
example; office supplies |
| Bottleneck: | low spend but provide significant risk. Bottleneck items are often low in number,but if out of stock, thus can stop production.
High impact, difficult to obtain (scarcity)
example; Aircraft Engine Parts: |
| Leverage: | for a transport company, protective clothing is an example. The company spends a lot on protective clothing for the drivers, but there are many suppliers and it is not critical if a supplier fails to deliver
Important and easy to find, can get good deals
example; Bulk office paper |
| Critical: | in car manufacturing, these could be the windscreens or car seats. Often bought in
large quantities, can be classified as high in expenditure and high in risk.
Very important and tricky to get
example; Main factory machines |
| Supplier Relationship Management (SRM)= | the process that looks at proactively managing the link between buyer and supplier. It
is a mutually beneficial process that works in two ways and should improve the performance of
both. |
| Some benefits of SRM: | Breaking down functional barriers and mind sets
Promoting innovation and joint thinking for “doing things better”
Improving supply chain visibility for buyers and suppliers
Sharing assets across supply chain, removing duplications
Enhancing forward looking visibility giving more reliability to all parties |
| In SRM, there are different models of buyer and supplier interaction. In the basic relationship approach (bow-tie-model) there is only one single point of contact.
The interdependent approach (diamond model), there are many points of contact, and the main business customer teams work closely with the corresponding supplier teams. | Bow-Tie Model: Suitable for transactions where simplicity and efficiency are paramount, such as for standardized products or services with low complexity.
Diamond Model: More appropriate for strategic partnerships and complex supply chains where innovation, responsiveness, and continuous improvement are critical for success. |
| 2 tools that are used very commonly on sourcing: | negotiation and cost management |
