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DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or strategic levels

DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

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Page 1: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

DPS 304 : Sourcing Strategies & Policies

Sourcing

•The process of identifying, selecting & developing suppliers

•Can be done at tactical & operational or strategic levels

Page 2: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Strategies & Policies

 Tactical & Operational Sourcing

•Concerned with lower-level decisions relating to high-profit, low-risk, non-critical items

•Also concerned with short-term adaptive decisions as to how and from where specific supplier requirements are to be met.

Page 3: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Strategies & Policies Strategic Sourcing

•Concerned with top-level, longer-term decisions relating to high-profit, high supply risk strategic items and low-profit, high supply risk bottleneck products and services

• Concerned with the formulation of long-term purchasing policies, the supplier base, partnership sourcing, reciprocal & intra-company trading, globalisation & countertrade, the purchase of capital equipment & ethical issues.

•Procurement is viewed as a knowledge-based activity concerned with the total cost of ownership leading to business competitive advantage

Page 4: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Strategies & Policies Comparison of Tactical & Strategic Sourcing

Tactical Sourcing Environment

Strategic Sourcing Environment

Clearly defined requirements & specifications

Development of a deep understanding of requirements – value analysis and engineering to identify operational value & trade-offs

Open bid process with little or no ability for suppliers to offer alternative designs specifications – purchase price focus

Development of a deep understanding of supply industry, product & service offerings & performance drivers of key suppliers

Page 5: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Process Novack & Simco presented 11-stage process

•Stage 1 : identify or re-evaluate needs

Needs change•Stage 2: define or evaluate users requirements

•Stage 3: decide to make or buy

•Stage 4: identify type of purchaseo Straight rebuy or routine purchaseo A modified rebuy – change supplier or inputo A new buy which results from new user need

Page 6: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Process Novack & Simco presented 11-stage process

•Stage 5 : Conduct market analysiso a source of supply can operate in a purely competitive market (many suppliers), an oligopolistic market (a few large suppliers) or monopolistic

•Stage 6: identify possible supplierso include suppliers you had not previously considered

•Stage 7: pre-screen suppliers ( done through expression of interest or prequalification sessions)

o Reduce suppliers to few who can meet demands

Page 7: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Process Novack & Simco presented 11-stage process

•Stage 8 : Evaluate the remaining supply base

oAccomplished by means of competitive bidding

•Stage 9: Choose supplieroChoice determines the relationship that will exist between the purchasing & supplier organizations & how the relationships will be structured and implemented. oAlso determines how relationships with non-selected suppliers will be maintained

Page 8: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Process Novack & Simco presented 11-stage process

•Stage 10 : Deliver product/perform service

oGenerate data for supplier performance evaluation

•Stage 11: Post purchase/make performance evaluation

oSupplier’s performance must be evaluated to determine how well the purchaser’s needs have been metoProvides data for future sourcing

Page 9: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Information Areas of sourcing information

•Analysis of market conditions

•Directives

•E-sourcing

•Locating Supplier Sources

•Supplier assessment

•Supplier Performance rating

Page 10: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Information Analysis of market conditions

•Market – a place where goods & service are bought & sold, large groups of buyers & sellers of wide classes of goods eg electronics market, demand & supply of a single class of community, eg the cement market, the general economic conditions relating to the supply of goods & services at a particular time

•Distinguish between buyer’s & seller’s market

Page 11: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Information Market analysis

•Move beyond an expert expediter to a strategic procurer

•Use business intelligence to analyse purchasing environment - identify strengths, weaknesses, opportunities & threats that impact supplies

Page 12: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Information Why market analysis?

•Helps in forecasting long-term demand for the product

•Assists in forecasting the price trends of bought-out items & how material costs are likely to affect production costs & selling prices

•Indicates what alternative goods and supply sources are available eg may be cheaper to buy abroad

•Gives guidance on the security of supply sources which is of importance to sensitive commodities sourced abroad

Page 13: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Information Why market analysis?

•Information relating to pay trends, commodity prices, political factors etc can aid in deciding sourcing strategy eg, forward buying, stock-piling or hand-to-mouth

Page 14: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Sourcing Information Sources of Information for market analysis

•Primary data – observation, analysis of internal records eg sales trends, visit to suppliers, questionnaires

•Secondary data – statistics & external reports

•International sources - trade associations

•Govt sources

•Non govt sources eg CIPS, KISM

•The press – economist, business daily

•Economic forecasts

Page 15: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Supplier appraisalRefers to analyzing a prospective vendor for inclusion in the buyer’s approved list.Lysons states that appraisal is necessary in the following situations;

•When potential supplier is not certified eg ISO 9000:2000

•Purchase of strategic high-profit, high-risk items

•Purchase of non-standard items

•Placing of construction and similar contracts

•When entering into JIT arrangements

•When engaging in global sourcing

Page 16: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Supplier appraisal•When establishing e-procurement arrangements with long-term strategic suppliers

•When negotiating outsourcing contracts

•Before agreeing to a subcontract with a main supplier in relation to important companies

•When negotiating service-level agreements

Page 17: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Supplier appraisalWhat should be appraised?

•Finance

•Production capacity & facilities

•Human Resources

•Quality

•Performance

•Environmental & ethical considerations

•IT•Orgnaizational structure

Page 18: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Obtaining Information for Supplier appraisal

•Appraisal Questionnaires

•Supplier visitsPersonal attitudesMeans of controlling qualityHousekeepingCompetence of technical staffTechnological knowhow of supervisory personnelAdequacy & care of production equipment

Page 19: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Supplier approval

•Recognition that following a process of appraisal, that a particular supplier is able to meet the standards & requirements of the particular buyer

•Approved suppliers may be graded into;PartnersPreferredApproved suppliersConfirmed supplierOne-off supplier

Page 20: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Policy Issues in Sourcing•The supplier base

•Outsourcing or make-or-buy

•Subcontracting

•Partnering

•Reciprocity

•Intra-company trading

•Local suppliers

•Purchasing consortia

Page 21: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Supplier Selection

How to achieve an efficient supply system

1.Have Long-term relationships with suppliers2.Start preferred vendor programs by having limited number of suppliers

Work together to minimize delays and handling

Align incentives (to minimize total system costs)

3.Use total purchasing power as bargaining tool to obtain favourable long term contracts, don’t put every order out to bid4.Consider total system costs in making purchasing decisions

Page 22: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Guidelines in selecting a Supplier Partner

1. Senior management attitudes2. Progressive management3. Motivation to improve continuously4. Focus on the final customer5. Company wide quality management6. Ability to add value7. Supplier performance history

Page 23: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Guidelines in selecting a Supplier Partner

8.Just-in-time delivery9.Supplier location10.Financial stability11.Technical expertise and equipment12.Research and development13.Production facilities14. Lean facilities

Page 24: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Evaluating Supplier Performance

Why Evaluate?1.Assists decision making on retaining or removing a supplier from an approved list2.Know which supplier specific order should be placed3.Provide suppliers with an incentive for CI and prevent performance slippage4.Make decision on distributing spend for an item among several suppliers to better manage risk

Page 25: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

What to Evaluate (KPI’s)!

1.Quality & Process control2.CI3.Facilities4.Customer relationship5.Delivery e.g time6.Financial stability7.Certification8.Price

Page 26: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

10 Cs of Effective Supplier Evaluation

1.Competency – to undertake the tasks required2.Capacity – to meet the purchaser’s total needs3.Commitment to quality, cost reduction and service4.Control systems – inventory, costs, people, budget5.Cash resources and financial stability6.Cost commensurate with quality and service

Page 27: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

10 Cs of Effective Supplier Evaluation

7. Consistency & where possible improve levels of quality & service

8. Culture – suppliers and purchasers should share similar values

9. Clean suppliers & products – satisfy legislative & other environmental requirements

10. Communication – send & receive information electronically

Page 28: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Green Procurement & Supplier Selection

is also known as Affirmative Procurement. This is referred to as the purchase products and services which are environmentally friendly. The products or services purchased should have a lower impact on the environment over their whole life cycle than the standard equivalent

Page 29: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Green Procurement

The Green Procurement entails program elements which include:•Recycled content products•Energy Efficient products and energy efficient standby power devices•Alternative fuel vehicles, alternative fuels, and fuel efficient vehicles

Page 30: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Green Procurement

•Bio-based products•Non-ozone depleting substances•Alternative fuels and fuel efficient vehicles•Environmental Protection Priority Chemicals

Page 31: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Green Procurement

Advantages of Green Procurement Economic benefits•Green procurement enables organizations reduce handling expenses and risks associated with waste disposal by reducing supplier-generated wastes and surpluses.•It helps organizations to achieve competitive advantage through innovation. Efficient production may be enhanced through suppliers’ use of cleaner technologies, process innovation, and waste reduction.

 

Page 32: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Green Procurement

 Economic benefits It leads to improved public image. Greening its suppliers can contribute to a company’s overall reputation among customers, investors,

employees, and other stakeholders 

Page 33: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Green Procurement

 Steps to implement a Green Procurement Program in the private sector•Research company procurement policies. Find out if and to what extent your company’s procurement policies give price preference to environmentally preferable products.•Define your terms. Many people don’t have a specific understanding of common phrases such as “environmentally preferable purchasing.”•Screen suppliers and subcontractors. Survey them on specific Environmental Health and Safety practices and use a point scale to judge their responses.

Page 34: DPS 304 : Sourcing Strategies & Policies Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or

Green Procurement• Encourage or require suppliers to implement environmental management systems. Provide suppliers with "blacklists" of undesirable chemicals or other materials.•Collaborate on an action plan. Involve suppliers early and often in product, process, and strategic decisions that impact them. Add suppliers to planning teams to implement design for environment initiatives. •Choose green products. Purchase raw materials that contain fewer toxic ingredients, are recyclable, or utilize recycled materials.