STRATEGIC SOURCING PLAN

Discovery Evaluation Selection Development Management

DISCOVERY

Supplier websites Supplier information’s files Supplier catalogues Trade Registers & Directories Trade Journals

Phone Directories Filing mailing pieces Professional organisations Internal intelligence

EVALUATION

Supplier surveys Financial condition analysis Third party evaluators Evaluation conference Facility visits Quality capability analysis

Capacity capability analysis Management capability analysis

Service capability analysis Flexibility capability analysis Information technology capability analysis

SELECTION

Bidding Negotiation Combination

PRE REQUISITES TO BIDDING

The Proper use of competitive bidding is dictated by five criteria. When all five criteria prevail, competitive bidding is an efficient method of source selection and pricing. The criteria are:

1. The dollar value of the specific purchase must be large enough to justify the expense, to both buying and selling firms, that accompanies this method of source selection and pricing.

2. The specifications of the item or service to be purchased must be explicitly clear to both the buying and selling firms. In addition, the seller must know from actual previous experience, or be able to estimate accurately from similar past experience, the cost of producing the item or rendering the service.

3. The market must consist of an adequate number of sellers.

4. The sellers that make up the market must be technically qualified and actively want the contract-and, therefore, be willing to price competitively to get it.

5. The time available must be sufficient for using this method of pricing –suppliers competing for large contracts must be allowed time to obtain and evaluate bids from their subcontractors before they can calculate their best price. Thirty days is not an uncommon time; however, the increasing use of online bidding using the worldwide Web is forcing compression of bid preparation time.

CONDITIONS DEMANDING NEGOTIATION

In addition to satisfying the preceding five prerequisites, four other conditions should not be present when employing competitive bidding as the means of source selection:

1. Situations in which it is impossible to estimate costs with a high degree of certainty. Such situations frequently are present with high-technology requirements, with items requiring a long time to develop and produce, and under conditions of economic uncertainty.

2. Situations in which the buying firm anticipates a need to make changes in the specification or some other aspect of the purchase contract.

3. Situations in which special tooling or setup costs are major factors. The allocation of such costs and title to the special tooling are issues best resolved through negotiation.

DEVELOPMENTInvestment requirement Two way effort Training in project management

Team work Quality Production processes Supply management

MANAGEMENT

Ensure performance Monitoring Periodic analysis Focus key areas

SINGLE VERSUS MULTIPLE SOURCING

The major argument for placing all of a firm’s business with one supplier is that in times of shortage, this supplier will give priority to the needs of a special customer. Additionally, single sources may be justified when:Lower total cost results from a much higher volume

(economies of scale). Quality buying firm obtains more influence-clout-with

the supplier. Lower costs are incurred to source, process,

expedite, and inspect. The quality, control, and coordination required with

just-in-time manufacturing re-quire a single source.

Significantly lower freight costs may result. Special tooling sis required, and the use of more

than one supplier is impractical or excessively costly.

Total system inventory will be reduced An improved commitment on the supplier’s part

results. Improved interdependency and risk sharing result. More reliable, shorter lead times are required Time to market is critical

Although the “70-30” strategy is reported to have started in Japan in the 1970s with just-in-time firms, the strategy is firmly established in many world-class companies. For example, visits in 2001 by one of the authors of this book verified that Solectron, Applied Materials, and Cisco Systems all cognitively use the “70-30” approach in sourcing selected materials. Dual or multiple sourcing may be appropriate: To protect the buying firm during times of shortages,

strikes, and other emergencies.

To maintain competition and provide a backup source. To meet local content requirements for international manufacturing locations.

To meet customers’ volume requirements. To avoid lethargy or complacency on the part

of a single-source supplier. When the customer is a small player in the

market for a specific item. When the technology path is uncertain. In areas where suppliers tend to leapfrog

each other technologically.

ISO 9000 REGISTRATION

A process gaining rapid acceptance throughout the world is the ISO 9000 registration process. Developed in Europe in 1987, ISO 9000 consists of a series of process quality standards- not product quality standards- that recognize that product quality is a result of a process.

ISO CERTIFICATION

ISO 9003 is the least restrictive of the three primary standards, requiring conformance only to final inspection and test standards within a production environment. ISO 9002, while requiring the same standards as ISO 9003, also includes standard requirements for purchasing, production, and installation capabilities, ISO 9001, which requires everything that ISO 9003 and 9002 require, also includes standard requirements to ensure conformance in design and servicing a full range of manufacturing and support activities.

Perhaps the best sway to recognize the character of the ISO 9000 is to relate it to the concept of total quality management (TQM). ISO 9000 describes and defines the fundamental nature of work processes necessary for an organization to achieve the objectives of TQM. Therefore, ISO 9000 is a critical first step in implementing a TQM system.

MAKING CERTIFICATION

Making Certification Part of the Customer’s Requirements

For years the Big Three carmakers (Ford, GM, and now Daimler Chrysler) have required suppliers to meet stringent quality standards and requirements. Unfortunately, the standards were unique to each company. The result? Suppliers spent too much time trying to conform to varying and sometimes conflicting requirements.

Now, suppliers are trying to meet one agreed-upon standard: QS 9000, an expanded version of the ISO 9000 group of standards adopted by firms world wide. What sets this standard apart from the individual certification programs is that QS 9000 requires periodic reviews to verify that a supplier still conforms and that any shortcomings have been corrected. “With mandatory audits every six months, you can’t drift too far, or you will lose your certification,” says the director of quality at Peterson Spring.

A manager at Laser Specialist maintains, “I’ m a strong advocate of QS 9000 as a management tool: Forget that the Big Three are shoving it down your throat, because it creates objective standards to follow and makes everything traceable.” At least now suppliers to the automotive industry have a consistent set of requirements provided by their customers –the Big Three.