sourcing Flashcards
what are the responsibilities of a purchasing function
- developing supplier base
- negotiating and administering long-term contracts
- monitoring supplier performance
- placing orders
- maintaining good supplier relations
what is sourcing
the process of selecting suppliers to provide goods and services
Important considerations:
- how to choose between suppliers? (availability, cost, quality, speed, reliability)
- one or more suppliers per item?
- partnership with a supplier?
what is vertical integration
insourcing vs outsourcing
measure of how much of the supply is owned or operated by the manufacturer
- insource: the manufacturer provides products and services in house
- outsource: the manufacturer pays supplier or third parties for their products or services (manufacturing, warehousing, transportation)
difference between subcontracting and outsourcing
- outsourcing is a long-term partnership where part of the activities are performed by another company
- subcontracting is hiring another company to fulfill halft the demand at a higher price becsause you dont have enough capacity to fukfill demand
how to decide between outsourcing and insourcing?
A product/ service should not be outsourced if its a core competency or it is critical to the company’s success or survival
make or buy decision could be based on:
- volume (compute indifference point-> how many units we must buy or produce when the total costs are equal)
- —> if we need exactly the same as the indifferent point, we would be indifferent to buying or making
- —-> if we need less, we choose lower fixed cos and higher variable cost
- —–> if we need more, we choose lower variable cost
- quality and functionality
- required skills
- available capital for investment
Kraljik matrix
- portfolio analysis using 4 different sourcing strategies
- aim is to develop a strategy for specific products you’re buying from different suppliers on how to interact with the suppliers
4 main purchase categories:
- leverage items -> significant impact on business activity, abundant supply, targeted pricing strategies/negotiations
- strategic items -> business activity depends on these items, natural scarcity, development of long-term relationships
- non-critical items -> little impact on business activity, abundant in supply, product standardization, process efficiency
- bottleneck items -> low business risk but limited supply, low control of suppliers, production0-based scarcity
how many suppliers? single or multiple?
depends on the supply chain structure
Single-> product quality/ consistency, ease of scheduling deliveries, partnership relation, collaborative product development, quantity discount in some case
Multiple -> probability of assured supply is better, competition may provide better service, greater flexibility of volume, purchasing price
partnering / ESI
developing a long-term relationship with a supplier - long term orientation - strategic in nature - based on a common vision - sharing of information sharing of risk and opportunities - sharing of short and long term plans - driven by end-customer expectations
ESI -> early supplier involvement -> critical suppliers are part of cross-functional product design team (Dawn and Olay partnership)
critical success factors of partnering
- Impact: attaining higher levels of productivity and competitiveness (elimination of duplication and waste, leveraging core competencies, creating new opportunies)
- Intimcacy -> trust to share all information on sales, operations
- Vision -> agreement on the goals of the partnership and the role of each partner
benefits of partnering
Manufacturer: reduce costs reduce duplication of efforts improve quality reduce lead time implement cost reduction program involve suppliers earlier reduce time to market reduce inventory
Supplier: Increase sales volume increase customer loyalty reduce costs improve demand data improve proffitability reduce inventory
