Chapter 6 - Strategic Sourcing
What is Strategic Sourcing, Drivers, and Objectives
- Sourcing: identifying a company that provides a needed good/service (SCOR - source)
- Strategic sourcing: finding key suppliers to find best values in market
- Requires analyzing and emphasis on full product life-cycle
- Constant effort to reduce costs, improve quality, and achieve faster time
- Strategic sourcing steps: identify suppliers, cultivate relationships, continuous
skill improvement, understand/embrace possibilities
- Drivers : long-term financial performance, customer focus, product quality, less
cost of materials, less delivery lead time, optimize number of suppliers (usually
reduce), and innovative products
- Objectives: improve value-to-price, understand category buying and management
process, examize supplier relationship across entire organization, develop and
implement long contracts, leverage entire organization’s spend
Developing Successful Sourcing Strategies
- Sourcing Strategies:
- Insourcing: making the products
- Outsourcing: buying the product
- Single-source: decide to buy from only one supplier
- RISKY OPTION
- Reasons: good relationship, less quality variability, lower cost,
transportation economies, proprietary, volume too small to split
- Multi-source: multiple suppliers to create competition for quality and cost
- Reasons: need more capacity, spread risk of disruption, create competition,
more sources of info, special kinds of business
- Functional Products: MRO items and other low profit margin items with stable
demand and high competition (reliable, low-cost, multi-sourced)
- Innovative Products: short product life cycles, volatile demand, high-profit
margin, less competition (long-term partnership, single-sourced)
- Framework for Sourcing Strategy Development:
1) Identify targeted spend area, 2) Create sourcing team, 3) Develop team strategy
and communication plan, 4) Gather market information, 5) Develop supplier
portfolio, 6) Develop future state, 7)Select suppliers and negotiate, 8) Implement
supplier relationship management (SRM)
- Spend Analysis: categorize/analyze data to decrease costs, improve efficiency, and
monitor compliance
1) Define scope, 2) identify data sources, 3) gather data, 4) clean data, 5) categorize
data, 6) analyze data (for best deals), 7) repeat process regularly
- Key area of spend analysis: total historic expenditure and volume, future demand
projections, exp by commodity, exp by division, exp by supplier
What is Strategic Sourcing, Drivers, and Objectives
- Sourcing: identifying a company that provides a needed good/service (SCOR - source)
- Strategic sourcing: finding key suppliers to find best values in market
- Requires analyzing and emphasis on full product life-cycle
- Constant effort to reduce costs, improve quality, and achieve faster time
- Strategic sourcing steps: identify suppliers, cultivate relationships, continuous
skill improvement, understand/embrace possibilities
- Drivers : long-term financial performance, customer focus, product quality, less
cost of materials, less delivery lead time, optimize number of suppliers (usually
reduce), and innovative products
- Objectives: improve value-to-price, understand category buying and management
process, examize supplier relationship across entire organization, develop and
implement long contracts, leverage entire organization’s spend
Developing Successful Sourcing Strategies
- Sourcing Strategies:
- Insourcing: making the products
- Outsourcing: buying the product
- Single-source: decide to buy from only one supplier
- RISKY OPTION
- Reasons: good relationship, less quality variability, lower cost,
transportation economies, proprietary, volume too small to split
- Multi-source: multiple suppliers to create competition for quality and cost
- Reasons: need more capacity, spread risk of disruption, create competition,
more sources of info, special kinds of business
- Functional Products: MRO items and other low profit margin items with stable
demand and high competition (reliable, low-cost, multi-sourced)
- Innovative Products: short product life cycles, volatile demand, high-profit
margin, less competition (long-term partnership, single-sourced)
- Framework for Sourcing Strategy Development:
1) Identify targeted spend area, 2) Create sourcing team, 3) Develop team strategy
and communication plan, 4) Gather market information, 5) Develop supplier
portfolio, 6) Develop future state, 7)Select suppliers and negotiate, 8) Implement
supplier relationship management (SRM)
- Spend Analysis: categorize/analyze data to decrease costs, improve efficiency, and
monitor compliance
1) Define scope, 2) identify data sources, 3) gather data, 4) clean data, 5) categorize
data, 6) analyze data (for best deals), 7) repeat process regularly
- Key area of spend analysis: total historic expenditure and volume, future demand
projections, exp by commodity, exp by division, exp by supplier
