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44 views26 pages

Coyle Chapter 13 PowerPoint Slides

Uploaded by

Thuy La
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 13 Sourcing Materials and Services

Learning Objectives
After reading this chapter, you should be able to do the following:
 Understand the role and nature of purchasing, procurement, and
strategic sourcing in a supply chain context.
 Consider the importance of types and of items and services purchased
to the sourcing and procurement processes.
 Understand the strategic sourcing process.
 Recognize principles and approaches for the effective management of
sourcing and procurement activities.
 Appreciate the importance of companies having effective relationships
with suppliers and understand the value of supplier organizations having
certain certifications and registrations.
 Examine the issue of procurement price and the relevance of total cost
of ownership (TCO).
 Be aware of contemporary advances in the areas of e-sourcing and
e-procurement.
Introduction
 Purchasing: The transactional function of buying products and
services. In a business setting, this commonly involves the
placement and processing of a purchase order.

 Procurement: Refers to the process of managing a broad range


of processes that are associated with a company’s need to
procure goods and services that are required to manufacture a
product (direct) or to operate the organization (indirect).

 Strategic sourcing: Essentially, the strategic sourcing process is


broader and more comprehensive than the procurement
process. Strategic sourcing takes the process further, focuses
more on supply chain impacts of procurement and purchasing
decisions, and works cross-functionally within the business firm
to help achieve the organization’s overall business goals .
Types and Importance of Items and Service Purchased:

 Generics are low-risk, low-value items and services that typically do not
enter the final product.

 Commodities are items or services that are low in risk but high in value.
Basic production materials (bolts), basic packaging (exterior box), and
transportation services are examples of commodities that enhance the
profitability of the company but pose a low risk.

 Distinctives are high-risk, low-value items and services such as


engineered items, parts that are available from only a limited number of
suppliers, or items that have a long lead time.

 Criticals are high-risk, high-value items that give the final product a
competitive advantage in the marketplace
Strategic Sourcing Methodology
Five core principles are recognized as key drivers to achieve the
desired levels of value:
 Assess the total
 Develop individual sourcing strategies
 Evaluate internal requirements
 Focus on supplier economics
 Drive continuous improvement
Seven key steps are included in the overall strategic
sourcing methodology:

 Step 1: Project Planning and Kickoff, which


suggests that a formal start to the strategic
sourcing process is warranted.

 Step 2: Profile Spend, to develop an accurate


understanding of requirements.
 Identify or reevaluate needs
 Define and evaluate user requirements
 Decide whether to make or buy
Seven key steps are included in the overall strategic sourcing
methodology
 Step 3: Assess Supply Market
 very critical step in the strategic sourcing process

 all potential sources of supply are identified

 a thorough assessment of a supply market


 identify all possible suppliers
 prescreen all possible sources
 Step 4: Develop Sourcing Strategy
 develop a sourcing strategy

 establish whether a supplier has the capabilities


 RFP provides specific information as to what the buying
company
 Seven key steps are included in the overall strategic
sourcing methodology
 Step 5: Execute Sourcing Strategy
 begins with an evaluation of the suppliers that remain
following the RFI and RFP processes and culminates in the
award of a contract.
 Step 6: Transition and Integrate
 Important elements of this step are the finalization of the
contractual agreement, planning the transition process, and
receipt or delivery of the product or service.
 Step 7: Measure and Improve Performance
 very important, involves making a post purchase
performance evaluation.
Managing Sourcing and Procurement Processes

 Determine the type of purchase

 Determine the necessary levels of investment

 Perform the procurement process

 Evaluate the effectiveness of the strategic sourcing process


 Were the user’s needs satisfied?

 Was the investment necessary?


Supplier/Vendor Evaluation and Relationships

 supplier/vendor relationships are a vital part of successful


procurement strategies

 partnership/alliance concept

 competitive advantage of the company


Certifications and Registrations

 TQM
 a strategy in which entire organization focused on an examination of
process variability and continuous improvement

 Six Sigma
 is similar to TQM its approach involves training experts

 ISO 9000
 making sure that companies have standard processes in place that
they follow
The Special Case of Procurement Price

 Sources of Price
 Commodity markets
 Price lists
 Price quotation
 Negotiation

 The objective of the procurement process is to purchase goods


and services at the “best” price, which may not be the lowest
price per unit at the vendor source.
Base cost delineates the additional direct and
indirect costs
 Traditional Basic Input Costs
 the primary price of the product or materials as paid by the
firm
 Direct Transaction Costs
 costs of detecting, transmitting the need for, and processing
the material flow
 Supplier Relational Costs
 costs of creating and maintaining a relationship with a
supplier
 Landed Costs
 inbound transportation
 actual transportation cost
 FOB terms
e-Sourcing and e-Procurement

 the use of electronic capabilities to conduct activities and


processes relating to procurement and sourcing

 Advantages

 Disadvantages
e-Commerce Models
 Sell-side system:
 Online businesses selling to individual companies or consumers
 Electronic marketplace:
 Represents a seller-operated service that consists of a number of
electronic catalogs from vendors within a market
 Buy-side system
 This buyer-controlled e-procurement or e-commerce service
 Online trading community:
 maintained by a third-party technology vendor where multiple
buyers and multiple sellers in a given market can conduct business
Summary

 Expertise in the areas of purchasing, procurement, and strategic sourcing is


essential to the success of supply chain management.

 Different procurement and sourcing strategies are related to the risk and value or
profit potential from needed products and services. Not all purchased items are
of equal importance. Using the criteria of risk and value, the quadrant technique
classifies items into four importance categories: generics, commodities,
distinctives, and criticals. Generics have low risk, low value; commodities have
low risk, high value; distinctives have high risk, low value; and criticals have high
risk, high value.

 The strategic sourcing process consists of seven steps that include project
planning and kickoff, profile spend, assess supply market, develop sourcing
strategy, execute sourcing strategy, transition and integrate, and measure and
improve performance.

 Keys to effective management of the procurement and sourcing processes


include determining the type of purchase, determining the necessary levels of
investment, performing the procurement process, and evaluating the
effectiveness of the process.
Summary (cont.)

 A number of key factors should be considered in the supplier selection


and evaluation process, including certifications and registrations such as
TQM, Six Sigma, and ISO 9000.

 Extensive effort should be expended to research and understand


procurement price and total cost of ownership (TCO).

 e-sourcing and e-procurement practices and technologies are helping to


enhance the effectiveness and efficiency of traditional buying
processes. In addition, a number of e-commerce model types have
been developed and are becoming very popular:
 sell-side
 electronic marketplace
 buy-side
 online trading community systems

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