Exam 1 - Make or Buy & Supplier Selection Flashcards
Reasons to outsource - Necessity Argument
We would prefer not to outsource, but we really don’t have any other options
Reasons to outsource - Opportunity Argument
We would prefer to outsource because it would give us a strategic competitive advantage
Risks of outsourcing
- Loss of control
- Exposure to supplier risks
- Unexpected/unanticipated costs
- High exit barriers
- Difficulty quantifying economies
- Conversion costs
- Supply restraints
- Attention required by senior mgt
- Concerns w/ long-term flexibility
Purchasing’s Role in Outsourcing
- Identify opportunities for outsourcing
- Aid in selection of sources
- Identify potential relationship issues
- Develop and negotiate contract
- Monitor and manage relationship
- Provide a comprehensive, competitive process
Subcontracting
When the initial contractor (supplier) outsources some of their work to another supplier
Outsourcing
Buying materials and components from suppliers instead of making them in-house
Total Cost of Ownership (TCO)
The cost of owning the product not just buying
Cost of a product is MORE than just a per unit cost
Why would a company need to search for a new supplier?
- Contract expiration
- Poor supplier performance
- Innovation - new need
- Supply market change
Large suppliers
- Lower prices
- Variety
- Larger production
- Quantity discounts
- More likely to use “boiler plate” contracts (take it or leave it)
Small suppliers
- Higher expertise
- Better relationship
- More flexible/responsive
- More willing to negotiate
- Less stable
Supplier Evaluation Level 1
Level 1 - Strategic
- Directly linked to organizational strategy, goals and objectives
Supplier Evaluation Level 2
Level 2 - Traditional
- Quality, quantity, delivery, price, and service
Hard sources
Online, journals, record
Soft sources
Visits to suppliers, interviews, networking, personal experience
Supplier Evaluation Level 3
Level 3 - Additional
financial, risk, environmental, regulatory, innovation, social and political
