Lecture 4 - Strategic Sourcing Flashcards
How did firms traditionally select suppliers?
Based on costs
What is portfolio management?
Knowing how critical suppliers are.
Using a portfolio to help you understand the level of time and resources to allocate to the sourcing process.
See how to align sourcing to strategic goals and direction.
When choosing who to source from, what 2 things should be classified?
CLASSIFYING MARKET COMPLEXITY
- Measure risk in supply
CLASSIFYING IMPACT ON BUSINESS
- Concerned with impact on profit or value obtained
How to we categorise spend according to the Kraljic’s matrix?
LEVERAGE - High impact on business value or cost, low supply risk.
CRITICAL - High impact on business value or cost, high supply risk
ROUTINE - Low impact on business value or cost, low supply risk
BOTTLENECKS - Low impact on business value or cost, high risk
Name an example of a leverage item
Foam on car seats
Name an example of a critical item
New technology
Name an example of a routine item
Window wipers for a car manufacturer
Name an example of a bottleneck item
Xirallac pigment for Ford cars after Japanese tsunami (same for Toyota and BMW)
What is the stage approach to strategic sourcing?
1) Classification
2) Market analysis
3) Strategic positioning
4) Action plans
What occurs in the classification stage of strategic sourcing?
The profit impact of sourcing is determined.
Eg; purchased volume, % of total purchase costs, impact on product quality or business growth.
The supply risk is outlined
Eg: availability, number of suppliers
(Classified in line with Kraljic’s matrix)
What happens in the market analysis stage of strategic sourcing?
The weighting of bargaining power of suppliers against your own strength as a customer is determined.
(Use Porter’s 5 forces)
Example: Reviewing the supply market an assessing availability of strategic materials to see where you stand.
What happens in the strategic positioning stage of strategic sourcing?
Classify products outlined in stage 1 according to buyer/supplier power analysis of stage 2.
- Identify areas of opportunity and vulnerability to gauge supply risk.
- Understand company and supplier strengths.
Example: when companies play a dominant role and supplier strength is medium/low, we would adopt an aggressive ‘exploit’ strategy.
What occurs in the action plan stage of strategic sourcing?
Categories have different impacts on strategic plans and supply strategy.
Here we look to see how we should source through outlining:
-volume
-price
-supplier selection
-material substitution.
How do we analyse portfolios?
See what the most important/appropriate forms of relationship are (adverse vs collaborative)
See what the most likely techniques are to use to achieve the objectives we set out
(supplier development)
Overall, how do we help a company focus on strategic items through the portfolio mix?
Develop a supply strategy
Understand risk and complexities
Work with and develop suppliers
Consider costs and values
What is sourcing?
A structural decision of how many suppliers to use per product/service offering
- Cousins, 2008
What are the 4 main sourcing methods?
MULTIPLE SOURCING
SINGLE SOURCING
PARALLEL SOURCING
DELEGATED SOURCING STRATEGY
What is multiple sourcing?
Using several suppliers per product/service offering
Focus on price and delivery to get the best deal
What is single sourcing?
Using one source per product/service offering
Used in the bottleneck and critical category
What is parallel sourcing?
Allows the buyer to work on a single basis with each component supplier within a product group, while maintaining multiple sourcing across different product groups.
- Threaten switching suppliers if not performing
(Splits suppliers by model, retaining sole supply per model with competition overall - Two alternative sources of supply for similar parts)
What is a delegated sourcing strategy?
Making one supplier responsible for the delivery of an entire sub-assembly - often referred to as a Tier 1 supplier.
eg: Vought to Boeing.
Can lead to a reduction in transaction costs for the buying firm as they work closely and leave coordination to the supplier.
What is global integrated supply sourcing?
Trent and Monezka Sourcing across the globe successfully. Integration element is derived from: -monitoring progress -bringing in the right people -cost savings -site visits and reviews -involving operating personnel -creating cost savings.
How should strategic items be managed?
Develop long term supply relationships
Analyze and manage risks regularly
Contingency planning
Consider MAKING
How should leverage items be managed?
Use full purchasing power
Substitute products or suppliers where necessary
Place high volume orders
How should bottleneck items be managed?
Overordering when the item is available (lack of availability is a common reason for unreliable supply)
Look for ways to control vendors
How should routine items be managed?
Purchasing approaches include:
Using standardised products
Monitoring and/or optimising order volume
Optimising inventory levels
When should you diversify your position as a buyer in the market? (Stage 3)
When supply market strength is high and your strength is low in comparison (NOT OPTIMAL)
