11-1
Chapter 11
Sourcing
11-2
Key Concepts
•
The Strategic Sourcing Plan
•
Discovering Potential Suppliers
•
Evaluating Potential Suppliers
•
Selecting Suppliers
»
Bidding Versus Negotiation
»
Reverse Auctions
»
Two-Step Bidding/Negotiation
»
The Solicitation
»
Weighted-Factor Analysis
»
Responsibility for Source Selection
•
Developing Suppliers
•
Managing Suppliers
11-3
Key Concepts
•
Additional Strategic Issues
»
Early Supplier Involvement
»
Supply Base Reduction
»
Single Versus Multiple Sourcing
»
Share of Supplier’s Capacity
»
Local, National and International Sourcing
»
Manufacturer or Distributor
»
“Green” Supply Management
»
Minority- And Women-Owned Business Enterprises
»
Ethical Considerations
»
Reciprocity
11-4
The Strategic Sourcing Plan
•
World class Supply Management requires supply management to develop
a strategic sourcing plan that details how supply management will
discover, evaluate, select, develop and manage a viable supplier base
11-5
Strategic Sourcing Plan Stages
Figure 11-1
11-6
Discovery
•
Supplier Web Sites
•
Supplier Information Files
•
Supplier Catalogs
•
Trade Registers & Directories
•
Trade Journals
•
Phone Directories
•
Filing of Mailing Pieces
•
Sales Personnel
•
Trade Shows
•
Company Personnel
•
Other Supply Management
Departments
•
Professional Organizations
11-7
Evaluating Potential Suppliers
•
Supplier Surveys
•
Financial Condition Analysis
•
Third Party Evaluators
•
Evaluation Conference
•
Facility Visits
•
Quality Capability Analysis
•
Capacity Capability Analysis
•
Management Capability Analysis
•
Service Capability Analysis
•
Flexibility Capability Analysis
•
Information Technology Capability Analysis
11-8
Selecting Suppliers
•
Bidding Versus Negotiation
•
Reverse Auctions
•
Two-Step Bidding/Negotiation
•
The Solicitation
•
Weighted-Factor Analysis
•
Responsibility for Source Selection
11-9
Bidding versus Negotiation
•
Few topics generate more passionate discussions than bidding versus
negotiation
•
The selection of bidding or negotiation should be decided by using
objective criteria, a total cost perspective and sound supply management
logic
11-10
Prerequisites to Bidding
•
Dollar value must be large
•
Specifications must be clear
•
Market must consist of an adequate number of sellers
•
Sellers must be qualified and want the contract
•
Time available must be sufficient
11-11
Conditions Demanding Negotiation
•
Impossible to estimate costs with a high degree of certainty
•
Price is not the only important variable
•
Purchasing firm anticipates a need to make changes in the specification
•
Special tooling of setup costs are major factors
11-12
Even if the previous list is met…
here are two arguments for Negotiation
•
The negotiation process is far more likely to lead to a complete
understanding of all issues of the procurement
•
Competitive bidding tends to result in sacrifices in product quality,
development efforts, and other vital services
11-13
Reverse Auctions
In contrast to competitive bidding, reverse auctions produce “real-time”
interaction.
Though effective for achieving cost savings, reverse auctions are not
appropriate for all situations.
Reverse bid process can have an adverse affect on long-term relationships.
11-14
Two-Step Bidding/Negotiation
•
Used in situations where inadequate specifications preclude the initial
use of traditional competitive bidding
•
The two steps are:
»
Step 1: Technical Proposals
–
IFBs for Step 2 are sent only to those sellers who submitted acceptable technical proposals
»
Step 2: Price Bidding
11-15
The Solicitation
•
IFB
•
RFP
•
Item description
•
Info on quantities
•
Delivery schedules
•
Special terms and conditions
•
Standard terms and conditions
11-16
Weighted Factor Analysis
•
Steps to developing
»
Develop factors to serve as criteria
»
Develop sub-factors or performance factors
»
Develop a scoring factor
»
Score or evaluate the supplier
11-17
Developing Suppliers
•
Development of suppliers is one of the greatest untapped frontiers in
supply chain management
•
Even suppliers recognized as the “best of the best” require investment
on the part of the buying firm to realize the full benefit of the
collaborative relationship
•
This important topic is addressed in detail in the chapter on Supplier
Development
11-18
Managing Suppliers
•
Managers must ensure the suppliers perform as required.
•
Suppliers must meet the firm’s long-term needs.
•
If suppliers are unlikely to meet future requirements the firm may:
»
Assist with financing / technological assistance.
»
Develop new sources.
»
Be required to develop the capability internally.
11-19
Additional Strategic Issues
•
Early Supplier Involvement
•
Supply Base Reduction
•
Single Versus Multiple Sourcing
•
Share of Supplier’s Capacity
•
Local, National and International Sourcing
•
Manufacturer or Distributor
•
“Green” Supply Management
•
Minority- And Women-Owned Business Enterprises
•
Ethical Considerations
•
Reciprocity
11-20
Early Supplier Involvement
•
Early supplier involvement (ESI) is an approach in supply management to
bring the expertise and collaborative synergy of suppliers into the design
process
•
ESI seeks to find “win-win” opportunities
•
Today, early supplier involvement (ESI) is an accepted way of life at many
proactive firms and a requirement for WCSM
11-21
ESI Opportunities
•
Materials
•
Services
•
Technology
•
Specifications and Tolerances
•
Standards
•
Order Quantities
•
Lead Time
•
Processes
•
Packaging
•
Transportation
•
Redesigns
•
Assembly Changes
•
Design Cycle Time
•
Inventory Reductions
11-22
Reasons for Utilizing ESI
•
Get supplier inputs before the design is frozen
•
Capitalize on the latest technology
•
Save time since design cycles are getting shorter
•
Let the supplier know that it is part of the team
11-23
Supply Base Reduction
•
Supply base reduction is achieved through both reducing variety and
increasing consolidation
•
Two benefits of supply base reduction cited by John Deere are:
»
increased leverage with suppliers
»
better focus and supplier integration in product development
•
Increased leverage is also due to the increased involvement with the
suppliers which builds goodwill and trust
11-24
Considerations for Single Sourcing
•
Lower total cost results from higher volume
•
Quality considerations dictate
•
Buyer obtains more influence with the supplier
•
Lower costs to source, process, expedite, inspect
•
Just-in-time requirements
•
Significantly lower freight costs may result
•
Special tooling is required
•
Total system inventory will be reduced
•
Supplier will have an improved commitment
•
Improved interdependency and risk sharing result
•
Time to market is critical
11-25
Dual Sourcing Using the “70-30” Approach
•
70 percent of the volume is awarded to one supplier
•
30 percent to a second supplier
•
Economies of scale are obtained from the “big supplier”
•
The “little supplier” provides competition
•
When the “big supplier” fails to perform the percentages may be
reversed by the buyer