11-1 mcgraw-hill/irwin copyright © 2010 by the mcgraw-hill companies, inc. all rights reserved
TRANSCRIPT
11-1McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
11-2
Chapter 11
Sourcing
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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
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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
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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
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Strategic Sourcing Plan StagesFigure 11-1Figure 11-1
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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
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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
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Selecting Suppliers
• Bidding Versus Negotiation
• Reverse Auctions
• Two-Step Bidding/Negotiation
• The Solicitation
• Weighted-Factor Analysis
• Responsibility for Source Selection
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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
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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
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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
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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
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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.
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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
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The Solicitation
• IFB
• RFP
• Item description
• Info on quantities
• Delivery schedules
• Special terms and conditions
• Standard terms and conditions
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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
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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
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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.
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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
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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
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ESI Opportunities• Materials
• Services
• Technology
• Specifications and Tolerances
• Standards
• Order Quantities
• Lead Time
• Processes
• Packaging
• Transportation
• Redesigns
• Assembly Changes
• Design Cycle Time
• Inventory Reductions
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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
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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
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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
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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
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Considerations for Multiple Sourcing• Protect the buyer during bad times
• Maintain competition
• Provide a back-up source
• Meet local content requirements
• Meet customer’s volume requirements
• When the customer is a small player in the market for a specific item
• Avoid complacency on the part of a supplier
• When the technology path is uncertain
• Suppliers tend to “leapfrog” in technology
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Share of Supplier’s Capacity
• Many firms try to not exceed more than 15 to 25 percent of any one supplier’s capacity
• This issue became all too real in the early 2000s
» Many companies cancelled orders that had long supplier lead times, which resulted in suppliers being caught with, in some cases, hundreds of millions of dollars of work-in-process
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Local, National and International Sourcing• The lines between local, national, and international
sourcing have become blurred in the last 30 years
• Local source
» Firm’s headquarters and all facilities are located in the city or region where the materials or services will be used
• National source
» The source is headquartered within the country and has facilities in multiple regions throughout the country
• International source
» Firm is headquartered outside of the buying firm’s country, but this does not define the location of operations
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Local Buying Advantages
• Closer cooperation between buyer and seller is possible
• Delivery dates are more certain
• Lower prices can result from consolidated transportation and insurance
• Shorter lead times reduce inventory
• Rush orders are filled faster
• Disputes are usually more easily resolved
• Implied social responsibilities to the community are fulfilled
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National Buying Advantages
• Economies of scale
• Superior technical assistance
• Better handling of fluctuating demand
• Shortages are less likely
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Manufacturer or Distributor
• Potential Benefits of a Distributor over Buying Direct from the Manufacturer
» Economy of scale
» Reduction of orders
» Reduction of paperwork
» Special services
» Technical advice
» Credit
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“Green” Supply Management
• Recycled materials
• Environmental issues
• Liability issues
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Minority- And Women-Owned Business Enterprises
• Many forces motivate a buying firm to ensure that MWBE businesses receive a share of the firm’s business, such as:
» Federal and state legislation
» Set-aside quotas in government appropriations
» Actions of regulatory bodies
» Firm’s “corporate social consciousness”
» Customer base includes MWBE businesses and their employees
» Bottom-line profitability
» Good business sense
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Ethical Considerations
• Conflicts of interest
» Exists when supply managers must divide their loyalty between the firm which employs them and another firm
» Such conflicts always should be avoided in all source selection decisions
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Reciprocity
• Reciprocity exists when supply managers give preference to suppliers that are also customers
• It is entirely legal to buy from one’s customers at fair market prices, without economic threat, and without the intent of restricting competition
• Reciprocity can become illegal when the activity restricts competition and trade
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Reasons to Not Engage in Reciprocity• Reciprocity doesn't follow sound principles of
buying and selling
• Companies may relax their competitive efforts as a result of reduced competition
• Sales departments may develop a false sense of security
• New customers may be hard to find because of pre-established relationships with competitors
• Company reputations may be impaired because of bad publicity
• Conspiracy and restraint-of-trade situations can develop, with their attendant legal dangers
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Concluding Remarks
• The increase in long-term collaborative relationships is highlighting the need to develop strategic sourcing plans
• The plan aids in source selection by detailing how suppliers will be discovered, evaluated, selected, developed and managed
• The plan should be developed in a collaborative environment that includes all relevant functional area representatives and supply chain members