Definition

Functions of sourcing

Support functions

CRM / SRM & S.C

. . SourcingSourcing::

the fundamental aspects of sourcing is

supplier selection (for a commodity class identified by spend analysis) using one of many negotiation techniques (such as RFx, auctions etc).

Once the suppliers are selected the relationship with the selected suppliers is then managed through the negotiated contracts.

dEfinitionsdEfinitions

o Traditionally, the main activities of a purchasing manager

to beat up potential suppliers on price and then buy products from the lowestcost supplier that could be found.

BUTBUT there are other activities that are becoming equally important.

o The procurement function can be broken into fivemain activity categories:

1. Purchasing

2. Consumption Management

3. Vendor Selection

4. Contract Negotiation

5. Contract Management

PurchasingPurchasingThese activities are the routine activities related to issuing purchaseorders for needed products

There are two types of products that a company buys :

Direct or strategic materials that are needed to produce the products that the company sells to its customers

• Indirect or MRO (maintenance, repair, and operations) products that a company consumes as part of daily operations.

The mechanics of purchasing both types of products are largely the same

ChChallengesallenges

One of the greatest challenges of the purchasing activity

timely manner and without error In data communication

Much of this activity is very predictable and followswell defined routines.

Consumption ManagementConsumption Management

Understanding of how much of what categories of products are being

bought across the entire company as well as by each operating unit.

There must be an understanding of how much of what kinds of products are

bought from whom and at what prices.

Vendor SelectionVendor Selection

There must be an ongoing process to define the procurement capabilities needed to

support the company’s business plan and its operating model.

This definition will provide insight into the relative importance of vendor capabilities.

The value of these capabilities have to be considered in addition to simply the price

of a vendor’s product.

The value of product quality, service levels, just in time delivery, and technical support

can only be estimated in light of what is called for by the business plan and the

company’s operating model.

Once there is an understanding of the current purchasing situation and an appreciation

of what a company needs to support its business plan and operating model, a search can be made for suppliers who have both the products and the service capabilities

needed.

As a general rule, a company seeks to narrow down the number of suppliers it

does Business with.

This way it can leverage its purchasing power with a few suppliers and get better

prices in return for purchasing higher volumes of product.

Contract NegotiationContract Negotiation

A core ingredient of sourcing is negotiation with suppliers and executions of the resulting contract.

Understanding of how much of what categories of products are being bought across the entire company as well as by each operating unit.

The simplest negotiations are for contracts to purchase indirect products where suppliers are selected on the basis of lowest price. The most complex negotiations

are for contracts to purchase direct materials that must meet exacting quality

requirements and where high service levels and technical support are needed.

CAPABILITIESCAPABILITIESSuppliers of both direct and indirect products need a common set of capabilities

capabilities to set up electronic connections for purposes of receiving

orders, sending delivery notifications, sending invoices, and receiving

payments.

make more frequent and smaller deliveries and orders must be filled

accurately and completely. For better inventory management.

RFRFxx

The RFI (Request for Information), RFQ (Request for

Quotation), and RFP (Request for Proposal) :

An RFx is a document with an associated process initiated by a buyer in order to

solicit information, competitive quotes, or proposals from multiple suppliers.

Protocols (aka Auctions)Protocols (aka Auctions)

A typical flow for negotiation is to get a bid response to the RFQ

from the suppliers and choose the appropriate bid/s that satisfy the

requirements of the purchase at minimum cost.

Contract ManagementContract Management

A company needs the ability to track the performance of its suppliers and

hold them accountable to meet the service levels they agreed to in their contract

Routinely collect data about the performance of suppliers.

Any supplier that consistently falls below requirements should be made

aware of their shortcomings and asked to correct them.

Decision Support for Bid EvaluationDecision Support for Bid Evaluation

A suite of decision support tools, are required for bid evaluation:

Tools to elicit a buyer’s preferences for multi-attribute bid evaluation

based on conjoint analysis and advanced decision analysis techniques ;

A visualization tool to compare multiple bids across different

Attributes, and ;

A bid evaluation engine that uses optimization techniques to identify

a cost minimizing bid set subject to various business rules.

Multi-Attribute BidsMulti-Attribute Bids

Factors related to the product specification such as price, material quality

and properties, color and size

Factors related to the service specification such as delivery time and cost ,

and warranty

Supplier qualification factors such as trading history, experience and reputation.

Bundled “All-or-Nothing” BidsBundled “All-or-Nothing” Bids

While negotiating prices for procuring, say, weekly demand, it is advantageous

to aggregate demand over several locations and plants, because this leads to a

larger transaction .

An additional advantage is that suppliers can provide a discounted bid on a

bundle because they might have excess inventory in a local warehouse or spare

capacity in the carrier and hence can reduce transportation costs.

Volume Discount BidsVolume Discount Bids

Allow the seller to specify the price they charge for an item as a

function of quantity that is being purchased.

Bids take the form of supply curves, specifying the price that is to be charged

per unit of item when the quantity of items being purchased lies within a particular

quantity interval.

Support FunctionsSupport Functions

Some support functions that are useful for negotiations and contracts are:

Document management

Project Management

Market Intelligence

Collaboration and Workflow

Document ManagementDocument Management

Files of all types – terms, drawings, schematics, etc. – are important

documents for strategic sourcing.

Additionally, the sourcing documents themselves – RFx’s, auctions,

projects, contracts, proposals, etc. – need to be well managed.

Project ManagementProject Management

Most strategic sourcing activities are managed as projects with certain team

members, goals, milestones, tasks, and schedules. Including:

Discussions and any number of file attachment

List of the other sourcing documents (RFx, auctions, contracts…)

Roles, tasks…

Any number of sub-projects providing a complete schedule to the master

project

Market IntelligenceMarket Intelligence

A variety of external information helps category managers and other

purchasing staff members perform their jobs .

This external information includes commodity prices, supplier news,

company news, and market intelligence such as industry news and reports.

Market intelligence needs to be provided as a sourcing workbench as the first

page upon logging into the system.

Collaboration & WorkflowCollaboration & Workflow

In addition to negotiating and communicating with multiple suppliers,

category managers must collaborate with many people across the enterprise

such as Engineering for technical specifications, Manufacturing for scheduling

and inventory concerns, Legal for contractual terms and conditions, etc.

SUPPLY CHAIN & SUPPLY CHAIN & CRMCRM

In the Past :

Push the product to the customer…..

Sales forecasts are the essentials of information Imperfect inventory

management

Nowadays :

The customer pull the demand…..

Command makes information present in all the firm by the supply chain

First informations are planning & prevision, while CRM is permanent.

Consequences :

Better inventory management

Continual amelioration of quality of service (Kaizen)

Continual circulation of information

Information flow and physic flow must been well droved together. Same thing for CRM & SC.

Behaving like that, the firm will be really efficient.

Convergence between CRM & SCConvergence between CRM & SCExAmplesExAmples

Demand Planning : Good knowledge about customer allow to predict

efficacy and produce at the right moment.

Supply chain is better planned Less stock & better resources utilization

Available-To-Promise (ATP) : System allowing to the firm to promise at the

command, a quantity from the available inventory.

It helps to link between the profile of customer, his preferences and his

buyings history, to propose him a substitution product or a better time.

Command state in real time : Firms permit to customers to follow the

process of their command in real time (In production, on the way..)

Perfect product traceability (DHL, UPS…)

Including the “cost to serve” at the command moment : The firm can know

the Added Value of each command.

So it cans orient the commands in a way to be winner. By focusing on markets

and customers with higher “life time value”

Mobilize the resources for the most benefic customers and products..

SUPPLY CHAIN & SUPPLY CHAIN & sRMsRM Today, the most big challenge is the total integration of supply chain.

By including Supplier Relationship Management “SRM” (like CRM)

we will achieve that goal.

SCEM (Supply Chain Executive Management) helps the firm to manage

all the events during the phases of production and distribution.

Alert systems are now operational in any phase of SC. Permitting to

detect also any stock rupture.

Continual following of SC become more efficient when we manage

a lot of information’s flows.

Reportings helps to treat this flows and analyze it.

So, integration of SC impose a perfect coordination between

management tools.

CONCLUSIONCONCLUSION

This chapter provided an overview of the various functionalities that are

required for procurement and sourcing for an enterprise.

Soufiane AL KHATIRI

Fadel IDBRAIMwww.fadelexpert.ici.ma