sourcing strategies and vendor evaluation, vendor risk

8/3/2019 Sourcing Strategies and Vendor Evaluation, Vendor Risk

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Sourcing Strategies and Vendor

Evaluation, Vendor Risk Portfolio,

Vendor Procurement Management

Compiled By-

Ajit Rawat(39)

Ritesh Yadav(52)Vinayak Sharma(23)


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Sourcing Strategy

Strategic sourcing refers to a set of activities to discover,evaluate, select, develop and manage a viable supply base.

This allows the enterprise, or an individual organization, toadopt the most efficient method of fulfilling netrequirements.


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Strategic sourcingAssociated activities..

Leveraging Sourcing

Involving vendors in product development,

reducing vendor base and taking advantage of vendor

location.

Vendor identification

Finding potential vendor to meet specific needs.

Vendor Evaluation and SelectionDetermining vendor capacity and competency to meet

specific needs


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Strategic issues in sourcing

Vendor Involvement in product development

Vendor Base rationalization.

Single versus Multiple Sourcing

Vendor location

Quality sensitive vendors


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Associated activities..

Contd

Vendor Development and Improvement

Focusing on vendors requiring improvement

and helping them to improve.

Vendor integration into processes

Involving vendors in new product

development and ongoing product processes.


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Vendor involvement in Product

development

Brings Expertise and collaborative synergy of vendors intodesign process.

It facilitates new innovative and win-win opportunities todevelop alternatives and improvements to materialservices, technology, quality etc.

Trust and confidence build-up


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Vendor Base Rationalisation

Better relationship or partnership with remaining vendors.

Better communication and information sharing.

Decreased unit cost or price.

Increased flexibility and responsiveness.

Improved time or speed

Improved service

Decreased risk and uncertainty.

Decreased vendor management or transaction cost.

Decreased inventories.

Increased quality.


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Single/Multiple sourcing

Single vendor advantage-

Lower total cost due to higher volume.

High bargaining power and influence on vendor

Lower transaction costs.

More reliable and shorter lead times.

High degree of coordination b/w firm and vendor

Reduction in inventory level across total system

Enhancement in market responsiveness capability


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Single/Multiple sourcing

cont.

Multiple sourcing advantage.

Protect firms during times of shortages, strikes

and other emergencies.

Provide backup sources of supply

Leveraging cost advantage( competition)

To avoid lethargy or complacency from singlevendor.

Reliability of single firm is doubtful


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Vendor Location

Some advantages..

Closer cooperation between firm and vendor.

Objectives of JIT deliveries can be achieved.

More certain delivery dates due to quicktransportation

Lower total cost

Shorter lead time.

Quick response to emergency orders.


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Quality Sensitive vendors

Making supply of goods as per quality

specification in timely and reliable manner.

Quality inspection before delivery by SPC or

other control tools.

Small and continuous supply

Zero-defect delivery. (right assortment, right

quality, correct docs)


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Creating and Maintaining Vendor

Relationship

Long term contractual relations.

Collaborative efforts for productivity improvementsactivities.

Vendor selection based on non-price criteria like pastperformance and response time.

Extensive use of IT and quick info sharing.

Transfer of technology and managerial skills.

Have min sources for same inputs. Continuous performance measurement of vendors .

Shared cost reduction drives.


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Vendor Risk Portfolio

It is a framework for the assessment of dependency of the firm on

its vendor based on two factors :-

1.Contribution on final results measurement of the profit impact of

contribution of a given vendor

2. Supply risk associated with each vendor- means risk of supply

associated with each member. It can be short or long term , number

of potential vendors storage risk, substitution risk etc .


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Supply risk cont ..

1.Stratergic vendors

They have high contribution on financial results of the firm as well as highsupply risk associated with those vendors.the cost of their product hasdirect impact competitive effectiveness and it is difficult to find theirsubstitutes.

2.Bottleneck vendors

They have low contribution on financial results of the firm but the supplyrisk associated with them is high because of non availiability ofsubstitutes. Normally they are technological leaders and have large entrybarriers.

3.Leverage vendors

They have high contribution in the financials of the firm but supply riskassociated with such vendors is low as the firm have substitutes availableand hense the firm has bargaining power.

4.Routine vendors

They have low contribution to financial results and low supply risk as well asa result substitutes are also available.


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VENDOR SELECTION

One of the major criteria in selection a potential vendor is the cost of theproduct, flexibility, technological advancement, vendor financial positionetc. thus the firm needs to adopt a repeatable evaluation process todevelop a strategic system incorporating a number of selection criteria.

1.Business need assessment

The firm needs specific reason to outsource instead of starting it in house(ie) vendors core competencies that form basis of success and competitiveadvantage. And hence supply chain professionals use a detailed scorecardcontaining cross-functional assessment criteria.

2.Source discoveryNext step is to identify the potential vendor who can supply a particularproduct ,item or service. Vendor websites, supplier catalogs, phonedirectories etc help the supply chain professionals in establishing a robustlist of potential vendors.


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3.Business proposal invitation

After potential vendor is identified, Invitation is send to the short listed

vendors to submit their business proposal. Invitation includes introductionof firm and its future growth plans etc.

4.Evaluation and negotiation

Once proposals are received ,evaluation process starts keeping in mind the

vendors technological expertise ,financial position ,quality sensitivity,present client base etc.

Negotiation is an attempt to reach a joint decision on matters of commonconcern in situations where there is disagreements (ie) finalizing theterms of trade.

5.Selection of vendorAfter comprehensive evaluation on or more vendors are selected and thesupply chain team invited them to have business with the firm.


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Evaluation and rating criteria

Pricing factors competitive pricing , price stability,accuracy,billing etc.

Quality factors reliability,durability,support,warranty, specification etc.

Delivery factors time,quality,lead time,packaging,documentation etc.

Service factor information sharing,technical support,problem resolutionetc.

CERTIFICATIONS

1.Approved vendors are at base in rating are have to perform minimumstandards of acceptance.

2.Qualified vendors their delivery and responsiveness are excellent and canship goods to a near perfect quality level.

3.Certified vendors top most level rating.Such vendors goods are shipped100 % fit for use every time and thus are also given special recognition.


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Procurement Management

Is a strategic process for the development of a sound

purchasing set up and an effective supply base to

achieve supply chain productivity.

It deals with day to day management of materialinflow and information for the smooth and

uninterrupted functioning of production system.

Helps in having the optimum quality and quantity of

the raw material at lowest possible total cost and

reliable and competitive supply base.


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Procurement Models

Procurement sensitivity towards strategicimportance

Assesing the contribution of a product or a group ofproducts in achievement of strategic objectives interms of core competency.

A low strategic importance refers to products that donot provide any competitive advantage and a high

importance refers to the firms core componentswhich determine the success or failure of the firm.ex.silicon for microprocessors.


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Procurements impact on financial results

1.Strategic procurement

advocates building up strong relations with vendorsas such procurements are critical for products costand have a direct impact on competitive advantage

and consume most of the time, energy andresources.

2.Leverage procurement

Is for products having high strategic importance and

low impact on financial results .It works on wheelsof fortune where whole procurement process isvery rigorous in terms of involvement, exploring newalternatives and substitutes.


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3. Bottleneck procurement

Deals with low strategic importance of procurementwith high impact on financial results. Used mainly inmonopolistic markets with high entry barrierproducts. The model focuses on minimizing negativeimpact procurement on financial results.

4. Routine procurementShould be adopted for products having low strategicimportance as well as financial impact. Importance isgiven to automation of procurement process with an

objective to minimize time,energy,efforts etc.


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sourcing strategies and vendor evaluation, vendor risk

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