PROCUREMENT AND OUTSOURCING STRATEGIES

Name: PROCUREMENT AND OUTSOURCING STRATEGIES
Uploaded: 2017-07-25T03:22:57+00:00
Duration: PTM21S48
Channel: Denis Wilson
Description: PROCUREMENT AND OUTSOURCING STRATEGIES

PROCUREMENT AND OUTSOURCING STRATEGIES
Presented by:　 Jearnmaneengam Amornsak Kuhirunyarat Wongwanida Jullasing Phanu

Objective To understand the important roles and key issues involved in outsourcing and procurement processes To be able to apply outsourcing and procurement strategies To realize the impact of E-Markets in E-Procurement Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Outline Outsourcing Case Study： FreeMarkets OnLine, Inc.
Outsourcing Benefits and Risks Framework for Buy/ Make Decisions Case Study： FreeMarkets OnLine, Inc. E-Procurement and E-Market Framework for E-Procurement Conclusion Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Outsourcing Introduction
Outsourcing components have increased progressively over the years Increasing the profit by reducing the cost Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Outsourcing Benefits and Risks Framework for Buy/ Make Decisions Case Study： FreeMarkets OnLine, Inc. E-Procurement and E-Market Framework for E-Procurement Conclusion Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Outsourcing - Benefits and Risks
The benefits of using outsource Economies of scale Aggregation of many orders reduces costs, both in purchasing and in manufacturing Risk pooling Demand uncertainty transferred to the suppliers (CEM) Suppliers reduce uncertainty through this effect Reduce capital investment Capital investment transferred to suppliers. Aggregation of the demand across locations likes the higher demand is compensated with the lower to reduce the variable of demand Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

The benefits of using outsource (Continued) Focus on core competency Buyer can focus on its core strength Allows buyer to differentiate from its competitors Increased flexibility The ability to better react to changes in customer demand The ability to use the supplier’s technical knowledge Critical in the industries: High-tech products where technologies change very frequently Fashion products which have a short life cycle Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Outsourcing risks Loss of competitive knowledge Critical components to suppliers may open up opportunities for competitors Implies that companies lose their ability to introduce new designs Using many outsourcing suppliers may obstructive the development innovations of the organization Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Outsourcing risks (Continued) Conflicting objectives Demand Issues In a good economy Demand is high buyers require to make long-term commitments about ordering In a slow economy Long-term commitments entail huge financial risks for the buyers Product design issues Buyers would like to solve design problems as fast as possible Suppliers focus on cost reduction Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Outsourcing Benefits and Risks Framework for Buy/ Make Decisions Case Study： FreeMarkets OnLine, Inc. E-Procurement and E-Market Framework for E-Procurement Conclusion Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Kuhirunyarat Wongwanida

Outsourcing - Framework
Manufacture or outsource ? Analyzing the core of the business is needed Dependency on capacity The firm has the knowledge and the skill Dependency on knowledge The firm has the knowledge and the skill, but can not effort to manufacturing Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Product Architectures
Modular product Made by combining different components Components are independent of each other Standard interfaces are used ( i.e. PC ) Integral product Made up from components whose functionalities are tightly related Not made from off-the-shelf components Evaluated on system performance, not on component performance ( i.e. car engines ) Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Product Architectures
A Framework for Make/Buy Decisions Keep production internal Outsourcing is an option Outsourcing is very risky Integral Opportunity to reduce cost through outsourcing Outsourcing is an opportunity Outsourcing is risky Modular Independent for knowledge and capacity Independent for knowledge, dependent for capacity Dependency on knowledge and capacity Product Keep production internal Outsourcing is an option Outsourcing is very risky Integral Opportunity to reduce cost through outsourcing Outsourcing is an opportunity Outsourcing is risky Modular Independent for knowledge and capacity Independent for knowledge, dependent for capacity Dependency on knowledge and capacity Product Keep production internal Outsourcing is an option Outsourcing is very risky Integral Opportunity to reduce cost through outsourcing Outsourcing is an opportunity Outsourcing is risky Modular Independent for knowledge and capacity Independent for knowledge, dependent for capacity Dependency on knowledge and capacity Product Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jearnmaneengam Amornsak

Changeover of outsourcing in 1990s
Manufacturing Representative Manfac. Rep. Manfac. Rep. Industrial Buyer Suppliers FreeMarkets Online Buyers lack of expertise Fragmented supply market Variation among suppliers Information problem for buyers to make decisions Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Kuhirunyarat Wongwanida

FreeMarkets OnLine, Inc.
Founded in 1995 and was on the verge of breaking even in 1998. From $75,000 investment, company achieved $6.0 millions revenue in 1998. An online market making firm that enabled industrial buyers to link up with their potential suppliers in a live electronic bidding. The result: Generated over 15% in procurement costs saving for buyers. Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Kuhirunyarat Wongwanida

The Market-Making Process
Core Service: To provide on-line industrial market-making services that culminated in real-time Competitive Bidding Events (CBEs); 90-mins to 2-hrs. BidWare BidWare BidServer Buyers Suppliers Functions to monitor bidding, and print result report. Functions to monitor market price, submit bids, and print report. Internet Internet FreeMarkets Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Kuhirunyarat Wongwanida

Framework in Market-Making Process
5 Steps in FreeMarket Online Identify Savings Opportunity Prepare Total-cost RFQ* Identify Screen, Support Suppliers Conduct OnLine CBEs Provide Post-Bid Support Defining all elements of Request for Quotations,requirements of drawings, volume forecast, cost. Analysis expenditure and savings for buyers Training sessions to suppliers, submitting real-time bids Collecting cost breakdown, final supplier analysis. Screening the potential suppliers with buyers and supporting RFQ to suppliers Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Kuhirunyarat Wongwanida

What is the value to the Customers?
Buyers Do not have to deal with manufacturers’ representatives Access to sourcing information that is otherwise difficult/expensive to assemble Cost Savings (up to 43%, average 15%) Suppliers More opportunities to access the large industrial buyers Especially for small or overseas suppliers Lower sales and marketing costs Helps supplier benchmark other competitors Get the good perspective of marketplace Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Kuhirunyarat Wongwanida

Revenue Model A hybrid of service fees + sales commissions
Charged buyers a monthly service fee based on the size of the market making team. Ex. Typical project with engineering work costs $75,000/month x 2. Charged winning suppliers a commission fee varied by supply industry. Ex. General case is 2.5% of purchase price. The business reached breakeven point within 3 years. Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Kuhirunyarat Wongwanida

The Value Proposition Serving as a intermediary between buyers and suppliers Increasing the number of suppliers involved in the bidding event Identifying, qualifying, and supporting suppliers Conduction the bidding event Improve supply chain efficiency Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

E-Market’s Drawbacks Improper to establish long-term relationships
Problems in transaction fee paid Both sellers and buyers resist paying Inflexible transaction fees system Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

Change in E-Market Landscape
Value-added public e-markets Private e-markets Consortia-based e-markets Content-based e-markets Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

Value-added public e-markets Private e-markets Consortia-based e-markets Content-based e-markets E-market offers additional value-added services such as inventory management, distribution planning, demand forecasting etc. Examples: Instill.com focuses on the food service industry Provides an infrastructure that links together operators Additional services like forecasting, collaboration, and replenishment tools. Pefa.com services the European fresh fish market Offers buyers access to a large number of independent fresh fish auctions. Provide visibility on price from many European ports Provide information on product quality Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

Value-added public e-markets Private e-markets Consortia-based e-markets Content-based e-markets A private e-market belong to big manufacturers which increases the manufacturers total supply chain performances. Wal-Mart Dell Computers IBM Sun Microsystems Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

Value-added public e-markets Private e-markets Consortia-based e-markets Content-based e-markets E-Market in a specific industry, providing standard system necessary for the specific industry Suppliers Manufacturers Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

Value-added public e-markets Private e-markets Consortia-based e-markets Content-based e-markets E-Market expertise in miscellaneous services such as maintenance and repairing. Two types of markets Maintenance, repair, operations (MRO) goods Industry-specific products. Focus on content Achieved by integrating catalogs from many industrial suppliers. Unify suppliers’ catalogs Provide effective tools for searching and comparing suppliers’ products. Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

A Framework for E-Procurement
Types of product Indirect materials Strategic components Commodity products Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

Indirect material Low risk Content-based e-markets Strategic components High risk Private e-market or consortia-based e-market Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

Commodity products High risk Public e-market, private e-market, or consortia-based e-market Strategy based on inventory and price Holding Cost Holding Cost Holding Cost Inventory Level Inventory Level Inventory Level Manufacturers Suppliers Manufacturers Suppliers Manufacturers Suppliers Manufacturers Suppliers Manufacturers Suppliers Manufacturers Suppliers Procurement and Outsourcing, Supply Chain Management, Prof. Tsao, De-bi Presented by Jullasing Phanu

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PROCUREMENT AND OUTSOURCING STRATEGIES

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