1. Bab 8
Sourcing

2. Key Concepts The Strategic Sourcing Plan
Discovering Potential Suppliers
Evaluating Potential Suppliers
Selecting Suppliers
Bidding Versus Negotiation
Two-Step Bidding/Negotiation
The Solicitation
Responsibility for Source Selection
Developing Suppliers
Managing Suppliers

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

4. The Strategic Sourcing Plan
World Class Supply ManagementSM 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

5. Strategic Sourcing Plan Stages
Figure 8-1

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

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

8. Selecting Suppliers Bidding Versus Negotiation
Two-Step Bidding/Negotiation
The Solicitation
Responsibility for Source Selection

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

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. 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

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

13. 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

14. The Solicitation IFB RFP Item description Info on quantities
Delivery schedules
Special terms and conditions
Standard terms and conditions

15. 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

16. 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.

17. 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

18. 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

19. ESI Opportunities Materials Services Technology
Specifications and Tolerances
Standards
Order Quantities
Lead Time
Processes
Packaging
Transportation
Redesigns
Assembly Changes
Design Cycle Time
Inventory Reductions

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. National Buying Advantages
Economies of scale
Superior technical assistance
Better handling of fluctuating demand
Shortages are less likely

29. 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

30. “Green” Supply Management
Recycled materials
Environmental issues
Liability issues

31. 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

32. 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

33. 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

34. 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

35. 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