Download STRATEGIC SOURCING PLAN - CII Institute of Logistics

STRATEGIC SOURCING PLAN
Discovery
Evaluation
Selection
Development
Management
DISCOVERY
Supplier websites
Supplier information’s files
Supplier catalogues
Trade Registers & Directories
Trade Journals
Phone Directories
Filing mailing pieces
Professional organisations
Internal intelligence
EVALUATION
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
SELECTION
Bidding
Negotiation
Combination
PRE REQUISITES TO BIDDING
The Proper use of competitive bidding is
dictated by five criteria. When all five criteria
prevail, competitive bidding is an efficient
method of source selection and pricing. The
criteria are:
1. The dollar value of the specific purchase must
be large enough to justify the expense, to both
buying and selling firms, that accompanies this
method of source selection and pricing.
2. The specifications of the item or service to be
purchased must be explicitly clear to both the
buying and selling firms. In addition, the seller
must know from actual previous experience, or
be able to estimate accurately from similar past
experience, the cost of producing the item or
rendering the service.
3. The market must consist of an adequate number
of sellers.
4. The sellers that make up the market must be
technically qualified and actively want the
contract-and, therefore, be willing to price
competitively to get it.
5. The time available must be sufficient for using
this method of pricing –suppliers competing for
large contracts must be allowed time to obtain
and evaluate bids from their subcontractors
before they can calculate their best price. Thirty
days is not an uncommon time; however, the
increasing use of online bidding using the
worldwide Web is forcing compression of bid
preparation time.
CONDITIONS DEMANDING
NEGOTIATION
In addition to satisfying the preceding five
prerequisites, four other conditions should not
be present when employing competitive
bidding as the means of source selection:
1. Situations in which it is impossible to estimate
costs with a high degree of certainty. Such
situations frequently are present with hightechnology requirements, with items requiring
a long time to develop and produce, and under
conditions of economic uncertainty.
2.
Situations in which the buying firm
anticipates a need to make changes in the
specification or some other aspect of the
purchase contract.
3. Situations in which special tooling or setup
costs are major factors. The allocation of
such costs and title to the special tooling
are issues best resolved through
negotiation.
DEVELOPMENT
Investment requirement
Two way effort
Training in project
management
Team work
Quality
Production processes
Supply management
MANAGEMENT
Ensure performance
Monitoring
Periodic analysis
Focus key areas
SINGLE VERSUS MULTIPLE
SOURCING
The major argument for placing all of a firm’s
business with one supplier is that in times of
shortage, this supplier will give priority to the
needs of a special customer. Additionally, single
sources may be justified when:
 Lower total cost results from a much higher volume
(economies of scale).
 Quality buying firm obtains more influence-clout-with
the supplier.
 Lower costs are incurred to source, process,
expedite, and inspect.
 The quality, control, and coordination required with
just-in-time manufacturing re-quire a single source.
Significantly lower freight costs may result.
Special tooling sis required, and the use of more
than one supplier is impractical or excessively
costly.
Total system inventory will be reduced
An improved commitment on the supplier’s part
results.
Improved interdependency and risk sharing result.
More reliable, shorter lead times are required
Time to market is critical
Although the “70-30” strategy is reported to have
started in Japan in the 1970s with just-in-time
firms, the strategy is firmly established in many
world-class companies. For example, visits in
2001 by one of the authors of this book verified
that Solectron, Applied Materials, and Cisco
Systems all cognitively use the “70-30”
approach in sourcing selected materials. Dual or
multiple sourcing may be appropriate:
 To protect the buying firm during times of shortages,
strikes, and other emergencies.
To maintain competition and provide a backup
source. To meet local content requirements
for international manufacturing locations.
To meet customers’ volume requirements.
To avoid lethargy or complacency on the part
of a single-source supplier.
When the customer is a small player in the
market for a specific item.
When the technology path is uncertain.
In areas where suppliers tend to leapfrog
each other technologically.
ISO 9000 REGISTRATION
A process gaining rapid acceptance
throughout the world is the ISO 9000
registration process. Developed in Europe
in 1987, ISO 9000 consists of a series of
process quality standards- not product
quality standards- that recognize that
product quality is a result of a process.
ISO CERTIFICATION
ISO 9003 is the least restrictive of the three
primary standards, requiring conformance only
to final inspection and test standards within a
production environment. ISO 9002, while
requiring the same standards as ISO 9003, also
includes standard requirements for purchasing,
production, and installation capabilities, ISO
9001, which requires everything that ISO 9003
and 9002 require, also includes standard
requirements to ensure conformance in design
and servicing a full range of manufacturing and
support activities.
Perhaps the best sway to recognize the
character of the ISO 9000 is to relate it to
the concept of total quality management
(TQM). ISO 9000 describes and defines
the fundamental nature of work processes
necessary for an organization to achieve
the objectives of TQM. Therefore, ISO
9000 is a critical first step in implementing
a TQM system.
MAKING CERTIFICATION
Making Certification Part of the
Customer’s Requirements
For years the Big Three carmakers (Ford, GM,
and now Daimler Chrysler) have required
suppliers to meet stringent quality standards and
requirements. Unfortunately, the standards were
unique to each company. The result? Suppliers
spent too much time trying to conform to varying
and sometimes conflicting requirements.
Now, suppliers are trying to meet one agreedupon standard: QS 9000, an expanded version
of the ISO 9000 group of standards adopted by
firms world wide. What sets this standard apart
from the individual certification programs is that
QS 9000 requires periodic reviews to verify that
a supplier still conforms and that any
shortcomings have been corrected. “With
mandatory audits every six months, you can’t
drift too far, or you will lose your certification,”
says the director of quality at Peterson Spring.
A manager at Laser Specialist maintains,
“I’ m a strong advocate of QS 9000 as a
management tool: Forget that the Big
Three are shoving it down your throat,
because it creates objective standards to
follow and makes everything traceable.” At
least now suppliers to the automotive
industry have a consistent set of
requirements provided by their customers –
the Big Three.