STRATEGIC SOURCING PLAN

1
STRATEGIC SOURCING PLAN

• Discovery
• Evaluation
• Selection
• Development
• Management

2
DISCOVERY

• Supplier websites
• Supplier informations files
• Supplier catalogues
• Trade Registers Directories
• Trade Journals

3

• Phone Directories
• Filing mailing pieces
• Professional organisations
• Internal intelligence

4
EVALUATION

• Supplier surveys
• Financial condition analysis
• Third party evaluators
• Evaluation conference
• Facility visits
• Quality capability analysis

5

• Capacity capability analysis
• Management capability analysis
• Service capability analysis
• Flexibility capability analysis
• Information technology capability analysis

6
SELECTION

• Bidding
• Negotiation
• Combination

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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
• 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.

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1. 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.
2. The market must consist of an adequate number of
   sellers.

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• 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.

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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
  high-technology requirements, with items
  requiring a long time to develop and produce, and
  under conditions of economic uncertainty.

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• 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.

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DEVELOPMENT

• Investment requirement
• Two way effort
• Training in project management
• Team work
• Quality
• Production processes
• Supply management

13
MANAGEMENT

• Ensure performance
• Monitoring
• Periodic analysis
• Focus key areas

14
SINGLE VERSUS MULTIPLE SOURCING

• The major argument for placing all of a
  firms 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.

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• 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 suppliers part
  results.
• Improved interdependency and risk sharing result.
  
• More reliable, shorter lead times are required
• Time to market is critical

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• 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.

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• 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.

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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.

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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.

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• 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.

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MAKING CERTIFICATION

• Making Certification Part of the Customers
  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.

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• Now, suppliers are trying to meet one
  agreed-upon 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
  cant drift too far, or you will lose your
  certification, says the director of quality at
  Peterson Spring.

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• 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.