1. DPS 304 : Sourcing Strategies & Policies
The process of identifying, selecting & developing suppliers
Can be done at tactical & operational or strategic levels

2. Sourcing Strategies & Policies
 Tactical & Operational Sourcing
Concerned with lower-level decisions relating to high-profit, low-risk, non-critical items
Also concerned with short-term adaptive decisions as to how and from where specific supplier requirements are to be met.

3. Sourcing Strategies & Policies
 Strategic Sourcing
Concerned with top-level, longer-term decisions relating to high-profit, high supply risk strategic items and low-profit, high supply risk bottleneck products and services
Concerned with the formulation of long-term purchasing policies, the supplier base, partnership sourcing, reciprocal & intra-company trading, globalisation & countertrade, the purchase of capital equipment & ethical issues.
Procurement is viewed as a knowledge-based activity concerned with the total cost of ownership leading to business competitive advantage

4. Sourcing Strategies & Policies
 Comparison of Tactical & Strategic Sourcing
Tactical Sourcing Environment
Strategic Sourcing Environment
Clearly defined requirements & specifications
Development of a deep understanding of requirements – value analysis and engineering to identify operational value & trade-offs
Open bid process with little or no ability for suppliers to offer alternative designs specifications – purchase price focus
Development of a deep understanding of supply industry, product & service offerings & performance drivers of key suppliers

5. Sourcing Process Needs change Straight rebuy or routine purchase
 Novack & Simco presented 11-stage process
Stage 1 : identify or re-evaluate needs
Needs change
Stage 2: define or evaluate users requirements
Stage 3: decide to make or buy
Stage 4: identify type of purchase
Straight rebuy or routine purchase
A modified rebuy – change supplier or input
A new buy which results from new user need

6. Reduce suppliers to few who can meet demands
Sourcing Process
 Novack & Simco presented 11-stage process
Stage 5 : Conduct market analysis
a source of supply can operate in a purely competitive market (many suppliers), an oligopolistic market (a few large suppliers) or monopolistic
Stage 6: identify possible suppliers
include suppliers you had not previously considered
Stage 7: pre-screen suppliers ( done through expression of interest or prequalification sessions)
Reduce suppliers to few who can meet demands

7. Sourcing Process Novack & Simco presented 11-stage process
Stage 8 : Evaluate the remaining supply base
Accomplished by means of competitive bidding
Stage 9: Choose supplier
Choice determines the relationship that will exist between the purchasing & supplier organizations & how the relationships will be structured and implemented.
Also determines how relationships with non-selected suppliers will be maintained

8. Sourcing Process Novack & Simco presented 11-stage process
Stage 10 : Deliver product/perform service
Generate data for supplier performance evaluation
Stage 11: Post purchase/make performance evaluation
Supplier’s performance must be evaluated to determine how well the purchaser’s needs have been met
Provides data for future sourcing

9. Sourcing Information Areas of sourcing information
Analysis of market conditions
Directives
E-sourcing
Locating Supplier Sources
Supplier assessment
Supplier Performance rating

10. Sourcing Information Analysis of market conditions
Market – a place where goods & service are bought & sold, large groups of buyers & sellers of wide classes of goods eg electronics market, demand & supply of a single class of community, eg the cement market, the general economic conditions relating to the supply of goods & services at a particular time
Distinguish between buyer’s & seller’s market

11. Sourcing Information Market analysis
Move beyond an expert expediter to a strategic procurer
Use business intelligence to analyse purchasing environment - identify strengths, weaknesses, opportunities & threats that impact supplies

12. Sourcing Information Why market analysis?
Helps in forecasting long-term demand for the product
Assists in forecasting the price trends of bought-out items & how material costs are likely to affect production costs & selling prices
Indicates what alternative goods and supply sources are available eg may be cheaper to buy abroad
Gives guidance on the security of supply sources which is of importance to sensitive commodities sourced abroad

13. Sourcing Information Why market analysis?
Information relating to pay trends, commodity prices, political factors etc can aid in deciding sourcing strategy eg, forward buying, stock-piling or hand-to-mouth

14. Sourcing Information Sources of Information for market analysis
Primary data – observation, analysis of internal records eg sales trends, visit to suppliers, questionnaires
Secondary data – statistics & external reports
International sources - trade associations
Govt sources
Non govt sources eg CIPS, KISM
The press – economist, business daily
Economic forecasts

15. Supplier appraisal
Refers to analyzing a prospective vendor for inclusion in the buyer’s approved list.
Lysons states that appraisal is necessary in the following situations;
When potential supplier is not certified eg ISO 9000:2000
Purchase of strategic high-profit, high-risk items
Purchase of non-standard items
Placing of construction and similar contracts
When entering into JIT arrangements
When engaging in global sourcing

16. Supplier appraisal
When establishing e-procurement arrangements with long-term strategic suppliers
When negotiating outsourcing contracts
Before agreeing to a subcontract with a main supplier in relation to important companies
When negotiating service-level agreements

17. Supplier appraisal What should be appraised? Finance
Production capacity & facilities
Human Resources
Quality
Performance
Environmental & ethical considerations IT
Orgnaizational structure

18. Obtaining Information for Supplier appraisal
Appraisal Questionnaires
Supplier visits
Personal attitudes
Means of controlling quality
Housekeeping
Competence of technical staff
Technological knowhow of supervisory personnel
Adequacy & care of production equipment

19. Supplier approval
Recognition that following a process of appraisal, that a particular supplier is able to meet the standards & requirements of the particular buyer
Approved suppliers may be graded into;
Partners
Preferred
Approved suppliers
Confirmed supplier
One-off supplier

20. Policy Issues in Sourcing
The supplier base
Outsourcing or make-or-buy
Subcontracting
Partnering
Reciprocity
Intra-company trading
Local suppliers
Purchasing consortia

21. How to achieve an efficient supply system
Supplier Selection
How to achieve an efficient supply system
Have Long-term relationships with suppliers
Start preferred vendor programs by having limited number of suppliers
Work together to minimize delays and handling
Align incentives (to minimize total system costs)
Use total purchasing power as bargaining tool to obtain favourable long term contracts, don’t put every order out to bid
Consider total system costs in making purchasing decisions

22. Guidelines in selecting a Supplier Partner
1. Senior management attitudes
2. Progressive management
3. Motivation to improve continuously
4. Focus on the final customer
5. Company wide quality management
6. Ability to add value
7. Supplier performance history

23. Guidelines in selecting a Supplier Partner
Just-in-time delivery
Supplier location
Financial stability
Technical expertise and equipment
Research and development
Production facilities
Lean facilities

24. Evaluating Supplier Performance
Why Evaluate?
Assists decision making on retaining or removing a supplier from an approved list
Know which supplier specific order should be placed
Provide suppliers with an incentive for CI and prevent performance slippage
Make decision on distributing spend for an item among several suppliers to better manage risk

25. What to Evaluate (KPI’s)!
Quality & Process control CI
Facilities
Customer relationship
Delivery e.g time
Financial stability
Certification
Price

26. 10 Cs of Effective Supplier Evaluation
Competency – to undertake the tasks required
Capacity – to meet the purchaser’s total needs
Commitment to quality, cost reduction and service
Control systems – inventory, costs, people, budget
Cash resources and financial stability
Cost commensurate with quality and service

27. 10 Cs of Effective Supplier Evaluation
Consistency & where possible improve levels of quality & service
Culture – suppliers and purchasers should share similar values
Clean suppliers & products – satisfy legislative & other environmental requirements
Communication – send & receive information electronically

28. Green Procurement & Supplier Selection
is also known as Affirmative Procurement. This is referred to as the purchase products and services which are environmentally friendly. The products or services purchased should have a lower impact on the environment over their whole life cycle than the standard equivalent

29. Green Procurement
The Green Procurement entails program elements which include:
Recycled content products
Energy Efficient products and energy efficient standby power devices
Alternative fuel vehicles, alternative fuels, and fuel efficient vehicles

30. Green Procurement
Bio-based products
Non-ozone depleting substances
Alternative fuels and fuel efficient vehicles
Environmental Protection Priority Chemicals

31. Green Procurement Advantages of Green Procurement Economic benefits
Green procurement enables organizations reduce handling expenses and risks associated with waste disposal by reducing supplier-generated wastes and surpluses.
It helps organizations to achieve competitive advantage through innovation. Efficient production may be enhanced through suppliers’ use of cleaner technologies, process innovation, and waste reduction.

32. Green Procurement Economic benefits
Economic benefits
It leads to improved public image. Greening its suppliers can contribute to a company’s overall reputation among customers, investors, employees, and other stakeholders 

33. Green Procurement
 Steps to implement a Green Procurement Program in the private sector
Research company procurement policies. Find out if and to what extent your company’s procurement policies give price preference to environmentally preferable products.
Define your terms. Many people don’t have a specific understanding of common phrases such as “environmentally preferable purchasing.”
Screen suppliers and subcontractors. Survey them on specific Environmental Health and Safety practices and use a point scale to judge their responses.

34. Green Procurement
 Encourage or require suppliers to implement environmental management systems. Provide suppliers with "blacklists" of undesirable chemicals or other materials.
Collaborate on an action plan. Involve suppliers early and often in product, process, and strategic decisions that impact them. Add suppliers to planning teams to implement design for environment initiatives.
Choose green products. Purchase raw materials that contain fewer toxic ingredients, are recyclable, or utilize recycled materials.