CHAPTER 4 STRATEGIC SOURCING FOR SUCCESFUL

SUPPLY CHAIN MANAGEMENT

1. Alliance development: An extension of supplier development 10. Green purchasing: A practice aimed at ensuring that purchased
refers to increasing a key or strategic supplier's capabilities. products or materials meet environmental objectives of the
2. Benchmarking: Comparing what you do to other businesses organization such as waste reduction, hazardous material
that do it best and implementing changes Normally looking at elimination, and recycling, remanufacturing and material reuse
statistics (TAT, cost, productivity measures 11. Outsourcing Benefits: 1. Concentrate on core capabilities
3. Benefit of VMI (buyers prospective): 1. Supplier tracks 2. Reduce staffing levels
inventories 3. Accelerate reengineering efforts
2. Determines delivery schedules and order quantities 4. Reduce management problems
3. Buyer can take ownership at stocking location. 5. Improve manufacturing flexibility.
4. Benefit of VMI (supplier's perspective): 1. Avoids ill-advised 12. Outsourcing Risks: 1. Loss of control
customer orders 2. Increased need for supplier management
2. Supplier decides inventory set up & shipments 3. Increased reliance on the supplier
3. Opportunity for supplier to educate customers about other 13. Punishment to Suppliers: A negative reward may be to reduce
products. future business; or a bill-back amount equal to the incremental
5. Early Supplier Involvement: its a highly effective supply chain costs resulting from a late delivery or poor quality
integrative technique. 14. Rewarding Supplier Performance: An incentive to suppliers for
surpassing performance goals
- Key suppliers become more involved in the internal 15. Strategic Alliance and Supplier Certification Programs: These
operations of the firm, particularly with respect to new programs are one way to identify strategic alliance candidates.
product & process design, concurrent engineering & design Firms often develop their own formal certification programs, &
for manufacturability techniques. most require ISO 9000 or similar certifications as one part of
6. Ethical sourcing: Can be defined as "That which attempts to the certification process.
take into account the public consequences of organizational A site audit using a cross-functional team to identify a
buying or bring about positive social change through supplier's process capabilities, materials and methods monitors
organizational buying behavior."5 Ethical sourcing practices base-line management practices.
include promoting diversity by intentionally buying from small 16. Strategic supplier agreements can reward suppliers by
firms, ethnic minority businesses, and women-owned allowing:: 1. A share of the cost reductions
enterprises; discontinuing purchases from firms that use child 2. More business and/or longer contracts
labor or other unacceptable labor practices 3. Access to in-house training seminars & other resources
7. Ethical sourcing policies should include: Determining where 4. Company & public recognition
all purchased goods comes from and how they are made; 17. Successful Sourcing Strategies: 1. Functional products
Knowing if suppliers promote basic workplace principles Are maintenance, repair, and operating (MRO) materials and
(such as the right to equal opportunity and to earn a decent other commonly purchased items and supplies. These items
wage, the prohibition of bonded, prison or child labor, and the are characterized by low profit margins, relatively stable
right to join a union); demands, and high levels of competition
Use of ethical ratings for suppliers alongside the other 2. Innovative products
standard performance criteria; They are characterized by short product life cycles, volatile
Use of independent verification of vendor compliance; demand, high profit margins, and relatively less competition.
Reporting of supplier compliance performance to
18. Supplier alliances: Results in better market penetration access
shareholders;
to new technologies & knowledge, & higher return on
Providing detailed ethical sourcing expectations to vendors
investment. Alliance development eventually extends to a
8. Evaluating & Selecting Key Suppliers: purchase cost becomes firm's second-tier suppliers, as the firm's key suppliers begin to
relatively less important. form their own alliances
19. Supply Base Reduction Programs (Rationalizing Program): It
Its conducted by a cross functional team selection approach
results in
wherein purchasing staff, primary users, product designers,
and manufacturing personnel participate.
1. Reduced purchase prices
9. Fair trade products: A product manufactured or grown by a 2. Fewer supplier management problems
disadvantaged producer in a developing country that receives 3. Closer and more frequent interaction between buyer and
a fair price for their goods. supplier
4. Greater levels of quality and delivery reliability.
20. Supply Chain Strategy Framework: 1. Classify purchased items and their suppliers ( functional or Innovative)
2. Define supply chain goals
3. Identify capabilities and improvement opportunities.
4. Develop work plans
5. Execute plans
6. Monitor Progress
21. Sustainability or Sustainable Sourcing: As applied to supply chains, is a broad term that includes green purchasing as well as some
aspects of social responsibility and financial performance. It can be defined as "the ability to meet the needs of current supply chain
members without hindering the ability to meet the needs of future generations in terms of economic, environmental and social
challenges
22. Value engineering: Activities help the firm to reduce cost, improve quality & reduce new product development time
23. Vendor Managed Inventories (VMI): Suppliers manage buyer inventories to reduce inventory carrying costs & avoid stock-outs for
buyer.