Lecture 4 - Strategic Sourcing

Question 1

How did firms traditionally select suppliers?

Answer 1

Based on costs

Question 2

What is portfolio management?

Answer 2

Knowing how critical suppliers are.

Using a portfolio to help you understand the level of time and resources to allocate to the sourcing process.

See how to align sourcing to strategic goals and direction.

Question 3

When choosing who to source from, what 2 things should be classified?

Answer 3

CLASSIFYING MARKET COMPLEXITY
- Measure risk in supply
CLASSIFYING IMPACT ON BUSINESS
- Concerned with impact on profit or value obtained

Question 4

How to we categorise spend according to the Kraljic’s matrix?

Answer 4

LEVERAGE - High impact on business value or cost, low supply risk.
CRITICAL - High impact on business value or cost, high supply risk
ROUTINE - Low impact on business value or cost, low supply risk
BOTTLENECKS - Low impact on business value or cost, high risk

Question 5

Name an example of a leverage item

Answer 5

Foam on car seats

Question 6

Name an example of a critical item

Answer 6

New technology

Question 7

Name an example of a routine item

Answer 7

Window wipers for a car manufacturer

Question 8

Name an example of a bottleneck item

Answer 8

Xirallac pigment for Ford cars after Japanese tsunami (same for Toyota and BMW)

Question 9

What is the stage approach to strategic sourcing?

Answer 9

1) Classification
2) Market analysis
3) Strategic positioning
4) Action plans

Question 10

What occurs in the classification stage of strategic sourcing?

Answer 10

The profit impact of sourcing is determined.
Eg; purchased volume, % of total purchase costs, impact on product quality or business growth.

The supply risk is outlined
Eg: availability, number of suppliers

(Classified in line with Kraljic’s matrix)

Question 11

What happens in the market analysis stage of strategic sourcing?

Answer 11

The weighting of bargaining power of suppliers against your own strength as a customer is determined.
(Use Porter’s 5 forces)

Example: Reviewing the supply market an assessing availability of strategic materials to see where you stand.

Question 12

What happens in the strategic positioning stage of strategic sourcing?

Answer 12

Classify products outlined in stage 1 according to buyer/supplier power analysis of stage 2.

• Identify areas of opportunity and vulnerability to gauge supply risk.
• Understand company and supplier strengths.

Example: when companies play a dominant role and supplier strength is medium/low, we would adopt an aggressive ‘exploit’ strategy.

Question 13

What occurs in the action plan stage of strategic sourcing?

Answer 13

Categories have different impacts on strategic plans and supply strategy.
Here we look to see how we should source through outlining:
-volume
-price
-supplier selection
-material substitution.

Question 14

How do we analyse portfolios?

Answer 14

See what the most important/appropriate forms of relationship are (adverse vs collaborative)

See what the most likely techniques are to use to achieve the objectives we set out
(supplier development)

Question 15

Overall, how do we help a company focus on strategic items through the portfolio mix?

Answer 15

Develop a supply strategy
Understand risk and complexities
Work with and develop suppliers
Consider costs and values

Question 16

What is sourcing?

Answer 16

A structural decision of how many suppliers to use per product/service offering
- Cousins, 2008

Question 17

What are the 4 main sourcing methods?

Answer 17

MULTIPLE SOURCING
SINGLE SOURCING
PARALLEL SOURCING
DELEGATED SOURCING STRATEGY

Question 18

What is multiple sourcing?

Answer 18

Using several suppliers per product/service offering

Focus on price and delivery to get the best deal

Question 19

What is single sourcing?

Answer 19

Using one source per product/service offering

Used in the bottleneck and critical category

Question 20

What is parallel sourcing?

Answer 20

Allows the buyer to work on a single basis with each component supplier within a product group, while maintaining multiple sourcing across different product groups.
- Threaten switching suppliers if not performing

(Splits suppliers by model, retaining sole supply per model with competition overall - Two alternative sources of supply for similar parts)

Question 21

What is a delegated sourcing strategy?

Answer 21

Making one supplier responsible for the delivery of an entire sub-assembly - often referred to as a Tier 1 supplier.
eg: Vought to Boeing.

Can lead to a reduction in transaction costs for the buying firm as they work closely and leave coordination to the supplier.

Question 22

What is global integrated supply sourcing?

Answer 22

Trent and Monezka
Sourcing across the globe successfully.
Integration element is derived from:
-monitoring progress
-bringing in the right people
-cost savings
-site visits and reviews
-involving operating personnel
-creating cost savings.

Question 23

How should strategic items be managed?

Answer 23

Develop long term supply relationships

Analyze and manage risks regularly

Contingency planning

Consider MAKING

Question 24

How should leverage items be managed?

Answer 24

Use full purchasing power

Substitute products or suppliers where necessary

Place high volume orders

Question 25

How should bottleneck items be managed?

Answer 25

Overordering when the item is available (lack of availability is a common reason for unreliable supply)

Look for ways to control vendors

Question 26

How should routine items be managed?

Answer 26

Purchasing approaches include:

Using standardised products

Monitoring and/or optimising order volume

Optimising inventory levels

Question 27

When should you diversify your position as a buyer in the market? (Stage 3)

Answer 27

When supply market strength is high and your strength is low in comparison (NOT OPTIMAL)