34462764 sourcing introduction basic concepts

8/3/2019 34462764 Sourcing Introduction Basic Concepts

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Dr. Jukka Tyrvinen

Principal Lecturer


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The increasing importance of global sourcing demands new skills in

purchasing

In the past, being a qualified purchasing manager required goodnegotiating skills, solid knowledge of the supplier market ,sometimes even technology, and practical insights in internal

purchasing routines

Today, the above requirements are still present, but they must besupplemented by cross-cultural knowledge, language proficiency,knowledge of international finance, international logistics andcapabilities in information technology and telecommunication.

Above all, procurement must be able to establish, develop and managelong-term supplier relationships

Global Sourcing Strategies


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Nokias 50 Billion EUR sales over 25 billion EURgoes to suppliers (material, services)

Metso Oyj has 6 Billion EUR sales; over 50% issupplies. Thereafter, Metso is supplier itself e.g.pulp & paper making machinery

ABB, Asea Brown Boweri, world-scale electricalequipment supplier has sales over 15 Billion EUR

and spend 45% of that to suppliers

Wood fiber cost are over 50% of the total productioncosts for pulp mills worldwide



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In fact, we source more often services thangoods, however, services include oftenproducts (car rental, restaurants, spareparts..)

In U.S.A. 80% of the Gross Domestic Product isservices

Logistics services (inward, warehousing,outbound) form 10% of GDP in U.S.A.

In Finland, the above figure is as high as 19% !Why??



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NOTE: we must sell heck of a lot more productsto get the same effect in the profit margin asopposed to smaller savings in the supplychain !!! SEE EXAMPLE!

The above is true as long as we do not make lower quality

production with these savings.Global Sourcing Strategies

SALESThen Now Increase Extra profit

EUR EUR % EUR

100 000 120 000 +20 2 000assuming10% on sales

PURCHASING

50 000 48 000 -4 (i.e. a saving) 2 000


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Sourcing Purchasing

Procurement

Supply Chains Logistics

Company Strategy

Product Quality

Product Innovation



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Sourcing - What is sourcing?

Sourcing the process of identifying, selecting and developingsuppliers is a key purchasing activity. Sourcing can be either

at tactical/operational or strategic levels


Comparison of tactical and strategic sourcing businessenvironmentsTactical sourcing environment Strategic sourcing environment

Clearly defined requirements andspecifications

Development of deep understandingof requirements value analysis and

engineering to identify operationalvalue and trade-offs

Open bid process with little or noability for suppliers to offer alternativedesigns or specifications purchaseprice focus

Development of a deep understandingof the supply industry, product andservice offerings and performancedrivers of key suppliers


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Sourcing1. Process

2. Sourcing Information Business Intelligence

3.

Analysis of Market Conditions4. E-Sourcing

5. Locating Suppliers / Supplier Appraisal

6. Supplier Performance

7. Make-or-buy Decisions8. Different Global Sourcing Strategies

Outsourcing, Subcontracting, Partnering,etc.



9/17Jukka TyrvinenStrategic Marketing Planning 9

Strategic Marketing Planning The Process Steps

> Same Procedure with Sourcing !! Start from theCorporate Strategic Plan !

Phase One(Goal Setting)

Phase Two(Situation Review)

Phase Three(StrategyFormulation)

Phase Four(Resource Allocation and Monitoring)

Corporate Strategic Plan

MISSION STATEMENTFINANCIAL SUMMARY

MARKET OVERVIEWSWOT ANALYSESASSUMPTIONSMARKETING OBJECTIVESAND STRATEGIES3-YEAR FORECASTBUDGETS

1. Mission

2. Corporate objectives

3. Marketing audit

4. Market overview

5. SWOT analyses

6. Assumptions

7. Marketing objectives and strategies

8. Estimate expected results and identify alternative plans andmixes

9. Budget

10. First year detailed implementation program

Measurementand review


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Purchasing - Classic definition:To buy materials of the right quality, in the right quantity from the rightsource delivered to the right place at the right time at the right price

Purchasing - several perspectives:

1. Purchasing as a function

2. Purchasing as a process

3. Purchasing as a link in the supply or value chain

4. Purchasing as a relationship

5. Purchasing as problem-solving

6. Purchasing as a discipline

7. Purchasing as a profession



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ProcurementTraditionally, the role of procurement has been to achievethe cheapest price and ensure a sufficent flow of materials toproduction.

Today, the role of procurement is rather proactive in thedesign and management of networks of connections. Itinvolves interorganizational relationships, utilizes theresources of suppliers, supplier development, costmanagement, and the stages of logistics, connecting and

processing..



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Strategic Procurement

Make-or-buy decisions

Organization of the supply-base structure

Customer-Supplier relationships

The above are driven from strategic thinking i.e. CorporateStrategy, Growth Strategies, Business-Level Strategy,Functional-Level Strategies, Strategic Management and

Analysis, Business Environmental Factors,



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Supply Chains Numerous definitions:

(Cooper&Ellram 1993) Supply chain an integrative approach tomanage the total flow of a distribution channel from the supplier tothe ultimate user

(Gereffi&Korzeniewics 1994) ..a series of independent enterprises andinternal organizational units, with individual transactionsdetermined by the market, without overall direction by a singledominant firm

(Treacy&Wiersma 1993) Supply chain flow is the entire set of activitiesinvolving the organization and flow of material and other resourcesto produce and deliver the product to the final customer



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Logistics (and Supply Chains)

Originates largely from military logistics acquisition and

operational logistics (NATO)

Logistics cost 10% of U.S.A. GDP (19% in Finland!!)

Materials management: raw materials, subassemblies, manufactured

parts, proprietary parts, packaging, other materials,..=input phase

Distribution management: moving finished goods from production

departments to finished goods stores and then through appropriate

channels of distribution to the ultimate consumer = output phase

Information is needed to flow two ways in channel (supply chain)

Logistics is an important function in the value chain (=supply chain)



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Corporate/Company Strategy

Global sourcing strategy must be an elementary part in enterprisesbusiness strategy.

Targets are derived naturally from companys production / salesstrategies, but above all, from companys mission and vision, beingthus part of normal strategy planning process

Levels of organizational strategy:

1. Corporate Strategy (growth, diversification, integration, etc.)

2. Business Strategy (Porters competitive strategy: A. cost leadership,

B. differentiation, C. focus)

3. Functional / Operational Strategies



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Product Innovation Suppliers as a source of innovation

Buyers contact with suppliers, products and technologies much more

frequently than engineers and developers > potential

Early supplier involvement can result in contribution of new

knowledge, cost reductions, and product improvements

Companies have though different products such as leverage

products, strategic products, routine products, and bottleneck

products development risk and cost vary between them



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Product Quality

Quality control & Purchasing The purchasing department must

ensure that the product specifications are met by suppliers

(buying according to the cheapest price only = problems)

Suppliers are required to have quality assurance systems and

are regularly assessed (for instance ISO 9000 series)

The quality of supplies affect the end-product qualitye.g.

bad pulp fiber > bad paper products or rejected production Large corporations maintain and manage accepted supplier

lists, which suppliers in turn are turned into a mutual

competition from price, quality, service, etc.


34462764 sourcing introduction basic concepts

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