Sourcing Decisions in Supplychain management .pptx

Presentation on supply chain Management

1. Sourcing Decision in Supply Chain

2. Role of Sourcing in Supply Chain Sourcing in  supply chain management , simply put in words, is the process of finding the right supplier who can provide high-quality products and services at a reasonable price from which the business can create cost-efficient supply chains and generate a profit margin . The process of sourcing is typically divided into two processes: Finding the right prospective supplier   Following the inspection process Types of Sourcing in Supply Chain Management Outsourcing In sourcing Low-cost country sourcing Global sourcing Importance Cost effectiveness Minimizing the risk with supply chain Design the collaboration resulting in easier manufacturing & distribution, lower overall costs Facilitate coordination with the supplier and improve forecasting & planning, lower inventories, improved matching of supply & demand

3. In – House Or Outsource

4. Why Outsourcing Product Development is the Right Choice

5. Factors influencing growth of surplus by a third party Three important factors affect the increase in surplus that a third party provides: Scale Uncertainty The specificity of assets. Key Point A firm gains the most by outsourcing to a third party if its needs are small, highly uncertain, and shared by other firms sourcing from the same third party.

6. Risks of using a third party The process is broken Underestimation of the cost of coordination Reduced customer/supplier contact Loss of internal capability and growth in third party power Leakage of sensitive data and information Ineffective contracts Loss of supply chain visibility Negative reputational impact

7. Total cost of ownership

8. Supplier Selection – Auctions & Negotiations Single sourcing or multiple sourcing Selection using Offline competitive bids Reverse auctions (Buyer Determined Auction) Direct negotiations Supplier selection should be based on the total cost of using supplier Auctions best when acquisition cost is the primary component of total cost Auctions are not appropriate if ownership or post ownership costs are significant

9. Basic principles of Negotiation The difference between the values of the buyer and seller is the bargaining surplus The goal of each negotiating party is to ideally grow the surplus Have a clear idea of your own value and as good an estimate of the third party’s value as possible Look for a fair outcome based on equally or equitably dividing the bargaining surplus A win-win outcome

10. Sharing risk and reward in the supply chain Independent actions taken by two parties often result in lower profits than could be achieved Stronger firms tend to push risk on to supply chain partners Risk sharing Mechanism: Buybacks or returns Revenue sharing Quantity flexibility Three questions How will risk sharing affect the firms profits and total supply chain profits? Will risk sharing introduce any information distortion? How will risk sharing influence supplier performance along key performance measures? Contracts to induce performance improvement A buyer may want performance improvement from a supplier who otherwise would have little incentive to do so A shared savings contract provides the supplier with a fraction of the savings that result from performance improvement

11. Designing a Sourcing Portfolio: Tailored Sourcing

12. Categorization of purchased goods is into Direct and Indirect materials

13. Product Categorization by Value & Criticality