SOURCING STRATEGY

Dr U Bahadur
SPJIMR
WHY A STRATEGY FOR SOURCING
 NEED FOR SOURCING STRATEGY

• CORE COMPETENCE
• LACK OF SOURCES
• LIMITATIONS OF EXISTING SOURCES
-TECH CAPABILITY AND TECHNOLOGY LEVEL
-CAPACITY TO MEET DEMAND
-CONSISTENCY OF QUALITY
-COST
• COST REDUCTION
-MAKE OR BUY OPTIONS
-DISTANCE FROM EXISTING SOURCE
• GLOBAL SOURCING IMPERATIVES
• GOVT. REGULATIONS / INCENTIVES
• LOCAL ASPIRATIONS
• SPECIALISATION AND SOPHISTICATION
• FLEXIBILITY IN ADOPTING CHANGE
• PEOPLE MANAGEMENT
 SOURCING STRATEGY
SEGMENTED PURCHASING STRATEGY AND
VENDOR GROUPING
HIGH
RISK
EXPOSURE TO MARKET

LOW HIGH
ECONOMIC OPPORTUNITY
RELATIVE VALUE
ITEMS IN FIRST QUADRANT:

• PRODUCT STANDARDISATION
• ORDER VOLUME/OPTIMIZATION
• EFFICIENT PROCESSING
• INVENTORY OPTIMIZATION
• PAPER LESS ORDERING
• SYSTEMS CONTRACTING
• CREDIT CARDS
• PROCESS AUTOMATION MIN RESOURCE

NUISANCE / ROUTINE ITEMS

 SOURCING STRATEGY
SEGMENTED PURCHASING STRATEGY AND
VENDOR GROUPING
HIGH
EXPOSURE TO MARKET RISK

NUISANCE ITEMS
•MINIMISE ATTENTION
•AUTOMATE
AUTOMATE
LOW
LOW HIGH
ECONOMIC OPPORTUNITY
VALUE
THIRD QUADRANT

FEATURE
LESS SUPPLIERS LOW BUYER STRENGTH.
VOLUME INSURANCE AT COST PREMIUM.
INVENTORY HOLDING
LTC
VENDORS.RETENTION
ALIGN PROCESSES
CONTROL OVER VENDOTR
ITEM SPECIFICATION
GLOBAL SOURCING.
BACK UP PLANS.
BOTTLENECK ITEMS
 SOURCING STRATEGY
SEGMENTED PURCHASING STRATEGY AND
VENDOR GROUPING
HIGH
BOTTLENECK ITEMS
EXPOSURE TO MARKET RISK

•LTC
•ALIGN PROCESSES
ENSURE SUPPLY

NUISANCE ITEMS
•MINIMISE ATTENTION
•AUTOMATE
ROUTINE

LOW
LOW HIGH
ECONOMIC OPPORTUNITY
VALUE
SECOND QUADRANT

MORE SUPPLIERS ,HIGH BUYER STRENGTH.

EXPLOITATION OF FULL PURCHASE POWER.
NEGOTIATION STRATEGIES
VENDOR SELECTION .
PRODUCT SUBSTITUTION
TIN-BOTTLE-CARTON-POLY PACK
TARGET PRICING
ORDER VOLUME OPTIMIZATION

LEVERAGE ITEMS
 SOURCING STRATEGY
SEGMENTED PURCHASING STRATEGY AND
VENDOR GROUPING
HIGH
BOTTLENECK ITEMS
EXPOSURE TO MARKET RISK

•LTC
•ALIGN PROCESSES
ENSURE SUPPLY

NUISANCE ITEMS COMMODITIES

•MINIMISE ATTENTION DRIVE FOR SHARP
•AUTOMATE BARGAIN
AUTOMATE
LEVERAGE
LOW
LOW HIGH
ECONOMIC OPPORTUNITY
VALUE
FOURTH QUADRANT

• ACCURATE DEMAND FORCASTING.

• DETAILED MARKET RESEARCH.
• DEVELOPMENT OF LONG TERM SUPPLY
RELATIONSHIP.
• RISK ANALYSIS/ CONTIGENCY.
• LOGISTICS/INVENTORY/VENDOR CONTROL.
• LESS SUPPLIERS,HIGH BUYER STRENGTH.
STRATEGIC ITEMS:
 SOURCING STRATEGY
SEGMENTED PURCHASING STRATEGY AND
HIGH VENDOR GROUPING
EXPOSURE TO MARKET RISK

BOTTLENECK ITEMS STRATEGIC

LTC DEVELOP STRATEGIC
•ALIGN PROCESSES PARTNERSHIP
ENSURE SUPPLY

DEVELOP

NUISANCE ITEMS COMMODITIES

•MINIMISE ATTENTION DRIVE FOR SHARP
•AUTOMATE BARGAIN
ROUTINE LEVERAGE

LOW ECONOMIC OPPORTUNITY HIGH

LOW
RELATIVEVALUE
 SOURCING STRATEGY
SEGMENTED PURCHASING STRATEGY AND
VENDOR GROUPING
HIGH
BOTTLENECK ITEMS CRITICAL ITEMS
EXPOSURE TO MARKET RISK

•ENSURE SUPPLY •DEVELOP STRATEGIC

•LTC PARTNERSHIP
•ALIGN PROCESSES
PROBLEM BOTTLENECK
STRATEGIC

NUISANCE ITEMS COMMODITIES

•MINIMISE ATTENTION DRIVE FOR SHARP
•AUTOMATE BARGAIN
ROUTINE
LEVERAGE
LOW
LOW HIGH
ECONOMIC OPPORTUNITY
Relative VALUE
 SOURCING STATEGY
MATERILAS MANAGER’S PORTFOLIO

EN NN
PRODUCT

EE NE

SUPPLIER
STRATEGIES: (EE)

• JOINT COST REDUCTION INITIATIVE

• TARGET COSTING
• SUPPLIER INVOLVEMENT IN DESIGN AND
PLANNING.
• PROCESS INNOVATION
EXISTING SUPPLIER NEW PRODUCT FEATURES

FEATURES
1. STRONG AND RELIABLE SUPPLIER BASE
2. COLLABORATIVE RELATIONSHIP
3. MUTUAL TRUST
4. HIGH DEGREE OF INTERDEPENDENCE
5. LOCATIONAL ADVANTAGE
Strategy
Capability Enhancement
STRATEGIES: (EN)

• LONG TERM AGREEMENTS

• TECHNICAL COLLABORATION
• MUTUAL BENEFIT
• PROFIT SHARING AND FINANCIAL TIE-UPS
• SUPPLIER AS ENTREPRENEURIAL TEAM MEMBER
• INVOLVEMENT OF SUPPLIER FROM DESIGN
STAGE
• LEAD TIME REDUCTION
NEW SUPPLIER EXISTING PRODUCT

• FEATURES:
1. QUALITY CONSIDERATION
2. COST CONSIDERATION
3. VOLUME CONSIDERATION
4. LOGISTICS
5. CARTEL
• SOURCING STRATEGY:
MARKET SCANNING STRATEGY
 NEW SUPPLIER NEW PORDUCT
• FEATURES:
-NO HISTORY
-RANDOM PRICING
• STRATEGIES:
-INFORMATION COLLECTION
--INFORMAL CHANNELS
--CATALOGUES/JOURNALS
-REQUIREMENT SPECIFICATION
-TRIALS / MULTIPLE SOURCES
-INVOLVE SUPPLIERS IN PRODUCT DEV.

SOURCING STRATEGY :
CLASSICAL DEVELOPMENT
 MATERIALS MANAGER’S PORTFOLIO

EN
CAPABILITY CLASSICAL
ENHANCEMENT DEVELOPMENT
PRODUCT

COST MARKET
REDUCTION SCANNING

EE NE
SUPPLIER