2/8/2015

Post Graduate Diploma in

Supply Chain Management

Sourcing Management
Presented By :

Mahfuzul Haque

International Supply Chain Education Alliance

Course Objective

Course Outline

The purpose of this course is to provide students with an in-depth understanding of the
theoretical as well as practical aspects of sourcing management. This course serves the
purpose of creating a detailed understanding on the role of sourcing in a supply chain,
ways and means of effectively managing various activities of sourcing management,
different sourcing strategies, contract management and overall procurement execution.
At the completion of this course, students will acquire the necessary skills to:
Assure sourcing and on-time delivery of best priced best quality materials and services
Finding the right supplier and effectively execute supplier relationship management for win-win
partnerships
Negotiate win-win deals for the best interests of the organization
Find solutions to sourcing bottlenecks and risks to ensure on-time delivery of materials
Encourage suppliers early in new product or service development and foster innovation

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

Introduction to Sourcing
Sourcing Cycle Steps in Sourcing Process
Sourcing Management Process - Policies, Procedures & Guidelines
Requirement Specification & Value Analysis
Supplier Scoring & Assessment
New Vendor Development & Enlistment
Negotiation & Supplier Selection
Contract Management & Supplier Relationship Management
Risk Management in Sourcing & Strategic Sourcing
Legal aspects of sourcing & Environmental Procurement
Global Sourcing
e-Sourcing

Execute sourcing at the global level and use sourcing as a means of competitive advantage.

2/8/2015

Introduction to Sourcing

What is Sourcing

CHAPTER OVERVIEW

Define Sourcing
Difference between Procurement and Sourcing
Objective of Sourcing
The role of sourcing in a Supply Chain
In-house or outsource
Centralized vs. De-centralized Sourcing
Trends in Sourcing
Different segments of Sourcing

What is Sourcing
The process of obtaining goods and services from
preparation and processing of a requisition through to
receipt and approval of the invoice for payment. It
commonly involves (1) purchase planning, (2) standards
determination, (3) specifications development, (4) supplier
research and selection, (5) value analysis, (6) financing, (7)
price negotiation, (8) making the purchase, (9) supply
contract administration, (10) inventory control and stores,
and (11) disposals and other related functions.

What is Sourcing?
Set of activities, functions, and processes concerned with economic procurement
and inflow of inputs into the enterprise and an efficient control over flow of funds
out of the company.
Includes Sourcing, Inbound Logistics, and Supplier Relationship Management
Does not cover procurement of Capital, personnel, data, proprietary rights such
as licenses and patents.

What is Sourcing
Sourcing or Procurement is a subset of
supply chain management. Purchasing
deals primarily with managing all aspects
related to the inputs to an organization
(i.e., purchased goods, materials, and
services), while supply chain management
deals with inputs, conversion, and outputs.

2/8/2015

Difference between Procurement and

Sourcing
Many times people are confused between the terms procurement and sourcing
thinking them to be the same and these words are used interchangeably.

Role of Sourcing
Impact on Cash-flow
Contribution to the company profitability
Business realized that efforts required to increase profits through increasing sales
were far greater than those involved in generating equivalent returns through
reduction in procurement prices.

Sourcing and Strategic Sourcing are critical steps in buying goods and services. In this stage, individuals
or groups analyze, assess, and select vendors and their goods and services based on certain
specifications and requirements. This relationship is typically documented in a contract with terms and
conditions regarding products, services, prices, and service levels.
The next steps are Purchasing and Procurement Management which are established after Sourcing and
Strategic Sourcing to execute upon the contract and to supply the enterprise with required goods and
services at the negotiated price and agreed-upon times. These actions are typically represented in
purchase orders (POs) or release orders/instructions on master POs. POs are communicated via phone,
fax, mail, EDI, etc.

Source: Copyright 2005 United Parcel Service of America, Inc. All Rights Reserved

Role of Sourcing

Objective of Sourcing

Role of Sourcing

Objective:

Analyzing spend for cost savings opportunities, negotiating, and

selecting reliable sources of supply will always be critical. These
functions fuel profit and provide competitive advantage for the
organization.
Purchasing is responsible for obtaining the materials, parts, and
supplies and services needed to produce a product or provide a
service.

Develop and implement purchasing plans for products

and services that support operations strategies
Continuity of the companys core activities
Control and Reduction of all sourcing costs
Reduction of Risk exposure in relation to Supply
markets.
- Contribution to product and process innovation

2/8/2015

Duties of Sourcing
Duties of Sourcing

Interfaces of Sourcing/Purchasing
Interfaces
Legal

Identifying sources of supply

Operations

Accounting

Negotiating contracts
Maintaining a database of suppliers

Data
processing

Purchasing

Obtaining goods and services

Managing supplies

Design
Receiving
Suppliers

Sourcing Steps

In-house or outsource
In-house vs. outsourcing

Requisition Received

Every business has to determine

whether they should perform a
service themselves in-house or
outsource that particular service to
an outside vendor.

Supplier Selection

Place Order

Delivery Monitoring

The main driver of outsourcing is the

competitiveness:
- Outsource where others can do it better

Top line View

Goods Received

- Outsource to focus on core business

- Outsource to reduce cost base

2/8/2015

In-house vs. outsourcing

In-house
Administrative
involvement
In house developed
resources
Good control
Quick decision making
Generally high cost of
ownership

Outsourcing

Economy of scale
No cost of ownership
Easy to switch/change
No cost of obsolescence
Expanded geographical
reach
Reduction in operating
cost
Spreading risk

Outsourcing
Outsourcing:
The Outsourcing Institute has defined
outsourcing as the strategic use of
outside resources
to perform
activities traditionally handled by
internal staff and resources.
So, outsourcing is essentially the
contracting out of non-core activities.
As the outsourcing decisions impact
upon the nature and scope of the
organization, they involve top
management.

Centralized vs. Decentralized Sourcing

Trends in Sourcing
Strategic importance

Centralized Procurement
Centralized procurement implies that purchasing
decisions are made either by company
headquarters or some regional or divisional level
Purchasing is handled by one special
department
Decentralized Procurement
A decentralized procurement function means that
an organization's activities are spread over a
number of plants or locations. More recently, it
also refers to purchasing delegated to actual
users.
Individual departments or separate locations
handle their own purchasing requirements

Cost
Quality
Agility
Customer service
Competitive advantage

Technology management
Benefits
Risks

Purchasing function

Increased outsourcing
Increased conversion to lean production
Just-in-time deliveries
Globalization

Source: (Lysons and Farrington, 2006).

2/8/2015

Primary and Support activities of

Sourcing

Different segments of Sourcing

- Primary Activities

- Types of Sourcing
-

Materials and Services

Direct Materials and Services
Indirect Materials and Services
Sourcing for Primary Activity
Sourcing for Support Activity

Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service

- Support Activities
-

Facility Management
Human Resource Management
IS/IT
Finance

21

22

Classification of Sourced Materials

Classification of procured materials:
- Raw Materials, basic input for a production process
- Supplementary Materials, used or consumed in the
operations
- Semi-manufactured products
- Components, are incorporated as a part of system
- Finished products, purchased to be sold
- Capital equipment
- Maintenance, Repair and Operating (OMR) materials
- Services

Thank You

23