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Creating a Sourcing Strategy

Creating a Sourcing Strategy

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Published by Keith Howard
Creating a Sourcing Strategy contains the essential features for developing a rock solid Sourcing Strategy.
Creating a Sourcing Strategy contains the essential features for developing a rock solid Sourcing Strategy.

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Published by: Keith Howard on Mar 31, 2010
Copyright:Attribution Non-commercial

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11/01/2012

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S
OURCING
S
TRATEGY 
Written and Developed by Keith Howard 
P
URPOSE
:
Develop and maintain a viable portfolio of suppliers capableof meetingcompany objectives in a market driven environment.
S
COPE
:
Align business objectives and functional resources to thesupply chain. Guidethe strategic relationship between the organization and itssuppliers.
O
BJECTIVES
:
Satisfy market demands
– Understand the customer and understandthe market as key drivers of the sourcing strategy. Define whatproduct the customer wants, determine the size and timing of therequirement, its application, decide if it fits the company’s productlines and resources or involves a new or emerging technology. These inputs offer the means to compare and establish vendorcapability criteria.
Meet inventory investment objectives
– Cost of the product and orderpolicy have the greatest affect on sourcing strategy inconsideration of inventory investment goals. Unlike the keydrivers in sales and marketing, investment in inventory iscalculated; internally controlled through product costs andmanipulated with order policy. Target product costs are achievedthrough negotiation, the competitive bid process, shortening thesupply chain, or moving to lower cost centers; a somewhat finiteset of tactics which are easy to exploit. Conversely, order policyinvolves numerous iterations of internal inputs with the potential tostress upstream providers. Internally controlled inputs into thepolicy, (forecasts, safety stock, lead-time, make/buy decisions),and their implication to vendors, (pull in, push out, smaller orderswith greater frequency, spikes), makes order policy complex.Consequently, considerably more deliberation is needed inestablishing vendor criteria as well as the management of company/supplier relationships.
 
 Reduce time to market 
– Analyze the components of lead time.Externally, manufacturing and shipping as lead time componentsare generally fixed in nature but vary from supplier to supplier. Asinventories are more intensely managed and lead times forced tocontract, the burden to meet these dual requirements becomes aprerequisite of vendor qualification. Internally, inventoryobjectives have the most significant impact on product availabilitybut can be controlled through policy adjustment and enhancedvendor resources. In contrast, product development lead timefaces resource constraints not policy limitations. Constrainedresources does not mean non-existent resources. It does meanhowever, internal processes must be thoroughly refined in light of legal, practical and competitive elements introduced by theoutsourcing of the constrained functions.
 Expand technical capabilities
– Understand constraint resourcemanagement. Described as an internal lead time component,product development resource constraints drive vendor capabilitycriteria. Using external sources to solve internal constraintsrequires securing suppliers who offer services which, byassociation, expand company resources.
Optimize product value
– Quality and cost take place in every processthe product goes through. The market drives these elements totheir best level of performance. Opportunities are gained orthrown away based chiefly on process control. Suppliers ingreatest control of their processes will always offer the best valueto dollar return. 
Manage risk 
– Manage the attitudes towards risk. 1) Avoid risk.Change nothing.2) Accept risk. Risk is a part of doing business. 3) Reduce risk.Begin to consider and use unknown sources. 4) Transfer risk. Shiftexposure. 5) Trust but verify. Vendors can also be competitors. 6)Be aware of solvency issues. Non-solvent vendors can reek havocin the supply chain.
 Develop a migration path for emerging technologies
– Develop theinsight, develop the muscle. Whether the attitude towardsemerging technologies is aggressive or conservative it must beclearly understood that indifference kills. Developing the insightonly comes from having developed the priority: Developing themuscle is driven by insightful thinking. Migration under the veil of uncertain technologies and fuzzy product descriptions is achallenge. Sourcing will improve once there has been adjustmentto the fact that existing vendors and comfortable relationshipsmay be left behind. Pioneering can become less troubling after all

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