Dr.

Jukka Tyrvinen Principal Lecturer

The increasing importance of global sourcing demands new skills in purchasing In the past, being a qualified purchasing manager required good negotiating 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 be supplemented by cross-cultural knowledge, language proficiency, knowledge of international finance, international logistics and capabilities in information technology and telecommunication. Above all, procurement must be able to establish, develop and manage long-term supplier relationships

Global Sourcing Strategies

Nokias 50 Billion EUR sales over 25 billion EUR goes to suppliers (material, services) Metso Oyj has 6 Billion EUR sales; over 50% is supplies. Thereafter, Metso is supplier itself e.g. pulp & paper making machinery ABB, Asea Brown Boweri, world-scale electrical equipment supplier has sales over 15 Billion EUR and spend 45% of that to suppliers Wood fiber cost are over 50% of the total production costs for pulp mills worldwide
Global Sourcing Strategies

In fact, we source more often services than goods, however, services include often products (car rental, restaurants, spare parts..) In U.S.A. 80% of the Gross Domestic Product is services Logistics services (inward, warehousing, outbound) form 10% of GDP in U.S.A. In Finland, the above figure is as high as 19% ! Why??

Global Sourcing Strategies

NOTE: we must sell heck of a lot more products to get the same effect in the profit margin as opposed to smaller savings in the supply chain !!! SEE EXAMPLE!
SALES Then EUR Now EUR Increase % Extra profit EUR

100 000

120 000

+20

2 000 assuming 10% on sales

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

The above is true as long as we do not make lower quality production with these savings.

Global Sourcing Strategies

Sourcing Purchasing Procurement Supply Chains Logistics Company Strategy Product Quality Product Innovation

Global Sourcing Strategies

Sourcing - What is sourcing?

Sourcing the process of identifying, selecting and developing suppliers is a key purchasing activity. Sourcing can be either at tactical/operational or strategic levels
Comparison of tactical and strategic sourcing business environments
Tactical sourcing environment
Clearly defined requirements and specifications

Strategic sourcing environment

Development of deep understanding of requirements value analysis and engineering to identify operational value and trade-offs Development of a deep understanding of the supply industry, product and service offerings and performance drivers of key suppliers

Open bid process with little or no ability for suppliers to offer alternative designs or specifications purchase price focus

Global Sourcing Strategies

Sourcing 1. Process 2. Sourcing Information Business Intelligence 3. Analysis of Market Conditions 4. E-Sourcing 5. Locating Suppliers / Supplier Appraisal 6. Supplier Performance 7. Make-or-buy Decisions 8. Different Global Sourcing Strategies Outsourcing, Subcontracting, Partnering,etc.

Global Sourcing Strategies

Corporate Strategic Plan

Strategic Marketing Planning The Process Steps > Same Procedure with Sourcing !! Start from the Corporate Strategic Plan !
1. Mission

Phase One (Goal Setting)

2. Corporate objectives 3. Marketing audit 4. Market overview

MISSION STATEMENT FINANCIAL SUMMARY MARKET OVERVIEW SWOT ANALYSES ASSUMPTIONS MARKETING OBJECTIVES AND STRATEGIES 3-YEAR FORECAST BUDGETS

Phase Two (Situation Review)

5. SWOT analyses 6. Assumptions

Phase Three (Strategy Formulation)

7. Marketing objectives and strategies 8. Estimate expected results and identify alternative plans and mixes

9. Budget

Phase Four (Resource Allocation and Monitoring)

10. First year detailed implementation program

Measurement and review

Strategic Marketing Planning

Jukka Tyrvinen

Purchasing - Classic definition:

To buy materials of the right quality, in the right quantity from the right source delivered to the right place at the right time at the right price

1. 2. 3. 4. 5. 6. 7.

Purchasing - several perspectives:

Purchasing as Purchasing as Purchasing as Purchasing as Purchasing as Purchasing as Purchasing as a function a process a link in the supply or value chain a relationship problem-solving a discipline a profession

Global Sourcing Strategies

Procurement
Traditionally, the role of procurement has been to achieve the cheapest price and ensure a sufficent flow of materials to production. Today, the role of procurement is rather proactive in the design and management of networks of connections. It involves interorganizational relationships, utilizes the resources of suppliers, supplier development, cost management, and the stages of logistics, connecting and processing..

Global Sourcing Strategies

Strategic Procurement
Make-or-buy decisions Organization of the supply-base structure Customer-Supplier relationships

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

Global Sourcing Strategies

Supply Chains

Numerous definitions:

(Cooper&Ellram 1993) Supply chain an integrative approach to manage the total flow of a distribution channel from the supplier to the ultimate user (Gereffi&Korzeniewics 1994) ..a series of independent enterprises and internal organizational units, with individual transactions determined by the market, without overall direction by a single dominant firm (Treacy&Wiersma 1993) Supply chain flow is the entire set of activities involving the organization and flow of material and other resources to produce and deliver the product to the final customer

Global Sourcing Strategies

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)

Global Sourcing Strategies

Corporate/Company Strategy

Global sourcing strategy must be an elementary part in enterprises business strategy. Targets are derived naturally from companys production / sales strategies, but above all, from companys mission and vision, being thus 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

Global Sourcing Strategies

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

Global Sourcing Strategies

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.

Global Sourcing Strategies