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Sourcing is the process of identifying,

selecting and developing suppliers.


1. Tactical & Operational Sourcing– is
concerned with lower-level decisions
relating to high-profit, low risk, non-
critical items.
2. Strategic Sourcing– is concerned with
top level, longer term decisions
relating to high profit, high supply risk
bottleneck products.
Stage 1: Identify & re-evaluate needs.
Stage 2: Define & evaluate user’s
requirements
Stage 3: decide to make or buy
Stage 4: Identify type of purchase
Stage 5: Conduct market analysis
Stage 6: Identify possible suppliers.
Stage7: Prescreen possible suppliers
Stage 8:Evaluate the remaining supply
base.
Stage 9: Choose Supplier
Stage10: Deliver product/perform service
Stage 11: Post purchase/ make
performance evaluation
 Consumable Supplies
 Production materials & components
 Capital Purchases
 Intellectual Property
 Subcontractors
 Services
 Source Location
 Supplier Evaluation
 One or more suppliers
 The captive supplier
 Distributor
 Reciprocity
 Supplier Associations
 Price rings, cartels.
 Intra-company purchases.
Make Decisions:
1. Cost considerations
2. Desire to integrate plant operations.
3. Productive use of excess plant capacity
to help absorb fixed overhead.
4. Direct control over production/quality.
5. Design secrecy required.
6. Unreliable suppliers.
7. Desire to maintain stable workforce.
Buy Decisions:
1. Limited production facilities.
2. Cost considerations.
3. Small volume purchases.
4. Supplier’s specialized know-how.
5. Desire to maintain a multiple-source
policy.
6. Indirect management control
considerations.
7. Procurement and inventory
considerations.
Outsourcing: may be defined as a management
strategy by which major non-core functions
are transferred to specialist, efficient
external providers.

Central to Sourcing:
 Make or Buy Decision
 Partnerships between purchasers & suppliers.
 The rapid change in the technology landscape,
especially in information and communication
technology (ICT); external vendors are often in
position to provide more effective solutions
support in the new technology.
 Globalization is a strong catalyst in outsourcing
enhancing the transparency in financial
reporting, wider choice of suppliers and more
competition.
1. High technology/high volume: these
products are suitable for own
manufacturing.
2. High technology/low volume: the
preferred strategy is to outsource.
3. Low technology/high volume: if the
volume is high then a supply partnership
can be considered with third party
supplier.
4. Low technology/low volume: if demand
is low partnerships are not very
important.
Subcontracting maybe distinguished from
outsourcing in that the latter involves the
total restructuring of an enterprise around
core competences and outside
relationships. Subcontracting is a tactical,
short-term approach.
 Where the buyer’s organization is the
employer or client entrusting work to a
main contractor who in turn subcontracts
part of the work.
 Subcontracting maybe done due to
overloading of machine or labor, to
ensure completion of work, lack of
specialist machine or know-how, to avoid
acquiring long term capacity when future
demand is uncertain.
Reciprocity– often referred to as ‘selling
through the order book’– is a policy of giving
preference to suppliers that are also
customers of the buying company.
Intra-company trading applies to large
enterprises and conglomerates where the
possibilty arises of buying certain materials
from a member of the group. This policy is
justified on the grounds that it ensures the
utilization and profitability of the supplying
undertaking and the profitability of the
group as a whole.
Purchasing Consortia: a collaborative
arrangement under which two or more
organizations combine their requirements for
a specified range of goods and services to
gain price, design, supply availability and
assurance benefits resulting from greater
volumes of purchase.
 Economies of large-scale purchasing.
 Members can utilize the relevant professional
purchasing skills of the consortia staff.
 Saving of time in ordering standard items
 Buying leverage through bulk purchases in
wide range of supplies.
 Costs are clearly defined.
Big JIT: or lean production focusing on all sources
of waste.
Little JIT focusing more narrowly on scheduling
goods, inventories and providing resources
when needed.
The objectives of JIT:
 Zero Defects
 Zero set-up time
 Zero Inventories
 Zero handling
 Zero lead times
 Lot size one
 Uniform master production schedules
 ‘Pull’ production systems
 Good customer-supplier relationships
 Short distance between customer & supplier.
 Reliable delivery
 Consistent quality with zero defects.
Kanban system is an essential aspect of JIT.
In Japanese, the word Kanban means
‘ticket’ or ‘signal’ and in JIT refers to an
information system in which instructions
relating to the type and quantity of items
to be withdrawn from the preceding
manufacturing process are conveyed by a
card that is attached to a shortage and
transport container.
 Production Kanban or P Kanban signals the
need to produce more parts.

 Conveyance Kanban or C Kanban signals


the need to deliver more parts to the next
work station.
Big JIT: or lean production focusing on all
sources of waste.
Little JIT focusing more narrowly on scheduling
goods, inventories and providing resources
when needed.
The objectives of JIT:
 Zero Defects
 Zero set-up time
 Zero Inventories
 Zero handling
 Zero lead times
 Lot size one
 Uniform master production schedules
 ‘Pull’ production systems
 Good customer-supplier relationships
 Short distance between customer & supplier.
 Reliable delivery
 Consistent quality with zero defects.
Kanban system is an essential aspect of JIT. In
Japanese, the word Kanban means ‘ticket’ or
‘signal’ and in JIT refers to an information
system in which instructions relating to the type
and quantity of items to be withdrawn from the
preceding manufacturing process are conveyed
by a card that is attached to a shortage and
transport container.
 Production Kanban or P Kanban signals the
need to produce more parts.

 Conveyance Kanban or C Kanban signals the


need to deliver more parts to the next work station.
This is the registered trademark of the Bose
Corporation & is a customer-supplier
partnerships concept practiced by a number
of companies and their suppliers. In a JIT II
relationship, a supplier’s representative
functions as a member of the customer’s
purchasing department while paid by the
supplier.
 Because the supplier’s representatives are
full time employees of their customer’s,
they have access to information that can
be used to reduce lead times.
 Real-time awareness of supplier’s needs.
 Transportation costs are lowered as a
result of supplier’s partnership with
customers to deliver products.
 The supplier is involved in concurrent
design and value analysis.
 Material costs are reduced
 Administrative costs are lowered due to
reduction in paper work
In JIT the supplier establishes his own
factory close to the customer’s plant,
which further enhances the opportunities
for sequential deliveries.

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