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Strategic sourcing - Coggle Diagram

- - - - which activities are internal or not?
    - - define, select, contract and manage the suppliers
  - - - lead cross-functional sourcing teams that develop sourcing strategy
        
        Chief Procurement Officer (CPO), global commodity mangers, commodity business plan
    - - execute transnational purchase order processes
- - - - price = $100, COGS = $80, purchasing = .85*$80=$68
      - say purchasing improves 10%
      - then margin becomes $20+$6.8, which is a 34% increase
      - and even greater leverage on net income
  - - - control prices & prevent wasteful spending
    - - need talent & mindset beyond transactional purchasing
      - need to integrate what overall operations strategy
- - - - scale & scope economies
      - risk pooling
  - - - the hold-up problem:
        
        a term used in economics to describe a situation where 2 parties (e.g., supplier & manufacturer) may be able to work most efficiently by cooperating, but refrain from doing so due to concerns that they may give the other party increased bargaining power, and thereby reduce their own profits.
    - - dependence/ loss of control
      - leakage of proprietary skills/ information
- - - - fully leverages supplier capabilities
      - drives improvement at both customer & supplier
      - commitment to competitive pricing is high
      - requires significant customer capability
      - commitment to cooperative relationship is high
    - - may not provide clear incentive to drive improvement
      - assumes supplier goal congruence
      - commitment to competitive pricing is low
      - supplier may capture all value creation
      - commitment to cooperative relationship is high
    - - requires significant purchasing clout
      - eliminates supplier lethargy but may install resentment
      - commitment to competitive pricing is high
      - does not drive synergistic improvement
      - commitment to cooperative relationship is high
    - - leaves lots of money on the table
      - commitment to competitive pricing is low
      - typifies the clerical mentality of transitional purchasing
      - commitment to cooperative relationship is low
      - focuses on price rather than total cost
- - - - 2) identify and quantify cost drivers using Activity Based Costing
        
        Order Level: E.g., Acquisition - ordering costs; Reception - quality testing costs; Utilisation - production delay costs; etc.
        
        Unit Level: E.g., Possession - inventory holding costs, order picking costs; Utilisation: maintenance costs, installation costs; etc.
        
        Supplier Level: E.g., Acquisition - supplier vetting costs; Utilisation - Personnel training costs; etc.
      - 3) calculate TCO of each supplier
      - 1) determine all network activities impacted by the particular sourcing
    - - communicate TCO via scorecard to manage suppliers over time
      - suppliers communicating TCO to customers
      - support make-or-buy decision & supplier selection
    - - includes more than TLC and may capture additional start-up & risk management costs
    - - TCO = [ (100 - score)/100 ] + 1
  - - - reduce supplier level fixed costs
      - potentially improved cooperation
    - - leverage competition
      - reduce supply risks
      - volume flexibility
    - - use one supplier for all parts of similar type
  - - - Volume & responsiveness-based sourcing
        
        for base demand
        
        use supplier that is cost efficient but less flexible
        
        for volatile demand
        
        use supplier with key capability focused on responsiveness
      - Product or customisation-based sourcing
        
        sourcing depends on each product's reward, risk, and customisation req's
        
        e.g., standard vs. custom products, small batch vs large volume
      - Quality-based sourcing
        
        different sources for different quality requirements
      - Innovation-based sourcing
        
        different sources for new products vs older stabilised
    - - e.g., Benetton uses suppliers for long lead time, own plant for short lead times
- - - - modularity (product) & separability (process)
      - automation
- - - - e.g., personal computer (PC), bicycle
    - - e.g., mainframe computer, fighter jet
- - - - Location: offshore
      - Sourcing: in-source (captive)
    - - Location: domestic
      - Sourcing: outsource
    - - Location: domestic
      - Sourcing: in-source (captive)
    - - Location: offshore
      - Sourcing: outsource
- - - - e.g., different materials for parts
    - - close cooperation between production, purchasing, and r&d departments
  - - - ability to transfer knowledge
      - close collaboration with suppliers
      - close cooperation between purchasing & manufacturing operations
      - supplier-management skills
  - - - negotiation, commercial skills
      - market/ supplier know-how
- - - - invest
        
        build close relationships, integrate them in your processes
      - not the cost of one supply, but the longevity go the relationship matters
  - - - vs vertical stand-alone function
    - - what should be bought, from which suppliers, under what terms