Sourcing decisions in the supply chain

The role of sourcing in a supply chain

Procurement is the process by which companies obtain the component raw materials, products, services or other resources from suppliers to do it their operations. Sourcing is a whole set of business processes that are required for the purchase of goods and services. For the functions of the supply chain, the most important decision is whether outsourced or in-house. A company outsource if the company hired an outside company to carry out the operation in an enterprise. Activities outsourced supply chain based on two questions:
The third party would increase the surplus of supply chains to enhance the activity of the in-house?

To how the level of the risk grows of outsourcing?

Although the decision to outsource is made, the process includes the selection of suppliers sourcing, supplier contracts, designing collaborative product design, procurement of materials or services and the evaluation of the performance of suppliers.

Supplier scoring and assessment is a process used to rate the performance of the supplier. Supplier selection is the use of the output of the scoring supplier assessment and to identify the appropriate supplier.

Design collaboration allows suppliers and manufacturers to work with when designing components for the final product. Procurement is the process by which the supplier send the product in response to placing an order the buyer.

Sourcing planning and analysis is to analyze spending on various cross-supplier and category component to identify opportunities to reduce total costs. When designing a strategy of sourcing, which is important for the company to explain the biggest influence factors on performance and refine targets in the area.

In-house or outsource

Companies should consider outsourcing if major surplus growth with little risk. The function of the form in-house better if a small surplus growth or increased risk.

How third parties increase surplus supply chains: third-party supply chain surplus will increase if they increase the value to the consumer or reduce the cost of the supply chain for companies doing in-house. A third party can raise the effective supply chain surplus if they can gather assets or flowing to a higher level than the company itself. Different types of third party mechanisms that can be used to increase the surplus, i.e.: number of capacity, the amount of inventory, the number intermediary transport transport transport, the number intermediary storage, warehouse number, the number of procurement, the amount of information, the amount of the receivable, the amount of relationship, low cost and high quality.

The risk of using a third party: the company must evaluate the risks: faulty process, estimating the cost of coordination, reduce consumer/supplier contracts, the loss of the internal capabilities and growth in the strength of the third party, information leakage and data sensitive, ineffective contract

Third and Fourth-Party Logistics Providers

Third-party logistics (3PL) performs on one or more logistics activities related to the flow of products, information, and funds that could be carried out by the company itself. With the increasing globalization of the supply chain, consumers are looking for players who can manage virtually all aspects of the supply chain. This gave rise to the concept of the fourth party logistics (4PL).

Supplier scoring and assessment

when comparing companies, many companies make errors of Staples only focus on quota prices, ignores the fact that dealers of different dimensions the important thing that affects the total costs used supplier. When scoring and scaring supplier, there are factors other than price that quotas should be considered: fulfillment lead time, on-time performance, flexibility of supply, delivery frequency/minimum lot size, the quality of supply, inbound transportation costs, pricing terms, coordination capability information, collaboration design capabilities, interest rate, taxes and duties, the survival of the supplier.

Supplier selection – auctions and negotiations

Before selecting supplier, companies must decide whether to use single or multiple reliable sourcing. Supplier selection is after using the mechanism of variation, including offline competitive bid, reverse auction or direct negotiations. Any the mechanism used, selection of suppliers must be based on the total costs used supplier and not just the price of buying. The auction mechanism that is often used in practice and highlighting all of their wealth.

Auction within the supply chain: buyer need to auction structure to minimize their costs and get the winning supplier and costs low with their offer. The auction opened like an English auction is likely to achieve learning outcomes. The basic principle of negotiations: Success of the negotiations, to make the outcomes equally lucky.

Contracts and supply chain performance

Contract must be designed to facilitate supply chain outcomes and destructive actions minimize performance. There are 3 questions when designing supply chain contracts:

How the contract will affect the company's profit and the total profit of the supply chain?

Will the incentives in the contract introduces some perverts information?

How the contract will affect the performance of the supplier all the key performance measure?
The contract for the availability of products and profit: supply chains to improve overall profit, suppliers must design a contract to support the purchasers to buy more and improve the level of product availability. Require suppliers to share (to participate) in some of the uncertainty of demand of the buyer. 3 contracts that improve overall profit:

Buyback contract : contract manufacturing can use the buyback to boost profit. Buyback pushed retailer to improve the level of product availability. Buyback contract push endeavor towards the retailer lower and increase the discrepancy between the information in the supply chain.
Revenue – sharing contract : double marginalization by reducing the fee per unit imposed for retailer, so in effective reduce the cost of overstocking. Revenue sharing contract boosts deviations – information and encouraging efforts towards the retailer that is lower in the case of overstocking, only his stuff done buy-back contract.

Quantity flexibility contract : double marginalization by giving the retailer the ability to modify the orders based on the improvement forecast for approach point sale. The results of this contract in a low diversion information instead of buy-back or revenue sharing contract when suppliers sell to multiple buyers or excess capacity, flexible supplier.

Design collaboration

Design Collaboration with suppliers can help companies reduce costs, improve quality and reduce time to market. are the responsibility of the design moves for the supplier, it is important to ensure the design for logistic and design for manufacturing principles to follow. To be successful, manufacturing design Coordinator should be effective in the supply chain.

The procurement process

For direct material procurement Process should focus on coordination and improve visibility with the supplier. The procurement process for indirect material should focus on reducing transaction costs for each order. Procurement process in two cases should be consolidated orders to benefit economic scale and quantity discounts.

Sourcing planning and analysis

Spending procurement contracting and analysis must be in part to ensure the suitability of the economies of scale. Supplier performance analysis should be used to build a portfolio of complementary with the power supplier. Cheap, but perform a low, suppliers must use on-demand while supplies to perform is high but it's more expensive, the supplier must use to hold against variations in the demand and supply of resources another.

Risk management in sourcing

Sourcing Risks may also be in an inability to meet demand on time, increases in the cost of procurement or loss of property intellectual. It is important to develop strategies that help reduce the relaxation part of the risk of the inability to meet demand on time arising from interruption or delay of the resources available.