Sourcing Process Management - IICA€¦ · •Sourcing is the way an organization acquires its...
Transcript of Sourcing Process Management - IICA€¦ · •Sourcing is the way an organization acquires its...
Strategic ProcurementSourcing
&
Process Management
Changing Aspects of Business
• Competition Basis»Price»Quality»Service»Delivery»Technology»Speed/Time»Value Addition
Five Stages for Improvement
Fire Fighting – Crisis managementPush Effect – Supply driven, speculative
Pull Effect – Demand driven, reactiveJust In Time – SCM, optimizationZero Inventory – Triggers driven
Costs down, Value up, Lead time downProduct & Volume flexibility up
3
Effective strategic sourcing
To produce the best products
world-wide, you need more than
ideas, design and specifications.
You need to choose the
very best suppliers
• Your products are only as strong as your
weakest supplier
Supplier’s quality & capability depends on
• Technology
• Plant & Machinery
• Quality control system
• Technical man-power
• Source of raw material
• Financial health
• Management
Strategic considerations in sourcing
• Does it have a value analysis programme ?
• Where does it have a service organization that isavailable to the purchaser?
• Repair parts available locally? At short notice?
• Will it provide design data and mfg drg etc forparts when it goes out of production?
• Does it specialize in your type of equipment?
• Does it have a prescribed schedule for servicecalls?
Vendor evaluation- Categorical plan
• Under this plan, Purchasing, User Dept, Q. C.
and Engineering keep record of evaluation of
each major supplier
• In a meeting, each supplier is assigned an
overall group evaluation, usually expressed in
categorical terms, such as “preferred”, “neutral”,
or “unsatisfactory”
• It is non-quantitative, but easy to administer.
This is helpful while selecting sources for LTE
Vendor development
• Vendor development is a continuous
undertaking. It is achieved though:
• Providing technical guidance to the vendor.
• Providing financial assistance to the vendor
• Giving them educational order to start with.
• Giving assurance regarding long-term business
should they develop the item
Sourcing
• The term Sourcing refers to Procurement practice – Which is aimed at finding, evaluating and engaging
suppliers of goods and services
– As against Procurement which essentially is the acquisition of goods or services
• Sourcing is the way an organization acquires its needed goods and services in such an integratedmanner that functional and hierarchical organizational boundaries are permeated.
• Sourcing is the process of finding and subsequently managing a source for the input of production
Strategic Sourcing
• The overall Goals of strategic sourcing
– To achieve large and sustainable cost
reductions,
– Long-term supply stability and
– Minimization of supply risk
– Improve quality
– Reduce cost
• Benchmarking
Drivers of Strategic Sourcing
• Reduce cost
• Reduce cycle time
• Improve quality over time
• Achieve long term financial performance.
• Increase no. of local/global options
• Increase customer focus
• Deliver more innovative products/services
more frequently & cheaper than competitors
Developing Strategic Sourcing
• Successful sourcing strategies are different for– Functional products and
– Innovative products
• Functional product : are commonly – Low profit margins with
– Relatively stable demands and
– High levels of competition
• Innovative products : are characterized by– Short product life cycle,
– Volatile demand,
– High profit margin, and
– Relatively less competitive
Strategic Sourcing
• Key supplier selection is conducted by
– cross functional team having
• purchasing staff,
• primary user,
• product designer, and
• manufacturing personal
Set Goals For Improving Capabilities
Implement Work Plan
Monitor Progress & Adjust The Work Plans
Step 1
Step 2
Step 3
Step 4
Identify Supplier
Developing Strategic Sourcing
Strategic Sourcing Goal Tools
• Benchmarking
• Brainstorming
• SWOT Analysis
• Customer Focus
• Value Analysis
• Quality improvement
• Cost Reduction, Target costing
• Market complexity Vs Risk/Impact
– Non-critical, Bottleneck, Leverage, Strategic
Procurement Performance Assessment - KPI’s
• Procurement Operating Costs as a Percentage of Spend procurement department's cost efficiency
• On-Time Supplier Deliveries gets when needed
• Supplier Defect Rate measures the quality of purchases made
• Customer Satisfaction ability to satisfy its internal customers
• Procurement Cycle Time measures the productivity
• Supplier Idea Implementation leveraging the intellect in the supply base
23-Dec-19 SCM 17
Push / Pull View
• Push Process (Supply Driven, Ready-made)• Demand is forecast but not known at the time of execution
of the process
• Speculative Processes
• Pull Process (Demand Driven, Tailor-made)• Definite customer demand precedes execution of the
process
• Reactive Processes
• Push/Pull Mix (Boundary) • Separates Push processes from Pull processes
• Significant for supply chain performance
• For achieving acceptable delivery Lead Time
• Enables achieving cost efficiency
Postponement: Bringing Push/Pull Boundary nearer to Customer
The final customisation/ finishing of the product is delayed until actual customer is identified:
A more generic inventory with a less stock variation is possible
Forecasting becomes easier as the product basis is generic and interchangeable (standard items)
Enables providing Customised products at low cost & fast speed
Individual or regional designs are based on certain common components & design
Just-in-time procurement
• JIT requires virtually defect-free material / parts
• Assess supplier’s capability and willingness to
meet your quality requirements and delivery
schedule requirements.
• Establish a long term contract
• Provide technical guidance to the supplier
• Monitor the contract closely
Conventional system
Receiving of
•Materials
•Parts
•Components
Final Assembly
ReceivingInspection
Srores
Finished GoodsInventory
Just In Time System (JIT)
• This is primarily for high value i.e. ‘A’ items
• Deliveries are scheduled once or twice a week
• Inventory is maintained at absolutely minimal level
Finished GoodsInventory
Final Assembly
Receiving of
•Materials
•Parts
•Components
What is EOQ
The EOQ concept holds that the
appropriate quantity to order is the
one that tends to minimise all the
costs associated with the order-
Carrying costs, acquisition cost and
cost of the material itself.
ORDER QUANTITY
AN
NU
AL
INC
REM
ENTA
L C
OST
S
OC=ICC
EOQ
ICC
TC
OC
EOQ Graph
Inventory Model
A – Annual consumption in units.s – Ordering cost per orderI – ICC as % of value of average inv.p– Unit price of the itemLet Q be the EOQ in units.Then average inventory = Q/2 unitsNo. of orders = A/Q Inventory carrying cost = Q/2xp x IOrdering Cost = A/Q x sEOQ : ICC = OCQ/2xp x I = A/Q x s
Inventory Model
pQI2 = As
Q
Q2 = 2AsI p
Q 2As= Ip
Solve the equation : pQ/2 x I = A/Q x s
Exercise:Annual Consumption of the item --20000UnitsCost of Ordering --Rs10000 Inventory Carrying Cost --10%Unit Price of the item --Rs1000
EOQ = ?
Use EOQ concept in purchasing
• Purchaser should also considerer this concept
from Supplier’s point of view while determining
ordering lot sizes on long term contracts.
• This will reduce supplier’s costs and will enable
them to offer lower prices
23-Dec-19 SCM 27
Structuring the Drivers: A Framework
Competitive Strategy
Supply Chain Strategy
ResponsivenessEfficiency
Facilities InformationTransportationInventory
Inventory
Raw materials, work in process, finished goods in S-C
Inventory Policies have dramatic impact on supply chain efficiency & responsivenessRetailer’s Choice:
High Stocks: High Responsiveness
Low Stocks: High Efficiency
A trade off
Drivers
23-Dec-19 SCM 29
Transportation
Entails moving inventory in a supply chain
Transportation choice seriously affects the responsiveness & efficiency of the supply chain
Dispatch a 100 Kg parcel by Air from DEL to Mumbai, highly responsive mode of transport
Send the parcel by Train, highly efficient mode
A trade off
Drivers
23-Dec-19 SCM 30
Drivers
• Facilities
Places where inventory is stored or assembled
or fabricated
Two major types:
Production sites;
Storage sites
Decisions regarding location, capacities &
flexibilities have significant impact on S-C’s
performance
High responsiveness Auto Parts Distributor vs
High efficiency Auto Parts Distributor
23-Dec-19 SCM 31
Drivers
Information : The biggest driver
Consists of data & analysis, regarding inventory,
transportation, facilities & customers, throughout S-C
PoS data Demand Means to fulfill demand
With information on customer demand pattern:
One can produce and stock in advance: Higher
responsiveness.
More accurate quantity forecast, produce only the
right quantity, economy of scale: Higher efficiency
Also helps selection of economic transport and
still achieving high service level (Efficiency &
responsiveness)
Historical and Current Perspective
• In the past there well defined and rigid
boundaries between organizations
• JIT viewed suppliers as partners
- mutual analysis for cost reduction
- mutual product design
- greatly reduced inventory
- improved communications (Internet,Data)
Elements of JIT
• Pull production concept
• Flexible resources
• Cellular manufacturing
• Kanban production control
• Small-lot production
• Quick setups
• High quality focus
• Supplier networks
33
Synonyms for JIT
• Continuous flow of manufacturing
• Zero inventory
• Keep moving material for manufacture
• Time bases competitiveness
• Synchronous manufacturing
JIT Stages
• JIT techniques are classified into Two stages:
• Stage 1: The stage 1 techniques are concerned with preparing the plant for flow, flexibility, short lead time and high quality. They may be said to be the prerequisites for JIT.
• Stage 2: The stage 2 set of techniques generally build on stage 1 set, and comprise those techniques allows operations to run in JIT manner, that is with short (Zero?) lead time and little (Zero?) waste.
JIT Stage 1
Prepare the plantfor Flexibility, Low Cost, Short Lead Time and High Quality
Quality (TQM)
Maintenance (TPM)Design
Focus
People Preparation
Setup Time Reduction
Layout and GT
Small Machines
JIT Stage 2
Produce with Zero lead time and No waste
Enforced Improvement
Process Data Collection
VisibilityTotal People Involvement
Supplier and Customer Partnerships
Buffer and Lot Size Reduction
Inventory Control
Flow Scheduling
JIT
1. People Involvement
2. Visibility to all involved
3. Process data collection
4. Continuous Improvement
5. Flow scheduling
6. Lot size and buffer reduction
7. Inventory Control over network
8. Suppliers partnership
Can we • Adopt certain principles for
enhanced efficiency and optimized working of Public procurement systems
• Basic principles are same• Important to work with people with
visibility, transparency, continuous improvements
Thank you