Date post: | 20-Jun-2015 |
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Definition
Functions of sourcing
Support functions
CRM / SRM & S.C
. . SourcingSourcing::
the fundamental aspects of sourcing is
supplier selection (for a commodity class identified by spend analysis) using one of many negotiation techniques (such as RFx, auctions etc).
Once the suppliers are selected the relationship with the selected suppliers is then managed through the negotiated contracts.
dEfinitionsdEfinitions
o Traditionally, the main activities of a purchasing manager
to beat up potential suppliers on price and then buy products from the lowestcost supplier that could be found.
BUTBUT there are other activities that are becoming equally important.
o The procurement function can be broken into fivemain activity categories:
1. Purchasing
2. Consumption Management
3. Vendor Selection
4. Contract Negotiation
5. Contract Management
PurchasingPurchasingThese activities are the routine activities related to issuing purchaseorders for needed products
There are two types of products that a company buys :
Direct or strategic materials that are needed to produce the products that the company sells to its customers
• Indirect or MRO (maintenance, repair, and operations) products that a company consumes as part of daily operations.
The mechanics of purchasing both types of products are largely the same
ChChallengesallenges
One of the greatest challenges of the purchasing activity
timely manner and without error In data communication
Much of this activity is very predictable and followswell defined routines.
Consumption ManagementConsumption Management
Understanding of how much of what categories of products are being
bought across the entire company as well as by each operating unit.
There must be an understanding of how much of what kinds of products are
bought from whom and at what prices.
Vendor SelectionVendor Selection
There must be an ongoing process to define the procurement capabilities needed to
support the company’s business plan and its operating model.
This definition will provide insight into the relative importance of vendor capabilities.
The value of these capabilities have to be considered in addition to simply the price
of a vendor’s product.
The value of product quality, service levels, just in time delivery, and technical support
can only be estimated in light of what is called for by the business plan and the
company’s operating model.
Once there is an understanding of the current purchasing situation and an appreciation
of what a company needs to support its business plan and operating model, a search can be made for suppliers who have both the products and the service capabilities
needed.
As a general rule, a company seeks to narrow down the number of suppliers it
does Business with.
This way it can leverage its purchasing power with a few suppliers and get better
prices in return for purchasing higher volumes of product.
Contract NegotiationContract Negotiation
A core ingredient of sourcing is negotiation with suppliers and executions of the resulting contract.
Understanding of how much of what categories of products are being bought across the entire company as well as by each operating unit.
The simplest negotiations are for contracts to purchase indirect products where suppliers are selected on the basis of lowest price. The most complex negotiations
are for contracts to purchase direct materials that must meet exacting quality
requirements and where high service levels and technical support are needed.
CAPABILITIESCAPABILITIESSuppliers of both direct and indirect products need a common set of capabilities
capabilities to set up electronic connections for purposes of receiving
orders, sending delivery notifications, sending invoices, and receiving
payments.
make more frequent and smaller deliveries and orders must be filled
accurately and completely. For better inventory management.
RFRFxx
The RFI (Request for Information), RFQ (Request for
Quotation), and RFP (Request for Proposal) :
An RFx is a document with an associated process initiated by a buyer in order to
solicit information, competitive quotes, or proposals from multiple suppliers.
Protocols (aka Auctions)Protocols (aka Auctions)
A typical flow for negotiation is to get a bid response to the RFQ
from the suppliers and choose the appropriate bid/s that satisfy the
requirements of the purchase at minimum cost.
Contract ManagementContract Management
A company needs the ability to track the performance of its suppliers and
hold them accountable to meet the service levels they agreed to in their contract
Routinely collect data about the performance of suppliers.
Any supplier that consistently falls below requirements should be made
aware of their shortcomings and asked to correct them.
Decision Support for Bid EvaluationDecision Support for Bid Evaluation
A suite of decision support tools, are required for bid evaluation:
Tools to elicit a buyer’s preferences for multi-attribute bid evaluation
based on conjoint analysis and advanced decision analysis techniques ;
A visualization tool to compare multiple bids across different
Attributes, and ;
A bid evaluation engine that uses optimization techniques to identify
a cost minimizing bid set subject to various business rules.
Multi-Attribute BidsMulti-Attribute Bids
Factors related to the product specification such as price, material quality
and properties, color and size
Factors related to the service specification such as delivery time and cost ,
and warranty
Supplier qualification factors such as trading history, experience and reputation.
Bundled “All-or-Nothing” BidsBundled “All-or-Nothing” Bids
While negotiating prices for procuring, say, weekly demand, it is advantageous
to aggregate demand over several locations and plants, because this leads to a
larger transaction .
An additional advantage is that suppliers can provide a discounted bid on a
bundle because they might have excess inventory in a local warehouse or spare
capacity in the carrier and hence can reduce transportation costs.
Volume Discount BidsVolume Discount Bids
Allow the seller to specify the price they charge for an item as a
function of quantity that is being purchased.
Bids take the form of supply curves, specifying the price that is to be charged
per unit of item when the quantity of items being purchased lies within a particular
quantity interval.
Support FunctionsSupport Functions
Some support functions that are useful for negotiations and contracts are:
Document management
Project Management
Market Intelligence
Collaboration and Workflow
Document ManagementDocument Management
Files of all types – terms, drawings, schematics, etc. – are important
documents for strategic sourcing.
Additionally, the sourcing documents themselves – RFx’s, auctions,
projects, contracts, proposals, etc. – need to be well managed.
Project ManagementProject Management
Most strategic sourcing activities are managed as projects with certain team
members, goals, milestones, tasks, and schedules. Including:
Discussions and any number of file attachment
List of the other sourcing documents (RFx, auctions, contracts…)
Roles, tasks…
Any number of sub-projects providing a complete schedule to the master
project
Market IntelligenceMarket Intelligence
A variety of external information helps category managers and other
purchasing staff members perform their jobs .
This external information includes commodity prices, supplier news,
company news, and market intelligence such as industry news and reports.
Market intelligence needs to be provided as a sourcing workbench as the first
page upon logging into the system.
Collaboration & WorkflowCollaboration & Workflow
In addition to negotiating and communicating with multiple suppliers,
category managers must collaborate with many people across the enterprise
such as Engineering for technical specifications, Manufacturing for scheduling
and inventory concerns, Legal for contractual terms and conditions, etc.
SUPPLY CHAIN & SUPPLY CHAIN & CRMCRM
In the Past :
Push the product to the customer…..
Sales forecasts are the essentials of information Imperfect inventory
management
Nowadays :
The customer pull the demand…..
Command makes information present in all the firm by the supply chain
First informations are planning & prevision, while CRM is permanent.
Consequences :
Better inventory management
Continual amelioration of quality of service (Kaizen)
Continual circulation of information
Information flow and physic flow must been well droved together. Same thing for CRM & SC.
Behaving like that, the firm will be really efficient.
Convergence between CRM & SCConvergence between CRM & SCExAmplesExAmples
Demand Planning : Good knowledge about customer allow to predict
efficacy and produce at the right moment.
Supply chain is better planned Less stock & better resources utilization
Available-To-Promise (ATP) : System allowing to the firm to promise at the
command, a quantity from the available inventory.
It helps to link between the profile of customer, his preferences and his
buyings history, to propose him a substitution product or a better time.
Command state in real time : Firms permit to customers to follow the
process of their command in real time (In production, on the way..)
Perfect product traceability (DHL, UPS…)
Including the “cost to serve” at the command moment : The firm can know
the Added Value of each command.
So it cans orient the commands in a way to be winner. By focusing on markets
and customers with higher “life time value”
Mobilize the resources for the most benefic customers and products..
SUPPLY CHAIN & SUPPLY CHAIN & sRMsRM Today, the most big challenge is the total integration of supply chain.
By including Supplier Relationship Management “SRM” (like CRM)
we will achieve that goal.
SCEM (Supply Chain Executive Management) helps the firm to manage
all the events during the phases of production and distribution.
Alert systems are now operational in any phase of SC. Permitting to
detect also any stock rupture.
Continual following of SC become more efficient when we manage
a lot of information’s flows.
Reportings helps to treat this flows and analyze it.
So, integration of SC impose a perfect coordination between
management tools.
CONCLUSIONCONCLUSION
This chapter provided an overview of the various functionalities that are
required for procurement and sourcing for an enterprise.
Soufiane AL KHATIRI
Fadel IDBRAIMwww.fadelexpert.ici.ma