SOURCING AND THE MANAGEMENT AND DEVELOPMENT OF SUPPLIERS

What then is sourcing?

BASICALLY
Getting the right person to find the right thing for the right place at the right time for the right price from the right supplier with the right level of service!

 Sourcing is a process that helps companies analyze how they purchase products and services to lower costs, improve profits and improve their supply chain.
Strategic Sourcing recognizes that people including innovative suppliers are a valuable part of an organisation and focuses on reducing waste or non-value-added cots. While most organsation implement strategic sourcing initiatives for the purpose of saving money, others reasons include improving supplier performance and minimizing risk.

 Sourcing is normally considered under three main topics

Sourcing Information Sourcing Strategies Sourcing decision

SOURCING INFORMATION
Sourcing information is where the buying department analysis the market condition of the product that is to be purchased, take into consideration the procurement directives and finally assessing and developing the appropriate suppliers. In doing a market analysis, the procurement department will need to: Assess the capability of the market Analysis of the power dependency in the supply chain Analysis of individual marketplaces

 Supplier preference Relative position of your organisation in the market Supply chain cost analysis The nature of the market, appropriate sourcing strategy to use e.g. global, regional, local, national etc Potential market and actual market size

SOURCES OF SUPPLY
This talk about who can supply, supplier assessment and supplier rating. One can get information of suppliers from: Catalogues Trade directives Trade Journals Yellow Pages Internet Information exchange between buyers Exhibitions Database

SUPPLIER ASESSMENT AND APPRAISAL

Supplier assessment is when a supplier applies to a buyer to be placed in on the buyer suppliers list or in the course of negotiation when a buyer wishes to assure the department that, that supplier can meet their requirements reliable in future.

FACTORS TO TAKE INTO CONSIDERATION IN SUPPLIER ASESSMENT

Geographical Location of the supplier is very crucial in the evaluation stage Internal operation of the supplier. This is the stage where the buyer will assess the supplier based on technological knowhow and how best the supplier keeps abreast with current situations and new development. There is the need to also check on the inspection methods used by the supplier to detect defects and make sure that only quality products are produced. Plant visitation to the suppliers plant to make sure that the product delivered is of good quality. This is a means of periodic checks and to examine the suppliers procedures, methods and systems. During the plant visit, the buyer should take note of the following: Facilities the production facilities available and the layout of the plant. Receiving bay, materials handling equipment, tool rooms, etc Personnel- attitude of personnel at the suppliers site, type of supervisory mechanism used, technical competence etc Housekeeping- general cleanliness and maintenance is a sign of efficiency and reliability of output that may be expected

 Procedures- it is prudent to study the way the supplier handles orders from buyers right from the time the order was received to when the goods was dispatched to the buyer. This type of analysis will eventually tell the buyer the level of efficiency that is maintained and potential procedural problems that could affect delivery. Also the buyer should look out for quality control; procedures used. Financial status of the supplier should also be taken into consideration. The supplier financial and credit reports should be evaluated and any other related financial issues Third Party certification- if an independent body is used for the assessment and visits, the results of the assessment and visits should be made available to subscribers and published in the form of a certificate Reputation and goodwill of the supplier Past performance a record of the consistency of delivery and quality, preferably with evidence of improvement over time.

SUPPLIER SELECTION
Capacity: sufficient and flexible Commitment: to quality (quality systems) Control : control of process Cash : sufficient funds for the business Cost: cost/ price relationships and total cost of ownership Consistency: consistent production of goods or services (ISO9000). Culture : compatible with similar values Clean: environmentally sound ( conforming with legislative requirements ) Communications: the supplier is fully integrated with information and communication technology (ICT).

Sourcing Strategies
Single sourcing
The buying firm depends on a single company for all or nearly all of an item or service

Multiple sourcing
The buying firm shares its business across multiple suppliers

Cross sourcing
Using a single supplier for a certain part or service and another supplier with the same capabilities for a similar part

Dual sourcing
Using two suppliers for the same purchased product or service

SUPPLIER RELATIONS
From adversarial to Partnership approach. Also referred to as co-makership

SUPPLIER DEVELOPMENT
REASONS FOR SUPPLIER DEVELOPMENT
Improving supplier performance Reducing serious quality issues Developing new routes to supply Improving business alignment between the supplier and the buying organisation Developing a product or service not currently available in the market place Generating competition for a high price product or service dominating the market place.

MATCHING SUPPLY WITH DEMAND.

What do you understand by the term INVENTORY?

TYPES OF INVENTORY
Raw Materials and Components ready to use for production Work In Progress - stock of unfinished goods to be incorporated into the end product. Finished goods ready for sale which are ready for dispatch Consumables - for examples, fuel, stationery, detergent etc.

 NB
Primary Inventory the raw materials, components, work in progress and finished goods Secondary Inventory - refers to the consumables of various categories

THE ECONOMICS OF STOCK MANAGEMENT

Acquisition Cost: That is the cost involved in placing an order irrespective of the order size. Ordering cost include: Preliminary cost: i.e. cost involve in preparing requisition vendor selection and negotiation Placement Cost: cost in ordering, stationery, postage etc. Post placement cost: cost in progressing, receipt of goods, material handling, inspection, certification and payment of invoices

 Holding Cost: There are two types of holding cost

Cost involved in the value of inventory held, i.e. financial cost which is the interest on capital tied up as inventory, cost of insurance and finally loses in value through deterioration, obsolescence and pilfering. Costs proportionally to the physical characteristics of the inventory e.g. talking about storage cost, labor cost and clerical cost.

 Cost of Stock out: these talks about the cost of being out of stock. These include. Loss of production output, cost of idle time of fixed cost overheads spread over reduced output, cost of action taken to solve the stock out problem and also the cost involve in losing customer goodwill

ABC (PARETO) ANALYSIS

This is a very important approach to the management of stocks of consumables or maintenance, repairs and operating supplies (MRO Items) and one should ensure that one is familiar with it

 THE ABC CODES

A class inventory will typically contain items that account for 70% to 75% of total value B class inventory will have around 20% of total value C class inventory will account for the remaining 10%

Questio ns ?

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