IN THIS SECTION WE EXAMINE WAYS TO ACHIEVE STRATEGIC SOURCING:
- What is Strategic Sourcing?
- What is Supplier Integration?
- The Influence of Buyers
- Vendor Appraisals
- Establishing a Strategic Sourcing Strategy
The logic behind strategic sourcing is to develop a framework from which suppliers are looked at, to try develop the relationship so that the buying organisation achieves both a cost saving and to fully integrate the suppliers within the business.
Behind strategic sourcing lies the belief that by motivating your suppliers to improve the services they offer you and offer low costs you business increases its competitive advantage. The way strategic sourcing works is by setting up a team to analyse your suppliers:
Please refer to the vendor appraisal section to see the types of questions which could be phrased to your suppliers.
WHY HAVE SUPPLIER INTEGRATION?
Most organisations operate on the basis that raw materials costs are 50% of the sales costs and that in order to remain competitive, good buyer-supplier relationships are necessary.
Supplier integration provides opportunities for:
- Material cost savings.
- Reduced inventory levels.
- High quality service from approved suppliers.
- Reduced expenditure on receipt inspection and associated booking in and quality certification costs.
Kotler (1989) defines the influence of industrial buying behaviour as encompassing:
- ENVIRONMENTAL - Demand, State of Economy, Money Supply Conditions, Pace of Technological Change, Regulations, Competition.
- ORGANISATIONAL - Objectives, Policies, Procedures, Structures, Systems.
- INTERPERSONAL - Authority, Status, Empathy, Persuasiveness.
- INDIVIDUAL - Age, Education, Job Position, Personality, Risk Attitudes.
ESTABLISHING A STRATEGIC SOURCING STRATEGY
- Based on the principals of A T Kearney, establish a strategic sourcing team comprising of both purchasing and production specialists. The logic of having production specialists within the team is to analyse supplier capabilities in depth.
- Establish the correct sourcing team strategy in relation to your business needs, for example a sourcing team strategy could entail a reduction in your supplier base from several hundred suppliers to say less than 50, who can offer your business high quality standards and year on year cost reductions.
- Make all your existing suppliers become aware that your business is reviewing its supplier base, this could be done by sending letters to all suppliers.
- Make potential suppliers aware that your business is reviewing its supplier base, this could be done by placing advertisements in both trade and national newspapers.
- Design a questionnaire by which to appraise existing/potential suppliers. This questionnaire will of course be the first bench mark to assess suppliers.
- Anlayse the initial response from the questionnaires, remember the suppliers who respond value your business, those that do not, obviously do not.
- The next step is to get the sourcing team to anlayse a short list of suppliers which are found to be suitable for the business based on existing buyer-supplier performance, delivery response, quality/environmental awards, etc.
- Send the sourcing teams to look at the suppliers in more depth, use the production specialists to look at supplier machinery and capabilities, whilst the purchasing specialists can concentrate on establishing and clarifying the buyer-supplier relationships.
- The sourcing team should now be able to identify the key supplier base for your business, from which new agreements between buyers may need to be established.