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DPS 304 : Sourcing Strategies & Policies. Sourcing The process of identifying, selecting & developing suppliers Can be done at tactical & operational or strategic levels. Sourcing Strategies & Policies.  Tactical & Operational Sourcing

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dps 304 sourcing strategies policies

DPS 304 : Sourcing Strategies & Policies


The process of identifying, selecting & developing suppliers

Can be done at tactical & operational or strategic levels

sourcing strategies policies

Sourcing Strategies & Policies

 Tactical & Operational Sourcing

Concerned with lower-level decisions relating to high-profit, low-risk, non-critical items

Also concerned with short-term adaptive decisions as to how and from where specific supplier requirements are to be met.

sourcing strategies policies1

Sourcing Strategies & Policies

Strategic Sourcing

Concerned with top-level, longer-term decisions relating to high-profit, high supply risk strategic items and low-profit, high supply risk bottleneck products and services

Concerned with the formulation of long-term purchasing policies, the supplier base, partnership sourcing, reciprocal & intra-company trading, globalisation & countertrade, the purchase of capital equipment & ethical issues.

Procurement is viewed as a knowledge-based activity concerned with the total cost of ownership leading to business competitive advantage

sourcing strategies policies2

Sourcing Strategies & Policies

 Comparison of Tactical & Strategic Sourcing

sourcing process

Sourcing Process

Novack & Simco presented 11-stage process

Stage 1 : identify or re-evaluate needs

Needs change

Stage 2: define or evaluate users requirements

Stage 3: decide to make or buy

Stage 4: identify type of purchase

Straight rebuy or routine purchase

A modified rebuy – change supplier or input

A new buy which results from new user need

sourcing process1

Sourcing Process

Novack & Simco presented 11-stage process

Stage 5 : Conduct market analysis

a source of supply can operate in a purely competitive market (many suppliers), an oligopolistic market (a few large suppliers) or monopolistic

Stage 6: identify possible suppliers

include suppliers you had not previously considered

Stage 7: pre-screen suppliers ( done through expression of interest or prequalification sessions)

Reduce suppliers to few who can meet demands

sourcing process2

Sourcing Process

Novack & Simco presented 11-stage process

Stage 8 : Evaluate the remaining supply base

Accomplished by means of competitive bidding

Stage 9: Choose supplier

Choice determines the relationship that will exist between the purchasing & supplier organizations & how the relationships will be structured and implemented.

Also determines how relationships with non-selected suppliers will be maintained

sourcing process3

Sourcing Process

Novack & Simco presented 11-stage process

Stage 10 : Deliver product/perform service

Generate data for supplier performance evaluation

Stage 11: Post purchase/make performance evaluation

Supplier’s performance must be evaluated to determine how well the purchaser’s needs have been met

Provides data for future sourcing

sourcing information

Sourcing Information

Areas of sourcing information

Analysis of market conditions



Locating Supplier Sources

Supplier assessment

Supplier Performance rating

sourcing information1

Sourcing Information

Analysis of market conditions

Market – a place where goods & service are bought & sold, large groups of buyers & sellers of wide classes of goods eg electronics market, demand & supply of a single class of community, eg the cement market, the general economic conditions relating to the supply of goods & services at a particular time

Distinguish between buyer’s & seller’s market

sourcing information2

Sourcing Information

 Market analysis

Move beyond an expert expediter to a strategic procurer

Use business intelligence to analyse purchasing environment - identify strengths, weaknesses, opportunities & threats that impact supplies

sourcing information3

Sourcing Information

 Why market analysis?

Helps in forecasting long-term demand for the product

Assists in forecasting the price trends of bought-out items & how material costs are likely to affect production costs & selling prices

Indicates what alternative goods and supply sources are available eg may be cheaper to buy abroad

Gives guidance on the security of supply sources which is of importance to sensitive commodities sourced abroad

sourcing information4

Sourcing Information

 Why market analysis?

Information relating to pay trends, commodity prices, political factors etc can aid in deciding sourcing strategy eg, forward buying, stock-piling or hand-to-mouth

sourcing information5

Sourcing Information

 Sources of Information for market analysis

Primary data – observation, analysis of internal records eg sales trends, visit to suppliers, questionnaires

Secondary data – statistics & external reports

International sources - trade associations

Govt sources

Non govt sources eg CIPS, KISM

The press – economist, business daily

Economic forecasts

supplier appraisal

Supplier appraisal

Refers to analyzing a prospective vendor for inclusion in the buyer’s approved list.

Lysons states that appraisal is necessary in the following situations;

When potential supplier is not certified eg ISO 9000:2000

Purchase of strategic high-profit, high-risk items

Purchase of non-standard items

Placing of construction and similar contracts

When entering into JIT arrangements

When engaging in global sourcing

supplier appraisal1

Supplier appraisal

When establishing e-procurement arrangements with long-term strategic suppliers

When negotiating outsourcing contracts

Before agreeing to a subcontract with a main supplier in relation to important companies

When negotiating service-level agreements

supplier appraisal2

Supplier appraisal

What should be appraised?


Production capacity & facilities

Human Resources



Environmental & ethical considerations


Orgnaizational structure

obtaining information for supplier appraisal

Obtaining Information for Supplier appraisal

Appraisal Questionnaires

Supplier visits

Personal attitudes

Means of controlling quality


Competence of technical staff

Technological knowhow of supervisory personnel

Adequacy & care of production equipment

supplier approval

Supplier approval

Recognition that following a process of appraisal, that a particular supplier is able to meet the standards & requirements of the particular buyer

Approved suppliers may be graded into;



Approved suppliers

Confirmed supplier

One-off supplier

policy issues in sourcing

Policy Issues in Sourcing

The supplier base

Outsourcing or make-or-buy




Intra-company trading

Local suppliers

Purchasing consortia

supplier selection

Supplier Selection

How to achieve an efficient supply system

Have Long-term relationships with suppliers

Start preferred vendor programs by having limited number of suppliers

Work together to minimize delays and handling

Align incentives (to minimize total system costs)

Use total purchasing power as bargaining tool to obtain favourable long term contracts, don’t put every order out to bid

Consider total system costs in making purchasing decisions

guidelines in selecting a supplier partner

Guidelines in selecting a Supplier Partner

1. Senior management attitudes

2. Progressive management

3. Motivation to improve continuously

4. Focus on the final customer

5. Company wide quality management

6. Ability to add value

7. Supplier performance history

guidelines in selecting a supplier partner1

Guidelines in selecting a Supplier Partner

Just-in-time delivery

Supplier location

Financial stability

Technical expertise and equipment

Research and development

Production facilities

Lean facilities

evaluating supplier performance

Evaluating Supplier Performance

Why Evaluate?

Assists decision making on retaining or removing a supplier from an approved list

Know which supplier specific order should be placed

Provide suppliers with an incentive for CI and prevent performance slippage

Make decision on distributing spend for an item among several suppliers to better manage risk

what to evaluate kpi s

What to Evaluate (KPI’s)!

Quality & Process control



Customer relationship

Delivery e.g time

Financial stability



10 cs of effective supplier evaluation

10 Cs of Effective Supplier Evaluation

Competency – to undertake the tasks required

Capacity – to meet the purchaser’s total needs

Commitment to quality, cost reduction and service

Control systems – inventory, costs, people, budget

Cash resources and financial stability

Cost commensurate with quality and service

10 cs of effective supplier evaluation1

10 Cs of Effective Supplier Evaluation

Consistency & where possible improve levels of quality & service

Culture – suppliers and purchasers should share similar values

Clean suppliers & products – satisfy legislative & other environmental requirements

Communication – send & receive information electronically

green procurement supplier selection

Green Procurement & Supplier Selection

is also known as Affirmative Procurement. This is referred to as the purchase products and services which are environmentally friendly. The products or services purchased should have a lower impact on the environment over their whole life cycle than the standard equivalent

green procurement

Green Procurement

The Green Procurement entails program elements which include:

Recycled content products

Energy Efficient products and energy efficient standby power devices

Alternative fuel vehicles, alternative fuels, and fuel efficient vehicles

green procurement1

Green Procurement

Bio-based products

Non-ozone depleting substances

Alternative fuels and fuel efficient vehicles

Environmental Protection Priority Chemicals

green procurement2

Green Procurement

Advantages of Green Procurement

Economic benefits

Green procurement enables organizations reduce handling expenses and risks associated with waste disposal by reducing supplier-generated wastes and surpluses.

It helps organizations to achieve competitive advantage through innovation. Efficient production may be enhanced through suppliers’ use of cleaner technologies, process innovation, and waste reduction.

green procurement3

Green Procurement

Economic benefits

It leads to improved public image. Greening its suppliers can contribute to a company’s overall reputation among customers, investors, employees, and other stakeholders

green procurement4

Green Procurement

 Steps to implement a Green Procurement Program in the private sector

Research company procurement policies. Find out if and to what extent your company’s procurement policies give price preference to environmentally preferable products.

Define your terms. Many people don’t have a specific understanding of common phrases such as “environmentally preferable purchasing.”

Screen suppliers and subcontractors. Survey them on specific Environmental Health and Safety practices and use a point scale to judge their responses.

green procurement5

Green Procurement

Encourage or require suppliers to implement environmental management systems. Provide suppliers with "blacklists" of undesirable chemicals or other materials.

Collaborate on an action plan. Involve suppliers early and often in product, process, and strategic decisions that impact them. Add suppliers to planning teams to implement design for environment initiatives.

Choose green products. Purchase raw materials that contain fewer toxic ingredients, are recyclable, or utilize recycled materials.