Strategic Procurement Sourcing & Process Management Changing - - PowerPoint PPT Presentation

Strategic Procurement

Sourcing & Process Management

Changing Aspects of Business

• Competition Basis

»Price »Quality »Service »Delivery »Technology »Speed/Time »Value Addition

Five Stages for Improvement Fire Fighting – Crisis management Push Effect – Supply driven, speculative Pull Effect – Demand driven, reactive Just In Time – SCM, optimization Zero Inventory – Triggers driven Costs down, Value up, Lead time down Product & 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 is

available to the purchaser?

• Repair parts available locally? At short notice?
• Will it provide design data and mfg drg etc for

parts when it goes out of production?

• Does it specialize in your type of equipment?
• Does it have a prescribed schedule for service

calls?

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
• verall group evaluation, usually expressed in

categorical terms, such as “preferred”, “neutral”,

• r “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 integrated manner 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
• f 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 Receiving Inspection Srores Finished Goods Inventory

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 Goods Inventory Final Assembly Receiving of

• Materials
• Parts
• Components

What is EOQ The EOQ concept holds that the appropriate quantity to order is the

• ne that tends to minimise all the

costs associated with the order- Carrying costs, acquisition cost and cost of the material itself.

ORDER QUANTITY ANNUAL INCREMENTAL COSTS

OC=ICC EOQ

ICC TC OC

EOQ Graph

Inventory Model

A – Annual consumption in units. s – Ordering cost per order I – ICC as % of value of average inv. p– Unit price of the item Let Q be the EOQ in units. Then average inventory = Q/2 units

• No. of orders = A/Q

Inventory carrying cost = Q/2xp x I Ordering Cost = A/Q x s EOQ : ICC = OC Q/2xp x I = A/Q x s

Inventory Model

pQI 2 = As Q Q2 = 2As I p Q 2As = Ip Solve the equation : pQ/2 x I = A/Q x s

Exercise: Annual Consumption of the item --20000Units Cost 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

• rdering 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

Responsiveness Efficiency Facilities Information Transportation Inventory

• Inventory
• Raw materials, work in process,

finished goods in S-C

• Inventory Policies have dramatic

impact on supply chain efficiency & responsiveness

• Retailer’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
• r 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

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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

• perations to run in JIT manner, that is with short

(Zero?) lead time and little (Zero?) waste.

JIT Stage 1

Prepare the plant for 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 Visibility Total 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