COLLABORATION VIA STRATEGIC SOURCING:
This article is the second (2nd) of four (4). The titles are:
- TODAY’S ISSUES & ENTERPRISE ALIGNMENT
- EMPLOYING COLLABORATION VIA STRATEGIC SOURCING
- PROCUREMENT, COST & LEVERAGING TECHNOLOGY
- RISK MANAGEMENT & INVENTORY OPTIMIZATION
COLLABORATION: What is your relationship with your suppliers? How does the supplier view you as the customer? How do you the customer view the supplier? Typically, in most such relationships it is a formal contractual one. See the chart below and note the typical stages for Collaborative Relationships:
Most organizations are in the initial stage – ARM’S LENGTH RELATIONSHIPS – Vendors.
We need to move from there to CERTIFIED SUPPLIERS or better "Partnership type." A Certified Supplier is an organization that has been extensively investigated by the customer regarding its process capability and respective performance. It has demonstrated:
- 100% conformance to requirements
- 100% on-time delivery
- Lowest cost and participate in "A CONTINUOUS IMPROVEMENT PROGRAM"
(THUSLY THE PROCESS IS CERTIFIED)
This means there needs to be a great deal of involvement directly between them. The supplier needs to understand that the customer wants to know more about the supplier needs. But at the same time the supplier needs to be provided insight about the customer and their desire/plans to "reduce operative waste" (excessive cycle times, non-value-added resource consumption) at both entities.
The tool that will be used to aid in this effort is "STRATEGIC SOURCING".
STRATEGIC SOURCING:
Strategic Sourcing is a process identifying and implementing an optimal mix of goods & services that best supports the objectives of the involved enterprises. The tools used in aiding in that pursuit is "PARETO ANALYSIS" & SUPPLY/RISK PROFIT IMPACT MODEL".
For selecting commodities and their respective suppliers, the use of an ABC Classification of Annual Purchasing is utilized.
These two documents are displayed on the following pages to demonstrate their visual appearance in a typical view.
- The initial one – ABC Purchasing Classification:
- Demonstrates small group of suppliers and respective items (5 to 20%) represents 80% of the procured value.
- We would want to use these respective items/suppliers to be part of "strategic sourcing" effort viewed in the next tool – Supply/Risk Profit Impact Model
- Demonstrates small group of suppliers and respective items (5 to 20%) represents 80% of the procured value.
- SUPPLY RISK & IMPACT MODEL:
- Use of this model is determining which items will have the greatest impact on the firm (vertically – risk & horizontally – profit impact)
- So the upper right quadrant is where we would position the "A" items
Once the Commodity of importance has been selected, the evaluation of the supplier commences. It can start with a selection checklist to pick the best suppliers. Those checklists can get to be over thirty characteristics/attributes – some examples:
- Lead time
- Capability to produce
- Quality conscientious & appropriate equipment
- Employs TQM – Total Quality Mgt. Principles
- Favorable terms
- Adaptive
If they are an existing supplier, then their performance history is evaluated which includes four competitive attributes:
- Quality performance
- On time delivery
- Flexibility in adapting to changes
- Cost management/price reductions
In conclusion: the benefits of Collaboration via strategic sourcing are:
- Improved visibility to customer and supplier to enhance information/performance
- Utilization of resources at both entities
- Opportunity for more growth and accessibility of resources
Look for more insight in the next (3rd) article entitled, "PROCUREMENT, COST & LEVERAGING TECHNOLOGY"!