Sourcing Strategies and Supply Chain Management. Critical Appraisal under Consideration of Risk Avoidance


Term Paper, 2021

14 Pages, Grade: 1,7

Anonymous


Excerpt

Contents List

List of Figures and Tables

List of Abbreviations

1 Introduction

2 Sourcing
2.1 Definition of sourcing processes
2.2 Definition of sourcing strategies
2.3 Overview of the selected sourcing strategies
2.4 Appraisal of the selected sourcing strategies
2.4.1 Single sourcing
2.4.2 Dual sourcing
2.4.3 Multiple sourcing
2.4.4 Modular sourcing
2.4.5 Local sourcing
2.4.6 Global sourcing
2.5 Summary of the selected sourcing strategies

3 Supply chain risk management
3.1 Identification of financial and non-financial risk areas
3.2 Risk avoidance

4 Conclusion

References

List of Figures and Tables

F1: Five elements of a supply chain (SCOR model)

F2: Sourcing, procurement, and purchasing

F3: Sourcing process split into source-to-contract and purchase to pay

T4: Overview of the selected sourcing strategies

T5: Identification of external risk areas

F6: Matrix of risk treatment strategies based on probability and impact

List of Abbreviations

SCOR Supply Chain Operations Reference

SCRM Supply Chain Risk Management

SWOT Strengths, Weaknesses, Opportunities, Threats

1 Introduction

The definition of supply chain management has brought up by two consultants in 1982 (Oliver and Webber, 1992, p. 66). Today, it’s more challenging than ever for the management of companies to developed and implemented coherent strategies to manage and coordinate supply chains and to minimize the likelihood of risks (Stadtler et al., 2015, p.18).

Supply chains consist of five elements, which are planning, sourcing, making, delivering, and returning (see Fig.1). This paper focuses on sourcing. Various sourcing strategies are assessed, including their financial and non-financial advantages and disadvantages, and the aspect of risk avoidance is covered.

F1: Five elements of a supply chain (SCOR model)

Abbildung in dieser Leseprobe nicht enthalten

Source: Own illustration according to Zhou et al. (2011)

To provide a comprehensive analysis of single, dual, multiple, modular, local, and global sourcing, the approach was as follows. Chapter two focuses on the sourcing strategies analysis. It provides the reader with basic knowledge of sourcing processes and sourcing strategies. Six different sourcing strategies as well as their financial and non-financial bases are defined, compared, and appraised. In chapter three, risk areas are identified, and the relevance of risk avoidance strategies is explained. The risk management framework developed by Locker and Grosse-Ruyken (2013) serves as a foundation. In chapter four the findings are summarised and potential future trends are touched.

This coursework focuses on strategic sourcing and does not take the other elements of a supply chain into consideration. The risks identified are based on the element of sourcing. Only external sourcing strategies are considered, which belong to supplier strategies.

2 Sourcing

2.1 Definition of sourcing processes

Sourcing is the entire process of providing the organisation with materials and services from suppliers. Sourcing is a crucial part of the supply chain as provides the organisation with the necessary resources to create its products or services (Chopra and Meindl, 2015; Ivanov et al., 2017, p.114).

F2: Sourcing, procurement, and purchasing

Abbildung in dieser Leseprobe nicht enthalten

Source: Own illustration according to Mangan et al. (2008)

The sourcing process is differentiated into source-to-contract also known as strategic procurement and purchase-to-pay also known as operational procurement (Schröder and Wegner, 2019).

The source-to-contract part includes a demand analysis, the definition of a sourcing strategy that is in line with the corporate strategy, the search, the request and the selection of suppliers, negotiations and contract preparation, and supplier relationship management (Weigel and Rücker, 2013; Schröder and Wegner, 2019). This paper focuses on the part sourcing strategy within the source-to-contract circle.

The purchase-to-pay process comprises the scheduling of purchasing operations, planning orders, control of incoming goods, operational procurement management, invoice processing, and payment (Weigel and Rücker, 2013; Schröder and Wegner, 2019).

F3: Sourcing process split into source-to-contract and purchase to pay

Abbildung in dieser Leseprobe nicht enthalten

Source: Own illustration according to Eichstädt (2008), Weigel and Rücker (2013) and Ivanov et al. (2017)

2.2 Definition of sourcing strategies

Sourcing strategies are defined as a set of interrelated, guiding decisions to secure the potential for success in the supply of goods and services to the company (Heß, 2017, p.7). According to Piontek (2016), sourcing strategies can be specified in various areas such as the market, the supplier, and the products and those should be considered during the development of a strategy to identify success potentials (Piontek, 2016, p.21).

A sourcing strategy summarises all internal needs and external conditions. The goal is to achieve long-term achievements in the sourcing process. The international positioning results from these internal and external conditions (Handfield, 2006, p.233).

2.3 Overview of the selected sourcing strategies

T4: Overview of the selected sourcing strategies

Abbildung in dieser Leseprobe nicht enthalten

Source: Own illustration according to Werner (2013) and Piontek (2016)

2.4 Appraisal of the selected sourcing strategies

2.4.1 Single sourcing

Single sourcing has the financial advantage of volume discounts due to large order quantities and the decrease of process costs applies to single sourcing, as well as low transportation costs. The non-financial benefits of single sourcing are the establishment of a lasting relationship between supplier and company and close collaboration. In addition to that, the logistics process is simple, and the quality probably remains stable. There are low risks of ordering mistakes (Werner, 2013, p.160).

The disadvantages of single sourcing are the lack of competition, which can lead to higher prices and low product innovation, and the risk of high dependencies, which means that failed deliveries have a high impact on the company (Piontek, 2016).

2.4.2 Dual sourcing

Dual sourcing and its advantages and disadvantages are a mix of single and multiple sourcing. Financial advantages are the rather low administrative and transportation costs and non-financial advantages are the close relationship with the suppliers and lower risk of order failures and compared to single sourcing, the risk of a supply bottleneck is lower due to an additional supplier (Werner, 2013, p.161).

However, it is not possible to negotiate high discounts and prices could be higher due to fewer competitors. Besides that, there is still a high dependency and low product innovation. Belayed or exposed delivery has still a high effect on the ordering company (Werner, 2013, p.161).

2.4.3 Multiple sourcing

Multiple sourcing is suitable for products that require little explanation. In multiple sourcing, the aim is to obtain goods from many sources. It is the opposite approach to single sourcing. A financial advantage for the company to be supplied is increased competition among suppliers, which leads to lower prices for the products and encourages product innovation. In addition, multiple sourcing provides great flexibility and little dependencies and reduces the risk of supply shortages (Werner, 2013, p.161).

The disadvantages include a reduction in negotiating power, so the potential for volume discounts is low. In addition, there is an increase in communication and logistics complexity and there is the risk of ordering mistakes. The relationship between the partners is loose (Werner, 2013, p.161).

[...]

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Details

Title
Sourcing Strategies and Supply Chain Management. Critical Appraisal under Consideration of Risk Avoidance
College
Buckinghamshire New University
Grade
1,7
Year
2021
Pages
14
Catalog Number
V1150126
ISBN (eBook)
9783346538499
ISBN (Book)
9783346538505
Language
English
Tags
sourcing, strategies, supply, chain, management, critical, appraisal, consideration, risk, avoidance
Quote paper
Anonymous, 2021, Sourcing Strategies and Supply Chain Management. Critical Appraisal under Consideration of Risk Avoidance, Munich, GRIN Verlag, https://www.grin.com/document/1150126

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