Sourcing Process Evaluation Summary
Organizations face challenges on how to remain financially healthy. As a result, many organizations seek ways to lower costs, improve processes, and remain focused on their corer competencies. To assist organizations attain these goals, proper sourcing of tasks and processes must be found. A proper mix of sourcing can assist an organizations improve its business processes, improve its financial health, and improve its competitive advantage. This summary will describe the steps to successful sourcing, challenges and opportunities for insourcing versus outsourcing parts, and advantages and disadvantages of global versus domestic sourcing. In addition, this summary will review how translating corporate objectives into procurement goals is necessary, establishing business unit requirement processes, and conducting supply market research is necessary. Finally, setting material management goals, implementing strategic execution, and reciprocity is discussed.
Global Sourcing Process
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As illustrated by figure 15.1, above, several components make up an organization’s procurement process: Discovery, evaluation, selection, development, and management (Burt, Dobler, Starling, 2003, p. 329). During the discovery phase, organizations seek to identify potential suppliers. Many avenues can be used to identify suppliers. Among these options include: supplier websites, supplier files past and present like joint-ventures, trade journals, trade shows, and professional organizations. Organizations often find that the use of past and present supplier files from its worldwide operations and many joint-ventures are most beneficial
After developing and compiling a prospective list of potential suppliers, organizations begin the evaluation process. Several critical areas must be reviewed before a supplier can be considered as a viable supplier. Among the areas to be reviewed are: Supplier surveys, financial condition of the supplier, facility visits to the supplier, quality, and capacity analysis. Supplier surveys returned to the customer can quickly eliminate those that do not have the same focus or core concepts of ongoing improvement concepts. Financial analysis can reveal the strength of the supplier regarding its ability to invest in assets to improve quality and capacity for a long-term collaborative relationship with the customer. Suppliers must meet minimum quality certifications like ISO 14001 Environmental Management Standards and ISO 9000 Management Standards before they can pass the evaluation process (Paton, 1996).
The selection process is made easier by the evaluation process. Organizations can either use the biding process or negotiation process to select a supplier. For instance, some organizations like Ford use negotiations to make raw materials purchases for its suppliers at arms length (Ford Financial Report, 2009). As a result, Ford’s suppliers take the risk and the rewards for inventory levels and cost values of the raw materials as no guarantees are made for use. Selection of suppliers directly relates to the number of suppliers an organization has to have or wants to have. Many organizations have begun to downsize their supplier base and moved away from multi-sourcing to single-sourcing suppliers. Furthermore, the negotiating process is more likely to lead to a complete understanding of issues of the procurement. Improved understanding reduces subsequent quality and schedule problems for the remaining suppliers.
Once selection of a supplier has been made, ongoing development is necessary. Ongoing training and communication part of a collaborative relationship assist the supplier to remain focused on improving its ability to meet the customer’s needs and expectations. In a two-way interaction, both supplier and customer share vital information regarding processes, quality, or capacity issues. Often customers will send a purchasing employee to visit suppliers’ facilities to assist in improving operational efficiencies (Bolognese, n. d.).
Management of suppliers continually reviews and follows-up with individual suppliers to ensure they can meet the customer’s long-term needs. Improvements to processes such as e-procurement electronic programs, improvements to processes, and reduction of waste play an important role in further managing suppliers. Recognizing suppliers that do well is important to the supplier and customer as well as the entire supply chain.
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- James Tallant (Author), 2010, Sourcing Process Evaluation Summary , Munich, GRIN Verlag, https://www.grin.com/document/167353