SUPPLY CHAIN MANAGEMENT
CHAPTER NO 4
PREPARED BY : SIR OMAR
Ethical Sourcing
Ethical sourcing can be defined as “attempts to take into account
the public consequences of organizational buying or bring about
positive social change through organizational buying behavior.”
Ethical sourcing practices include promoting diversity by
intentionally buying from small firms, ethnic minority
businesses, and women-owned enterprises; discontinuing
purchases from firms that use child labor or other
unacceptable labor practices; or sourcing from firms with good
labor treatment or environmental protection credentials.
To minimize these risks, ethical sourcing policies should include:
• Determining where all purchased goods come from and how they are made;
• Knowing if suppliers promote basic workplace principles (such as the right to
equal opportunity and to earn a decent wage, the prohibition of bonded, prison
or child labor, and the right to join a union);
• Use of ethical ratings for suppliers alongside the other standard performance
criteria; • Use of independent verification of vendor compliance;
• Reporting of supplier compliance performance to shareholders;
• Providing detailed ethical sourcing expectations to vendors.
CHAPTER 4
ETHICAL AND SUSTAINABLE SOURCING
DRIVERS(REASONS) OF STRATEGIC SOURCING:
• Reduce costs and delivery cycle times
• Improve quality and long-term financial performance
• Increase number of global competitors
• Increase customer focus
• Reduce high costs of globalization and materials,
• Deliver more innovative products more frequently & cheaper than competitors.
DEVELOPING SUCCESSFUL SOURCING STRATEGIES
Successful Sourcing Strategies are different for functional products and for innovative products.
• Functional Products are MRO items and other commonly low profit margins with relatively
stable demands and high levels of competition.
• Innovative Products are characterized by short product life cycles, volatile demand, high
profit margins, and relatively less competition.
DEVELOPING SUCCESSFUL SOURCING STRATEGIES
The following is a framework for supply chain strategy development:
STEP 1 The firm’s suppliers are classified as belonging either to the innovative or functional
category.
STEP 2 The goals and strategies of the inbound (purchasing) portion of the supply chain are
developed.
STEP 3 Supply chain capabilities are evaluated & compared to required performance.
STEP 4 Set goals for improving capabilities. (Work plan)
STEP 5 Implement work plan.
STEP 6 Monitor progress & adjust the work plans.
SUPPLY BASE REDUCTION PROGRAMS
SUPPLY BASE REDUCTION is most often the initial supply chain management effort.
Buyer-supplier partnerships are easier with a reduced supply base.
Supply base reduction results in:
• Reduced purchase prices
• Fewer supplier management problems
• Closer and more frequent interaction between buyer
and supplier
• Greater levels of quality and delivery reliability.
EVALUATING & SELECTING KEY SUPPLIERS
When evaluating suppliers to be used in a strategic partnering, purchase cost becomes
relatively less important.
Key Supplier Selection is conducted by a cross functional team selection approach wherein:
• purchasing staff,
• primary users,
• product designers, and
• manufacturing personnel participate.
OUTSOURCING PROGRAMS
Outsourcing allows a firm to:
• Concentrate on core capabilities
• Reduce staffing levels
• Accelerate reengineering efforts
• Reduce management problems
• Improve manufacturing flexibility.
Risks associated with outsourcing, include
• Loss of control
• Increased need for supplier
management.
• Increased reliance on the supplier.
EARLY SUPPLIER INVOLVEMENT
Early supplier involvement (ESI) is perhaps one of the most effective supply chain integrative
techniques.
Under ESI, key suppliers become more involved in the internal operations of the firm,
particularly with respect to new product and process design concurrent engineering and
design for manufacturability techniques.
Value engineering activities help the firm to
reduce cost,
improve quality, and
reduce new product development time.
MANAGING & DEVELOPING SECOND-TIER
SUPPLIER RELATIONSHIPS
Successful alliance development can indirectly create successful, high-
performing second-tier & third-tier relationships.
Organizations may require direct suppliers to acquire goods and services from
specific suppliers and under specific conditions.
They can also work directly with supplier alliance partners in solving second-tier
supplier problems, designing supplier selection and certification programs.
USE OF E-PROCUREMENT SYSTEMS
Primary benefits of e-procurement include:
• Cost savings
• Free-up time to concentrate on core business
E-procurement systems enable the concentration of a large volume of small purchases with a
few suppliers in electronic catalogues, which are made available to the organization’s users.
Reverse auctions suppliers enter Web site. At a pre-designated time and date, qualified
suppliers try to underbid their competitors and can monitor the bid prices until the session is
over.
REWARDING SUPPLIER PERFORMANCE
Rewarding suppliers provides an incentive to surpass performance goals.
Punishment, a negative reward, may reduce future business; or a bill-back amount equal to the
incremental costs resulting from a late delivery or poor quality.
Strategic supplier agreements allow suppliers to
• A share of the cost reductions
• More business and/or longer contracts
• Access to in-house training seminars and other resources
• Company and public recognition
BENCHMARKING SUCCESSFUL SOURCING PRACTICES
BENCHMARKING:
An effective way to improve supply chain performance. Benchmarking data regarding sourcing
practices can be obtained in any number of ways, both formal and informal.
USING THIRD-PARTY SUPPLY CHAIN
MANAGEMENT SERVICES
Third-party logistics (3PL) & other supply chain service providers are growing and may
involve a firm’s sourcing, materials management, and product distribution responsibilities.
These 3PL charge a fee for services while saving costs (estimated
at 10 to 20% of total logistics costs); and improving service, quality,
and profits for their clients.
Vendor-managed inventory (VMI) services is one of the more
popular roles of 3PL.
ASSESSING AND IMPROVING THE FIRM’S
PURCHASING FUNCTION
The purchasing function is one of the most value-enhancing functions in any organization,
preferable to periodically monitor the purchasing function’s performance against set
standards, goals, and/or industry benchmarks.
Surveys or audits can be administered as self-assessments among purchasing staff as part of
the annual evaluation process.
SUPPLIER RELATIONSHIP MANAGEMENT
Skill set requirements of purchasing professionals have been changing. Purchasing personnel
must today exhibit world-class skills such as:
1. Interpersonal communication
2. Ability to make decisions
3. Ability to work in teams
4. Analytical skills
5. Negotiation skills
6. Customer focus
7. Ability to manage change
8. Influencing & persuasion skills
9. Strategic skills
10. Understanding business conditions
THANK
YOU
