Outsourcing, Purchasing Management and Partnership Sourcing

Transcription

1 Outsourcing, Purchasing Management and Partnership Sourcing Session Speaker Prof. P.S.Satish 1

2 Session Objectives To know the role of outsourcing, purchasing and partnership sourcing to gain competitive advantage in supply chain To understand sourcing decisions and their factors impacting supplier selection To assimilate the importance of supply contracts 2

3 Session Outline Outsourcing The purchasing process Purchasing strategies Partnership sourcing Supply contracts Session Summary 3

4 A business process Cost Timeliness Performance Product Interface Service Interface Customer Technology Interface Organisation Products Individual Society Processes Automation 4

5 Value created and added by outside firm providing MIS Value created and delivered by supplier Value created and delivered by purchasing and materials management Value created and delivered by production/ operations management Value created and delivered by Finance, HR and Marketing Total value created and delivered for customer Value created and added by outside firm providing Logistics 5

6 SUPPLY CHAIN PEMP-EMM2506 Customer Enterprise Processes Supplier Enquiries Quotations Orders Supplies Invoices Money 6

7 Outsourcing PEMP-EMM2506 Transfers traditional internal activities and resources of a firm to outside vendors Utilises the efficiency that comes with specialisation Firms outsource information technology, accounting, legal, logistics, and production Outsourcing in Electronic Industry from 15% to 40% ( ) 7

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9 Real Cases Nike s Shoe Manufacturing -20% growth in annual turnover -Unexpected profit fall in 2001 Cisco s Internet based Business Model - $1.3 b to $8 b during 1994 to Demand reduction in Telecom Industry Apple computers -70% of manufacturing outsourced - Shortage in G4 chips from motorola 9

10 Outsourcing - Benefits Economies of scale Risk Pooling Reduce Capital Investment Focus on core competency Increased Flexibility - Customer Responsiveness - Suppliers competence to accelerate product - New Technologies and Innovation 10

11 Outsourcing - Risks Loss of competitive Knowledge Conflicting Objectives 11

12 Success factors of Outsourcing Process and Industry Knowledge Technical and Operational Capabilities Service Models Alliances Financial Strength Change Management Ability to innovate 12

13 Contract Manufacturing Contract manufacturers are capable of manufacturing and /or purchasing all the components needed to produce a finished product The concept is successful in electronic products, clothing, drug, automobile (seats, headlight assembly ) Buyer company focus on design & development and outsource full manufacture to contract manufacturers 13

14 Outsourcing of product design Product design differs significantly depending on the industry For consumer products understanding consumer preferences and market testing perspective are very important For pharmaceutical extensive clinical tests that involve safety and effectiveness are needed Buyer company outsource design aspects depending on core comptency they like to retain 14

15 Core-competency E.g. Honda s core competency is in Engines. Core competency has three aspects : It provides access to a wide variety of markets It increases perceived customer benefits It is hard for competitors to imitate 15

16 Trade-off : Outsourcing Some companies are vertically integrated where all activities from design till despatch are handled inhouse There are companies focusing only on marketing and outsource design and Manufacture Real challenge for companies is to decide functions that are to be retained which are critical for success 16

17 Outsourcing : Few examples Sun Microsystems designs SPARC chips used in its workstations & subcontracts fabrication keeping IP rights Many companies outsource security job of companies to others Operations like packing and deburring are outsourced activities in few companies Canteen service is normally outsourced 17

18 Outsourcing considerations Many companies though want to outsource may not be able to do so because of Union problems Law of the land Political pressures Resistance by workers Outsourcing decisions have to consider social aspects as well apart from cost angle 18

19 Purchasing 19

20 Purchasing PEMP-EMM2506 Purchasing- Obtaining merchandise, capital equipment; raw materials, services, or maintenance, repair, and operating (MRO) supplies in exchange for money or its equivalent. Merchant Buyerswholesalers and retailers who purchase for resale. Industrial Buyerspurchase raw materials for conversion, services, capital equipment, & MRO supplies. 20

21 Why importance to Purchase? Focus on core competency Value addition by supplier is on increase Flexibility to manage volumes Earlier interface with supplier shortens cost, quality and time to market Competitive advantage by effective purchasing Supply management is key to Q,C,D 22

22 Classification of Purchase Goods Components Raw materials Supplementary materials e.g. welding electrodes Semi finished products Finished Products Capital equipment MRO( maintenance, repair, operations)-indirect Services 23

23 Contribution of Purchasers 24

24 The role of Purchasing in an Organisation The primary goals of purchasing are: 1. Ensure uninterrupted flows of raw materials at the lowest total cost, 2. Improve quality of the finished goods produced, and 3. Optimise customer satisfaction. Purchasing contributes to these objectives by: Actively seeking better materials and reliable suppliers, Work closely with strategic suppliers, and Involving suppliers and purchasing personnel in new product design and development efforts. 25

25 The Purchasing Process Manual Purchasing-Older system, prone to duplication of effort and error Step 1-Material Requisition/Purchase Requisition- stating product, quantity, and delivery due date clearly. Step 2- The Request for Quotation (RFQ)- Buyer identifies suppliers & issues a request for quotation (RFQ). Step 3- The Purchase Order (PO)- The purchase order is the buyer s offer & becomes a binding contract when accepted by supplier. 26

26 The Purchasing Process- Cont. PEMP-EMM

27 Purchasing Process Model Internal Customer Determine Specs Selecting Supplier Contra cting Ordering expediting Evaluation Supplier Sourcing Supply Buying Procurement 28

28 Successful Sourcing Strategies Successful Sourcing Strategies are different for functional products and for innovative products. Functional Products are the products with relatively stable demands and high levels of competition. Fiat Engine Supply Innovative Products are characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition. Sony s Strategy Apple s iphone Strategy 29

29 Developing Successful Sourcing Strategies- Contd. Supply Chain Sourcing Strategy Framework 30

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31 Evaluating & Selecting Key Suppliers When evaluating suppliers for a strategic partnering, purchase cost becomes relatively less important. -Tata Nano V/S A-Segment Cars Key Supplier Selection is conducted by a cross functional team selection approach wherein purchasing staff, primary users, Quality, product designers, and manufacturing personnel participate. - Buyer Audit 32

32 Kraljic s Matrix 33

33 STRATEGIC SOURCING FOR SUCCESFUL SUPPLY CHAIN MANAGEMENT Why Strategic Sourcing? 34

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36 Purchase Product Portfolio/strategy Contd.. Strategic Product: Generally obtained from one supplier Bucket for excavator s Leverage Product: Relatively low value in terms of risk but high disruption potential Radiator Caps Bottleneck Product: Available from various supplier and represent high risk Tyres Routine Product: Small value per unit Fastners 37

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39 Supplier Certification Programs Supplier certification programs are one way to identify strategic alliance candidates. Firms often develop their own formal certification programs, & most require ISO 9000 or similar certifications as one part of the certification process. A site audit using a cross-functional team to identify a supplier s process capabilities, materials and methods monitors base-line management practices. 40

40 Purchasing: Centralised vs. Decentralised Centralized Purchasing- purchasing department located at the firm s corporate office makes all the purchasing decisions. Decentralized Purchasingindividual, local purchasing departments, such as plant level, make their own purchasing decisions. 47

41 Purchasing: Centralised vs. Decentralised Advantagescentralisation Concentrated volumeleveraging purchase volume Avoid duplication Specialisation Lower transportation costs No competition within units Common supply base Advantages- De-centralisation Closer knowledge of requirements Local sourcing Less bureaucracy A hybrid purchasing organisation- both decentralized at the corporate level and centralized at the business unit level may be warranted. 48

42 Other Purchasing Strategies Supply Base Optimisation Fostering TQM among Suppliers Global Sourcing Longer term supplier relationships Early Supplier Design Involvement Supplier Development and Total Cost of Ownership (TCO) 49

43 Partnership Sourcing 50

44 Alto in India is Rs. 1 lakh cheaper than in China - Shinzo Nakanishi, MD and CEO of MSIL (09 Aug 2010, Economic Times) 51

45 How Companies make Money? Increase Revenues Raise Prices Increase Volume Reduce cost of employees Decrease Costs Reduce cost of process & waste Reduce cost of materials 52

46 Mercedes may source parts from Nissan-Renault's Chennai plant Global agreement between the Nissan- Renault alliance and German automaker Mercedes-Benz on engine and platform sharing Source: BL, 10 December

47 Value Retailers Sourcing Tailors Source: ET, 6 Dec

48 Global Alliances to Drive carmakers' fortunes in India Source: BL, 27 Nov

49 Principles of Partenering : Toyota Way Cost reduction is a joint effort with the suppliers Make money but not at the expense of suppliers Dealing is with fairness, high expectations and challenge Spirit of Business with suppliers is with Trust, caring, mutual well being but insisting high on discipline,challenge & improvement. 56

50 Partenering Steps : Toyota Way Kaizen & learning Joint Improve- -ment Activity Information sharing Compatible Capabilities Control systems I Interlocking structures Mutual understanding & Trust Source : Toyota way 57

51 Steps in Strategic Sourcing Linking Purchasing and Corporate strategy Purchasing Strategy development Evolving Sourcing Strategies 58

52 Evolving Sourcing Strategies Phase 1: Basic Beginnings - Supply Base Consolidation, TQM Phase 2: Moderate Development - Centrally coordinating, long term contracting Phase 3: Limited Integration - ESI, concurrent engineering Phase 4: Fully Integrated Supply Chain - Collaborative planning 59

53 International Purchasing/Global Sourcing Global sourcing- Opportunity to improve quality, cost, and delivery performance. Requires additional skills and knowledge to deal with international suppliers, logistics, communication, political environment, and other issues. Import broker or sales agent- performs service for a fee. Import merchant- buys and takes title to the goods. Trading company- imports & carries wide variety of goods. 60

54 Session Summary Parameters involved to succeed in Outsourcing has been discussed. The importance of purchasing in an organisation has been explained. Evolving sourcing strategies has been elucidated. 61