Sourcing Strategy
In today’s globally competitive business environment, purchasing is becoming a critical participant in the firm’s strategic planning function. It is a basic process common to all organizations which accounts for approximate 40-50% of the entire budget. It may be machinery, inventories, raw materials, or service. Therefore, it has a tremendous impact on the bottom line of any business. Several questions arise while taking purchasing decision like shall we
• Go for global or local?
• Opt for Single or multiple sourcing?
• Buy on the contract or on a spot basis
According to Peter Kraljic, we can categorize our product into four categories
a) Strategic items-high profit impact, high supply risk
b) Leverage items-high profit impact, low supply risk
c) Bottleneck items-low profit impact, high supply risk
d) Non-critical items-low profit impact, low supply risk
Based on the types we have to take the purchasing approach
| Strategic Sourcing | Purchasing and Supplier Management | Paper activities- |
| a) Identify sourcing categories b) Identify sourcing constraints c) Total Cost Analysis d) Standardization e) Purchasing process review f) Supply market study |
a) Request for Information (RFI) b) Request for Proposal (RFP) |
a) Order emission b) Accounting |
Purchasing Process
| Price | Delivery | Product quality | Security |
| The capability of using IT systems | After-sales services | Financial position | Product improvement |
| Production team | Lead time Flexibility | Relationship capability | Trust |
| Workforce qualification | Reputation | Strategy consistency |
Key Criteria we use to select a supplier
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