Strategic Sourcing

What are the benefits and disadvantages of the re-sourcing process in Figure 1? Are there any improvements that should be made to the current re-sourcing practices within Global Supply Management?

Benefits  

• Negotiation or reverse auction step allows Casturn Systems to understand supplier’s cost structure and to communicate with suppliers to assist them if any part of their cost could be adjusted lower by leveraging scale, capability or capacity. This could result in further cost reduction.
• Technical evaluation step screens out incapable suppliers, who might later incur the company significant cost after contract agreement in the case that they could not provide same product as print specifications.
• The collaboration of representatives from engineering, commodity management, launch management, and the end-user plant in business case approval step and PPAP step help ensure that suppliers will be able to meet each division’s and industry requirement

Disadvantages

• With quality standard check after choosing nominated supplier, the process could cause unfair price quotation. Suppliers of lower quality products may quote very low price to win the contract and request a price increase for quality upgrade or could not deliver products according to company’s specification in the end, which could slow down the sourcing process and incur huge money for nothing. This could also worsen the perception of current suppliers about auction process and discourage them from participating
• The process is time consuming and there maybe conflict of interest in choosing suppliers as each group has different priority in selecting suppliers. With on overage 18-month process, it is very likely that Casturn will miss an annual window for changing supplier for highly engineered parts which their technology/specification changes rapidly. There might be another case that suppliers are rejected because they do not provide the lowest cost even though they meet lowest sourcing cycle time.

Improvements

• The process should start by incorporating representatives to specify consensus requirement and priorities in order to have a clear part specifications and quality standard sent out to suppliers and mitigate conflict of interest and unfair quotation problems.
• Suppliers’ capacity, capability and PPAP have to be processed before current step3 in order to screen out some suppliers and to reduce the processing time of the resourcing process.
• To reduce supplier power, particularly for commodities that require strong engineering, the company should create a market of capable suppliers by incorporating SDEs and potential capable suppliers to evaluate the likelihood and cost of producing the parts, leading to more competitive market and cost reduction.