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SCM - Sourcing & Vendor Management

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									Sourcing & Vendor Management

                 T V Prakash Rao

Outsourcing results in the supply chain functions being
 performed by a third party

   Does the third party increase supply chain surplus?
   To what extent do risks grow upon outsourcing?
   Will there be decline in the quality?
   What will be the impact on the delivery schedule?
Third party can increase supply chain surplus effectively if
  they aggregate supply chain assets or flows to a higher
  level than the firm itself; these are:
 Capacity Aggregation
 Inventory Aggregation
 Transportation Aggregation
 Warehousing Aggregation
 Procurement Aggregation
 Information Aggregation
 Receivables Aggregation
 Relationship Aggregation

   Supplier Evaluation- Rating /Assessment
   Supplier Selection
   Contract Negotiation
   Design Collaboration
   Procurement
   Sourcing Planning/ Analysis
            Benefits of Outsourcing
   To reduce costs
   To increase efficiency
   To increase productivity
   To enhance quality
   To reduce inventories
   To achieve lower purchase price
   To achieve higher profitability
   To mitigate risk by information sharing
   Risk Pooling
   Reduced capital Investment
   Increased Flexibility
    Other Advantages of Outsourcing

   To concentrate on core competencies
   Opportunity for change/create more value to S/Hs
   Maintain competitive edge over competitors
   Good business strategy
   Provides efficient solution to business problems
   Customer service culture improves
   Time and distance have lost their meaning ( 24x7 )
   Lean organization
    Many Vendors - Common Goal

Vendors are resources that need to
  be managed - like any other
              Vendor Management

   Vendor Search
   Vendor Selection
   Vendor Registration
   Vendor Assessment
   Vendor Development
   Vendor Re-evaluation
        Criteria for Source Selection

Price         Price difference, Qty discount

Quality     percent rejections, Inspection methods,
      warranty, ATP / QTP

Delivery    Reliability, Transportation cost, flexibility
      Qty Variation, frequency of delivery

Service      Flexibility, Price negotiation, Guarantee,
      After-sales service, Spare parts availability
      SCM Based Vendor Management

   Collaboration
   Track Record
   Two way information exchange
   Joint Planning
   Dynamic delivery practice
   Single or few sources
   Long term relationship
   Win-Win Game
   Joint Planning
    SCM Based Vendor Management

   Capability and core competency
   Technical assistance
   Managerial assistance
   Dynamic delivery process
   Joint decision on buy or make
   EDI
   EFT
   Orders on tel., mail, fax, Internet
      Vendor Managed Inventory

   Joint decisions on inventory levels
   Shared supply chain goals
   Long term relationship
   Real time information
   Information transfer & Sharing
   Close proximity of manufacturing plant and warehouse
   Quick turnaround and flexibility
   Faster delivery
   High levels of collaboration
   Increase vendor responsibility and capabilities
   Lower supply chain costs
                    Vendor Rating

   Price
   Discounts Received
   Maintenance of Specifications
   Compliance with other specifications
   Promptness of delivery
   Freight and delivery charges
   Installation charges
   Service
   Market Information
                    Vendor Rating

   Co-operation
   Management Competence
   Credit terms
   Disposition of rejects
   Employee training
   Adjustment Policies
   Cost rejection suggestions
   Inventory Plans
   Financial Position
Contract Compliance Problem Solving
   Vendor has NOT MET performance measurement criteria:
    ◦ Escalate internally and obtain support
    ◦ Issue deficiency letter and review response
    ◦ Update open issue report
    ◦ Review remedies and implement, if required
    ◦ Escalate with vendor
    ◦ Update KPI for measurement history
    ◦ Monitor vendor’s corrective action
   If violations are continuous begin evaluation of options:
    ◦ To replace
    ◦ Dispute Resolution process
                 Keys to Success
   Develop and implement an effective contract
   Develop and maintain the relationship
   Know your vendor
   Evaluate and rate the vendors regularly
   Manage the vendor
    ◦ Measurements
    ◦ Monitoring
Case Studies

1. TATA’s Nano Car
2. MUL

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