3.1 Introduction A source is a place from which something comes from or is obtained from. Sourcing is therefore a process of determination and selection of places/firms from with to acquire materials or services. 3. 2 Sourcing levels Strategic sourcing This is the process of creating a vale adding (or optional) mix of supply relationships to provide a competitive advantage. It is concerned with to-level, long term decisions relating to high-profit, high-supply-risk strategic items and low-profit, highsupply-risk both neck items. It is concerned with promotion of long-term policies relating to core competences, strategic make or buy decisions, partnerships sourcing, purchase of capital equipments, ethical issues etc. Tactical and operational sourcing It is concerned with lower level decisions to high-profit, low-risk non-critical items. It also involves short term adaptive decisions as to how and from where specific supplier requirements are to be met. As such suggestions may be made to top management regarding temporary tactical deviations from strategic decisions e.g. in light of supplier failure or reversed conditions of stock. 3.3 Sourcing Considerations 1. Sourcing information 2. Sourcing strategies, tactics and sourcing decisions Sourcing Information Sourcing information relates to: Analysis of market conditions Directives Suppliers sources Suppliers assessment Supplier performance rating. Analysis of Market Conditions Why is this necessary? Helps in forecasting the long term demand of products. Assist in forecasting price trends of terms. Indicates what alternative goods and supply sources are available. Provides guidance on security of supply sources. Sources of information relating to market conditions Primary data i.e. field research, company data e.g. on market shares etc. Secondary data i.e. statistical data and report issued by external organization e.g. government sources such as census and gazette notices, non-government sources such as professional organizations e.g. KAM Directives A directive is a general instruction. Typical directives relating to sourcing are to be issued by central and local governments, the European Union and companies. Mainly such directives are issued with regard to; Health and safety issues Establishment of common procedures Competition Equal opportunities for all EU suppliers Companies top management also issues directives regarding inter company relations, reciprocal trading, etc for strategic reasons or otherwise. Supply sources Sources of information relating to supply sources are: catalogues, trade directories, database, sales persons, exhibitions, trade journals, yellow pages, informal exchange of information between buyers, information provided by prospective suppliers etc. Buyers may require prospective supplier’s fill questionnaires with the following subheadings to gain information from them: General-firm names, address, turnover etc Personnel-name of directors and responsibilities, no of workers and shop area covered experience-products or services offered, previous orders placed, etc facilities-major plants and equipments, communications facilities etc Supplier assessment and appraisal Supplier appraisal may arise when: A prospective vendor applies to be placed on the buyers approved list Buyers wishes to assure him/herself that a supplier can meet requirements reliably Items to be purchased are of critical importance It is intended to adopt a policy of single sourcing based on partnership purchasing Supplier appraisal can be undertaken through: Desk research- this uses published or unpublished data already existing e.g. company reports, balance sheet reports, strike records etc Field research- this will help additional data on technical production, management capacities etc. Field research is undertaken during visits to suppliers in order to ensure that important questions are not overlooked. A check list is invaluable during supplier visits; the check list should include the following Personal attitudes:- Atmosphere of harmony among good workers; Degree of interest to customer service; Degree of energy displayed in getting work done; Use of man power- economical or extravagant. Adequacy and ease of production equipment:- Modern or antiquated; Well care for by operators or neglected; Sufficient capacity to produce desired quantities; Technology know how of supervisory personnel. Means of controlling quality:- Frequency of inspection during the product cycle; Employment of such techniques as statistical quality control House keeping:- Is the plant orderly and clean Competence of technical staff:- Knowledge of latest materials, tools and processes related to products and anticipated developments in their industry Competence of management Supplier Performance Rating The purpose supplier performance rating is to: Evaluate performance with respect to such factors as price, quality delivery service etc Provide objective information on which judgment can be based relating to source selection. Assist the buyer with information on areas where the supplier can improve. Types of rating 1. Subjective rating Subjective ratings have to do with the buyer’s personal impression of the supplier. Subjective ratings have a tendency to be biased since they may be based on irrelevant impression or estimate of the supplier. 2. Quantitative rating These have to do with actual data analysis. It aims to remedy deficiencies of subjective rating. Categories under which suppliers are assessed and ranked Quality- Declared/undeclared Non-conformance, Responsiveness, Administration Delivery- Areas, Promise credibility, Early delivery, Responsiveness. Commercial- Cost reduction, Competitiveness, Risks sharing Administration Technologies- Process control, Computing links, Capital investment, Production capacity Management-Task, People, Delegated authority. A vendor-rating form is designed with the above categories. The categories may be ranked out of a possible maximum of 20 to then added up to 100 or any other means as the firm may choose. 3.4 Sourcing Strategies and Tactics and Sourcing Decisions The Supplier Base This relates to the range, location and characteristic of vendors from whom the external supply requirements of an undertaking are obtained. Factors influencing the supply base of an enterprise include The core competences of an enterprise Make, buy, outsourcing and subcontracting decisions Single, multiple and partnership sourcing decision Tiering International and global sourcing Counter trade inter-company trading and reciprocal trade Miscellaneous factor, large, small and local supplies 1. Core competences Core competences are concerned with identifying particular strengths that give a firm an advantage over competitors and areas of weakness that need to be avoided. Finding out what the firm does best and enterprising to others needed goods and services that they do best is the key to strategic make or buy decisions. 2. Make, buy, outsourcing and subcontracting decisions Make or buy strategies and tactics Make