Lecture 7a Sourcing Concepts

Tips of this week
Universal consideration factors for decision making:
Merchandising & Sourcing
Risk and uncertainty

costs
cycle time
quality (expected performance)
copyright @ chester to 2005
Few synonyms
purchase
buy
procure
Sourcing
shop
source
Distinguish their differences
Brief definitions
In the global context,

Sourcing emphasizes the cost and process
Sourcing simply means making source of supplies
optimization in multi-terrestrial supply chain

operations.
sourcing can also be referred to a number of
managerial and operational buying choices that a

company makes in deciding how to procure
products or service for foreign markets.
It is regarded as a single supply and distribution
system that contain a large number of interacting

functional entities and enterprises.
Reference
In our discussions, we shall see the
The literature case in Liz Claiborne, Inc. and Ruentex
critical
Industries, Ltd is extremely valuable for us to

understand the real life sourcing practices of
international fashion buying houses. The case was
written by Jill Dalby & M. Therese Flaherty and
documented in Harvard Business School case 690-048,
1990.
concepts and issues in making sourcing

decisions for fashion products.
The points discussed are generalized, but can be
logically referred to the our real world stories.
It can also be accessed in page 510-555 of the text,
Global Operations Management, McGraw-Hill,

1996, written by M. Therese Flaherty
10
The graph implies...
Chapter skeleton
In global operations, several activity processes in
the general definition of sourcing in the

international merchandising activities
2
the dimensions of sourcing in global
environment
3 the opportunities of alternative sourcing options
different places can be combinatorially and optimally

worked to serve a given market and
a process in specific place or region can serve sets of
downstream processes.
It forms a network-based operation system,
characterized by the sense of interdependence.
11
12
Broad definition of sourcing as a

management study discipline?!!
4 the attributes of a good supplier

5 the theoretic concerns for single sourcing and
(1) It composes integrated knowledge of product
multiple sourcing
6 the rationales behind globalization of sourcing
operation
13
development, manufacturing and marketing on a

global basis,
14
(2) it also composes skills of identifying which
production units will be combined to serve

particular markets and how components will
be supplied for production, such that the firm
can exploit its competitive advantages in the
best cost-efficiency, product life proliferation
and agile supply.
15
In practices, what are the major

options for global sourcing of textile
and fashion products?
16
Domestic buy
Make use of short lead time.
The sourcing operation can avoid many problems
from late delivery, insufficient time for

replenishment due to shortage or damage.
Shorter lead time can allow for better opportunityspotting.
17
18
Forecast can be more accurate and responsive.
When close cooperation is required for long term
development, domestic sourcing would be more

convenient and controlled.
In many cases, domestic sources for general
commodities may not be so attractive as offshore
sources.
For certain items with characteristics of great
exclusivity and uniqueness, domestic sourcing

provides better communication and more buy-sell
interaction.
19
20
Import semi-process (e.g.OPA)

In some cases, it entails importers to enjoy the
But on the other hand, it would increase the cost of
benefit resulting from trade tariff privilege.
administration to coordinate cross-country

operations.
From manufacturing perspective, it can reduce the
burden of direct investment in certain component

processing, i.e. only parts of operational process
should be concerned.
21
Transportation cost and arrangement may make
longer throughput and greater precaution.
22
Own factory abroad

Instead of subcontracting out to external parties in
Certain issues of technical or managerial know-how (or
given countries,
companies set up their own production facilities
and make a considerable direct overseas investment.
It is possibly because of less opportunity to access
appropriate external partners.
23
confidentiality) should be taken into serious account that

a company is not willing to cooperate with external
partners.
Or when the product manufacture involves a heavy
capital-intensive investment, external parties is then less
eagerly to cooperate.
24
Outbound (offshore) processing

It may mean offshore subcontracting, joint
For some situations, companies require a
venture, cross-regional partnership and so on.

It generally refers to inter-organizational
offshore operations, like OEM and ODM
operations,
Mainly this sourcing option allows additional
choice for :
wider product variety,
more sourcing capacity and
competitive sourcing costs.
paternalistic way of control and rigorous

coordination of supply sources, having own
production capacity may be necessary.
Of course, such type of investment may lead to overexpansion and require plenty of expert staff.
25
26
Global sourcing
It is in common promoted in many countries that want
emphasizes on process and cost integration from
to support and sustain a particular type of industry.

However, it may increase the issues of cross-regional
uncertainty and managerial conflicts, especially when
partners have different supply chain policies and
company objectives.
Buying process always intermingles with issues of
technological and know-how transfer.
27
supply marketplace to consumer market.

In economic term, it may closely be defined as
designing sorts of operational combination of
various suppliers in various countries to produce
market-specific products.
28
........ the decision factors :
..... in the aspects of :

a. Proportion of labour/capital cost
The sourcing operation is regarded as to be run in a
29
b. Tariff treatment
supply chain system that explores the optimal

performance with respect to the interlinking
factors of
(a) product development time,
(b) quality,
(c) total procurement cost,
(d) throughput time, and
(e) uncertainties.
c. Geographic proximity
d. Raw material supply
e. Infrastructure
f. Skilled personnel
g. Quality level
h. Staff turnover (job-hopping)
i. Taxation systems
30
What are the essential attributes of a

good supplier?
Evaluation Matrix
1. Delivers on time
2. Provides consistent quality and capacity
3. Offers competitive prices
4. Provides expertise service and information
5. Provides good logistic support
6. Promising
7. Strong technical know-how and know-what
8. Accessible
31
32
Types of Supplier Control

Mechanisms and Practices
Make use of the points and
elaborate them in more detailed.
(as your homework)
33
34
Early Supplier Involvement.
Commodity Team.
A practice that involves one or more selected suppliers with a
A group of experts that represent various functions of the
buyer's product design team early in the specification

development process. The objective is to utilize the supplier's
expertise and experience in developing a product
specification that is designed for effective and efficient
manufacturability. Mutual Adjustment
35
suppliers and customer to reduce the total cost and enabling

other gains in productivity and benefits for all organizations
involved. Mutual Adjustment
36
Collocation
Supplier Data Integration.
Placing staff from different companies together in a single
The ability to easily exchange information between customer
location. This may mean placing a "guest engineer" at a

customer's plant, or having the customer's guest engineer at
the supplier's plant. Mutual Adjustment
37
and supplier. This includes the ability to exchange

information in electronic form, such a s product data
between CAD systems or business data between information
systems. Mutual Adjustment
38
Long-Term Contracting
Preferred Suppliers
A decision to contract with a particular supplier over an
Those suppliers chosen for enterprise partnership based on
extended period of time. Direct supervision
39
performance which has or is anticipated to satisfy or exceed

customer demands. The Preferred Supplier performance
criteria exceed traditional metrics of product quality,
schedule, and price. standardization of Supplier Skills, Work
Processes, or Outputs
40
Target Cost
Supplier Development
A modified standard cost of a product for a given quality
A systematic enterprise effort to create and maintain a
network of competent suppliers, and to improve various

supplier capabilities that are necessary to meet its increasing
competitive challenges. Standardization of Supplier Skills
level which is derived from customer requirements and

competitive constraints. As this cost relates to the entire
life cycle of the product, the setting of Target Costs has
to take into account the estimated future technology and
process developments inside the company (company
related dynamics) as well as anticipated market
movements (market related dynamics). Standardization
of Outputs
41
42
Supplier Qualification
Supplier Rating
The assessment of suppliers, identified through supplier
An indicator of supplier performance based on criteria such
as quality, price, responsiveness to customer inquiries,

problem resolution and support, product improvements, etc.
Supplier ratings can be used for feedback to suppliers to
encourage improvement. as input to supplier selection on
subsequent negotiations, and for supplier classification.
Standardization of Supplier Skills
selection, to determine which supplier can best meet

customer requirements. It may require evaluation of
supplier capabilities against key requirement criteria
through SSCM/QCAE Evaluation, on-site audits of the
manufacturing or service provisioning systems and
quality systems, and/or review of supplier provided data.
Standardization of Supplier Skills
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44
Some questions :
What are the major concerns for global sourcing activities?
Describe briefly the major cost elements of global sourcing?
Lets make a summary.....
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46

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Tips of this week

Universal consideration factors for decision making:

Merchandising & Sourcing

Risk and uncertainty

copyright @ chester to 2005

copyright @ chester to 2005

Distinguish their differences

copyright @ chester to 2005

copyright @ chester to 2005

In the global context,

Sourcing simply means making source of supplies

optimization in multi-terrestrial supply chain

sourcing can also be referred to a number of

managerial and operational buying choices that a

copyright @ chester to 2005

It is regarded as a single supply and distribution

system that contain a large number of interacting

copyright @ chester to 2005

The literature case in Liz Claiborne, Inc. and Ruentex

Industries, Ltd is extremely valuable for us to

concepts and issues in making sourcing

logically referred to the our real world stories.

copyright @ chester to 2005

copyright @ chester to 2005

It can also be accessed in page 510-555 of the text,

Global Operations Management, McGraw-Hill,

copyright @ chester to 2005

The graph implies...

In global operations, several activity processes in

the general definition of sourcing in the

different places can be combinatorially and optimally

copyright @ chester to 2005

copyright @ chester to 2005

copyright @ chester to 2005

Broad definition of sourcing as a

4 the attributes of a good supplier

(1) It composes integrated knowledge of product

copyright @ chester to 2005

development, manufacturing and marketing on a

copyright @ chester to 2005

(2) it also composes skills of identifying which

production units will be combined to serve

copyright @ chester to 2005

In practices, what are the major

copyright @ chester to 2005

from late delivery, insufficient time for

copyright @ chester to 2005

Forecast can be more accurate and responsive.

When close cooperation is required for long term

development, domestic sourcing would be more

For certain items with characteristics of great

exclusivity and uniqueness, domestic sourcing

copyright @ chester to 2005

copyright @ chester to 2005

copyright @ chester to 2005

Import semi-process (e.g.OPA)

But on the other hand, it would increase the cost of

benefit resulting from trade tariff privilege.

administration to coordinate cross-country

From manufacturing perspective, it can reduce the

burden of direct investment in certain component

copyright @ chester to 2005

Transportation cost and arrangement may make

longer throughput and greater precaution.