Sourcing and Procurement are processes in supply chain management (SCM). It is not uncommon to see the two terms used in the same context although there are differences.
Sourcing
Sourcing is a strategic process that is more comprehensive and takes in a wider organisational view than procurement alone does. Sourcing sets out to ensure that procurement processes and purchasing activities are in line with the objectives and goals of the supply chain as a whole. With this focus in mind, sourcing follows five salient principals
• Accesses the total value - The total cost of ownership (TCO) model moves away from arm’s length relationships that are based on lowest purchase cost and instead takes a holistic view to calculate the total cost to the
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Working collaboratively and cross-functional members of the supply chain Sourcing sets out to achieve alignment with the goals of the SC
Key sourcing processes
The first step in SCM sourcing is the creation of a strategic plan that agrees on the scope and design of the process. This needs to understand the nature of the materials and services required for the specific project, the purpose they serve and the financial implications to the organisation.
In order to fully identify the scope and magnitude of the project, a formal spend analysis is required. The objective being to understand cost breakdowns, current purchasing approaches and identify areas that could be improved. Depending on the nature of the business an evaluation of wither to purchase raw materials and manufacture a solution or to outsource some or all of the needs to allow the SC to focus on its core competencies is
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Vendor Selection and Management
When selecting vendors, the most important factors to consider are the quality, reliability, capability, financial stability, quality of materials of services provided and the risk involved working with a particular vendor.
Quality relates to ensuring that the item or service supplied firstly meets the specification but also that considers the lifespan of the product, ease of repair and maintenance (Coyle, 2017). For example, a light fitting may meet the required light output specification but if it only lasts a few hours before blowing it would not be suitable in a long-life appliance.
The reliable supply of materials and services is a critical factor in a successful SC, therefore an essential function of the Procurement Manager is ensuring that flow is matched to that of demand. In the event of supplier delays procurement is responsible for following up with suppliers, negotiating and ensuring that actions are taken to reduce delays to a minimum. Globalisation has added to SC’s concerns of delays which can pose significant
However, it is important to note that even with fewer vendors, WM’s purchasing policies and procedures will differ based on the size and sophistication of the supplier involved in the transaction. For larger suppliers like GM, WM will want to rely more heavily on detailed contracts that clearly stipulate the expectations of the company and the implications that will result from unfulfilled expectations. For smaller suppliers, the company will want to soften the dialog used in its contracts to avoid scaring potential vendors away. By using less threatening language, the company will be able to build trust with these smaller vendors and ensure their future cooperation in the timely delivery of quality
2.Ability to constantly supply products or services. It is important to be sure that the vendor you select will not run into supply issues that will then deter you from meeting your customer needs. Selecting a vendor that can provide products and services on a regualr basis is a major key("Selecting A Vendor,"n.d,Vendor Selection Criteria section). 3.Substantial catalogue of products or range of services. This will help your company minimize the number of vendors needed.
It was the year 1987 when the Gartner Group popularized the form of full cost accounting named Total Cost of Ownership (TCO)(author, Gartner Total Cost of Ownership). Originally TCO was mainly used in the IT business sector. This changed in the 1980’s when it became clear to many organizations that there is a distinct difference between purchase price and full costs of a products ownership. This brings us towards the main strength of conducting a TCO analysis, besides taking the purchase costs into account, which consist of the amount a money an organization pays for the required service, product or capital outlay. It also considers 1. Acquisition costs; these can consist of sourcing, administration, freight, and taxes. 2. Usage costs, which consists of the costs associated with converting the given product or service into a finished product. And finally 3. End of life cycle costs; the costs or profits incurred when disposing of a product. TCO can be seen as a form of full cost accounting; it systematically collects and presents all the data for each proposed alternative.
“Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion and all logistic activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third parties service providers and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.’
Every firm has to make important decisions regarding the production process of a product. Different firms have distinctive production strategies and the main goal is to maximize efficiency as well as financial growth. One important decision that every firm needs to make is to either outsource or insource the production of a product, or parts of a product. Outsourcing and insourcing are techniques of dispersing work among alternative departments or companies for strategic reasons.
First of all, Sourcing is the basic step in every supply chain because it’s similarly like the columns in the construction, without them, it will be weak,
Definitions of ESI and EBI are arrived at based on extensive literature review and highlighted in block diagrams. ESI is perceived as an outcome of long- term relations and well managed permanent supply-chains which lead to knowledge integration, trust and cooperation and proactiveness. EBI on the contrary is perceived as an initiative to accumulating ‘relational capital’ which leads to ‘product perfection’. Evaluation of applicability and non-applicability of ESI to the four roles of SCM in construction by Vrijhoef and Koskela, 2000 is carried out. ESI is also pictured as ‘early supplier inputs’ as well as ‘early supplier intervention’. The script has been fairly positive on the application of ESI to the 4 roles other than to improve the supply chain. Within a buyer-supplier framework and the life span of a project, ESI has its limitations in contributing to SCM.
Supply chain management has been defined as that process that involves the management of information, materials, and all the finances that are handled within and across the entire supply chain process (Christopher, 2016). The management is usually done through out the entire supply chain management from that moment when the suppliers are involved through all the manufacturing activities, different distribution activities, and the way that the products are served to the final product consumer (Turban, et al., 2002). The process also includes all the activities that different organizations offers to their customers as after sale services for purposes perfecting their services and products towards their highly valued customers (Christopher,
Since mid-90, technology changed procedures for evaluating supplier’s relationships. Before technology, Suppliers relationships used to be an isolated activity disconnected from others companies’ activities highly influenced by conflict of interest. But when technology started to provide accurate data, companies begin the focus on inventory management activities increasing the importance of procurements departments’ evaluation as a way to reduce supply chain cost. With data, procurement can evaluate suppliers and their benefits for the company. In today business environment, the company dilemma is evaluating if the supply chain should be vertical, full outsourced of mix, considering industry maturity impact and price competition (Chopra & Meindl, 2007; Slack & Lewis, 2011).
A supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products, and deliver the products to customers through a distribution system [1]. The basic objective of supply chain is to “optimize performance of the chain to add as much value as possible for the least cost possible.
(2014) deduced that procurement performance can be assessed by focusing ondelivery,flexibility, quality, cost and technology. Optimal performance attainment is dependent onhow current suppliers`relationships aremanaged so asto ensure constant availability of needed quality supplies at the organization. This will ensure that sourced materials are indeed procured at the right costand atthe right time. Procurement performancestrives toenable improvements in the procurement process at the organizationso as to improve on qualitydelivery of firm products and servicesatleast possible time and
In general, there are different types of procurement type for various situations due to no one method can be suitable under the all different construction project. In this case, there are four procurement paths, which are traditional, design and build, management and design and manage, will be advised to use. However, each method has different aspects of advantages and disadvantages.
Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material and other economic factors like tax breaks and low trade tariffs. The whole point of global sourcing is to find better sources of supply around the world, offering improved quality and lower prices (Delaney, 2014, p.1). Global sourcing can be beneficial in several other areas for business too, but like any other endeavor, issues can arise and disrupt business if a strategic, well thought out plan is not place.
This paper examines the legal aspects of procurement management and specifically how procurement management can be used as an effective tool for the overall management of a project. This paper focuses on the basics of common contract laws, the basics of agency law, the Uniform Commercial Code (UCC), and some aspects of that pertain to the Federal Acquisition Regulations (FAR). A summation of the company’s position in relation to a given supplier (provided the company decides not to procure all of the material in a contract) will be examined along with how that position is strengthened by understanding the legal aspects of procurement management. Finally, the paper will analyze how the project manager is supported by the contracting management function.
Nikolarakos, C., & Georgopoulos, N. (2001). Sourcing: Issues to be considered for the make-or-buy decisions. Operational Research, 1(2), 161-179. doi:http://dx.doi.org/10.1007/BF02936292