Source Management on Supply Chain Management (3)

Source Management on Supply Chain Management 3

By : Wibisono Adhi

The best sourcing strategy is to identify the best suppliers from many varied points of view. Some points are needed to be considered. Sourcing team has to discover how good the suppliers are, knowing their capabilities and how they usually behave. It must be suitable with company’s need and culture. The contracting method is also important. Sourcing team need to choose and negotiate to use the best method, whether it is based on “spot price” or “open book” approach. In order to minimize the risk, they have to make sure that there are risk/revenue sharing for high risk deal and joint development to decline cost. The consideration of business risk and rewards must be based on technology, supply, and sharing of technology (skill and experiences, equipment, and Joint partnership). The most common criteria for supplier selection are TQRDC (Technology, Quality, Reliability, Dependency, and Cost). To compare one to other suppliers Q/C ratio is the most common technique used. 

The sourcing team brings together diverse groups and views with a common goal to reach. They must have “the everyone” points of view. The sourcing team mobilizes the organization based on structural order. Begin with the development of opportunity & data, than continued by the development of sourcing strategy, the evaluation of proposals, contract negotiation, plan implementation, and finished with the validate & execute stage. They have to make a life network and communicate it with business and functions stakeholder.

The Execution of purchasing contract is generally undertaken by operational roles. The contract must be accompanied by a supply chain logistics agreement. It has to be exhaustive, detail and understood by the local staff. The delivery performance needs to be measured and get feedback from the supplier. The supply logistic agreement needs to clearly explain how purchasing is involved in supply performance evaluation. It is used to enforce claims, re-negotiate contract renewal, and to drive improvement project on suppliers. The other important question is definitely how purchasing and operations coordinate actions towards supplier (role of quality of grey area and the sense of urgency).

Procurement has direct connection with company profit. Every rupiah saved in purchasing improves company profit. Different with every Rupiah of Sales which only affect the cost of sales. There are two approaches on conducting the procurement. There are strategic and operational approaches. The goals on strategic procurement is to define the right place, right quality, the right quantity, right time, right price, and right supply. On the other hand, the goals of operational procurement are to manage the uninterrupted flow of materials and services, manage the cost of operational activities, and minimize inventory investment and lost. The strategic procurement activities contain several strategic based activities such as developing procurement strategy and aligning it with the overall organizational strategy, assessing the supply market, gathering information, identifying suitable supplier, selecting supplier, negotiate company’s supply contract, evaluating supplier, manage critical commodities, manage relationships with critical suppliers and the rest of company, monitoring procurement performance, improving the procurement processes, developing an electronic procurement system, and implement company’s best practices. Whereas, the operational focused procurement activities are such as preparing forecast with quantities and delivery times required, collecting demands, controlling authorization issues, placing purchase orders, follow up purchase orders, communicate with supplier, taking care of administration (delivery, tax and regulatory issues and invoice), monitor the shipments, manage transaction with supplier, source the item that are unique to the operating unit, generate and forward material releases and provide suppliers performance feedback. 

In order to maintain warehouse efficiency and meet the production needs, different delivery practices can be used :  

a.      Fixed standard quantity with variable frequency (transport / packaging optimization (pallet, full truck).

b.      Fixed delivery frequency with variable quantity (for ex. Weekly delivery to replenish past consumption).

c.       Just-In-Time / Just-In-Sequence (Deliveries triggered by “kanban”, production sequence).

d.      Consignment stock (stock belongs to supplier until consumed).

e.      Vendor-Managed Inventory (Delivery managed by supplier to keep stock between agreed min and max).

f.        Consignment & VMI (combination of the two practices above, more frequent than individually)

g.      External (usually outsource) storage for inbound materials, delivered on demand.

h.      Milk-Run – Managed internally or externally.

In the selection of delivery practices, an ABC/XYZ matrix can be used to determine classes of delivery methods. The ABC is to value the usage of the item and XYZ is to state the frequency of usage. For example for a high value item with frequent usage, it will be placed on AX box and daily JIT can be suitable for this criteria. For BX box (medium value with frequent usage), a weekly JIT will be compatible. In C* Boxes the operation has to keep enough inventory, so a fixed quantity or fixed frequency can be used. A similar approach using usage, variables can be used to determine stocking policy.