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Creating a Sourcing Plan: Procurement : A Tutorial
The Procurement Process Creating a Sourcing Plan: Procurement : A Tutorial
Published on: Jan, 26, 2011
by: Robert Handfield, PhD
The Procurement Process – Creating a Sourcing Plan
Introduction (#1)
Identify Opportunities (#2)
Analyze the Situation (#3)
Undertake Strategic Analysis (#4)
Case Study (#5)
Create a Strategic Sourcing Plan (#6)
Introduction
The Procurement Process
Business requirement for product or service
(http://scm.ncsu.edu/as/scm/i/channels/articles/scm/businessrequirementsprocurementprocess.gif)
User need for product or service
(http://scm.ncsu.edu/as/scm/i/channels/articles/scm/userneedsprocurementprocess.gif)
Identify Opportunities
Opportunities are usually triggered by a business requirement for a product or service.
Material requirements might include:
Equipment
Components
Raw materials
Completely finished products
Service requirements might include:
Computer programmers
Hazardous waste handlers
Transportation carriers
Maintenance service providers
Users (also called internal customers) identify a need for material or service requirements, and communicate this
need to purchasing.
Analyze the Situation
Situation analysis can include “Purchase Requisitions” or “Statements of Work.”
Purchase Requisitions should contain:
Description of required material or service
Quantity and date required
Estimated unit cost
Operating account to be charged
Date of requisition (this starts the tracking cycle)
Date required
Authorized signature
Statements of Work (SOW) for services specify the work that is to be completed, when it is needed, and what
type of service provider is required.
Marketing may want to purchase an advertising campaign.
R&D may need a clinical trial.
Human resources may need to print a brochure.
(http://scm.ncsu.edu/as/scm/i/channels/articles/scm/businessrequirements2procurementprocess.gif)
(http://scm.ncsu.edu/as/scm/i/channels/articles/scm/purchaserequisitionprocurementprocess.gif)
Undertake Strategic Analysis
Procurement must work with the suppliers and its internal customers to analyze the process to understand where
opportunities exist to eliminate waste and increase value delivery.
Supplier evaluation
Indepth evaluation is required for major purchases. It is used for nonroutine supply items of higher value. It
begins with a list of potential suppliers. Existing suppliers with good track records should not be ruled out.
Supplier assessment criteria
1. Equipment and facilities
Uptodate?
Ability to expand in the future?
2. Processes
Rampup capabilities?
Process cycle times?
Reliable quality control program?
General housekeeping?
Working conditions?
Status of back orders?
3. Management Capabilities
Project management skills?
Stable, harmonious team?
How do they view your company as a customer?
Longrange strategic vision?
Leadership?
4. Information Systems
Up to date?
Training requirements?
Supplier evaluation criteria
1. Planning and control systems
Planning and control systems include those systems that release, schedule, and control the flow of
work in an organization. As we shall see in later courses, the sophistication of such systems can
have a major impact on supply chain performance. Among the questions the buying firm should ask:
Does the supplier have welldeveloped systems for planning material, personnel, and
capacity needs? If not, why not?
Does the supplier track key performance measures, such as throughput time, quality levels,
and costs? Are these measures compared to performance objectives or standards?
How easy is it for customers to interact with the supplier’s planning and control systems?
This last point is particularly important to organizations interested in effective supply
chain management. When interaction is high, information about the customer’s needs
flow easily to the supplier, and the customer can, in turn, retrieve important
information from the supplier. Consider the relationship between WalMart and
Proctor and Gamble (P&G). When a WalMart store sells a particular P&G item, the
information flows directly to P&G’s planning and control systems. P&G can then plan
production and schedule shipments accordingly. Furthermore, WalMart can easily
find out when a P&G shipment will arrive at one of its distribution warehouses,
thereby allowing WalMart to consolidate this shipment with others on the way to
individual stores.
2. Environmental regulation compliance
The 1990s brought about a renewed awareness of the impact that industry has on the environment.
The Clean Air Act of 1990 imposes large fines on producers of ozonedepleting substances and
foulsmelling gases, and governments have introduced laws regarding recycling content in industrial
materials. As a result, a supplier’s ability to comply with environmental regulations is becoming an
important criterion for supply chain alliances. This includes, but is not limited to, the proper disposal
of hazardous waste.
3. Minimum typical evaluations to consider
Price
Quality
Service
Delivery
Weighted Point Method
Using a Weighted Point evaluation system, purchasing can rank suppliers according to some of
these criteria.
(http://scm.ncsu.edu/as/scm/i/channels/articles/scm/weightedpointprocurementprocess.gif)
In this example, Supplier A has a score of 3/5 on quality, 4/5 on delivery, 2/5 on price, and 7 / 10 on
service, with a total score of 63. Supplier B scores better than A on quality, not as well on delivery,
but better on price and service. Given the associated weights on quality, delivery, price, and service
that are important to the purchaser, the weighted scoring system suggests that Supplier B is better
suited for this purchase, and should be awarded the contract.
Case Study
Using the information provided in Case Study 2 (http://scm.ncsu.edu/downloads/procurementcase2.doc) , as well as
the Excel spreadsheet, evaluate the following:
Respond to your manager’s request by discussing the critical factors that you should consider when
deciding whether to single source or multiple source this critical item.
Provide your recommendation for awarding this contract using a formal weighted point supplier evaluation
tool that you have developed.
What other factors might a buyer or buying team consider when evaluating the worthiness of potential
suppliers?
Create a Strategic Sourcing Plan
A strategic sourcing plan requires procurement to assess and manage the change so that the benefits of the
procurement strategy are realized.
The plan must be created in a way that ensures:
The benefits identified in the strategy are delivered in full and on time.
Change will take place successfully and in accordance with a realistic time plan.
Risks have been considered and the appropriate contingencies are built in to the overall plan.
What makes a good plan?
Implementation is timeintensive and often has a high failure rate.
Successful implementations are properly planned and communicated during the creation of the strategy,
and then are actively executed and continually managed to completion.
As the strategy is being developed, the procurement team will identify which areas of the business will be
impacted, directly and indirectly.
During implementation, measurement and attainment of results and the identification of key milestones
help to ensure success.
Categories:
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(http://scm.ncsu.edu/scmarticles/allarticles/category/scmtopics) Procurement Process (http://scm.ncsu.edu/scm
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articles/category/scmtutorials) Procurement (http://scm.ncsu.edu/scmarticles/allarticles/category/procurement)
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