Key goals and tasks of strategic sourcing
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The process of strategic souring aims to give companies continuous improvement to the buying process by consistently re-evaluating commodities, suppliers, purchasing practices and performance. It is a a key part of an effective supply chain management system and is a common feature in all industries from manufacturing organizations through to service companies.
The key stages of strategic sourcing
The strategic sourcing process consists of a series of activities. This commences with a thorough review of business requirements, what is being procured from the existing supplier base, gathering issues and performance data. This diagnostic information is vital to understanding what is required from the procurement function and what ‘tools’ are available to drive leverage and value.
Business requirement and existing supplier usage are typically scrutinized against what is available within the market, this includes the products and suppliers (often from various global sources) and risk and opportunity. A detailed understanding of each commodity is crucial in determining the appropriate business strategy.
Spend analysis is a crucial tool. Effective strategic sourcing relies on understanding what products are bought and from which suppliers. Too many businesses find themselves with fragmented supply chains where spend is not leveraged with the key to breaking out of the situation being knowledge of your spend.
Supplier appraisal techniques can be applied facilitating the filtering of suppliers in accordance with requirements such as compliancy or other criteria (e.g. QCD). This can then be developed into a preferred supplier list that can then be used for tendering purposes.
Once the initial diagnostic is completed a sourcing strategy can be developed. This will center on meeting the business requirement and take into account various criteria such as where items are purchased, supplier capabilities (from hard requirements such as being able to supply the product to soft requirements such as relationship and strategy), product strategies, Cost reduction targets etc with the next typical step being to conduct a tendering process for key commodities.
The tending process vary depending on the state of the supplier network (e.g. are existing contracts already in place). Contractorizing the supplier relationship will typically involve negotiation with existing contract holders and full tendering activities for commodities without long term agreements.
Once the supply structure has been established, its performance must be tracked and analyzed. Strategic sourcing will typically be involved in performance improvement activity and relationship management/development. Structuring the commodity supplier network will typically be a cyclical process in line with contract renewal with supplier appraisal and tendering being a common feature.
Looking For Optimization
A common goal of strategic sourcing is to achieve the business requirement whilst also ensuring that the business receives optimum value (whether monetary or strategic) from its supplier base. The best outcomes are the ones that offer the best overall solution, and not just with costs, but with taking all objectives (cost, quality, delivery, compliancy, sustainability etc) into account.
Once the supplier network is established strategic sourcing must ensure that an adequate handover to the tactical supply chain team (who will execute the operational buying processes) takes place. Having great suppliers can be severely hindered by poor purchasing processes!
Summary
Strategic sourcing is a common process. Through determining business requirements and selecting effective suppliers whilst applying effective performance appraisal and continuous improvement methods businesses can be rest assured that they are equipped with suppliers that are fit for business.
Introduction to Kanban and Pull systems
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Common in manufacturing plants, pull systems are a carefully regulated way of making sure materials are replenished efficiently. These resources become replaced at point and time of consumption endeavoring to eliminate practices that rely on holding excess levels of inventory such as stockpiling items for later use, and buying significant volumes of parts at a reduced price only to use them when needed over an extended time period.
Pull systems (or Kanbans as they are often referred to) are often associated with lean methodology. The pull process focuses on eliminating wasteful activity during the production process, placing materials at point of use (rather than all in the warehouse) and establishing a regular drumbeat replenishment process.
Looking upstream in the production process, parts are manufactured to meet the demand (either customer or stock orders). A typical pull system will see the utilization of a three-bin system. The manufacturing process consumes materials on the manufacturing/assembly line (bin one) this then acts as a signal to replenish from the stores (bin 2), which in turn acts as a signal to replenish from the supplier (bin 3). When effective a pull system is effective at controlling stock and maintaining replenishment to keep the production line going.
Origins of Kanban
Kaban is a Japanese term and is commonly associated with the Toyota manufacturing system before its use became widespread. Utilizing a visual aid, usually a card, which shows when goods need replenishing the system works backwards, goods are only replaced when used rather than simply being procured and placed in stock waiting for consumption.
It is termed a pull system because the ‘pull’ is what happens when an item or part is used and then replaced. A good example is that of a supermarket or grocery store, which generally have employees restocking shelves to the same amount as before the items were sold; they do not establish new levels of stock. Consider how your local grocery store uses baskets or containers to quantify its “inventory units” in order to simplify replenishment.
A simple card system showing when items need replenishing can be very effective. Kanban systems can utilize various signals to show ‘stock low’ or ‘replenishment due’ which can help simplify restocking ensuring the process remains efficient. Through the cards acting as a visual aide, operators are easily made aware of stock that needs to be replaced. Since little staff time is used for this type of communication, and restocking is typically replacing a trolley or container it is an extremely cost effective and simple process with components and stock being kept easily under control.
Kanban systems can be adjusted to suit a company’s specific needs. Kanban cards may be positioned at various stages of a production line according to what has been consumed. The cards can also be fixed to containers to communicate which need stock and which are filled.
Limitations associated with pull systems
Even though pull systems have many benefits, they may not be practical in every situation. Key components in this decision making is continuity of supply coupled with demand stability. Planning teams must keep an eye on production schedules to ensure that kanban levels are maintained appropriately for fear of bin sizes either not being sufficient or in turn being overly optimistic. Many businesses will find a happy medium where some fast moving goods are maintained via a Kanban system whilst other stocks are managed using alternative means. Kanbans can work very effectively when considered as part of kits where products are grouped together to support key tasks within the aseembly line. In conclusion businesses should choose the appropriate replenishment method for the appropriate product/issue.
Summary
Pull systems can be a very efficient and cost-effective stock control tool.
They are not without issues and require close management (and a willing and able supplier partner). However, when used effectively they can make a real difference in simplifying inventory management.