Introduction
With the increase of on line buying and sourcing of goods and services, educators, consultants, writers, and industry leaders have spent a great deal of time and resources attempting to improve the identification and selection of suppliers and the associated purchasing processes. Today, some of the most commonly heard terms for buying include: Sourcing, Strategic Sourcing, e-Sourcing, Purchasing, Procurement, e-Procurement, Supplier Management, Supplier Relationship Management, and Supply Base Management.
The outsourcing decisions are with regard to whether product should be made internally or whether they should be bought externally. Making the product internally gives better control over the supply where as buying option gives the opportunity to get specialist service probably with economies of scale. Current global outsourcing is based on this thinking.
According to the article of Ravi Venkatesan, the basic idea is to aim for leadership where possible and partnership with suppliers where necessary. It means that a company should try to be their full ownership as much as possible and based on the strategic need they can partnership with supplier. When a company partnership with supplier, it should be considered the “core” component where internal design and manufacturing capabilities are good. These are part that the company is distinctively good at designing and making, and this is where the bulk of investment and best talent should be directed. Rather then spend enormous time and money trying to catch up with the best supplier the best policy here is to close the internal operations and free up resources for core families.
Critical on the Article
According to the Ravi Venkatesan, he is focusing three main thinks to make sourcing decisions consistent with a strategy of survival in highly engineered products.
01. Focus on those components that are critical to the product and that the company is distinctively good at making.
02. Outsource components where suppliers have a distinct comparative advantage greater scale, fundamentally lower cost structure, or stronger performance incentives.
03. Use outsourcing as a means of generating employee commitment to improving manufacturing performance.
The strategic sourcing decisions should be taken without making any conflict or harm on the existing systems. According to his argument, development engineers preferred to outsource new components and they found external suppliers were often more responsive to their design changes than internal suppliers were. At the same time Managers in charge of labour relations favoured in-sourcing to preserve jobs and maintain cordial relations with the union. Also the manufacturing managers have a strong incentive to in-source production after all more parts means more responsibility, more authority and bigger salaries moreover the managers making the sourcing decisions are often the same people who have to evaluate the outcome of these decisions. In view of above argument the managers of different units and departments are thinking about their own agendas and benefits rather than the company profitability. This affect the entire organization as it is consider as an open and dependent system. Therefore the strategic sourcing decision is critical in this stage.
In own view
Strategic Sourcing will be defined as the process of evaluating, selecting and aligning with suppliers or consortiums of suppliers to achieve operational improvements in support of an organization’s strategic objectives. Strategic Sourcing can go well beyond cutting costs. It can have a profound impact on a company’s financials and can strongly influence the purchasing and procurement processes.
The following critical success factors should be considered when companies take strategic sourcing decisions;
· The availability of information is the main actor where company perfectly uses it for becoming proactive towards changes and responds immediately, which significantly improves results.
· The Organizational Commitment influences the strategic options like strategic sourcing, strategic positions in a way to direct the organization in the market. An organizational commitment is required to implement and support Strategic Sourcing as compliance to sourcing decisions often needs executive support and communications in order to drive adoption throughout the organization.
· Understating the market position and market place is vital as this will help an organization be proactive to changes in the marketplace, understand ways to influence suppliers’ capabilities for lowest total cost solutions, and finally better prepare for negotiation opportunities.
· The analysis or evaluation of total cost will indicate the types and extent of savings opportunities outside of traditional negotiations around price, delivery and payment terms. The organization needs to reduce the cost of non value adding factors to the products and adding value to the products of consumers in the perspective of the end user.
Conclusion
Make or buy decisions are among the most important in the new competition. Companies cannot get good at parts unless they know what the whole is about. Many purchasing departments strive to minimize the cost of purchased parts in an effort to reduce the total cost of delivering goods to market. However, sourcing according to lowest cost may not be the best strategy for the company as a whole. In some cases, brash moves have even proved detrimental. When performed in the context of product goals for lifecycle profitability, key strategic sourcing decisions are critical for predictable earnings. Even So once they have developed a clear strategic direction they can pursue sourcing more opportunistically with every new product introduction or request for capital, for example managers may be able to make the appropriate set of sourcing decisions to get their organizations incrementally closer to the right degree of vertical integration.
The critical success factors previously discussed also depending on an organization’s current situation. This not means that these factors are simultaneously having impact on the guaranteed success. However, they do represent a solid checklist for determining how likely an organization will be in achieving and adapting to the objectives of Strategic Sourcing. According to the article of Ravi Venkatesan, the basic idea is to aim for leadership where possible and partnership with suppliers where necessary. For example, TOYOTA manufactures, they keep on producing the core part that is the vehicle engines and other key elements that give the competitive advantage for their own production capacity and brand. Further, they outsource other components to the suppliers who provide quality products at good prices due to economies of scale to add value to their product.