Delivering Customer Value through Procurement and Strategic Sourcing A Professional Guide to Creating A Sustainable Supply Network

While procurement has become far more effective at negotiation, cost cutting, and contract management, few supply chains are meeting their strategic potential. Now, two supply chain thought leaders distill all that’s been learned about strategic sourcing, helping you orchestrate supply chains to create differentiation, increase value, and sustain competitive advantage.

Presenting the newest research and practitioner experiences, they show how to transform the supply chain activities that have the greatest upside potential. You’ll start by learning how the field’s leaders are building more effective strategic sourcing teams and managing them more effectively. Next, the authors guide you in moving toward increased customer-centricity; aligning with Tier 1 suppliers to promote shared long-term profitability; and systematically redesigning even the most complex global supply network.

You’ll find new best practices for protecting against potential supply chain disruptions from any source; anticipating shorter product lifecycles and other challenges; evaluating potential opportunities to reshore, and more. Throughout, this guide focuses relentlessly on helping supply leaders deliver value, gain a true strategic role, and take their “seat at the table.”

• Develop stronger, more resilient supplier relationships
  Build partnerships where buyers and suppliers can truly rely on each other
• Learn from all that’s been learned about global sourcing
  Reach out to the world for great ideas, components, design, process, and R&D
• Protect against rapid price fluctuations in key commodities
  Use futures, options, and purchasing strategies customized for changing environments
• Integrate the most advanced technology into your mindset and practices
  Leverage today’s highest-value technologies in key supply management processes

The executive’s guide to sustaining competitive advantage and mitigating risk in complex supply networks

• Strengthen alignment throughout your supply chain, and with key suppliers
• Build a more customer-centric, demand-driven supply chain
• Cutting-edge research, practical experiences, and new lessons from UPS, Coca-Cola, Home Depot, Apple, and other leaders

This book can help any senior manager transform sourcing and procurement into a key competitive advantage–and keep it that way.

Two leading researchers and consultants show how to apply advanced strategic sourcing to significantly improve supply chain efficiency, effectiveness, and sustainability. Informed by their insights, you can go beyond mere cost-cutting and contract management to redesign and orchestrate your entire multi-tier supply chain.

Walter L. Wallace and Yusen Xia demonstrate how to bring together multiple business disciplines related to sourcing and procurement, strengthen critical buyer-supplier relationships, and systematically improve visibility and accountability. Throughout, you’ll find new best practices and innovations for all supply chain functions–from e-procurement to financial hedging.

Introduction 1

Notes 4

Chapter 1: Purchasing, Procurement, and Strategic Sourcing 5

Strategic Sourcing Methodology    7

Supplier Relations and Performance 16

Notes 17

Chapter 2: Managing Sourcing and Procurement Processes 19

Step 1: Determine the Type of Purchase and Level of Investment 20

Step 2: Perform the Procurement Process 21

Step 3: Evaluate the Effectiveness of the Strategic Sourcing Process 23

Supplier Selection 24

Use of the Tradeoff Analysis for Supplier Selection 27

Procurement Pricing 29

The Procurement Team and Its Contribution 32

Notes 33

Chapter 3: Strategic Sourcing and Delivering Customer Value 35

Delivering Customer Value 35

Defining Customer Service 37

The Impact of “Out of Stock” 39

Value Creation and Effectiveness 39

It’s the Totality of the Offer that Delivers Customer Value 41

Market-Driven Supply Chains 43

Identifying Customers’ Service Needs 44

Defining Customer Service Objectives 47

The Cost Benefit of Customer Service 48

Setting Customer Service Priorities 49

Setting Service Standards 53

Notes 57

Chapter 4: The Size of the Organization Spend and Financial Significance 59

Organizational Spend and Its Significance 60

Return on Investment Effect 60

Profit-Leverage Effect 61

Reduction in Inventory Investment 63

Supply Side Contribution to the Organization 64

The Mission, Vision, and Strategy of the Organization 67

The Size of the Organization 68

The Financial Strength of the Organization 69

The Reputation of the Organization 69

Notes 70

Chapter 5: Understanding Buyer-Supplier Relationships 71

Trusting a Single Source 71

An Apple of an Idea 72

A Calculated Risk 73

Keeping the Complex Simple! 74

A Foolproof Strategic Procurement System 75

Managing the Strategic Sourcing Decision: Buyer-Supplier Relationships 87

Notes 88

Chapter 6: Value Creation for Global Procurement Competitiveness 91

Spotlight on Procurement Performance 93

The Strategic Sourcing Decision: The Best Value Chain Wins 101

Notes 101

Chapter 7: Procurement under Raw Material Price Fluctuations 103

Raw Materials and Commodity Procurement Contracts and Trading Markets 105

Raw Materials and Commodities Price Forecasting 107

Commodity Procurement Strategies when Forecasted Prices Are Increasing 116

In Conclusion 122

Notes 122

Chapter 8: Supply Processes and Information Technology 125

The Supply Management Process 128

Technology-Driven Efficiency and Effectiveness 131

Building Application Layer Security into the Supply Chain 150

Information Technology Implications for Strategic Sourcing 152

Notes 156

Chapter 9: Creating a Sustainable and Environmentally Compliant Supply Network 163

A Greener Manufacturing Process 167

Initial Steps 171

Considerations for a Greener Supply Network 175

Big Picture Considerations    179

Why Sustainability? 181

Green Sourcing 183

A Green Strategic Sourcing Process 185

Building a Competitive Advantage through Collaborative Sustainability Goals 189

Corporate Social Responsibility 190

Notes 192

Chapter 10: Time-Based Strategic Management 197

Supplier Lead Times 198

Quantity, Delivery, and Lead Time 200

Time Has a Price 204

A Shift in Priorities 207

Logistical Lead-Time Network Management 208

Eliminating Waste through Streamlined Flow 210

Throughput Time Element Analysis 211

Operational Effectiveness 211

Notes 212

Chapter 11: The Use of Emission Permits in Strategic Sourcing 215

Top-Down Trading System 218

Bottom-Up Trading System 220

Linking Different Systems 224

Further Thoughts on the Subject of Emissions-Trading Systems 225

In Conclusion 227

Glossary of Related Terminology 227

Notes 231

Chapter 12: Visibility as an Attribute to Becoming Customer-Centric and Demand-Driven 233

Big Data, Greater Visibility 235

Greater Visibility: What More Can We Do? 238

Building Visibility in the Inbound Supply Chain 239

Visibility on a Cloud-Based Supply Chain Network 243

Event Sourcing Software Architecture 245

Dell’s Information Visibility System 247

Crate & Barrel’s Vision for Global Supply Chain Visibility 247

A Well-Implemented Visibility Solution 249

Notes 250

Chapter 13: Understanding the Supply Chain Risk Profile 253

Managing Supplier Risk 254

The Hidden Risks of Supply Chain Innovation 256

Growing Threats to Supply Chains 259

Mitigating Risk by Gaining Visibility in the Global Network 261

Mapping the Organization’s Internal Risk Profile 263

Managing Supply Chain Risk 266

Notes 274

Chapter 14: Reshoring: Revolution or Evolution 277

Offshoring 278

Improving the Outsourcing Decision 287

Reshoring 288

Nextshoring 291

Proximity to Demand: Localization and Postponement 291

Made in America 292

Outsourcing Services 293

Benefits and Risks of Outsourcing Services 293

Outsourcing Challenge 294

Classification of Business Services 296

Offshoring’s Future 297

Notes 298

Chapter 15: Supply Chain Network Design and Analysis 301

Responsiveness 301

Reliability 305

Resilience 310

Relationships 316

Concluding Remarks 322

Notes 322

Index 325