The book has elaborated the new concepts in sourcing and has discussed how the old purchases department doesn’t work in isolation. The concepts discussed in the book are managing vendor, vendor performance, outsourcing,offshore outsourcing, cost of acquisition, contracting, negotiation, partnering, cultural aspects and ethical issues while dealing with suppliers.Sourcing Solution ,Purchase,Operation

Deepak Kumar

English

Research Papers in Economics

26 July 2005 • Best Books
THE SOURCING SOLUTION
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g The Sourcing Solution
A Step-by-Step Guide to
Creating a Successful
Purchasing Program
Author: Larry Paquette
Pages:224;  Price:  $39.95
Publisher: American Management Association
The book has elaborated
the new concepts in
sourcing and has discussed
how the old purchases
department doesn’t work in
isolation. The concepts
discussed in the book are
managing vendor, vendor
performance, outsourcing,
offshore outsourcing, cost of
acquisition, contracting,
negotiation, partnering,
cultural aspects and ethical
issues while dealing with
suppliers.
© 2004 AMACOM. A division of American Management Association, New York. All Rights Reserved.
The ICFAI University Press holds the copyright for the review.
Sourcing: Today’s Business
Buzzword
Traditionally purchasing department is
considered to be the main sourcing unit of
an organization which includes determining
supplier, vendor certification, conducting
location, site visits and background checks
of suppliers. Sourcing is important to provide
the best deal from suppliers in terms of
quality, price and negotiations. The
negotiation is an art and process in today’s
competitive environment in the global
scenario. There may be centralized or
decentralized sourcing department based on
organization’s strategic formulation and line
of control. In sum, sourcing is an important
and vital tool; contributing a strategic and
visionary decision-making objective to an
organization.
Sourcing can be helpful by internal or
external consultancy or a combination of
both. Just having unused inventory creates
several operational risks and merely
pleasing one big supplier is surely not the
crux of the game. Sourcing at cost reduction
increases the chances of best growth of a
company as it increases the marginal pricing
and the competitive advantages.
Sourcing opportunity can be anywhere,
if the organization is using E-commerce,
EDP system, MRP system, manual tracing
form, action sheets or status reports. The
only thing that is to be taken care of is
how accurate is predications of sourcing
materials.Best Books • July 2005 27
BUSINESS PROCESS OUTSOURCING
Larry Paquette has worked at Amprex
Corporation, Silicon Graphics, Ridge
Computers, Gould Electronics and others.
He is having more than 30 years
experience in material management,
purchasing, production and logistics
control, master scheduling, JIT, SMED
and Kanban. He still enjoys the
implementation of his experiences while
dealing with countries like Japan,
Taiwan, Hongkong and China.
About the Author How to Manage Vendor and
Testing Vendor Performance
Managing vendor is an important aspect
of sourcing. A sourcing company must not
over-rate one supplier as it increases more
dependency on the supplier and if anything
happens wrong to that supplier, the sourcing
company may face losses. Therefore there
must be 2- 3 suppliers for a single material,
may be one bulk supplier and another small
supplier. However, bulk supplier must be
chosen based on parameters like –
• How efficient it is and whether this supplier
understands clients’ requirement. Now-
a-days, while there is a world of
assemblies, the concepts like JIT , Kanban
must be taken into consideration.
• While making a long-term relationship,
there must be such involvement so that
the sourcing company may know the cost
of the product which can be encashed
while renewing the contracts or deals.
Such supplier can be a strategic partner
in product positioning and new product
development when the organization does
not have sufficient funds for raw materials
etc. This process reduces number of
vendors which change the face of
business not only by economies of scale
but also by intrinsic and mutual support
considering the concept of “Vendor
performance”.
Vendor performance describes the
suppliers’ background like online delivery,
partnership in reducing inventory, data
accuracy, correct documentation,
certification, etc. While choosing the
company based on certification , companies
having ISO series certification and other
quality certification must be given
preferences, as such certifications reduce the
chances of risks. However, a sourcing
organization can have its internal vendor
certification based on parameters like plat
efficiency, quality system, employee
relations, customer visits, customer needs,
secondary customer needs, supplier needs
and vendor quality improvement. This
internal vendor certification can be helpful
in bargaining among suppliers and it would
be the “best fit” to sourcing organization.
Outsourcing and Cost of
Acquisition
Knowing about suppliers in detail can help
in knowing about the products to be
outsourced. Thus, it is recommended to visit
the suppliers' place even if suppliers are very
loyal and provides the best delivery. The first
impression of the suppliers’ place is not only
indicative to judge the supplier, the need is
to grease one’s shoe over the shop-floor
and knowing the processes suppliers use. It
is also recommended not to produce every
assemble products. Therefore, some
products can be outsourced. This reduces
the investment in infrastructure and time. For
example, Microsoft works closely with
Flectonics on the outsourcing of its Xbox
product.
However, while outsourcing the important
parameters like managing by objectives,
ISO, quality control, z matrix management,
zero defecting must be taken in
consideration. E-commerce is also an
important part of the business today,
whereby the time and the paper work are
reduced.
Another important concept in the book
is “cost of acquisition”. Every purchasing
personnel knows that there is a difference
between the product price and cost of
acquisition and one must handle this
scenario tactfully and quantifiably. The
product price may be lower in one case but28 July 2005 • Best Books
THE SOURCING SOLUTION
the cost of acquisition may be dearer to the
buyer. Cost of acquisition includes the
purchase price, transportation charge, late
delivery charges, rejection charges,
administrative charges, material handling
cost and e-mail, fax, phone calls, etc. Thus,
a remote supplier may be dearer to a buyer
even if the purchase price is lower. Therefore,
other charges and hidden costs must be
taken in consideration.
Within this cost of acquisition, the lead
time is an important facet whereby the
souring company may reduce the chances
of loosing customers, decreasing revenues
and any chance to have bad word of
mouth. The lead time is defined as “the
amount of time it takes from when a demand
for a specific component is created until such
time as it is delivered to its required
stockroom.”
• The lead –time reduction process is not
a single process but it involves reviewing
product specifications, consolidation of
designs, proximity to source, etc.
• The less lead time reduces psychic and
monetary cost. If possible, the buyer must
order the bulk capacity so that there must
be sufficient stock for futures and orders
of products can also be given in advance
to avoid any delays. This process comes
after a lot of experience, to be in the
system.
To avoid any late delivery, there must be
a long-term relationship with suppliers. This
can be done by contracting. Contracting is
important when the terms and conditions are
complex, payment vehicles are not under
control, different time lines and there are far
long distances between two parties. The
written contract helps in tracking suppliers
legally if anything goes untoward. The
contract can be regarding payment, shipping
schedule, quantity and quality specifications,
packaging, etc.
Negotiation and Partnering:
An Art of Dealing
Negotiation with suppliers is another
important element in sourcing. While
negotiating, buyers should remember that
the seller must not lose significantly,
otherwise, he may not be able to keep the
promise when buying company will need it.
There must be a win-win situation. Such
negotiation skill comes after a long practice
and being in the deep business of sourcing.
Important points to remember while
negotiating are –
• Before making the deal or going for the
deal with suppliers, research supplier’s
background, credibility, etc., otherwise,
merely winning the deal will become
worse at the end of the game.
• The shortsighted benefits must not be not
be in the mind while sourcing as
temporary association is really not the
business and parameters like quality,
standards, etc., must not be
compromised with.
• Thus, understanding performance issues,
keeping notes of deals, knowing terms
and conditions, etc., are important tactics
to have the good negotiation. While
negotiating, we must remember that
suppliers can be the partner in future if
they are really catering to buyers' needs.
Thus, the concept partnership comes,
whereby suppliers can know buyer’s
products, needs, understand buyers’ support
expectations, inventory investment risk,
technology requirements and ethical issues.
Thus, while partnering, following must be
considered –
• Make a first pass at researching
available companies and vendors.
• Weed out those vendors who are so large
to find your potential business
insignificant to their daily lives.
• Avoid small company where you will
become much more than about 20 to
25% of its business.
• Schedule a face-to-face meeting.
• Visit the vendor’s factories to ascertain
capabilities, level of expertise and
commitment to your product or process.
• What is the vendor’s customer base like?Best Books • July 2005 29
BUSINESS PROCESS OUTSOURCING
• A true sourcing specialist must look well beyond
price to determine the final supplier. You also
need to learn what is required of your vendor
to supply the product you desire, so that you
can clearly understand the cost of the process,
its components and the lead times to
accomplish product completion.
• A good supplier will be able to suggest product
consolidation to achieve improved economies
of scale. It will advise which new technological
advances in its market and product base might
make sense for your company.
• The best price possible, with less than optimal
quality or delivery performance, is not the basis
of an acceptable agreement. Unless all three
legs on the milking stool are solid-price,
performance, and quality, the stool is broken
and you will eventually be unceremoniously
dumped where you’d rather not be.
• When beginning a vendor certification, there
are other notes to keep in mind. Do not expect
to certify every supplier on your vendor list,
and do not expect every surveyed company to
attain an acceptable score.
• Automatic invoicing, keystroke money transfers,
and online query capabilities are all techniques
and processes that improve efficiency and
reduce direct labor in the repetitive tasks of
daily business.
• A supplier that is too dependent on your future
is exhibiting poor management technique by
exposing itself to a more concentrated risk than
it should. When your business experiences a
significant slowdown, which can happen to any
company at any time, the vendor risks laying off
its workforce, or closing facilities.
• Once a company does the analysis to determine
its core competencies, the message is clear that
the next logical step is to look for a skilled,
qualified outsourcing partner. “Keep the best
and outsource the rest” will become the new
road map to success.
Book Excerpts
• Has the vendor asked you for your
business?
While partnering, cultural issues must not
be kept aside especially when the
organization is dealing with foreign
suppliers. In today’s global environment
where there is boundaryless trade between
countries, concept like offshore procurement
have got high priority. Such opportunity must
be utilized as cost and quality are important
factors while producing products and
services. Buyers still choose China for its low-
cost products, Singapore for being
advanced semiconductor destination and
Hong Kong for being manufacturing leader.
Moreover, different businessmen are having
different attitudes while dealing with
suppliers, like a far east businessperson is
not interested in short-term relationships and
China believes in dealing business under a
mutual benefits umbrella. Thus, while
dealing with these foreign countries; these
cultural aspects must be taken into
consideration. Some are really very ethical
and society oriented and anything wrong to
society and religion are not accepted at any
cost. Thus, project team involved in such
sourcing must have the necessary inputs like
technical data, process specifications which
reduces risks of obsolescence, quality service
and reduces inventory investments. Thus, to
have a unique, new and long-term
relationship with suppliers, there should be
clear-cut process of scheduling and
handling products and correspondences
with suppliers.
Thus, this book is for both academicians
and practitioners who want to get the true
essence of sourcing as theoretic concepts
and the feel of hands-on experience of
person who is really involved in such
activities. The author has tried to put forward
his experiences to readers very briefly and
in a meaningful way.
— Deepak Kumar
Associate Consultant,
The ICFAI University Press.
Reference # 13M-2005-07-06-03

Book review--The Sourcing Solution : A Step-by-Step Guide to Creating a Successful Purchasing Program

http://128.118.178.162/eps/io/papers/0508/0508004.pdf

Book review--The Sourcing Solution : A Step-by-Step Guide to Creating a Successful Purchasing Program

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