Managing Procurement and Sourcing Getting What You Need GSCM Ch 3 - * Global sourcing Global Sourcing Benefits Risk Factors Factor- input Market access Quality Ethical concerns Patent protection Supply management Aims/objectives Process of sourcing & procurement Supplier selection Supplier management Aims/Objectives The primary goals/objectives of purchasing are:Ensure uninterrupted flows of raw materials at the lowest total cost, Improve quality of the finished goods produced, and Optimize customer satisfaction. Purchasing contributes to these objectives by: Actively seeking better materials and reliable suppliers, Work closely with and exploiting the expertise of strategic suppliers to improve quality and materialsInvolving suppliers and purchasing personnel in new product design and development efforts. GSCM Ch 3 - * The sourcing process Conduct internal needs analysis Item to be sourced; characteristics; import restrictions; volumeConduct market assessment of suppliers PEST analysis of country; risks (threats) and opportunitiesCollect supplier information Reputation; financials; referencesDevelop sourcing strategy Strategic alliance?; level of collaboratingNegotiate with suppliers Price; quality; delivery timesImplement supply chain improvements Develop key performance indicators (Kpi) The sourcing process GSCM Ch 3 - * Adapting the processSpend-driven approach Analysis of every sourced good or service Suppliers selected to meet company’s spend profileRisk-driven approach Placing a trial order Avoiding high-risk countries Having more than one supplier Negotiate conditional payment terms GSCM Ch 3 - * Efficient sourcing GSCM Ch 3 - * Efficient sourcing Total acquisition cost analysis (TAC)Supply base rationalization and consolidationPrimary and secondary sourcingE-procurement GSCM Ch 3 - * Partnerships and alliancesBenefits of supply chain partnershipsFoundations for good partnershipsCommon types of supply chain partners Vendor Managed Inventory (VMI) Collaborative planning, forecasting and replenishment (CPFR) GSCM Ch 3 - * OutsourcingBenefitsImportance of knowing an organization’s core competenciesTypes of agreements: Equity joint venture Equity strategic alliance Non-equity alliance Franchising Production and assembly Legal services Technical training GSCM Ch 3 - * Outsourcing Benefits Cost savings Gaining outside expertise Improving customer service Ability to focus on core competencies Obtaining outside technology DisadvantagesPossibility of increased costsLoss of company controlNegative impact on employeesNegative impact on customersRelationship problems GSCM Ch 3 - * Negotiating with suppliers or outsourcersPriority negotiating elements What volume is being purchased? Discounts available? Are logistical and importing costs covered in the price? What does the price include? What are the responsibilities of each party involved?Method of payment and documentationPaymen ...

1. Managing Procurement and Sourcing
Getting What You Need
GSCM Ch 3 - *
Global sourcing
Global
Sourcing
Benefits
Risk
Factors
Factor-
input
Market
access
Quality
Ethical
concerns
Patent
protection

2. Supply management
Aims/objectives
Process of
sourcing &
procurement
Supplier
selection
Supplier
management
Aims/Objectives
The primary goals/objectives of purchasing are:Ensure
uninterrupted flows of raw materials at the lowest total cost,
Improve quality of the finished goods produced, and Optimize
customer satisfaction.
Purchasing contributes to these objectives by: Actively seeking
better materials and reliable suppliers, Work closely with and
exploiting the expertise of strategic suppliers to improve quality
and materialsInvolving suppliers and purchasing personnel in
new product design and development efforts.
GSCM Ch 3 - *
The sourcing process

3. Conduct internal needs analysis
Item to be sourced; characteristics; import restrictions;
volumeConduct market assessment of suppliers
PEST analysis of country; risks (threats) and
opportunitiesCollect supplier information
Reputation; financials; referencesDevelop sourcing strategy
Strategic alliance?; level of collaboratingNegotiate with
suppliers
Price; quality; delivery timesImplement supply chain
improvements
Develop key performance indicators (Kpi)
The sourcing process
GSCM Ch 3 - *
Adapting the processSpend-driven approach
Analysis of every sourced good or service
Suppliers selected to meet company’s spend profileRisk-driven
approach
Placing a trial order
Avoiding high-risk countries
Having more than one supplier
Negotiate conditional payment terms
GSCM Ch 3 - *
Efficient sourcing

4. GSCM Ch 3 - *
Efficient sourcing Total acquisition cost analysis (TAC)Supply
base rationalization and consolidationPrimary and secondary
sourcingE-procurement
GSCM Ch 3 - *
Partnerships and alliancesBenefits of supply chain
partnershipsFoundations for good partnershipsCommon types of
supply chain partners
Vendor Managed Inventory (VMI)
Collaborative planning, forecasting and replenishment (CPFR)
GSCM Ch 3 - *
OutsourcingBenefitsImportance of knowing an organization’s
core competenciesTypes of agreements:
Equity joint venture
Equity strategic alliance
Non-equity alliance
Franchising
Production and assembly
Legal services
Technical training
GSCM Ch 3 - *
Outsourcing

5. Benefits
Cost savings
Gaining outside expertise
Improving customer service
Ability to focus on core competencies
Obtaining outside technology
DisadvantagesPossibility of increased costsLoss of company
controlNegative impact on employeesNegative impact on
customersRelationship problems
GSCM Ch 3 - *
Negotiating with suppliers or outsourcersPriority negotiating
elements
What volume is being purchased?
Discounts available?
Are logistical and importing costs covered in the price?
What does the price include?
What are the responsibilities of each party involved?Method of
payment and documentationPayment termsEnsuring receipt
GSCM Ch 3 - *
Compliance with international law: Export regulationsExport
controlExchange control licensesExport quotasExport
documentation
Commercial invoice
Bill of lading
Export declaration
Packing list
Insurance document

6. Certificate of origin
GSCM Ch 3 - *
Compliance with international law: Import regulationsImporters
liabilityImport quotasAntidumping legislationTariff
classificationImport documentation
Commercial invoice
Bill of lading
Import declaration
Packing list
Insurance document
Certificate of origin
GSCM Ch 3 - *
Customs brokers
What is a customs broker?
What services do customs brokers offer?
How should my organization choose a customers broker?
GSCM Ch 3 - *
Becoming a supplierBenefitsLocating opportunitiesTips for
responding to an RFP/RFQBidding realisticallyExport
contractsBinding agreements and contracts

7. BICG9502
Case Study #1: Global Supply Chain Management and Strategic
Sourcing
Sounds like a supply chain problem
Metrovox is a German electronics manufacturer that designs,
develops and manufactures a range of products for the
entertainment and home electronics sector. Management has
recently focused on two related products, Bugabyte and
Bugabyte Lite. The Bugabyte is a video and audio player with a
flash drive. The company has invested heavily in the
research and development of this product, which is a small
hand-held unit about the size of a credit card, and is about 50
percent thinner than their competitor’s offerings. The Bugabyte
Lite is a flash drive and mp3 player. Metrovox sells this
product to a distributor in North America and to a major
European retailer.
The market for these two products is highly competitive, and
Metrovox relies on product differentiation as a source of
competitive advantage in both Europe and North America. The
retail price is the same as, or slightly higher than, their
competitors. Product uniqueness is based on the size of the
Bugabyte and the storage capacity of the Bugabyte Lite.
The Bugabyte is a relatively new product on the market and was
designed to meet predicted future growth in popularity
of hand-held video devices. Demand is anticipated to be low to
moderate for the first few years of sales, and expected to
grow thereafter. The Bugabyte Lite has been on the market for
over six years, under a different product name. The

8. casing design was recently changed to compliment the
Bugabyte, and marketing efforts within the last few months
have
strived to address the fact that this is the same quality product
with a new look. This product experienced healthy growth
for its first four years, and has stabilized over the past two. The
Bugabyte Lite is not a product that will contribute to
significant revenue growth for Metrovox, although its presence
in the market contributes to brand continuity and
awareness. There are also a large number of competitors with
similar products.
Currently, Metrovox purchases components for these products
from suppliers in China. The components arrive at their
German assembly plant. Their suppliers, on the whole, are
reliable, and do not contribute to any delays in production or
assembly. The assembly process involves mounting a SMD
(surface mounted device) decoder chip and a PIC controller
to a circuit board, sending the assembled boards for testing and
then integrating the tested boards into the product
casing. Due to the recent development of the video capable
Bugabyte, Metrovox is experiencing increasing production
delays, which contributes to their 30 percent late delivery rate.
Management is considering outsourcing the assembly
process to one of their suppliers. They need to determine which
of the two products, the Bugabyte or the Bugabyte Lite,
is the best candidate for outsourcing assembly.
In need of sound advice
Metrovox hires the services of Grunwald and Vogel, a
manufacturing consultant, to help determine how delivery times
can be better managed and how to reduce their 30 percent late
delivery rates. On-time delivery lead times from
procurement, assembly, and circuit board testing through to
assembly of the tested components in their casing takes

9. approximately four weeks. There are very specific
measurements for circuit board quality testing compliance
defined in
terms of the solder used and the soldering process. The circuit
boards for both the Bugabyte and the Bugabyte Lite must
have a minimum ten year life span.
Annual demand for the Bugabyte in the first year of release is
300 percent over forecasted demands. Production
management and the sales team cannot reasonably predict future
demand. Since the Bugabyte Lite has experienced
stability in sales over the past two years, forecasting has been
accurate and the margin of error is much lower than that
of the Bugabyte. The entire assembly process for Bugabyte and
the Bugabyte Lite accounts for about 5 percent of the
product’s price, and is not viewed as an aspect that contributes
to the product’s competitive advantage.
With the recent design and production of the Bugabyte,
Metrovox has had to include several new stages in their
assembly stage to accommodate the video capability of the
product. There is also a significant amount of proprietary
information that is used during circuit board testing. Because
the Bugabyte Lite is a product that has been on the market
for a number of years, it has a well established assembly
process. Product testing is based on technology that is widely
used and that has been around for five years.
Music to Metrovox’s ears
Grunweld and Vogel’s task is to assess which product is the
most suitable candidate for outsourcing assembly. A key
element that needs to be taken in to account is that the new
supplier and assembler has to commit to delivering the
assembled circuit boards to meet Metrovox’s delivery schedule.
Metrovox has an agreement with North American

10. distributors and European retailers that they would deliver the
Bugabyte and Bugabyte Lite in the same shipment. Quality
and defective rates are also a concern for management. The
outsourced assembler needs to maintain the same high
standards Metrovox applies to assure their market position and
competitive advantage.
Case Questions
1. Based on the risk factors associated with the Bugabyte and
the Bugabyte Lite, which product do you think
Grunwald and Vogel will recommend as the best candidate for
assembly outsourcing?
2. Based on Grunwald and Vogel’s decision, what will be the
benefits and disadvantages of outsourcing the
assembly function?
3. In the event that Metrovox can outsource the assembly of the
circuit boards to an existing supplier, discuss the
key contract issues Metrovox will need to consider with their
supplier.
4. What inventory management strategy should Grunwald and
Vogel recommend Metrovox adopt to ensure
efficiencies throughout their entire supply chain?