The ways of SCM transformation in the main The ways of SCM transformation in the main competitive advantage of the companycompetitive advantage of the company

Method 1Method 1: : Strategic sourcingStrategic sourcing

Vladislav Mandryka, Purchasing Specialist (indirect spending), Vladislav Mandryka, Purchasing Specialist (indirect spending),

JSC SarmatJSC Sarmat//SABMiller p.SABMiller p. l.l. c.c.

E-mailE-mail: : vladislav.mandryka@ua.sabmiller.comvladislav.mandryka@ua.sabmiller.com

What does strategic sourcing What does strategic sourcing meanmean??

Strategic sourcingStrategic sourcing is a process of is a process of systematicsystematic collection, subsequent analysis collection, subsequent analysis and evaluation of the internal and external and evaluation of the internal and external data in order to develop the most data in order to develop the most appropriate strategy for selection of the appropriate strategy for selection of the suppliers. suppliers.

Main aim of the strategic sourcing Main aim of the strategic sourcing isis: :

Optimization the spend analysis and Optimization the spend analysis and achievement a partnership with a limited achievement a partnership with a limited base of suppliers in order to decrease base of suppliers in order to decrease annual costs, improve quality, increase annual costs, improve quality, increase ROI, increase the quantity of JIT supplies ROI, increase the quantity of JIT supplies etc. etc.

Classic strategic sourcingClassic strategic sourcing

1 2 3 4 5 6 7

Identification of the commodity sourcing group

Sourcing strategy development

Generation of the supplier portfolio

Sourcing strategy implementation

Negotiations management

Operational integration

Continuous benchmarking and monitoring of Supply market

External profiling Internal profiling

Step 1. Identification of the commodity sourcing group

Internal profilingInternal profiling

- Spend analysisSpend analysis;;- Analysis of specificationsAnalysis of specifications;;- TCOTCO;;- Historical data analysis using ERP IS Historical data analysis using ERP IS

(Oracle Business Suite or SAP BI)(Oracle Business Suite or SAP BI)

External profiling

External profiling of the sourcing External profiling of the sourcing group involves understanding the group involves understanding the supply market, both currently and supply market, both currently and prospectively. prospectively.

Sources of information about the Sources of information about the market aremarket are::

- online sourcesonline sources; ; - cataloguescatalogues;;- trade journalstrade journals;;- trade directoriestrade directories;;- data bases of suppliersdata bases of suppliers

Step 2. Sourcing strategy development

High

Consolidated opportunities Strategic opportunities

 

Impact on the business

Non-critical opportunities Bottlenecks

Low Low complexity – A lot of the options

High complexity – A few options

Matrix of the supply market complexity

Example of the matrix Example of the matrix

usage for the "indirect costs“ product category usage for the "indirect costs“ product category The most effective solution for the product The most effective solution for the product

category such as "indirect costs" is to use a category such as "indirect costs" is to use a strategy of competitive selection of suppliers. It strategy of competitive selection of suppliers. It is important to establish long term partnership is important to establish long term partnership between the supplier and the consumer for between the supplier and the consumer for follow-up of additional opportunities to reduce follow-up of additional opportunities to reduce costs in such areas as replacement of goods, costs in such areas as replacement of goods, standardization and development of new standardization and development of new products. products.

Step 3. Generation of the supplier portfolio

- a carefully thought-out inventory of a carefully thought-out inventory of evaluation criteriaevaluation criteria; ;

- a good fact base regarding each potential a good fact base regarding each potential suppliersupplier;;

- request for information (RFI). request for information (RFI).

Step 4. Step 4. Sourcing strategy implementation

- economy of scale usage (consolidation of economy of scale usage (consolidation of suppliers); suppliers);

- expansion of the supply scope (the expansion of the supply scope (the development of the alternative sources); development of the alternative sources);

- an aggressive negotiation. an aggressive negotiation.

Step 5. Negotiations management

- preparation of RFP or RFQ and sending it to suppliers; preparation of RFP or RFQ and sending it to suppliers; - assessment of the benefits for each of the suppliers after assessment of the benefits for each of the suppliers after

receiving of our Purchase Orderreceiving of our Purchase Order;;- each supplier's likely receptivity to our MDO (the most each supplier's likely receptivity to our MDO (the most

desirable opportunity); desirable opportunity); - identification of the supplier's various objectivesidentification of the supplier's various objectives;;- identification and assessment of the company’s leverage identification and assessment of the company’s leverage

pointspoints;;

- - relative position of one supplier vis-à-vis competitors; relative position of one supplier vis-à-vis competitors; - plan for the negotiating sessionplan for the negotiating session;;- overall communications plan overall communications plan

Step 6. Operational integration

With a centralized strategic sourcing within the With a centralized strategic sourcing within the transnational company the main question is a further transnational company the main question is a further implementation of its results at the level of subsidiaries, implementation of its results at the level of subsidiaries, i.e. at the operational level. If the company is not a i.e. at the operational level. If the company is not a transnational, the focus should be on the building of the transnational, the focus should be on the building of the online relationships with a new supplier or the creation of online relationships with a new supplier or the creation of

the new business relationships with existing ones.the new business relationships with existing ones.

Step 7. Step 7. Continuous benchmarking and monitoring of the supply market

Strategic sourcing is a permanent process. Strategic sourcing is a permanent process. Therefore the comparative analysis of the supply Therefore the comparative analysis of the supply markets should be conducted on continuing markets should be conducted on continuing basis. With regard to the selected supplier this basis. With regard to the selected supplier this can mean such things as the establishment and can mean such things as the establishment and monitoring of agreed KPI, updates regarding monitoring of agreed KPI, updates regarding new products, and general market information new products, and general market information that can be useful for demand planning. that can be useful for demand planning.

Thank you!Thank you!

SourcesSources::

1.1. Robert A. Rudzki, Douglas A. Smock, Michael Robert A. Rudzki, Douglas A. Smock, Michael Katzorke, Shelley Stewart, JR. Straight to the bottom Katzorke, Shelley Stewart, JR. Straight to the bottom lineline:: an executive's roadmap to world class Supply an executive's roadmap to world class Supply Management. - J. Ross Publishing – 2005. – 288 p. Management. - J. Ross Publishing – 2005. – 288 p.

2.2. M.R. Leenders, P.F. Johnson, A.E. Flynn, H.E. M.R. Leenders, P.F. Johnson, A.E. Flynn, H.E. Fearon. Purchasing and Supply Management - 13 Fearon. Purchasing and Supply Management - 13 edition - McGraw-Hilledition - McGraw-Hill//Irwin – 2006 – 588 p.Irwin – 2006 – 588 p.