Sourcing & Procurement in Operatons and Supply Chain Management

Summary

This video covers the critical concepts of sourcing and procurement within operations and supply chain management. It explains how these processes impact cost, quality, and overall business performance. The video defines sourcing as selecting suppliers and procurement as acquiring goods and services. It further discusses four strategies: single sourcing, multiple sourcing, delegated sourcing, and parallel sourcing, with real-world examples like Lockheed Martin and McDonald's. The video concludes by introducing hybrid sourcing strategies and hints at future discussions on logistics and supplier relationships.

Takeaways

• 😀 Sourcing and procurement are vital activities in operations and supply chain management, directly impacting cost, quality, and customer satisfaction.
• 😀 Sourcing refers to the process of identifying and selecting suppliers to provide resources for production or services.
• 😀 Procurement involves acquiring goods and services from suppliers, including managing orders, deliveries, and ensuring product quality.
• 😀 The main objective of sourcing and procurement is to ensure timely delivery, accurate orders, and compliance with quality and performance standards.
• 😀 A sourcing and procurement strategy is essential for organizations to optimize operations and meet business needs effectively.
• 😀 Single sourcing involves purchasing goods from a single supplier, often used for proprietary or unique products (e.g., Lockheed Martin’s F-35 engines).
• 😀 Multiple sourcing means acquiring goods from multiple suppliers to spread risk and ensure supply reliability (e.g., Apple sourcing phone components from various suppliers).
• 😀 Delegated sourcing is when an organization outsources the procurement process to a third-party provider to reduce costs and improve efficiency (e.g., McDonald’s sourcing potatoes).
• 😀 Parallel sourcing is the practice of purchasing the same product from multiple suppliers simultaneously to ensure a continuous supply (e.g., American Airlines sourcing jet engines from both GE and Rolls-Royce).
• 😀 Hybrid sourcing strategies combine elements from different sourcing approaches to create a tailored strategy that meets specific organizational goals and needs.
• 😀 Effective sourcing and procurement strategies are critical for optimizing supply chains, minimizing lead times, and ensuring customer satisfaction.

Q & A

What is the role of sourcing and procurement in operations and supply chain management?

Sourcing and procurement are essential in operations and supply chain management because they impact key factors like cost, quality, customer satisfaction, and overall business performance. They help ensure efficient functioning of the supply chain and contribute to optimizing operations.

What is the difference between sourcing and procurement?

Sourcing refers to identifying and selecting suppliers for goods or services, including finding potential suppliers, assessing capabilities, and negotiating contracts. Procurement, on the other hand, involves the process of obtaining goods and services from suppliers, managing orders, receiving products, and maintaining supplier relationships.

What is the primary objective of sourcing and procurement in supply chain management?

The primary objective of sourcing and procurement is to ensure that goods meet the required specifications, are ordered accurately, delivered on time, and meet the designated quality and performance standards.

What are the four prominent sourcing and procurement strategies?

The four prominent strategies are: single sourcing, multiple sourcing, delegated sourcing, and parallel sourcing. Each strategy is tailored to specific organizational needs and goals.

What is a single sourcing strategy and when is it used?

Single sourcing is a strategy where an organization purchases goods or services from a single supplier. It is often used when a supplier offers a unique product, technology, or when switching suppliers is costly. An example is Lockheed Martin’s exclusive contract with Pratt and Whitney for the F-35 jet engine.

What is the purpose of multiple sourcing, and how does it work?

Multiple sourcing involves purchasing goods or services from two or more suppliers. It spreads risk, increases competition, and ensures a reliable supply of resources. An example is how Apple sources components like memory chips and semiconductors from multiple suppliers such as Samsung, SK hynix, and Intel.

What is delegated sourcing, and which company exemplifies this strategy?

Delegated sourcing is when an organization outsources the sourcing and procurement process to a third-party provider. It helps reduce costs and increase efficiency. McDonald's uses this strategy by delegating the sourcing of potatoes for French fries to selected processors while maintaining control over quality.

How does parallel sourcing differ from multiple sourcing?

Parallel sourcing involves purchasing the same goods or services from multiple suppliers simultaneously, ensuring continuous supply. In contrast, multiple sourcing refers to sourcing different components from different suppliers. For instance, American Airlines sources jet engines from both General Electric and Rolls-Royce under parallel sourcing.

Can an organization use a hybrid sourcing strategy, and what does it entail?

Yes, organizations can adopt a hybrid sourcing strategy, which combines elements from different strategies such as single, multiple, parallel, and delegated sourcing. This tailored approach meets specific business needs and goals by leveraging the strengths of various sourcing strategies.

What will be discussed in the next video related to sourcing and procurement?

The next video will discuss other activities involved in sourcing and procurement, specifically logistics and supplier relationships, which are crucial for optimizing supply chains and ensuring long-term success.