Unit 1: Sourcing Management
Sourcing Management
Sourcing Management refers to the strategic process of identifying, evaluating, and selecting suppliers to acquire goods and services for an organization. It focuses on building relationships with suppliers, reducing costs, improving quality, and ensuring timely delivery.
🔹 Introduction to Sourcing
Sourcing is the process of identifying, evaluating, and contracting with suppliers of goods and services. It involves strategic planning to find the best suppliers who can offer the highest value in terms of quality, price, delivery, and service.
✅ Key Objectives of Sourcing
- Reduce costs without compromising quality
- Ensure supplier reliability
- Build long-term supplier relationships
- Improve supply chain efficiency
- Manage supplier risks
📌 Types of Sourcing
Example: A car manufacturer wants to buy steel. Instead of buying from a nearby supplier at a higher price, they source it from a reliable supplier in another state offering the same quality at a lower cost. This process of finding the right vendor is called sourcing.
🔸 Sourcing vs Procurement
Though often used interchangeably, sourcing and procurement are two different stages of the supply chain.
Real-life Example: A smartphone company:
- Sourcing: The team identifies potential suppliers of display screens, negotiates long-term contracts, and selects the best vendor from South Korea.
- Procurement: The operations team places a monthly order of 10,000 display screens, tracks delivery, and processes payments.
🎯 Summary
📘 Purchasing
✅ Objectives of Purchasing
- Ensure the right quantity and quality of goods
- Get the best possible price
- Ensure timely delivery
- Build reliable supplier relationships
- Avoid stockouts or overstocking
🔄 Purchasing Cycle (Also called Procure-to-Pay Cycle)
📍 Steps in the Purchasing Cycle
8 R’s of Purchasing
The 8 R's of Purchasing are the guiding principles to ensure effective purchasing. They help a purchasing manager make smart decisions.
Summary:
👨💼 Role of a Purchasing Manager
A Purchasing Manager is responsible for managing the buying process of goods and services required by the organization. They ensure timely procurement at the best price, quality, and quantity.
🔑 Key Roles and Responsibilities:
⚠️ Risks Associated with the Purchasing Process
Purchasing is a critical function, and several risks can arise that affect cost, quality, and delivery.
📉 Types of Risks and Examples:
✅ Risk Mitigation Strategies
To handle these risks, a purchasing manager must plan and implement risk control strategies.
Summary
📘 Make or Buy Decision
The Make or Buy Decision is a strategic choice made by companies about whether to manufacture a product/component in-house (Make) or purchase it from an external supplier (Buy). It helps in cost control, quality management, and efficient use of resources.
🔑 Objectives of Make or Buy Decision:
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Reduce production and operational costs
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Focus on core business activities
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Improve quality and efficiency
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Use company resources effectively
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Minimize dependency on outside suppliers
🔄 Factors to Consider in Make or Buy Decision
🧠 Example of Make or Buy Decision: Let’s take an example of a car manufacturing company:
They need car seats for their vehicles.
Option 1: Make
- Invest in machinery
- Hire staff
- Raw material cost: ₹1,500 per seat
- Total cost per seat (including overhead): ₹2,000
Option 2: Buy
- Outsource to a seat manufacturing company
- Cost per seat from vendor: ₹1,800
- Lesser control over design & quality
🔍 Decision: Since buying is cheaper (₹1,800 < ₹2,000), and the vendor is reliable, the company may decide to Buy the seats.
🛠️ Applications of Make or Buy Decision
Make or Buy is applied in different industries and situations:
📝 Summary
