Delivering Customer Value Through Procurement & Strategic Sourcing A Professional Guide To Creating A Sustainable Supply Network

While procurement has become far more effective at negotiation, cost cutting, and contract management, few supply chains are meeting their strategic potential. Now, two supply chain thought leaders distill all that’s been learned about strategic sourcing, helping you orchestrate supply chains to create differentiation, increase value, and sustain competitive advantage.

Presenting the newest research and practitioner experiences, they show how to transform the supply chain activities that have the greatest upside potential. You’ll start by learning how the field’s leaders are building more effective strategic sourcing teams and managing them more effectively. Next, the authors guide you in moving toward increased customer-centricity; aligning with Tier 1 suppliers to promote shared long-term profitability; and systematically redesigning even the most complex global supply network.

You’ll find new best practices for protecting against potential supply chain disruptions from any source; anticipating shorter product lifecycles and other challenges; evaluating potential opportunities to reshore, and more. Throughout, this guide focuses relentlessly on helping supply leaders deliver value, gain a true strategic role, and take their “seat at the table.”

• Develop stronger, more resilient supplier relationships

  Build partnerships where buyers and suppliers can truly rely on each other

• Learn from all that’s been learned about global sourcing

  Reach out to the world for great ideas, components, design, process, and R&D

• Protect against rapid price fluctuations in key commodities

  Use futures, options, and purchasing strategies customized for changing environments

• Integrate the most advanced technology into your mindset and practices

  Leverage today’s highest-value technologies in key supply management processes

The executive’s guide to sustaining competitive advantage and mitigating risk in complex supply networks

• Strengthen alignment throughout your supply chain, and with key suppliers
• Build a more customer-centric, demand-driven supply chain
• Cutting-edge research, practical experiences, and new lessons from UPS, Coca-Cola, Home Depot, Apple, and other leaders

This book can help any senior manager transform sourcing and procurement into a key competitive advantage–and keep it that way.

Two leading researchers and consultants show how to apply advanced strategic sourcing to significantly improve supply chain efficiency, effectiveness, and sustainability. Informed by their insights, you can go beyond mere cost-cutting and contract management to redesign and orchestrate your entire multi-tier supply chain.

Walter L. Wallace and Yusen Xia demonstrate how to bring together multiple business disciplines related to sourcing and procurement, strengthen critical buyer-supplier relationships, and systematically improve visibility and accountability. Throughout, you’ll find new best practices and innovations for all supply chain functions–from e-procurement to financial hedging.

This is the complete executive's guide to driving sustainable competitive advantage and mitigating risk in today's complex supply networks. Two of the field's leading consultants show senior managers how to apply advanced strategic sourcing to significantly improve your supply chain's efficiency, effectiveness, and sustainability.

Drawing on their cutting-edge research, Yusen Xia and Walter L. Wallace help you go beyond mere cost-cutting and contract management to redesign and orchestrate your entire multi-tier supply chain. Wallace and Xia present powerful case studies and lessons from UPS, Coca-Cola, Home Depot, Shaw Industries, and other pioneers. You'll learn how to:

• Bring together the multiple business disciplines whose work impacts sourcing and procurement
• Use strategic sourcing techniques to create a more sustainable supply chain
• Integrate the use of emission permits into your strategic sourcing programs
• Manage procurement when the cost of raw materials fluctuates widely
• Effectively utilize financial hedging in strategic sourcing
• Deepen your understanding of contemporary buyer-supplier relationships
• Implement strategic lead-time management
• Increase visibility as a way to become more demand-driven
• Take advantage of recent advances in e-sourcing and e-procurement
• More effectively manage risk and uncertainty in your supply network
• Make better outsourcing/insourcing decisions in global supply chains

If you're a senior manager who wants to transform sourcing and procurement into a key competitive differentiator, this book will help you deliver the goods.

Walter L. Wallace is an instructor in the Robinson College of Business, Georgia State University. He received his MBA in Supply Chain Management from the Brock School of Business at Samford University and his undergraduate degree in Industrial and Systems Engineering from Mississippi State University. He has 30+ years of expertise in heavy manufacturing industry and service (fabrication and distribution) industries, with an emphasis in corporate governance, strategic operations planning, marketing, operations, logistics and transportation. He has been researching in the areas of strategic sourcing and procurement, service operations management, and supply chain management. He has published papers in journals such as International Business Research, Teaching and Practice and Operations Management Education Review. He has been awarded twice by the National Sciences Foundation (NSF) for research. He teaches Operations Management, Service Operations Management, Operations Strategy, Supply Chain Management and Logistics & Operations Planning.

Yusen Xia is an associate professor in the Robinson College of Business, Georgia State University. He received his PhD in Supply Chain and Operations Management from the McCombs School of Business at the University of Texas at Austin in 2004 and has been working at Georgia State University since then. He researches in the areas of the interfaces between operations and marketing, and managing uncertainties and risks in supply chains. He has published papers in various journals such as Manufacturing & Service Operations Management, Operations Research, Production and Operations Management, Naval Research Logistics, IIE Transactions, Decision Analysis, Decision Sciences, etc. His research has been supported by grants from the National Sciences Foundation (NSF) and companies such as Amazon.com, Ryerson Inc. etc. He teaches Operations Management, Project Management, and Supply Chains.

Introduction    1

Notes    4

Chapter 1: Purchasing, Procurement, and Strategic Sourcing    5

Strategic Sourcing Methodology    7

Supplier Relations and Performance    16

Notes    17

Chapter 2: Managing Sourcing and Procurement Processes    19

Step 1: Determine the Type of Purchase and Level of Investment    20

Step 2: Perform the Procurement Process    21

Step 3: Evaluate the Effectiveness of the Strategic Sourcing Process    23

Supplier Selection    24

Use of the Tradeoff Analysis for Supplier Selection    27

Procurement Pricing    29

The Procurement Team and Its Contribution    32

Notes    33

Chapter 3: Strategic Sourcing and Delivering Customer Value    35

Delivering Customer Value    35

Defining Customer Service    37

The Impact of “Out of Stock”    39

Value Creation and Effectiveness    39

It’s the Totality of the Offer that Delivers Customer Value    41

Market-Driven Supply Chains    43

Identifying Customers’ Service Needs    44

Defining Customer Service Objectives    47

The Cost Benefit of Customer Service    48

Setting Customer Service Priorities    49

Setting Service Standards    53

Notes    57

Chapter 4: The Size of the Organization Spend and Financial Significance    59

Organizational Spend and Its Significance    60

Return on Investment Effect    60

Profit-Leverage Effect    61

Reduction in Inventory Investment    63

Supply Side Contribution to the Organization    64

The Mission, Vision, and Strategy of the Organization    67

The Size of the Organization    68

The Financial Strength of the Organization    69

The Reputation of the Organization    69

Notes    70

Chapter 5: Understanding Buyer-Supplier Relationships    71

Trusting a Single Source    71

An Apple of an Idea    72

A Calculated Risk    73

Keeping the Complex Simple!    74

A Foolproof Strategic Procurement System    75

Managing the Strategic Sourcing Decision: Buyer-Supplier Relationships    87

Notes    88

Chapter 6: Value Creation for Global Procurement Competitiveness    91

Spotlight on Procurement Performance    93

The Strategic Sourcing Decision: The Best Value Chain Wins    101

Notes    101

Chapter 7: Procurement under Raw Material Price Fluctuations    103

Raw Materials and Commodity Procurement Contracts and Trading Markets    105

Raw Materials and Commodities Price Forecasting    107

Commodity Procurement Strategies when Forecasted Prices Are Increasing    116

In Conclusion    122

Notes    122

Chapter 8: Supply Processes and Information Technology    125

The Supply Management Process    128

Technology-Driven Efficiency and Effectiveness    131

Building Application Layer Security into the Supply Chain    150

Information Technology Implications for Strategic Sourcing    152

Notes    156

Chapter 9: Creating a Sustainable and Environmentally Compliant Supply Network    163

A Greener Manufacturing Process    167

Initial Steps    171

Considerations for a Greener Supply Network    175

Big Picture Considerations    179

Why Sustainability?    181

Green Sourcing    183

A Green Strategic Sourcing Process    185

Building a Competitive Advantage through Collaborative Sustainability Goals    189

Corporate Social Responsibility    190

Notes    192

Chapter 10: Time-Based Strategic Management    197

Supplier Lead Times    198

Quantity, Delivery, and Lead Time    200

Time Has a Price    204

A Shift in Priorities    207

Logistical Lead-Time Network Management    208

Eliminating Waste through Streamlined Flow    210

Throughput Time Element Analysis    211

Operational Effectiveness    211

Notes    212

Chapter 11: The Use of Emission Permits in Strategic Sourcing    215

Top-Down Trading System    218

Bottom-Up Trading System    220

Linking Different Systems    224

Further Thoughts on the Subject of Emissions-Trading Systems    225

In Conclusion    227

Glossary of Related Terminology    227

Notes    231

Chapter 12: Visibility as an Attribute to Becoming Customer-Centric and Demand-Driven    233

Big Data, Greater Visibility    235

Greater Visibility: What More Can We Do?    238

Building Visibility in the Inbound Supply Chain    239

Visibility on a Cloud-Based Supply Chain Network    243

Event Sourcing Software Architecture    245

Dell’s Information Visibility System    247

Crate & Barrel’s Vision for Global Supply Chain Visibility    247

A Well-Implemented Visibility Solution    249

Notes    250

Chapter 13: Understanding the Supply Chain Risk Profile    253

Managing Supplier Risk    254

The Hidden Risks of Supply Chain Innovation    256

Growing Threats to Supply Chains    259

Mitigating Risk by Gaining Visibility in the Global Network    261

Mapping the Organization’s Internal Risk Profile    263

Managing Supply Chain Risk    266

Notes    274

Chapter 14: Reshoring: Revolution or Evolution    277

Offshoring    278

Improving the Outsourcing Decision    287

Reshoring    288

Nextshoring    291

Proximity to Demand: Localization and Postponement    291

Made in America    292

Outsourcing Services    293

Benefits and Risks of Outsourcing Services    293

Outsourcing Challenge    294

Classification of Business Services    296

Offshoring’s Future    297

Notes    298

Chapter 15: Supply Chain Network Design and Analysis    301

Responsiveness    301

Reliability    305

Resilience    310

Relationships    316

Concluding Remarks    322

Notes    322

Index    325