BỘ GIÁO DỤC VÀ ĐÀO TẠO

TRƯỜNG ĐẠI HỌC KINH TẾ - TÀI CHÍNH TP. HCM

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GLOBAL PROCUREMENT MANAGEMNET

TOPIC 4: SOURCING AND THE MANAGEMENT OF SUPPLIERS

Họ và Tên MSSV Đóng Góp

Hà Thị Hoàng Lam 215142786 100%

Bùi Thị Lan Anh 215143079 100%

Trần Mạnh Quyền 225146744 100%

Đoàn Nguyễn Hồng Hân 215143100 100%

Trương Nguyễn Ngọc Hà 215143099 100%

Lớp: MGT1152E

Giảng Viên: TRẦN QUANG ÁNH TUYẾT

Nhóm: 6

Tp. Hồ Chí Minh, tháng 5 năm 2024

 Table of contents

1. What is sourcing ?..............................................................................................................2

1.1 Different types of sourcing...............................................................................................2
1.2 Why is sourcing important ?.............................................................................................5
1.3 Benefit of sourcing...........................................................................................................6
2. The strategic sourcing process...........................................................................................7
2.1 What is strategy sourcing.................................................................................................7
2.2 What is sourcing process..................................................................................................7
2.3 The strategy sourcing process steps.................................................................................7
2.4 Benefit strategy sourcing..................................................................................................9
3. E-sourcing & E-procurement...............................................................................................10
3.1 E – sourcing....................................................................................................................10
3.2 E- procurement...............................................................................................................13
4. Supplier evaluation...............................................................................................................17
5. Evaluating supplier performance.........................................................................................20
6. Outsourcing : Make vs buy..............................................................................................25
6.1. Outsourcing...................................................................................................................25
6.2 Make vs Buy...................................................................................................................28
7. Summary..........................................................................................................................32
8. Key terms.........................................................................................................................32
9. Discussion question..........................................................................................................33
CASE STUDY.........................................................................................................................33
Link tham khảo:.......................................................................................................................36
 1. What is sourcing ?
Procurement refers to finding the most suitable supplier to provide quality goods or services
at a price that provides the business owner with the required profit margin. Procurement is
also the first step in supply chain management – dealing with the entire production process of
goods and services. Companies use procurement processes to build networks of suppliers (the
"links" in the chain) that drive product development.

1.1 Different types of sourcing

The most common types of purchases are:

 Outsourcing

Outsourcing is the practice of using or hiring experts or generalists from outside a company
to perform services or provide goods that are traditionally provided in-house. This is a way to
cut costs and save money when you don't have the resources to hire in-house staff, and free
up more time to focus on urgent and revenue-generating tasks. Both back-office and front-
office functions can be outsourced.

> Pros and Cons of outsourcing:

 Pros:
1. Cost-effectiveness.
2. specialization.
3. Get more talent.
4. Can prevent burnout among full-time employees.
 Cons:
1. You don't know your business.
2. Communication challenges.
3. Quality control is difficult.
4. Can have a negative impact on team morale.
5. Slow response time.
  Insourcing

This type of procurement utilizes internal resources to carry out supply chain activities. This
is often a cost-cutting strategy, as opposed to outsourcing. Most business managers prefer this
option as it is an excellent cost-saving strategy that enables on-site monitoring of the quality
of required goods and services.

> Pros and Cons of insourcing:

 Pros
1. Better quality control.
2. Protect intellectual property rights.
3. Business communication is smooth.
4. Positive brand image.
 Cons:
1. time consuming.
2. Lack of flexibility in workload.
3. Headhunting fees

 Near-sourcing

Near-sourcing, also called nearshing, involves placing some of your operations close to
where your end-products are sold. This helps cut transportation costs and delivery lead times.

> Pros and Cons of Near-sourcing :

 Pros :
1. Better supplier relationships.
2. Reduced transport costs.
3. Flexibility and responsiveness.
4. Supporting the local economy.
- Cons :
1. Limited availability of materials.
2. Resistance to change.
3. Ethical supplier selection challenges.
4. Unexpected publicity.
 Near-sourcing

Near-sourcing, often known as nearshing, is the practice of situating a portion of your

business near the points of sale of your final goods. This reduces lead times for deliveries and
the cost of transportation.

> Pros and Cons of Near-sourcing

- Pros :
 1. improved connections with suppliers.
2. lower expenses for transportation.
3. adaptability and reactivity.
4. assisting the regional economy.
- Cons:
1. There aren't many materials available.
2. opposition to alteration.
3. Challenges in selecting ethical suppliers.
4. Unexpected media attention

 Single sourcing

Selecting a single source for all materials, products, and services is known as single sourcing.
By using special materials, this can make a product unique and cut down on the time needed
for supplier selection and contract discussions.

> Pros and Cons of Single sourcing :

- Pros :
1. Simpler supply chains.
2. Negotiations are still possible.
3. Single suppliers value the relationship.
4. Higher quality goods.
- Cons :
1. Maintaining a competitive edge is difficult.
2. Negotiations are harder with only one supplier.
3. Supplier relationships are difficult to nurture.
4. Competitive pricing is a challenge.

 Global sourcing

These days, the entire planet is one big market. Purchasing products or services from vendors
in foreign marketplaces is known as global sourcing. This approach has numerous
advantages, including exposing your company to new markets, giving you access to low-cost
resources and capabilities that might not be available in their area, and giving you insight into
how business is done throughout the world.

> Pros and Cons of Global sourcing :

- Pros :
1. Leverages production at low price.
2. Easy access to difficult-to-obtain resources.
3. Helps learn global business.
 4. Helps distinguish yourself from your rivals.
- Cons :
1. Different cultures and societies.
2. Time zone differences
3. Respecting the laws of the land.
4. Intense production runs.

 Joint ventures

Joint ventures are partnerships between two or more parties to share resources, strengths,
ownership, returns, risks and governance.

> Pros and Cons of Joint ventures :

- Pros :
1. Low start-up costs.
2. Opportunities for income splitting
3. Limited external regulations.
- Cons :
1. The parties have unlimited liability.
2. Profits must be shared with the other partners under the terms of the partnership
agreement.
3. There is a risk of disagreement between the parties
4. Each party is jointly and severally liable for the other parties’ debts and actions.

1.2 Why is sourcing important ?

Sourcing goods and services is the first step in creating the ideal supply chain. Additionally,
the product's quality and the quantity of raw resources needed must be balanced.
Affordability is another important factor to take into account when making a purchase
because it has an immediate impact on the outcome.

Properly implemented procurement procedures enable your business to establish a reliable

and steady supply chain, which in turn guarantees satisfied clients with well-stocked shelves.
Correct sourcing can enhance your brand's reputation and foster more customer loyalty.

Because strategic sourcing helps suppliers as well as buyers, it can also aid in cost
management. A reduced unit pricing can be negotiated for large purchases in order to cut the
cost of items sold. This enables the business to maintain competitive prices. On the other
side, suppliers gain by having a single sales market for their products, which improves cash
flow and planning.
1.3 Benefit of sourcing
There are three benefits of sourcing :

 Cost- saving :

The first and most well-known advantage of strategy sourcing is the financial savings
that companies may achieve by carefully selecting suppliers who will provide the best
value at the most affordable price. This will improve your bottom line and have a
cascading effect.

 The honing of ideal suppliers :

The caliber of the providers involved in a sourcing process is essential to its

successful execution. Procurement teams must be familiar with the fundamental
competencies of the suppliers they select and have access to supplier profiles. This
enables you to align the goals of your company with the perfect provider, resulting in
the greatest value generation at the most affordable price.

 The establishment of a long-term relationship with suppliers :

Suppliers will feel motivated and maximize their performance to achieve your
organization's goals when they are respected and taken into account in various
sourcing decisions.

2. The strategic sourcing process

2.1 What is strategy sourcing
Strategic sourcing is a part of a more extensive procurement process that integrates data
gathering, spend analysis, market research,supplier negotiation and contracting. It ends before
the goods and service are purchased and paid for. Although strategic sourcing can be tailored
to a customer’s unique requirements, its primary objective is to increase profitability by
utilizing a single, integrated approach. The main objectives are to save money and improve
the acquisition process, supplier performance and minimize risk.

2.2 What is sourcing process

The sourcing process identifies and evaluates potential suppliers or sources of goods and
services that business needs to operate effectively. Strategic sourcing is concerned with the
benefits of cooperation that both parties share. Suppliers contribute to providing a
competitive edge with their innovative product inputs and in turn,they demand your
dedication to long-term strategic collaboration in return. This process involves identifying
the needed goods or service, developing a list of potential suppliers, evaluating the suitability
of each supplier and establishing a long-term working relationship with the supplier.

2.3 The strategy sourcing process steps

There are 7 steps in the strategy sourcing process, these steps originally developed by
A.T.Kearney, have been tested and proven effective for sourcing products and
services.

 Step 1 : Profile the category

The first step is to identify the sourcing category or commodity, including the
volumes (quantity,types and sizes) spent on products and services, current prices and
suppliers and specification details. Analyze users - who they are, where they are
located and departments involved in the supply chain.

 Step 2 : Supply market analysis

The identifying potential suppliers stage of the strategic sourcing process involves
creating a list of potential suppliers who can meet the needs of the business. This may
include using existing supplier relationships, conducting market research or using
online databases to find new suppliers.
Consider the cost of the goods or services, the quality, delivery times, the reputation
and reliability of the supplier. Also consider the location of the supplier as this can
impact delivery times and transportation cost.

 Step 3 : Develop a strategy sourcing strategy

Making decisions about where and how to buy while lowering risk and expense
requires this crucial step. Consider current and potential suppliers to get the most out
of the supplier pool. List the selection criteria best suited to the goals, capabilities and
 resources after determining the company's purpose and the minimal requirements for
the suppliers. From a cross-functional team with essential stakeholders.

 Step 4 : Select the strategic sourcing process

Soliciting RFIs, RFPs and RFQs from suppliers is the next stage after completing the
supplier market research. This process aids in choosing a supplier and formulating a
negotiation plan. For suppliers to fully understand what the organization demands, it's
crucial to communicate the explicit requirements of the business as well as the end
goals and performance objectives.
The most common method that many businesses are using is RFPs ( Request for
Proposal). If you’re not familiar with the term, RFPs is a document that solitics
proposals which is often used through binding process, written by an organization
interested in acquiring a product or service from vendors for their project.

 Step 5 : Negotiation

Multiple talks with suitably short-listed potential suppliers are part of choosing a
supplier. Use pre-established standards to choose the provider. Both parties must draft
and sign the contract. Many organizations miss thís vital step. By automating
numerous process steps, software solutions make contract management more effective
and manageable.

 Step 6 : Implementation and Integration

Communicating with suppliers is an integral part of strategic sourcing. After

negotiation,you may have the decision of what suppliers you want to partner with.
Your relationship and cooperation should be tighter the more sophisticated your
product is. Inform suppliers about the most recent updates and changes by including
them in meetings or conversations during the implementation stage.

 Step 7 : Benchmarking

The supplier selection and onboarding procedure is just the beginning of your
strategic sourcing process. The final and most crucial phase is to accurately evaluate
how suppliers perform concerning the needs and goals of the organization. Assess
performance based on the terms and contract.
It's critical to monitor supplier performance and pinpoint opportunities for
development periodically. That helps businesses recognize supplier risks and create
plans to prevent supply chain interruptions.
2.4 Benefit strategy sourcing

Strategic sourcing is a highly productive and cost-effective process that also suggests more
efficient business processes. But as you can see from the longer list of benefits that follow,
strategic sourcing offers more than just one advantage. It brings up several beneficial aspects
that companies should learn about.

3. Upgraded cost saving

4. Moderation and minimization of risk
5. Enhanced adjustment of business goals and operations
6. Space for extended advancement
7. Identification and expansion of the potential suppliers
8. Better and transparent relationships with suppliers
3. E-sourcing & E-procurement
3.1 E – sourcing
a. What is e Sourcing?

E-sourcing refers to using digital tools and platforms to streamline procurement processes. It
involves activities like supplier identification, bidding, negotiation, and contract management
conducted online. E-sourcing improves efficiency, transparency, and collaboration between
buyers and suppliers, replacing manual processes with faster, more effective digital methods.

 The main components of e-sourcing typically include:

 Supplier Discovery: This involves identifying potential suppliers who can meet the
organization's requirements. It may include researching suppliers through online
databases, industry directories, or referrals.
 Request for Information (RFI): RFIs are used to gather basic information about
potential suppliers, such as their capabilities, experience, and qualifications. This
helps in shortlisting suitable candidates for further evaluation.
 Request for Proposal (RFP): RFPs are formal documents that outline the
organization's requirements and solicits detailed proposals from potential suppliers.
They include specifications, terms, and evaluation criteria.
 Bid Management: This component involves managing the bidding process, including
distributing RFPs to potential suppliers, receiving and reviewing bids, and facilitating
communication between the organization and suppliers.
 Supplier Evaluation and Selection:Once bids are received, they are evaluated based
on predefined criteria such as price, quality, and delivery terms. The organization
selects the most suitable suppliers for further negotiation or contract award.
 Negotiation: This involves negotiating terms and conditions with selected suppliers
to finalize contracts. Negotiation may include discussions on pricing, payment terms,
delivery schedules, and service level agreements.
 Contract Management: After contracts are awarded, contract management involves
tracking and monitoring supplier performance, ensuring compliance with contractual
terms, and managing any changes or disputes that may arise.
 Supplier Relationship Management (SRM): SRM involves building and
maintaining positive relationships with suppliers to foster collaboration, innovation,
and continuous improvement. It includes regular communication, performance
reviews, and feedback mechanisms.

b. How does e-sourcing work?

e Sourcing leverages digital documents distributed online to compare supplier capabilities,

business risks and e-proposals to create and award contracts electronically through e Sourcing
software. The 5 e-sourcing workflow stages are:

1. Request for information

2. Tender invitation
3. Evaluate tender
4. eAuction bidding
5. Award contract

- E sourcing process:
 Pre-purchase questionnaire
 Invitation to tender
 Request for quotation
 Evaluation
 eAuction
 Contract award

 Benefits of electronic sourcing

 Reduce costs:By accessing a broader range of suppliers and leveraging different
eAuction strategies, eSourcing presents significant cost savings for procurement
teams.
 Save time and boost efficiency: Electronic sourcing also speeds up the time it takes to
award a contract, and it does this by reducing the time procurement specialists spend
on the tendering process, freeing up time to spend on other tasks.
 Leverage detailed supplier information : eSourcing improves transparency between
buyers and suppliers. By using a portal, teams can view all tender opportunities from
a supplier, including deadlines, status, and other key information.
 Bolster compliance: Since all procurement-related documents are stored in one place,
auditing is made simpler - as is compliance with regulatory procedures - with a
system transparently displaying how and why a supplier was selected.
  Better e-document distribution and collection, communication, collaboration, status
notifications, and visibility in a unified online system with a vendor portal
 Complete and unbiased vendor scoring, vendor risk management, and evaluation
process, Global supplier management
 Digital contracts and electronic PO data are available in a centralized document
repository and can be attached to transactions

 Types of eSourcing tools

 Supplier Discovery Platforms: Identify and evaluate potential suppliers through
databases and marketplaces.
 RFP Software: Automate creation, distribution, and management of RFPs for
streamlined bidding.
 E-Auction Platforms: Conduct online bidding and negotiation processes in real-time.
 SRM Software: Manage supplier relationships, performance, contracts, and risks.
 Contract Management Systems: Automate contract creation, execution, monitoring,
and compliance.
 Sourcing Analytics Tools: Provide insights into sourcing activities, supplier
performance, and market trends.
 Collaboration Platforms: Facilitate communication and collaboration between buyers
and suppliers.
 What are the disadvantages of eSourcing?

While eSourcing offers numerous benefits, it also has its drawbacks:

 Initial Investment: Implementing eSourcing requires upfront investment in

technology and training.
 Dependency on Technology: Technical disruptions can hinder procurement
activities.
 Security Concerns: Storing sensitive data online raises security risks.
 Supplier Resistance: Some suppliers may resist participating due to concerns about
fairness and complexity.
 Lack of Personal Interaction: Online platforms may lack the personal touch of face-
to-face negotiations.
 Limited Flexibility: Standardized workflows may limit adaptability to unique
sourcing needs.
 Potential for Information Overload: The volume of data generated can be
overwhelming without effective analysis tools.
 Digital Divide: Not all suppliers may have the technology to participate.
 Regulatory Compliance: Compliance with regulations adds complexity to
eSourcing.
3.2 E- procurement

 What is e procurement?

It is an electronic procurement or supplier exchange system. It allows for purchasing

and selling supplies, equipment, works, and services through a web interface or other
networked system instead of paper-based processes. E-procurement is only suitable
for business purchases, meaning the Business to Business (B2B) sector.It is not used
in the Business to Customer (B2C) sector, which concerns only personal purchases.

 How does E-procurement work?

1. Selection of goods

Companies access a specific platform, which can be an online catalog, a punch card[1] or a
B2B supplier website. This gives them access to the supplier's entire offer, including data on
contract terms (selected products, costs, savings, etc.).

You can select a product and send a purchase request with just one click. The request then
enters your procurement system and goes through a designated approval process

2. Sending the order

Once approved, the purchase request becomes an order. It is automatically sent to the supplier
as an electronic document or via the marketplace. The supplier then immediately starts
preparing the product for delivery.

3. Receipt of the invoice

Invoicing can also be paperless: Companies receive the invoice as a PDF file or electronic
document certified by a trusted third party, which is automatically matched to the order and
triggers payment.
 Benefits of eProcurement
1. Cost savings through streamlined processes and reduced administrative expenses.
2. Increased efficiency by automating tasks like sourcing and invoice processing.
3. Improved accuracy with fewer errors in orders and invoices.
4. Better spend visibility for informed decision-making.
5. Enhanced compliance with procurement policies and regulations.
6. Stronger supplier relationships and improved negotiations.
7. Faster procurement cycle times to respond quickly to market changes.
8. Optimized inventory management for better stock control.
9. Strategic insights from procurement analytics.
10. Scalability to adapt to varying business needs and growth.

 Types of eProcurement tools?

1. Electronic Data Interchange systemAn electronic data interchange (EDI) exchanges
data and information between electronic devices. Messages and information from
partner companies are transmitted and stored via EDI, streamlining invoicing and
order logistics.
2. Internet applications and platforms : Businesses implement a variety of
eProcurement tools and web platforms to facilitate day-to-day work. These include
eSourcing, eTendering, eAuctioning, and eOrdering tools. Email is also used
predominantly, as well as XML-based data transfer.
3. eOrdering and purchasing tools : Major tools relating to product purchasing include
a web-based ERP and digital mechanisms for eAuctions.

 The main functions of eProcurement

1. Automates processes to free up resources and reduce errors.
2. Improves communication between stakeholders and partners to streamline the
procurement cycle.
3. Provides a single platform for all procurement activity, giving stakeholders and
managers a centralized platform for managing and auditing.
4. Offers real-time updates for vendors, management, stakeholders, and partners and the
chance to curate and store procurement data.
5. Allows for streamlined negotiation between multiple partners and stakeholders.

 What are the disadvantages of eProcurement?

 Inefficient Data Management
Outdated paper-based processes hinder efficiency and limit businesses' ability to harness the
power of data for optimizing operations and boosting profitability. Transitioning to electronic
data management allows for seamless data sharing across systems, preventing procurement
from becoming isolated in data silos. Utilizing data metrics enables businesses to pinpoint
areas for cost reduction and process improvement, ultimately enhancing efficiency and
driving growth.

 Challenges in Supplier Management

Manual procurement procedures trap businesses in rigid processes, prolonging repetitive

tasks such as vendor communication and approval seeking. Each manual step adds
unnecessary time to the procurement cycle. Implementing streamlined methods eliminates
handling errors inherent in inflexible systems, leading to reduced delays and improved
communication with vendors. Strengthening these relationships through efficient interactions
is vital for both parties' business success.

 Non-Compliance and Legal Risks

Paper-based processing poses significant challenges for companies in terms of regulatory

compliance auditing. Additionally, paper records are vulnerable to damage or loss, exposing
businesses to potential legal repercussions. Transitioning to electronic data storage provides a
more secure solution, allowing companies to back up data and safeguard it on password-
protected platforms, ensuring only authorized personnel can access sensitive information.

 Lack of Transparency

The complexity of the procurement process involving multiple stakeholders - procurement

departments, approvers, financial departments, and vendors - often leads to a lack of visibility
into the entire process. However, adopting eProcurement solutions illuminates different
stages of procurement, offering insights into trends, identifying inconsistencies, and
highlighting areas for improvement. This enhanced transparency empowers businesses to
make informed decisions and optimize their procurement strategies for maximum efficiency
and effectiveness.

 Different between e-sourcing and e-procurement

E-sourcing and e-procurement are both aspects of electronic procurement (e-procurement),

but they serve different functions within the procurement process:

1. E-Sourcing
 - E-sourcing focuses on the initial stages of procurement, specifically on the identification,
selection, and negotiation with suppliers.
- It involves using electronic platforms and tools to streamline processes such as supplier
discovery, RFx (Request for Information, Request for Proposal, Request for Quotation)
creation and distribution, bid evaluation, and supplier negotiation.
- E-sourcing aims to optimize supplier selection and negotiation processes, improving
efficiency and driving cost savings for the organization.
- Key benefits of e-sourcing include increased transparency, broader supplier reach, faster
cycle times, and improved supplier collaboration.

2. E-Procurement

- E-procurement encompasses the entire procurement lifecycle, from requisitioning to

payment, including sourcing, ordering, invoicing, and payment processes.
- It involves the use of electronic systems and technologies to automate and streamline
procurement processes, reducing manual intervention and improving accuracy and efficiency.
- E-procurement systems often include features such as catalog management, purchase
order creation and approval workflows, invoice processing, and integration with accounting
and ERP systems.
- The primary goal of e-procurement is to improve procurement efficiency, reduce costs,
enhance control and visibility over spending, and ensure compliance with procurement
policies and regulations.
- E-procurement solutions may also include spend analysis tools, contract management
modules, and supplier relationship management capabilities to further optimize procurement
operations.
4. Supplier evaluation
Supplier evaluation is a systematic process used by organizations to assess the
performance, capabilities, and suitability of their suppliers. The aim is to ensure that
suppliers meet the organization's requirements and contribute positively to its
operations.

 Some are several criteria you can use to assess a supplier:

1. Price: Monitor price fluctuations to gauge market trends and assess competitiveness.
Variations in pricing can reflect changes in demand or supply availability.
2. Quality: Evaluate the durability and effectiveness of the supplier's products through
sample testing. Ensuring consistent quality is essential for maintaining product
standards and customer satisfaction.
3. Service: Assess the supplier's level of service, including factors such as
responsiveness, friendliness, and understanding of your company's needs. Effective
communication and support are crucial for smooth collaboration.
4. Social Responsibility: Consider suppliers whose values align with your company's
mission. Look for indications of social responsibility, such as community involvement
and contributions to charitable causes.
5. Convenience: Evaluate the ease of ordering, speed of delivery, and willingness of the
supplier to accommodate your company's requirements. Convenience is particularly
important for companies requiring frequent supplies.
6. Flexibility: Assess the supplier's ability to adjust delivery schedules and quantities to
meet fluctuating business demands. Flexibility is vital for adapting to changing
production requirements or serving multiple locations.
7. Risk Management: Analyze the risks associated with the supplier, such as potential
price increases or supply shortages. Understanding these risks helps mitigate
disruptions to your operations and maintain continuity in supply chains.

 Some common types of supplier evaluations:

1. Performance-Based Evaluation: This type of evaluation assesses supplier

performance against predefined performance metrics and key performance indicators
(KPIs). It focuses on factors such as on-time delivery, product quality,
responsiveness, and adherence to specifications.
2. Qualitative Evaluation: Qualitative evaluations focus on subjective aspects of
supplier performance, such as communication, relationship management, and overall
satisfaction. These evaluations often involve feedback from internal stakeholders and
subjective assessments of the supplier's capabilities.
3. Quantitative Evaluation: Quantitative evaluations rely on numerical data and
metrics to assess supplier performance objectively. Key metrics may include defect
rates, lead times, cost savings, and compliance with contractual terms. Quantitative
evaluations provide a more data-driven approach to supplier assessment.
4. Risk-Based Evaluation: Risk-based evaluations assess the potential risks associated
with a supplier, including financial stability, geopolitical risks, regulatory compliance,
and supply chain disruptions. These evaluations help organizations identify and
mitigate risks that could impact their operations.
5. Capability Assessment: Capability assessments focus on evaluating a supplier's
technical capabilities, resources, expertise, and capacity to meet the organization's
requirements. This type of evaluation is particularly important when considering new
suppliers or assessing their suitability for specific projects or contracts.
6. Strategic Alignment Evaluation: Strategic alignment evaluations assess the extent to
which a supplier aligns with the organization's strategic goals, values, and long-term
objectives. This type of evaluation considers factors such as innovation, sustainability
practices, and compatibility with the organization's corporate culture.
7. Compliance Evaluation: Compliance evaluations assess the supplier's adherence to
legal, regulatory, and contractual requirements. This includes compliance with quality
standards, ethical guidelines, environmental regulations, and contractual obligations.
Compliance evaluations help ensure that suppliers operate ethically and meet
regulatory requirements.
8. Supplier Development Assessment: Supplier development assessments focus on
identifying opportunities for improving supplier performance and capabilities through
collaborative efforts and support initiatives. This type of evaluation aims to strengthen
supplier relationships, drive continuous improvement, and enhance overall supply
chain effectiveness.

 steps to effectively evaluate a supplier:

1. Define Evaluation Criteria: Determine the criteria and performance metrics that are
important for your organization. These may include price competitiveness, product
quality, delivery reliability, customer service, financial stability, and compliance with
regulatory requirements.
2. Gather Information: Collect relevant information about the supplier, including their
products or services, pricing structure, delivery processes, customer references,
financial statements, certifications, and any available performance data.
3. Performance Assessment: Evaluate the supplier's performance against the
predefined criteria and metrics. Analyze data such as on-time delivery rates, product
quality scores, customer satisfaction ratings, and any other performance indicators
relevant to your evaluation.
4. Supplier Visits or Audits: Conduct site visits or audits to assess the supplier's
facilities, production processes, quality control measures, and overall capabilities
firsthand. This can provide valuable insights into their operations and help verify the
accuracy of the information provided.
5. Risk Assessment: Identify and assess any potential risks associated with the supplier,
such as financial instability, quality control issues, supply chain vulnerabilities, or
compliance failures. Consider factors such as geopolitical risks, regulatory changes,
and industry trends that could impact the supplier's ability to meet your needs.
6. Supplier Relationship: Evaluate the strength and effectiveness of your relationship
with the supplier. Consider factors such as communication, collaboration,
responsiveness, and alignment of goals and expectations. A positive and mutually
beneficial relationship is essential for long-term success.
7. Benchmarking and Comparison: Compare the supplier's performance and
capabilities against industry benchmarks, best practices, and other potential suppliers.
This can help you identify areas of strength or weakness relative to competitors and
determine the supplier's competitiveness in the market.
8. Decision Making: Based on the evaluation findings, make informed decisions about
whether to continue, modify, or terminate your relationship with the supplier.
 Consider factors such as performance, risk, cost-effectiveness, strategic alignment,
and the potential impact on your organization's operations.
9. Continuous Monitoring and Improvement: Establish processes for ongoing
monitoring and review of supplier performance. Continuously track key performance
indicators, solicit feedback from internal stakeholders and external customers, and
identify opportunities for supplier development and improvement.

5. Evaluating supplier performance

 Why evaluate supplier performance?

Evaluating supplier performance is essential for businesses aiming to stay competitive,

deliver top-quality products or services, and achieve operational efficiency. Here are several
key reasons underscoring the importance of this practice:

1. Quality Assurance:

- Ensuring Consistency: Regular assessments help verify that suppliers consistently meet
the company's quality standards, maintaining product integrity.

- Reducing Defects: Early identification of quality issues minimizes defective products,

leading to fewer returns and greater customer satisfaction.

2. Cost Management:

- Enhancing Cost Efficiency: Monitoring supplier performance can reveal cost-saving

opportunities and provide leverage for negotiating better terms.

- Controlling Budgets: Keeping procurement costs within budget through regular

evaluations helps prevent unexpected financial discrepancies.

3. Reliability and Timeliness:

- Ensuring On-time Delivery: Supplier evaluations ensure timely delivery of materials or

products, critical for maintaining production schedules and meeting customer demands.

- Minimizing Downtime: Reliable suppliers contribute to seamless operations, reducing the

risk of production delays.

4. Risk Management:

- Identifying Risks: Regular assessments can uncover potential supply chain risks, such as
over-reliance on a single supplier or geopolitical threats.

- Developing Contingency Plans: Evaluations facilitate the creation of backup plans and the
identification of alternative suppliers in case of performance issues.

5. Supplier Improvement:
 - Providing Feedback: Constructive feedback from evaluations helps suppliers enhance
their processes and product quality.

- Strengthening Relationships: A transparent evaluation process fosters better

communication and stronger business-supplier relationships.

6. Compliance and Standards:

- Ensuring Regulatory Compliance: Evaluations ensure suppliers adhere to relevant laws,

regulations, and industry standards, mitigating legal risks.

- Verifying Ethical Standards: Evaluations confirm that suppliers follow ethical practices,
including fair labor practices and environmental sustainability.

7. Strategic Alignment:

- Aligning with Business Goals: Evaluating suppliers ensures they align with the company's
strategic objectives, such as innovation, sustainability, and market expansion.

- Building Long-term Partnerships: Identifying high-performing suppliers can lead to

strategic, long-term partnerships, providing competitive advantages.

8. Innovation and Improvement:

- Encouraging Innovation: High-performing suppliers often bring innovative ideas that can
enhance product offerings and processes.

- Promoting Continuous Improvement: Regular evaluations foster a culture of continuous

improvement, benefiting both the supplier’s operations and the overall supply chain.

By systematically evaluating supplier performance, businesses can ensure they collaborate

with partners who contribute positively to their success. This practice enhances overall
efficiency, competitiveness, and customer satisfaction.

 What to evaluate?

When evaluating supplier performance in the context of procurement, it’s essential to assess a
variety of factors to ensure that the supplier meets your organization's needs and contributes
positively to its operational efficiency and strategic goals. Here are the key criteria to
evaluate:

1. Product Quality:
 Consistency: Evaluate the consistency in the quality of goods or services supplied.
 Compliance: Check if the products meet the required specifications, standards, and
regulatory requirements.
 Defects and Returns: Monitor the frequency and nature of defects and the rate of
returned goods.
2. Delivery Performance:
 On-time Delivery: Assess the supplier's ability to deliver products or services within
the agreed-upon timeframes.
 Lead Times: Evaluate the lead times from order placement to delivery.
 Order Accuracy: Check the accuracy of orders in terms of quantity, item
specifications, and documentation.
3. Cost and Financial Performance:
 Pricing: Compare the supplier's pricing against market rates and competitors.
 Cost Control: Assess the supplier’s ability to control costs and avoid unexpected price
increases.
 Payment Terms: Evaluate the flexibility and favorability of the payment terms offered
by the supplier.
4. Responsiveness and Customer Service:
 Response Time: Assess how quickly the supplier responds to inquiries, order changes,
and issues.
 Problem Resolution: Evaluate the effectiveness and timeliness of the supplier's issue
resolution processes.
 Communication: Monitor the clarity, frequency, and professionalism of
communication from the supplier.
5. Compliance and Risk Management:
 Regulatory Compliance: Ensure the supplier adheres to all relevant laws and industry
regulations.
 Certifications: Verify if the supplier holds necessary certifications (e.g., ISO,
environmental standards).
 Risk Management: Assess the supplier’s processes for identifying and mitigating
risks, including supply chain disruptions.

6. Operational Efficiency:
 Process Efficiency: Evaluate the efficiency of the supplier's production and delivery
processes.
 Technology and Innovation : Assess the supplier’s use of technology and their
capacity for innovation in improving product offerings or processes.
7. Sustainability and Corporate Social Responsibility (CSR):
 Environmental Practices: Evaluate the supplier's commitment to environmentally
sustainable practices.
 Ethical Standards: Assess compliance with ethical labor practices and other CSR
initiatives.
8. Capacity and Capability:
 Production Capacity: Ensure the supplier has the capacity to meet your current and
future demand requirements.
  Scalability: Assess the supplier's ability to scale operations in response to increased
demand or new product introductions.
 Technical Capability: Evaluate the supplier’s technical expertise and ability to provide
products that meet your specific needs.
9. Financial Stability:
 Financial Health: Assess the overall financial stability and health of the supplier to
ensure they can meet long
 Term commitments.
 Creditworthiness: Evaluate the supplier’s credit rating and payment history to
determine their reliability in financial dealings.
10. Relationship Management:
 Collaboration: Assess the supplier's willingness to collaborate and their openness to
feedback and improvement.
 Cultural Fit: Evaluate how well the supplier’s business culture aligns with your
company’s values and working style.
 Strategic Alignment: Ensure the supplier’s goals and strategies align with your
organization’s long-term objectives.
 By systematically evaluating these criteria, procurement professionals can make
informed decisions about which suppliers to partner with, ensuring that they support
the organization's operational needs, strategic goals, and overall supply chain
efficiency.
 Quantitative approaches to supplier evaluation

Quantitative approaches to supplier evaluation involve using numerical data and statistical
methods to assess and compare supplier performance. These approaches provide objective
and measurable criteria to support decision-making. Here are some common quantitative
approaches:

1. Weighted Scorecard:
 Method: Assign weights to various performance criteria (e.g., quality, cost, delivery)
based on their importance. Rate each supplier on these criteria and calculate a
weighted score.
 Example: If quality is weighted at 40%, cost at 30%, delivery at 20%, and
responsiveness at 10%, each supplier's scores in these areas are multiplied by the
respective weights and summed to get a total score.
2. Cost Analysis:
 Total Cost of Ownership (TCO): Evaluate all costs associated with the supplier,
including purchase price, transportation, handling, storage, and disposal costs.
 Price Variance: Measure the difference between the supplier's prices and market
averages or benchmarks.
3. Delivery Performance Metrics:
 On-time Delivery Rate: Calculate the percentage of deliveries made on or before the
agreed-upon date.
 Lead Time: Measure the average time from order placement to delivery.
 Delivery Accuracy: Calculate the percentage of orders delivered without
discrepancies in quantity, quality, or specifications.
4. Quality Metrics:
 Defect Rate: Measure the percentage of products received that are defective.
 Return Rate: Calculate the percentage of products returned due to quality issues.
 Compliance Rate: Assess the percentage of products that meet specified standards and
requirements.
5. Supplier Performance Index (SPI):
 Formula: SPI = (Total Purchases + Non-conformance Costs) / Total Purchases
 Purpose: The SPI quantifies the cost impact of supplier non-conformance. An SPI of 1
indicates perfect performance; values above 1 indicate additional costs due to non-
conformance.
6. Key Performance Indicators (KPIs):
 Examples: Track specific KPIs such as defect rates, lead times, cost savings,
inventory turnover rates, and supplier innovation contributions.
 Data Collection: Use historical data, purchase orders, and performance reports to
calculate KPIs.
7. Supplier Rating Systems:
 Performance Ratings: Assign numerical ratings (e.g., on a scale of 1 to 5) to suppliers
based on specific criteria. Aggregate these ratings to compare suppliers.
 Benchmarking: Compare supplier performance against industry benchmarks or best-
in-class suppliers.
8. Analytical Hierarchy Process (AHP):
 Method: Use pairwise comparisons to assign relative weights to various criteria and
sub-criteria. Calculate a composite score for each supplier based on these weights.
 Application: Helps in making complex decisions involving multiple criteria by
breaking down the problem into a hierarchy.

9. Statistical Process Control (SPC):

 Method: Use statistical methods to monitor and control supplier processes. Common
tools include control charts, process capability analysis, and Six Sigma metrics.
 Purpose: Identify and reduce variability in supplier processes to improve quality and
consistency.
10. Data Envelopment Analysis (DEA):
 Method: Use DEA to evaluate the efficiency of suppliers by comparing multiple input
and output variables.
 Application: Determine which suppliers are operating on the efficiency frontier and
identify areas for improvement for those that are not.
- The seven Cs of effective supplier evaluation
The seven Cs of effective supplier evaluation are a set of criteria identified by Ray Carter in
1995, which are used to assess the suitability and performance of suppliers. These criteria are
essential for ensuring that a company’s procurement process is aligned with its quality and
performance goals. Here are the seven Cs:

1. Competency: Evaluating if the supplier has the necessary skills, knowledge, and
resources to deliver the products or services required.
2. Capacity: Assessing whether the supplier can meet the quantity and deadline
requirements.
3. Commitment: Understanding the supplier’s dedication to delivering quality products
or services and adhering to agreements.
4. Control: Checking the supplier’s processes and systems to ensure they can manage
quality and delivery effectively.
5. Cash: Considering the supplier’s financial stability to sustain operations and fulfill
obligations.
6. Cost: Looking at the total cost of working with the supplier, not just the price of the
products or services.
7. Consistency: Ensuring the supplier can provide products or services that meet quality
standards consistently over time.

6. Outsourcing : Make vs buy

6.1. Outsourcing

1. Definition:

Outsourcing is the process of finding an external third-party supplier to take on in the

management and provision of a service. It is generally used for non-core activities and used
when a business may not have the skills or the expertise in-house for a product or service,
which is often linked with a lack of critical scale, or an in-house investment is needed which
can’t be prioritised or may need to get something to market quickly. Outsourcing allows for
scaling up or scaling down according to need. Procurement outsourcing has undergone a
considerable rise over the past 10 years, with supplier selection, contract negotiation or
specification management becoming more widespread. Providers say that outsourcing these
activities provides customers with a range of benefits. By aggregating demand from multiple
customers, they aim to secure lower prices. In addition, large facilities in cost-efficient
locations help them to reduce the cost of executing time-consuming activities such as supplier
assessment or processing RFQs. The providers’ scale also provides their customers with
access to expertise, particularly in categories where low spend makes it hard for customers to
keep the right sourcing expertise in-house.

2. Outsourcing procurement:

Procurement outsourcing is the practice of hiring external service providers to manage

procurement activities for a company. This can include a range of tasks from strategic
sourcing and contract negotiation to transactional processes like order processing and invoice
management. Here are some key points about procurement outsourcing:

 Strategic Procurement: Outsourcing strategic procurement activities, such as supplier

selection and contract negotiation, has become more common in the past decade. It
allows companies to access expertise and capabilities they may not have in-house.
 Transactional Procurement: Routine requisition-to-pay activities, such as purchase
order creation and management, invoice payment, and vendor management, are
commonly outsourced. This can lead to higher process efficiency and compliance
through standardization of processes, automation, and skilled workers.
 Benefits: Companies can benefit from lower prices due to demand aggregation,
reduced cost of executing time-consuming activities, and access to expertise,
especially in categories with low spend.
 Challenges: Not all outsourcing agreements are successful. Issues can arise from poor
cost control, lack of focus on savings, or misaligned incentives between the company
and the provider.
3. Drivers of outcourcing:

There five main drivers for outcourcing:

 Quality: Outsourcing allows companies to access specialized expertise, leading to

better decision-making and improved procurement processes. External providers
bring knowledge in strategic sourcing, contract negotiation, and supplier management,
enhancing overall quality.
 Cost Reduction: By outsourcing non-core procurement functions, organizations can
achieve cost savings. Providers operate efficiently, reduce expenses, and aggregate
demand to secure lower prices for goods and services.
 Financial Efficiency: External service providers optimize processes, introduce
automation, and manage routine tasks. This efficiency frees up internal resources,
allowing companies to focus on core activities.
 Core Business Focus: Outsourcing procurement enables companies to concentrate on
their core competencies. Routine tasks are handled externally, while strategic efforts
align with the organization’s primary goals.
 Cooperation and Risk Mitigation: Service providers manage risks associated with
procurement, ensuring smoother operations. Effective supplier relationship
management enhances collaboration and strengthens long-term partnerships.

4. Types of outcourcing:

Three common types of outsourcing:

a. Body Shop Outsourcing:

  In body shop outsourcing, organizations hire external professionals or teams to
work on specific tasks or projects. These individuals act as an extension of the
company’s workforce, often providing technical skills or expertise.
 Key features:
 Skill-Based: The focus is on specific skills or competencies.
 Temporary: Typically short-term engagements.
 Supplemental Staffing: Used to address resource gaps.
 Examples: Hiring software developers for a coding project, bringing in
consultants for process improvement, or contracting graphic designers
for a marketing campaign.
b. Project Management Outsourcing:
 Project management outsourcing involves delegating project planning,
execution, and monitoring to external experts. These providers handle the
entire project lifecycle, ensuring successful delivery.
 Key features:
 End-to-End Management: Providers oversee project initiation,
planning, execution, and closure.
 Risk Mitigation: External experts manage risks and ensure project
milestones are met.
 Efficiency: Allows internal teams to focus on core business activities.
 Examples: Outsourcing the development of a new software
application, constructing a building, or implementing an organizational
change initiative.
c. Total Outsourcing (Business Process Outsourcing - BPO):
 Total outsourcing involves transferring entire business processes or functions
to external service providers. BPO covers a wide range of activities, from
finance and HR to customer service and IT support.
 Key features:
 Comprehensive: Entire processes are outsourced (e.g., payroll
processing, call centers).
 Cost Savings: Providers operate efficiently, reducing expenses.
 Strategic Focus: Allows companies to concentrate on core
competencies.
 Examples: Outsourcing payroll administration, customer service, or IT
infrastructure management.
5. Benefits of outcourcing:
a. Reduce Labor Costs:
 Labor is often the most significant cost for businesses. Outsourcing allows you
to tap into more affordable talent pools, especially when hiring specialists for
specific roles or purposes. Contractors don’t require office space or additional
employee benefits, resulting in cost savings.
b. Improve Team Efficiency Through Expertise:
  Outsourcing lets you hire experienced professionals with years of expertise.
These experts can boost efficiency and productivity right from the start. You
won’t need to train rookies or develop new divisions within your company,
saving time and money.
c. Access to Global Talent:
 Outsourcing allows you to work with talent from different parts of the world.
You can leverage skills and resources that may not be readily available
locally. Whether it’s software development, customer support, or marketing,
global talent pools offer diverse expertise.
d. Focus on Core Competencies:
 By outsourcing non-core functions, your internal team can concentrate on
strategic activities that align with your business goals. Outsourcing routine
tasks frees up valuable time and resources for core responsibilities.
e. Increased Flexibility:
 Outsourcing provides built-in flexibility. You pay for the work you need,
adjusting based on workload fluctuations. Whether you have 40 hours of work
one week or only 15 the next, you’ll pay only for the actual hours worked.
f. Accelerated Time to Market:
 Outsourcing can speed up project delivery. When you collaborate with
experts, they bring efficiency, best practices, and streamlined processes. This
agility helps you launch products or services faster
6. Problems of outcourcing:

Outsourcing in procurement can present several challenges that organizations need to manage
effectively. Here are some of the problems associated with outsourcing in procurement:

1. Loss of Control: When procurement functions are outsourced, companies may face a
loss of control over those processes. This can affect the quality and timeliness of the
outsourced service.
2. Communication Barriers: Outsourcing often involves working with teams in different
locations, which can lead to communication issues due to language barriers, time zone
differences, and cultural misunderstandings.
3. Unforeseen and Hidden Costs: While outsourcing is often pursued for cost savings,
there can be unexpected costs related to transition, management, or poor quality work
that requires re-doing.
4. Difficulty in Finding the Perfect Vendor: Identifying a vendor that aligns perfectly
with a company’s needs and standards can be challenging, and mismatches can lead to
suboptimal outcomes.
5. Privacy and Security Concerns: Sharing sensitive information with third-party
vendors can pose risks to data privacy and security.
6. Quality Control: Maintaining the desired level of quality can be difficult when
procurement processes are outsourced, especially if the vendor does not have stringent
quality control measures in place.
 7. Cultural Differences: Working with vendors from different cultural backgrounds can
lead to misunderstandings and conflicts that impact the procurement process
8. Balancing Cost with Innovation: While outsourcing can lead to cost savings, it may
also stifle innovation if the focus is solely on reducing expenses rather than improving
processes.

6.2 Make vs Buy

a. What Is a Make-or-Buy Decision?
 A make-or-buy decision is an act of choosing between manufacturing a product in-
house or purchasing it from an external supplier.
 Also referred to as an outsourcing decision, a make-or-buy decision compares the
costs and benefits associated with producing a necessary good or service internally to
the costs and benefits involved in hiring an outside supplier for the resources in
question.
 To compare costs accurately, a company must consider all aspects regarding the
acquisition and storage of the items versus creating the items in-house, which may
require the purchase of new equipment, as well as storage costs.
 A make-or-buy decision is an act of choosing between manufacturing a product in-
house or purchasing it from an external supplier.
 Make-or-buy decisions, like outsourcing decisions, speak to a comparison of the
costs and advantages of producing in-house versus buying it elsewhere.
 There are many factors at play that may tilt a company from making an item in-house
or outsourcing it, such as labor costs, lack of expertise, storage costs, supplier
contracts, and lack of sufficient volume. Companies use quantitative analysis to
determine whether making or buying is the most cost-efficient method.
b. Understanding a Make-or-Buy Decision
- A firm must account the costs associated with purchasing and maintaining any
production equipment as well as the price of manufacturing materials when
considering in-house production. The additional labor needed to create the goods,
which includes pay and benefits, facility storage needs, holding expenses overall, and
the right disposal of any leftovers or byproducts from the manufacturing process, can
all be included in the costs of making the product.
- The cost of the item itself, any shipping or import duties, and any relevant sales tax
must all be included in the buy expenses when acquiring the goods from an outside
source. The cost of labor for receiving the items into inventory and the costs
connected with storing the incoming product must also be taken into account by the
business. It also entails signing any contracts with suppliers that can bind the business
to certain agreements for a predetermined amount of time.
- The most crucial elements to take into account while making a make-or-buy choice
are those that fall under the purview of quantitative analysis, such as manufacturing
costs and the company's ability to meet demand.
c. Choosing Make or Buy
  The quantitative analysis's findings could be adequate to decide which course of
action is most economical. Occasionally, the qualitative analysis takes care of any
issues that a business is unable to quantify precisely.
 A company's choice to purchase a product instead of making it itself may be
influenced by a number of factors, such as a lack of internal experience, low volume
requirements, a desire for multiple sources, and the possibility that the item is not
essential to the company's strategy.
 If a business has the chance to collaborate with an organization that has successfully
delivered outsourced services in the past and can maintain a long-term relationship,
the business could give the partnership more thought.
 Similar to this, a company may decide to produce a product internally if it has idle
manufacturing capacity, superior quality control, or secret technology that has to be
safeguarded. If the product in issue is essential to regular business operations, a
corporation may additionally take supplier reliability into consideration. If the
company needs the supplier to provide the necessary long-term arrangement, it should
also take that into account.
d. Make vs Buy decision tree:

The make vs buy decision is typically a multi-step process that involves:

 Conducting a Needs Analysis: Understanding what is required in terms of product

specifications, volume, and delivery timelines.
 Evaluating Internal Capabilities: Assessing whether the company has the necessary
skills, resources, and technology to produce the product in-house.
 Cost-Benefit Analysis: Comparing the costs and benefits of both options, including a
thorough financial analysis and consideration of non-financial factors.
 Considering Strategic Fit: Aligning the decision with the company’s overall strategic
objectives and long-term goals.
 Risk Assessment: Identifying and evaluating risks associated with both options.
 Making an Informed Decision: After considering all factors, the company makes an
informed decision based on a comprehensive analysis.
In summary, make vs buy decisions are a critical component of strategic management and
operational efficiency in today’s business environment. They require a careful and
comprehensive analysis of various factors, including cost, quality, capacity, core
competencies, risk, speed to market, flexibility, and innovation. By systematically evaluating
these factors, companies can make informed decisions that align with their strategic
objectives and enhance their competitive position in the market.

e. Considerations in make-or-buy decisions:

When it comes to making or buy decisions, both quantitative and qualitative considerations
play a crucial role in determining the best course of action for a company. Here’s a
breakdown of these considerations:

Quantitative Factors Favoring Making:

 Cost Savings: If the cost of in-house production is lower than outsourcing, it favors
making.
 Utilization of Existing Capacity: If the company has underutilized facilities, it can be
more cost-effective to produce in-house.
 Economies of Scale: Large-scale production can reduce the cost per unit, favoring in-
house manufacturing

Quantitative Factors Favoring Buying:

  Lower Acquisition Costs: If suppliers offer a lower price than the cost of in-house
production, buying is favored
 Avoidance of Capital Expenditure: Buying avoids the need for investment in
machinery and equipment
 Variable Cost Structure: Outsourcing can convert fixed costs into variable costs,
offering financial flexibility

Qualitative Factors Favoring Making:

 Quality Control: In-house production can ensure better control over the quality of the
end product
 Intellectual Property: Manufacturing in-house can protect proprietary technology or
processes.
 Strategic Fit: Producing goods that align closely with the company’s core
competencies can be advantageous.

Qualitative Factors Favoring Buying:

 Supplier Expertise: Suppliers may have specialized skills and knowledge that the
company lacks.
 Flexibility: Outsourcing can provide greater flexibility to scale up or down based on
demand.
 Focus on Core Business: Buying allows the company to focus resources on its core
activities.

7. Summary
 Sourcing, which involves selecting the right suppliers based on criteria like price and
quality, is essential for businesses to optimize their supply chain operations.
 E-sourcing, facilitated by electronic platforms, streamlines the supplier selection
process, improving efficiency and transparency.
 Outsourcing involves delegating certain business functions to external vendors,
enabling companies to focus on core activities.
 E-procurement enhances procurement processes through electronic solutions,
reducing manual tasks and errors.
 Effective procurement management ensures timely delivery and quality products or
services from suppliers, driving overall success and competitiveness in the market.

8. Key terms
 Sourcing : Procurement refers to finding the most suitable supplier to provide quality
goods or services at a price that provides the business owner with the required profit
margin.
 Outsourcing : is the practice of using or hiring experts or generalists from outside a
company to perform services or provide goods that are traditionally provided in-
house.
- IInsourcing : This type of procurement utilizes internal resources to carry out supply
chain activities.
- Near – sourcing : also called nearshing, involves placing some of your operations
close to where your end-products are sold.
- Single sourcing : a single source for all materials, products, and services is known as
single sourcing.
- Global sourcing : Purchasing products or services from vendors in foreign
marketplaces is known as global sourcing.
- Joint ventures : partnerships between two or more parties to share resources,
strengths, ownership, returns, risks and governance.
- Startegy sourcing : is a part of a more extensive procurement process that integrates
data gathering, spend analysis, market research,supplier negotiation and contracting.
- Sourcing process : identifies and evaluates potential suppliers or sources of goods and
services that business needs to operate effectively.
- E-sourcing : refers to using digital tools and platforms to streamline procurement
processes. It involves activities like supplier identification, bidding, negotiation, and
contract management conducted online. E-sourcing improves efficiency,
transparency, and collaboration between buyers and suppliers, replacing manual
processes with faster, more effective digital methods.
- RFI : are used to gather basic information about potential suppliers, such as their
capabilities, experience, and qualifications.
- RFR : are formal documents that outline the organization's requirements and solicits
detailed proposals from potential suppliers. They include specifications, terms, and
evaluation criteria.
- RFQ : is a formal document issued by a buyer or organization to solicit bids or
quotations from potential suppliers or vendors for the provision of goods or service.
- Negotiation : involves negotiating terms and conditions with selected suppliers to
finalize contracts. Negotiation may include discussions on pricing, payment terms,
delivery schedules, and service level agreements.
- E – procurement : is an electronic procurement or supplier exchange system. It allows
for purchasing and selling supplies, equipment, works, and services through a web
interface or other networked system instead of paper-based processes.
- Supplier evaluation : is a systematic process used by organizations to assess the
performance, capabilities, and suitability of their suppliers.

9. Discussion question
 How can businesses strike a balance between cost-effectiveness and quality when
sourcing suppliers, and what strategies can they employ to maintain strong supplier
relationships while ensuring optimal performance?
 Considering the rapid technological advancements and global market dynamics, how
can businesses leverage e-sourcing and e-procurement solutions to enhance
efficiency, mitigate risks, and foster innovation in their supplier management
processes?
CASE STUDY
Choose company and analyze the case study at that company on managing supplier
relationships and performance in strategic sourcing

Apple
Overall Apple owns a global supply chain.
The world's supply of detail parts and components includes American chips,
Japanese labs, rare-earth materials from Mongolia, and "big" manufacturing
plants in China. Apple counts 800 suppliers in its network, spread over 30
nations. In particular, there are major firms like Qualcomm, LG, Luxshare,
Foxconn, Petragon, and even Samsung, its rival.
Strategic High-quality display panels, specialized hardware for products like iPhones,
products (high iPads, and Macs, and unique components like their A-series and M-series CPUs
profit impact - are some of Apple's strategic items.
- Supplier-dominated market:
high supply
• Displays from Samsung for OLED or LG for LCD because they provide better
risk) technology in these displays manufacture; these are the two companies that
supply the difficult-to-develop communication chips.
• Sony's camera sensor, which maintained its market-leading position in 2022
with a 42% CMOS sensor share.
- Buyer-dominated market:
• Graphic processors were mostly dependent on Imagination Technologies' GPU
designs. Apple gained the upper hand when it said that it would stop using
Imagination Technologies' intellectual property in two years, despite the fact that
there are few supply sources for phone GPUs.
-Balance relationship:
• Original design manufacturing services (ODM) create devices that are then
branded by hiring firms. Apple's main ODM is Quanta Computer. Quanta's
ability to meet Apple's standards is the foundation of their long-term partnership.
Apple invests strongly in R&D and maintains close ties with key suppliers, often
entering into exclusive arrangements to secure a level of control and access to
these vital components.

Leverage Crucial products are available from a variety of suppliers at typical quality
product (high levels. Apple conducts aggressive sourcing and negotiating among certified
profit impact - vendors that are willing to make changes.
• Audio chips and integrated circuit controllers:Cirrus Logic, which generates
low supply
79% of its revenue from Apple, is the primary supplier for this item.
risk) However, in 2019, Apple chose Maxim processors over Cirrus, its long-time
supplier. The iPhone 15 versions skipped the solid-state buttons (which Cirrus
was creating IC controllers for).
• Skyworks' wireless chips are widely used in Apple's iPhones, iPads, Macs,
Apple Watches, and other devices. However, there are claims that Apple was
creating its own wireless processors to diversify instead of using third-party
chipmakers.
3D-sensing chips and lasers: The majority of the lasers used to power Face-ID
features are supplied by Lumentum, and reports suggest that Apple may divide
some of its laser orders with Sony.
Bottleneck Apple has faced challenges related to sourcing these items which are of limited
products (low value in terms of money, but the supply is limited.
profit impact- • Sapphire screens - at scale:
Apple wanted sapphire for camera lenses and the Touch
high supply
ID sensor. The market is limited with Samsung which boasts super-AMOLED
risk) screens that it makes and uses exclusively or Kyocera which makes them in the
gigantic numbers Apple demands.
• Antenna module: The production of these cards is handled by two companies:
Murata and Career Tech.
• Main camera PCB: While other smartphones, such as Samsung and Huawei,
employ a single electrical board in dual-camera smartphones, the iPhone has a
separate module for each sensor. During manufacture, the major supplier
Interflex encountered a low-quality circuit intended for a wide-angle sensor.

Routine - These products provide little technical or commercial challenges for Apple's
products (low sourcing. However, Apple is actively trying to maintain control over certain
profit impact- parts.
• Screws, metallic parts, and plastic pieces: According to reports, Apple has
low supply
taken control of the purchase of these parts, when in the past, vendors had free
risk) reign to acquire the elements required to manufacture components. According to
the new approach, Apple will deal directly with third-party suppliers, requesting
price and order amounts.
• Office items: Apple sources furniture, equipment, and supplies from a variety
of providers. However, the specifics of Apple's supply chain and procurement
operations are highly guarded and not publicly divulged by the business.
=> From various suppliers.
Apple works with logistics partners to manage its supply chain, organizing parts and supplies, and
supporting inventory management efforts. Apple uses SCM and ERP systems to track and manage its
inventory levels.
Apple has implemented a variety of various strategies to guarantee the effectiveness and efficiency of
its global supply chain. Among these tactics are just-in-time manufacturing, which aids Apple in
lowering inventory costs, and lean manufacturing methods, which aid Apple in cutting waste and
boosting productivity.

Supplier Relationships
Apple maintains two main partnerships with its suppliers: synergy and cooperation.
 Apple requires a partner's key competencies to generate significant value for customers, a
partnership is formed.
 Synergistic partnerships arise when Apple collaborates with many different organizations to
generate increased shared value.
For example, Apple provides new product designs, suppliers and designers will create the most
satisfactory products to serve the needs of the market. Therefore, Apple has been able to maintain its
position in the technology market because of these two connections.
Apple places a strong emphasis on nurturing long-term relationships with its suppliers. These
relationships are built on trust, collaboration, and shared values. Apple works closely with suppliers to
ensure ethical and sustainable practices, which aligns with the company's commitment to
environmental responsibility.
Link tham khảo:
https://simfoni.com/esourcing-guide/
https://www.manutan.com/blog/en/glossary/what-is-e-procurement
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https://whatfix.com/blog/e-procurement/
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xypfc
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https://simfoni.com/strategic-sourcing/
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sourcing-process/
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