Advance Sourcing- overview and steps

In today’s world customer is more demanding then ever before, off course customer too want to have VFM (value for money), this quick change of flavor of customers creates demand or chain of more products at faster pace. This chain of demand force product to extinguish or vanish from market much faster pace thus on other hand it also reduced the effective life time when companies can charges premium on product.
Our designers and development team continuously keep on working to launch new products to continue their (Company's) presence in market. Thus it has also put up the pressure on people in organization responsible, or more accurately worried, for cost controlling (we will talk in other blog over cost controlling).As product changeover time has squeezed, now gone the days when more than 70-80% part remain common in new models.
On the one side, it has put pressure to implement any conventional way of reduction idea or suggestions, also on positive side it has open up more numbers of parts to consider for innovative approach of reducing the material cost rather than keeping focus on same item for year and year on.
Before we move further we should also understand the situation of our supplier/vendors/ channel partners (whatever term you give), unless their organization motive of existence is not taken care then it may happen they may help today but surely fall back under critical times like once seen in FY 0809, due to liquidity crunch. There is also conventional easy way out, by passing all the pressure to our supplier/vendor in terms of commercial negotiation. I knew there would be contradicting views, certainly would be there and that should be because personally I too believe supplier should be put under certain pressure level which will force them to find new way of reducing waste of process, time or material. It has been observed when you remove the tracking on supplier's processes either supplier will not at all pass the benefit of reduction generated by ongoing improvement in process or any innovative method use to optimized productivity or marginally passed on. It is also quite evident, when development agencies like vendor development or supplier quality development group taken under lenses of reduction initiatives, these hidden process improvement or reductions surfaces. Organization where price controlling department and development are totally isolated, company have advantage to have centralized controlled, less expose to fraud, processes on cost control but also losses the advantage of passing information from development person, who keeps watch on day to day activities at supplier end. We can also justify like it is heard that for a Maruti's supplier it is mandatory to reduce certain PROCESS cost every year, being a market leader in certain categories, they may adopt this approach but most common approach in industry is to have special prices for certain models, where underlines are under pressure.
Now coming to our main point of discussion, We use advance sourcing to reduce material cost, classic and effective examples can be taken as TATA MOTORS’s ‘Nano’ , ACE or even companies like Sterlite, Dabur exploring and implementing such options. If one open the Sterlite site where supplier registration itself is on service provider of e-Sourcing. one of unique buyer in this category is A. P. Govt. who floats On line tender to get advantage and transparency in system.
Advance sourcing: This is systematic effective way to short list the probable source of material by calling most technology qualified suppliers available in market and quoting for best competitive pricing for a given product or part. This is most effective in budget base projects, because before starting the exact development we come to know more accurately, what would be the final material cost looks like compare to convention method of developing at one supplier then look for alternate source.
If we draw graph of time versus amount saved it goes exponentially from design stage to regular in procurement part i.e. more early we go for negotiation more chances and scope for savings later with stabilize design and processes leaves very limited scope for innovate and puts pressure on supplier only.
General steps followed in advance sourcing:
Supplier pool selection: This process is treated to be the backbone of whole process unless we have equally qualified and technologically capable supplier base we can not consider them to compete on price front for example in India we can not compare logistic solution provider ‘GATI’ services with any transporter operating with few nos of fleet of trucks,it may not always fetch same level of service result.
RFI & Freedom for design: after short listing of equally qualified suppliers like any other development process RFI should be floated. Remember more freedom you give supplier to design better the chances of competitive pricing however we can put constraint of technical requirement very clearly like usage on RM, overall Size, what desired function is expected from part/product. What certificate or approval should product qualifies or provision for future changes in product. It is observed that more freedom we give under restricted requirement better result came from supplier itself this is more effective in proprietary nature product.
Shortlisting based on approval of design: Supplier desin must qualify in basic desired parameters before going further and development lead time along with cost can be taken major shortlisting criteria.
Initial quote round: As mentioned in point 4 before going for final negotiations of bidding supplier quote can be taken for shortlisting commercially competitive supplier utill nos of finall supplier remains more than finally desired nos.
Final negotiation: different companies adopts different ways for final negotiations few takes sealed bids, few call one to one negotiations, few goes for open tendering or bidding for limited suppliers and best one is using negotiation tools available e-Sorucing.
Next session will share and cover experience of e-Sourcing usage for sourcing of in component manufacturing and services