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GBDA
 

Global Business Development Alliance

Outsourcing & Sourcing (Pre)-Selecting

The selection of (strategic) suppliers and contractors is obviously an extremely important phase in the procurement process. Partly because of this a typical assignments content to business development consultants, we present “outsourcing & sourcing (pre)-selecting” as a separate, standalone service to clients.

Define outsourcing intentions & strategy
Before to start and step 1 in a sourcing process is the allocation; the business development consultant has to be instructed, receive the resources and understand the sourcing characteristics;
• classifying the type sourcing to the Kraljic portfolio purchasing model
– strategic (low supply market competitiveness, high business impact)
– leverage (high supply market competitiveness, high business impact)
– bottleneck (low supply market competitiveness, low business impact)
– routine (high supply market competitiveness, low business impact)
• the sourcing project objectives
– time schedule of project and budget
– price level, delivery times, quality standards
– other specific requirements
– current suppliers and lessons learned
– internal client, (future) purchase team, internal stakeholders
• sourcing strategy (or hybrid)
- best price analysis; internal benchmarking, formula pricing
- product redesign; off self, substitution, consolidation
- strategic relationship; integration supply chain, joint development, concurrent development, joint venture
- volume leveraging; supplier reduction, volume consultation, supplier capacity source based
- process improvement; just in time, inventory demand integration, integrated supplier
- global sourcing; labor and raw material saving, availability resources

Report outsourcing possibilities & outcomes
Normally clients primarily want to get familiar with
• the local potential and limitations
• the local presence of potential suppliers and (sub)-contractors (locate market assessment)
• possibly an prequalification or supplier survey can be part of the preselection, whereby at least the following criteria will be applied
– reputation
– cost level
– payment terms
– lead time (order to delivery)
– capacity
– quality & safety
– communication
– contract management
– storage, packaging & delivery
– after sales service & guarantees
– social responsibility
– convenience
– risk analysis
– terms & conditions
– other specific contract conditions / expectations; sourced on-time delivery, productivity, price adjustments etc.
• an analysis of the differences between the local and the buyer utilized (legal, technical, financial, administrative) standards and customs – and if required, a risk analysis which includes proposed mitigation actions should be made
• a report to the client and further assistance, so client is able make a (strategic) decision and can approve the next phase of the procurement process to send out enquiries, get offers and start negotiations.

Benefits & cautions of sourcing
*+/+*Advantages
• cheap manpower
– profit-seeking companies move their operations overseas so labor-intensive processes are relocated to developing nations with relatively cheap labor
• cost savings
– specialist have to do better and can do better, these days ‘squeezing suppliers’ is somewhat outdated
• scalability
– flexibility in resources and capital, reducing fixed costs
• save time and effort
- depending mutual cooperation and agreements, it can be both an advantage but it can also turn into a very big disadvantage
• less capital needed
– reducing invest capital and also at favourable payment terms it working capital
• risk mitigation
– entrepreneurial risk distributed to the supplier
• accessibility to raw materials
– bring production to abundant availability will be cost effective even with the additional cost of transportation and taxes
• access to distinctive skills
– same as above but now for skilled labor or use offshore staffing agencies for skilled employees
• increase in productivity
– by focusing on core functions and to transfer subordinate positions elsewhere all activities can be optimized
• access to fresh specialized intellectual capital, research and design
– knowledge sharing between partners
• superior quality
- as specialized suppliers investment in (new) technology and capacity to attract (global) business and to stay in the long term competitive.
*-/-*Disadvantages
• dependency
– lose of flexibility and ability to respond quickly by misfortune or defective deliveries
• loss of intellectual uniqueness
– lead to loss of intellectual distinctiveness as customer demands are often forced upon supplier culture and thoughts
• additional and hidden costs
- often forgotten; to evaluate the purchase costs it has to include all additional costs of purchasing and supervision. Another risk factor are unbalance high additional claims (extra work) on adjustments and supplements
• effort consuming
- supervision can be enormous, although this should be reduced considerably over some time through good cooperation and experience
• communication (language) & cultural dimensions
- time differences, language and culture can have a big impact
• switching costs
- If a wrong choice is made; commute contract, selecting new suppliers and re-starting will be a time-consuming and costly process
• employee retention at supplier
- key positions at suppliers that abruptly leave or become unavailable
• job loss at own company
– criticized by local labor advocates and economic nationalists as it puts domestic employees out of work could also harm reputation.
• legal issues
- outcomes and consequences are difficult to estimate, but will always have a negative effect
• negative impact employees
- especially in hiring employees this can create discontent as wages, conditions and facilities are compared
• distrust between buyers and providers
- a first warning of a lot of trouble that will come

Types of sourcing and definitions
• Global sourcing,
- a procurement strategy practice of sourcing from the global market for goods and services across geopolitical boundaries to exploit global efficiencies in the delivery of a product or service by low cost skilled labour, low cost raw material and other economic factors. Likewise a MNC’s buying organizations seek economies of scale through corporate-wide standardization and benchmarking. Has similarities with Low-cost country sourcing (LCCS)
• Strategic sourcing,
- continuously improving and re-evaluating the purchasing activities as part of supply chain management – analysing, planning and optimising. Also giving strategic business partners an significant role in this process (f.e. imposed / prequalified subcontractors and suppliers)
• Outsourcing,
- is the contracting out of a business process to another party, it sometimes involves transferring employees and assets too, it may both foreign and domestic contracting and sometimes includes relocating of business functions to another country (offshoring)
• Insourcing,
- on-site or in-house or integrated contracting of a stand-alone business function(s) by a provider mostly to maintain control of critical production, projects or competencies
• Co-sourcing,
- combining functions or services from within and outside a business to achieve a collective goal
• Corporate sourcing,
- aiming for bulk discounting and optimizing supply chain, purchasing/procurement, and inventory functions, mostly corporate or division within a group of companies will take the lead and coordinate.
• Second-tier sourcing,
- prescribe requirements of specifications to the utmost extent liked to second tier suppliers, achieving vertical and/or horizontal integration of the supply-chain by an first tier supplier that integrates second tier supplier products and services. Also a practice of rewarding suppliers for attempting to achieve minority-owned business spending goals.
• Single sourcing,
- using only one supply source without a competitive bidding process for a justifiable reason
• Multi-sourcing,
- a concept to minimize risks, by constitute a broad supply base and use different contracting models
• Crowdsourcing,
- using an undefined, generally large group of self-identified volunteers, part-time workers or community, where each contributor, acting on their own initiative, adds a small contribution to achieve a greater result
• Sourcing (staff, personnel)
- pro-active recruitment; identification, assessment and engagement of skilled worker candidates and the providing of permanent and contract staff – individuals or teams (As this is recruitment GBDA associates will not provide this service)

GBDA associates in outsourcing stand for
• local expertise
• best practice
• sector specific; latest thinking
• planning, controlling, scheduling fresh independent insights
• being better prepared for negotiation

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