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Lecture 37 : Strategic Sourcing — Transcript

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0:01[Music]
0:22[Music]
0:26hello dear students welcome back to nptl
0:29online course on Logistics and Supply
0:30Chain management so in the last session
0:33we decided that what are the things or
0:35the functional area we need to inhouse
0:38and what are the things we need to
0:41produce or Outsource to some third party
0:45right so that decision we have made so
0:48throughout the complete value chain that
0:50supply chain what are the activities we
0:53have decided that we'll go for
0:54outsourcing so once you have decided to
0:57go for outsourcing then there comes the
0:59concept of strategic sourcing because
1:02why we are calling strategic sourcing
1:04because it involves long-term investment
1:07of the resources so you cannot change
1:10your vendors your sources your
1:13stakeholders overnight right so and also
1:17if maybe one or two vendors are
1:19struggling with something quality price
1:22delivery so even then you don't want to
1:25delete those suppliers right from your
1:27list because every supplier is equally
1:31important maybe you got cheaper vendors
1:34or suppliers quality wise also overseas
1:37right but what if something goes wrong
1:41and that overseas supplies is
1:43interrupted then you need to depend on
1:45the local vendor maybe the cost you are
1:48saving by deploying the overseas vendors
1:51maybe that you can save by deing maybe
1:54just in time with the local vendor right
1:57so these are some of the pros and cons
2:00so that's why this is strategic sourcing
2:02once we have decided we'll go for
2:04sourcing what are the key elements we
2:06need to decide for getting those
2:08strategic sourcing Partners right we'll
2:11talk about supplier selection now what
2:15are the different options available and
2:17we'll evaluate those options we'll
2:19maintain the relationship under supplier
2:22relationship management and then we'll
2:25identify we'll categorize different
2:28suppliers as per their role their
2:30importance we'll talk it in the supplier
2:33segmentation and then we'll talk about
2:35the global sourcing as well some aspects
2:38of that and we'll end this discussion
2:40with one case study so strategic
2:43sourcing is identification evaluation
2:47and selection of suppliers once you
2:50decided we'll
2:51Outsource the sub assembly part
2:54Transportation part or warehousing let
2:57us find out how many uh players are
3:00there in the market we'll identify we'll
3:03evaluate as per our criteria whatever
3:05criteria we have set it's not only we
3:08will focus on lowcost supplier it's the
3:12purpose very purpose here is strong
3:14relationship improve quality delivery
3:17performance reduce cost and mitigate
3:20risk sometime you'll get the cheaper
3:22supplier but you are always struggling
3:24with getting the right quality sometime
3:28maybe you are getting the cheap material
3:30may be fair quality that delivery person
3:33is uh or your raw material supplier is
3:36always struggling with the
3:38Dy what if there is any uncertainty in
3:42the market how you will share the uh
3:44risk of uncertainty with the raw
3:46material supplier but raw material
3:48supplier the he is saying that I'll
3:51produce whatever you have ordered now if
3:53you'll ask me to change to some other
3:55pattern other design other material so
3:58you will pay for this whatever I have
3:59have developed the infrastructure here
4:02whatever the raw material machines I
4:04have acquired right so what are the
4:08factors like product and process
4:11specifications what you are developing
4:13right what are the available suppliers
4:16in the market and customer service to
4:19determine the feasibility of sourcing
4:21materials locally or globally we'll talk
4:23about in detail in global sourcing right
4:26when we'll talk about the uh developing
4:29your vendors overseas right so uh this
4:32includes the development of sourcing
4:34strategy negotiating contracts
4:37establishing partner relationship now
4:39negotiating contracts uh other than your
4:43delivery quality price those are there
4:45in your negotiation terms and conditions
4:48but then if something goes wrong if any
4:52dispute is there where you will handle
4:54how you will handle right that also you
4:56need to Define if you have uh if you you
5:00have accepted the vendor lot as per the
5:03quality quantity in how many days you
5:06are going to make the payment that
5:08payment terms also you need to Define in
5:10the negotiate terms how you will be
5:12making payments in installments or how
5:14you will how you will be you know
5:17allocating orders you asked me as a
5:19vendor you asked me to you know develop
5:21this much infrastructure but now you are
5:24diverting your whole order to some other
5:26vendor right I'm not getting those
5:28orders to
5:30reach at minimum qar you know quantity
5:34where I can be at the profit table
5:36position right so that breakable point
5:39I'm not able to reach so that you need
5:41to ensure so some characteristics of
5:44strategic sourcing this is disciplined
5:46buying process repetitive process it is
5:49not one-time process so maybe in one
5:52month depending upon the product and
5:54depending upon the components you are
5:55supplying maybe you are supplying five
5:57Lots 10 Lots or maybe 15 losss if that
6:01is high valued product because that much
6:03inventory I cannot keep right depending
6:06upon size also depending upon the
6:08product features characteristics also it
6:10depends upon how many repetitive uh
6:13procurements or purchasing you are doing
6:16right total cost Factor so total cost
6:20factor is not only the cost of the raw
6:22material it's the cost of acquiring the
6:25material right so that cost is if you
6:28are ensuring the quality quality will
6:30also take some cost Service delivery and
6:33other than delivery after sales services
6:36to maintain that relationship means
6:38total cost with one vendor if you have
6:41appointed one person to T or tap five
6:45vendors to you know negotiate with them
6:47to you know track the orders to raise
6:50the purchase order so that person cost
6:52is also included in that right
6:55Consolidated purchasing power that again
6:59strategic sourcing when you are going
7:00for you can leverage on high volumes
7:03right but then again if you are
7:05producing higher what actually is
7:07required so that means you are creating
7:09inventory so that inventory cost holding
7:11cost is good enough to go for or uh you
7:16want to leverage on the high value that
7:18is tradeoff you will make right tight
7:21supplier relationship it is up to you
7:24whether you are keeping your
7:26relationships or your vendors arms
7:28length away or you are keeping just
7:31shoulder length away how closely you are
7:33working with the having said that arms
7:35length away means that means your uh
7:40those strategic Partners Outsourcing
7:43partners are not your you know complete
7:45stakeholders of your value chain right
7:49so that relationship you need to Define
7:52that depends also what type of product
7:54you are buying whether very close
7:56relationship is required whether you
7:58need to set up you some sometimes you
7:59are asking your vendors to set up their
8:02facilities near to your production house
8:04so that just in time can also be ensured
8:07but whether that vendor is ready to set
8:09up he will be ready when you will ensure
8:12that we will feed you large orders and
8:15that break even point you can reach
8:18right where after that break even point
8:20you will start producing profit improved
8:22tream work and purchasing
8:25skills so now teamwork means whenever
8:29you are going for negotiation you are
8:31going for outsourcing it's not only one
8:33person game that one person is
8:35developing the Outsourcing Partners all
8:37the person from different department
8:39Logistics operation marketing accounting
8:42purchasing store department so that all
8:45the possibilities you can record all the
8:48terms condition can be included in
8:51the that negotiation uh legal document
8:55right so if only one person is
8:58representing all the the functional
9:00units maybe the person can miss that
9:02right so this is teamwork realigning
9:06business processes now you need to
9:09realign or reevaluate your business
9:11processes right and your business
9:14processes with your strategic sourcing
9:17Partners right if you have aligned
9:20properly quick information sharing is
9:22there transer transparent information
9:24sharing is there that means that placing
9:27order waiting for the order then
9:30tracking the order then you know always
9:32you are after the vendor where is the
9:34raw material where is the lot so then
9:37that cost can be minimized lead cycle
9:40time can be reduced inventory cost can
9:42be reduced because whenever you are
9:45requiring the material your raw material
9:47supplier is feeding you that material
9:49why you will maintain the inventory
9:51continuous Improvement will be there
9:53when uh you will be setting up the key
9:56performance indicators for your vendors
9:59for yourself as well so I have seen some
10:01of the manufacturers like if I have
10:03worked with the a India limited I have
10:06worked with the phlips uh manufacturing
10:09coakers as well so basic point I'll tell
10:13you here continuous Improvement what
10:15Phillips is doing they are asking all
10:18the vendors to generate the quality
10:20report of all the components they are
10:22supplying right so that means whenever
10:25I'll receive any lot they will send me
10:27the quality report of that lot
10:30quality report means all the checks will
10:31be there in the next session we'll talk
10:33about the vendor rating where we'll see
10:35what are the different parameters all
10:37the dimensions you want to check you
10:39want to check aesthetically the position
10:43of the product right so Those comp uh
10:45already you have given uh vendors the
10:48checklist that whenever you are sending
10:50lot based on certain sampling you need
10:52to ensure that right this is what
10:54Philips is doing and when the product
10:57lot is reaching to the man manfacturing
10:59unit again their incoming quality
11:02control is checking the quality again it
11:04is checked in the process again it is
11:07checked when the final product is ready
11:09in the outgoing Quality Control
11:11Department so this is how not only the
11:14manufacturing unit you are focusing to
11:16improve the quality you are focusing to
11:18improve through your vendors also who
11:21are providing the raw material right
11:23focus on value creation this very basic
11:27example I quoted how you can create
11:29value by ensuring the quality at
11:31different stages and will help you to
11:34you know uh develop the loyal customers
11:36and will satisfy customer right next is
11:39supplier selection and management
11:42so uh now you have identified all the
11:46potential Alternatives available in
11:48terms of number of vendors and suppliers
11:50now you will go for selection and then
11:52we'll talk about supplier relationship
11:53management so you'll talk about
11:55importance of
11:56supplier depending upon
11:59uh there may be some factors like unit
12:03cost right reducing the total cost of
12:05acquisition meeting customer requirement
12:07relying on few suppliers and depending
12:10on supplier for Designing importance of
12:12supplier we can find out we can
12:15categorize as per the component he is
12:17supplying there are two ways how you can
12:19find out one is
12:21quantity another one is your
12:26quality so so depending upon
12:29the quality of the product sometimes the
12:32product quality Fair quality will also
12:35work right because that component is not
12:38very very important in that functioning
12:40of the product right so that if let's
12:43say uh you are manufacturing AC so in
12:47inside AC whatever binding you are using
12:50whatever machine you are using very very
12:53important right cooling unit you are
12:55using very very important PCB you are
12:57inserting inside to control the
12:59programming of the AC is very very
13:00important remote you are using is very
13:03very important but what about the outer
13:06casing plastic casing you are using so
13:10even if you are somewhere compromising
13:12with the qual because once it is hanged
13:14so as long as you are not touching you
13:16are not dropping so that much hardness
13:19or quality is not required so there
13:21maybe you can so then you can based on
13:23quality you can distinguish based on
13:26quantity how much you are buying from
13:28that particular particular vendor we'll
13:29see in Vendor segmentation in detail
13:32right supplier relationship already I
13:35talked about whether you are keeping at
13:36arms length or you are keeping at very
13:39near to you that depends upon you
13:41supplier selection criteria so now
13:44quality delivery performance history
13:47warranties claim policies production
13:49facility capacity their potential their
13:52technical potential their SK human
13:54skills right their scale up scale down
13:57capabilities their financial position
14:00industrial relations how they are
14:02dealing with other vendors so many
14:05things you can record once when you are
14:07going for supplier selection once
14:10supplier is selected some of the
14:13parameters are obsolete history is gone
14:17how he is dealing with other vendor is
14:19gone their financial position may be may
14:21not be very important then you will keep
14:23track of what quality he is delivering
14:25once it is selected quality is
14:27delivering Price He is giv
14:29delivery performance these three are the
14:32major there are certain parameter but
14:34the three will take the maximum share as
14:38long as your vendor is doing fairly well
14:41on these three you will still you can
14:44carry with that cost supplier evaluation
14:47so continuous evaluation will be there
14:50that is one thing when you are receiving
14:52the Lots you are providing the
14:53evaluation feedback right how the lot is
14:56doing right so but the another very
14:59basic point it's not only to you know
15:01select or reject uh the lot of the
15:04vendor to improve the quality of the raw
15:07material you are getting from the vendor
15:09is also your shared responsibility right
15:12so if vendor is not doing well with
15:15certain parameters you need to develop
15:17those vendors for those parameters right
15:20so that is also your Define will how
15:22closely you are working with your
15:24vendors your relationship supplier
15:26certification let us
15:27say my manufacturing unit says that we
15:30are always environmental conscious we
15:32are always quality conscious three main
15:34features environmental conscious we are
15:38quality Top Class quality we are
15:40providing to our customers and work
15:44heising work safety hyene
15:48parameters our employees these three are
15:51major concern and I am as a vendor
15:53approaching to you I'm saying sir we are
15:57ISO
15:599,1
16:01certified that is for Quality we are ISO
16:0514,1 certified we are 45,1 certified so
16:11that means if you are ISO certified that
16:15is fair enough for me because you are
16:17maintaining all the records you are
16:18taking care of all those measures very
16:20easy for me to make the
16:22decision then supplier management once
16:25it is done how you will manage the
16:27supplier how you'll help them to improve
16:29the performance to monitor the
16:31performance and if any issues are there
16:33let's say if they will upgrade their
16:36technology there will be Improvement but
16:38upgrading the technology they don't have
16:40those financial you know resources so
16:43how you can help them benefits of
16:45strategic sourcing already we talked
16:47about if you have those close
16:49relationship strategic sourcing how you
16:51it can impact your business performance
16:54now we'll talk about supplier
16:56relationship
16:57management once suppliers now vendor
17:00selection is done for one component we
17:03have now decided that we'll go for
17:06vendor 1 vendor two vendor three vendor
17:09four four vendors we are maintaining for
17:11this particular component right now how
17:13we'll manage the relationship with these
17:16font vendors and it is also there that
17:18all four vendors are not giving you
17:20equal quality equal price equal delivery
17:23time schedule right equal contract terms
17:26different contract terms will be there
17:28some may be Prov giving you just in time
17:31some may be asking you to hold the
17:32inventory depending upon overseas vendor
17:35some are very good with the quality so
17:37how you will collaborate that
17:39collaboration will decide the mutual
17:42beneficial relationship both for both
17:44right so that will only happen if you
17:47have trust open communication and it's
17:50not only as a manufacturer I'm
17:52maximizing my profit I should ensure
17:56that my customer profit is also Max
17:58maximized right and then if it is so we
18:03can share the risk we can mitigate the
18:05risk and we can have the access to the
18:08resources of the other organization like
18:11technology like skills we can use that
18:13right so this involves supplier
18:16selection contract negotiation
18:18performance measurement joint planning
18:20and risk management
18:22right so to establish supplier
18:25relationship management first is you
18:26need to define the supplier relation uh
18:29relationship management right
18:31relationship management means that
18:33should align your strategy very basic
18:36example I'll code here let's say as a
18:39manufacturer I want to take risk but my
18:42supplier wants to play in a safe
18:45environment so what I'm doing as risk
18:48taking player I'm doing you know
18:50Innovation and then coming with a new
18:52product new features so quickly asking
18:54my supplier to change the design of the
18:56raw material whether he is is ready to
18:59do that because he wants to deal with
19:01those products items where the you know
19:04saturated kind of demand is there so I
19:07need to align the strategy key identify
19:11key suppliers out of those suppliers now
19:13who are going with our strategy or who
19:16are ready to changee their strategy as
19:18per our strategy we need to pick those
19:20we need to identify those suppliers then
19:23we need to assess their capabilities now
19:25they are ready to change the design the
19:28change the the process the change the
19:29quality parameters their Dimensions
19:32whatever product or component they are
19:35providing we need to assess the
19:38capabilities maybe you can ask their
19:40capacity their turnover their Market
19:43expansion strategies their Manpower
19:45skills their technical skills how
19:47frequently they are renovating so those
19:49capabilities you need to analyze
19:52establish governance structure right so
19:55now you need to define the roles
19:57responsibilities and decision- making
19:58process right let's say the example we
20:01talked about when we was talking about
20:03you know that uh how we can handle the
20:06uncertainty and sometime what we were
20:08saying that as a retailer our retailer
20:11is absorbing the maximum uncertainty
20:14manufacturer and raw material suppliers
20:16are not handling the uncertainty so they
20:19should be most efficient our retailer
20:22should be most responsive because he
20:25needs to meet all the orders so then
20:28margin should be be higher with the
20:30retailer not with the manufacturer and
20:31suppliers so that governance you need to
20:35uh set the proper rules right then
20:38supplier collaboration
20:40initiatives if supplier is lacking
20:42somewhere with the technology and he
20:44wants to you know come up with you and
20:47wants to develop that technology how you
20:49can help your supplier invest in
20:51technology let let's say very small
20:53supplier cannot implement the supplier
20:56management software inventory management
20:58soft software we are talking about
20:59vendor managed inventory right
21:02warehousing softwares so but those
21:05softwares are very helpful we we have
21:07analyzed but that small vendor cannot
21:09analyze so how we can Implement those
21:11softwares uh at the vendor end and will
21:14get the you know profit for both right
21:17Foster open communication already we
21:19discussed about transparent open
21:21communication will help them to develop
21:23that trust to develop that relationship
21:26right Implement performance metric
21:29now kpis we have we we we are tracking
21:33the performance of individual those four
21:35suppliers we finalized and for each lot
21:38we are finalize uh we are tracking the
21:40performance of the lot against those uh
21:43parameters so then we can uh provide the
21:46feedback and how they can uh see if I am
21:49manufacturing unit I'm in charge of
21:52incoming quality control as I have
21:54worked as incoming quality control
21:55engineer with the every India limited
21:57right so what we were doing we were
22:00inspecting lot coming from different
22:02vendors and certain B sampling based
22:06right and if that lot is passed in the
22:08sampling we are passing the lot to the
22:10production or otherwise it is rejected
22:12complete lot rejected means will be
22:14shipped back to the vendor so it's not
22:18only the responsibility of the iqc there
22:21I have learned that so why don't our iqc
22:24team visit the vendor location and help
22:28them with setting up those parameters
22:30help them maybe with changing the design
22:32changing the equipment changing the
22:34technology let them understand what are
22:37our requirements why your lot is failing
22:39because just failing rejecting the lot
22:42will not help either the manufacturing
22:45unit or the vendor and then development
22:48programs this is what I was talking
22:49about why don't you conduct some uh
22:52vendor development programs so I have
22:54seen like L&T HS ABB so what they are
22:59doing for electrical they are coming
23:01with you know new new solutions for
23:03controlling the lighting system for
23:05controlling your Electrical Supply
23:08electrical equipment so what they are
23:10doing they have the close collaboration
23:13because they are not selling they are
23:14not having their own retail shop they
23:16are selling through different retailers
23:18for all those major retailers time to
23:21time they are organizing seminars where
23:23they are treating them very well and
23:26then they are educating them about the
23:28new products right so that means once
23:31you know all the features of the new
23:33products only as a marketing or sale
23:35team you can convince your customer that
23:37these are the new product coming from
23:39hav these are the new products how you
23:41can control from one point you can
23:44control the electricity of your whole
23:46house how you can install the smart
23:48electricity management system right so
23:52that that is the thing objective of
23:54supplier relationship management
23:56obviously if we'll talk about first two
23:58three will contribute about 70% 80/20
24:02rule of parto principle so you need to
24:05cover 20% of the items 80% objectives
24:09can be completed leverage on supplier
24:13capability so let's say Apple is very
24:16good with manufacturing but not with the
24:18distribution they are selling through
24:20online let us collaborate with United
24:22Parcel Services and then sell your
24:25product throughout the world right if
24:29you have doubled that image why don't
24:32you make it available for everyone when
24:34everyone knows about your product so
24:36then you can leverage UPS you can
24:39leverage DHL Services right cost
24:43reduction Target obviously apple is
24:45doing with China where they are reducing
24:47the cost now they are Outsourcing to
24:49India where they are reducing the
24:51production cost Phillips is not
24:53manufacturing their product they are
24:54Outsourcing to their manufact co-
24:56manufacturer reducing the manufacturing
24:58cost
24:58security of supply and then you can have
25:02multiple vendors some nearby vendors
25:04some overseas vendors so overseas
25:06vendors you can maintain quality and
25:08price with nearby vendors you can ensure
25:12the smooth Supply if anything goes wrong
25:14with some party the other can ensure the
25:17complete Supply so this you will become
25:20the customer of choice it's not that
25:22that you are picking some vendor uh
25:26forcefully that also happens when we
25:28have some Industries like uh if you are
25:31processing petrol or diesel crude oil is
25:34coming you have to buy only two three
25:36players are there right so then we don't
25:38have so many options so many other
25:40objectives are there you can see we can
25:42have sustainable relationship uh
25:44enhanced relationship we can have access
25:47to global market local market we can
25:49expand our boundaries price we can
25:51negotiate we can be more effective those
25:54all are objective of uh supplyer
25:57relationship management but how some are
26:00challenges which are posed when we are
26:02talking about Supply relationship
26:04management if you are too focused on
26:06cost only always you are talking about
26:08cost you are not talking about the
26:09delivery of the product you are not
26:11talking about the quality of the product
26:12you are not talking about the changing
26:14variety of the product innovation of the
26:16product so customer is now getting bored
26:20so quickly that your product life cycle
26:23which earlier was maybe for for for
26:25product for 5 years now it has red used
26:28to only 2 years and there is study
26:33saying that almost 70 to 80% of the
26:37smartphone users they are changing their
26:39mobile phone every 2 three years just
26:43imagine how much waste is one thing but
26:47why they are changing because new
26:48features are coming and still you are
26:50saying that cost is very important so
26:52that is one
26:54challenge when you don't have alliance
26:57with the strategic partner like I quoted
26:59the example you are risk taking as
27:01manufacturer but your supplier don't
27:03want to take risk so you have picked the
27:05wrong supplier strategic objectives
27:08again the same thing you want to be
27:10responsive but your supplier want to be
27:12cost efficient so that alignment should
27:14be there there is no open communication
27:17right so how you are negotiating how you
27:20are developing the legal negotiating
27:22documents right so how you are ensuring
27:25the uh win-win situation for for your
27:28vendor as well that you will feed them
27:30large order how Walmart is doing that
27:33how strategically he has outsourced you
27:35know with the vendors that they are
27:38getting the minimum cost products and
27:40then selling those product throughout
27:42the world right so largest retailer
27:46chain in the world it's not that easy to
27:49be right how you know uh aliwa became so
27:53big in China you just imagine taking 5%
27:58GDP of China so how how big they are you
28:02know uh becoming so then they are
28:05collaborating with the local partner as
28:07well they are collaborating with the uh
28:10uh those foreign players supplier
28:13segmentation now this is important to
28:16segment your supplier which supplier is
28:18most important right so then you will
28:22understand how you can segment this see
28:25there there are two things right one is
28:28is
28:29quantity another is price another ways
28:32how you can do that maybe quantity you
28:36are using in millions right for maybe
28:40let's say Quantity you are using 50,000
28:43items but price is only let's say
28:485,000 but other hand you are using only
28:51200 pieces price is
28:5650,000 right so that means these are two
28:59parameters how you can segment the
29:01suppliers from one supplier may be very
29:04important because huge quantity he is
29:06supplying another supplier very
29:08important because he's not supplying
29:10huge quantity less quantity but
29:13valuable parts right if we'll talk about
29:15automobile industry engine is something
29:18very very important very very you know
29:22uh highly priced so the value is there
29:26but if you talk about uh
29:28many screws you are using many machines
29:30part you are using quantity is huge
29:33right but the value is less soic Matrix
29:38is there to Define our uh uh suppliers
29:42into four different categories strategic
29:44suppliers these are those suppliers
29:46which are adding high value to your
29:49profit but risk is also very high with
29:52those uh suppliers right High supplier
29:56risk is there leverage supplier they are
29:59helping you to get the high profit but
30:01Supply risk is always very less so these
30:04are suppliers where you can leverage
30:06right profit is very high but Supply is
30:08constant they are ensuring what next
30:10suppliers low profit High Supply you
30:13need to think about these because not
30:15adding much value to your profit but and
30:17then challenging right noncritical
30:20suppliers low profit low Supply risk
30:22this is one way how you can categorize
30:24your suppliers right so criteria for
30:28supplier segmentation how much you are
30:31spending on particular supplier if you
30:32are spending 80% of your budget on one
30:35or maybe two suppliers why don't you
30:37negotiate for higher price right why
30:40don't you go for lower cost right so if
30:43you are spending only 20% so then there
30:46is no point of you know negotiating on
30:48that risk how much your supplier is
30:51taking the risk if he is bearing more
30:54risk obviously you need to compensate
30:58the supplier criticality of the
31:00component some components are like ACI I
31:03told you not very critical related to
31:05safety related to functionality so then
31:08way that way you can still compromise
31:11with the quality ask him to reduce the
31:13price but if it is the key component The
31:16Binding copper Bing you are using
31:18aluminium winding you are using inside
31:20the AC right the PCB you are using to
31:23control so then those are very critical
31:26performance you this this is another
31:28based on performance performance you can
31:31record on quality performance you can
31:33record how quickly he is revising the
31:35prices price performance and then
31:38delivery performance are three major
31:39things always I'm talking about you are
31:42evaluating any supplier once supplier is
31:44fixed
31:46right majorly three things but there are
31:48so many other things like industrial
31:50relations negotiations how you are
31:52settling the issues with that supplier
31:55Market position of that supplier whether
31:57that supplier is known for the
31:59industrial relations known for the
32:02delivery whatever he is delivering in
32:03the market and geographic location very
32:06near can be very effective because we'll
32:08reduce the lead TI will help us to
32:10implement just in time will help us to
32:13reduce the inventory but if it is
32:15overseas vendor will help us to increase
32:19the quality will help us to reduce the
32:22price but will not Implement justtin die
32:25will not Implement that inventory zero
32:28inventory policies there is another
32:30analysis of ABC analysis how you can
32:34segregate based on quantity how much
32:36value they are covering small number of
32:39suppliers but they are contributing
32:42majorly right so maybe those suppliers
32:46only 10 to
32:4820% and they are taking almost 70% of
32:54the value engines you are uh using tires
32:58you are using right so the chess you are
33:01using right the steel body you are using
33:03maybe 20% of the suppliers carrying the
33:0670% of the cost then these are modulate
33:09suppliers these may be 30% suppliers
33:13right so they are spending maybe average
33:16spending right again maybe
33:2020% Then large number of suppliers maybe
33:23another rest 50% 40 to 50% of the
33:26suppliers but only contributing 10% in
33:29the total volume this I'm talking about
33:32in terms of the price they are charging
33:34economic or maybe you can also divide
33:37this in terms of quantity but price is
33:40maybe screw they are giving you screw
33:43but cost is very less right so but
33:46quantity is very high so that is depends
33:48upon you ABC analysis of inventory
33:50management you can use U you can utilize
33:53the same approach here as well 020 rule
33:56again we have implemented you can see
33:58that then we need to tailor the supplyer
34:01relationship management strategies based
34:03on segmentation which is more important
34:06strategic suppliers who are high profit
34:09High Supply risk that means you need to
34:12develop that Advantage competitive
34:15Advantage with those suppliers right and
34:18you need to work with those suppliers
34:19because risk High Supply risk lver
34:23suppliers already we defined who are
34:25leverage suppliers High profit low low
34:28Supply risk right that means there you
34:31should Target about efficiency because
34:35Supply is almost continuous when it is
34:37certain situation we talked about in
34:40setting the Strategic fit that we should
34:42be efficient bottleneck suppliers low
34:45profit High Supply risk profit is very
34:48less but
34:50Supply challenging right so how you can
34:53maintain the Safety stock so then you
34:56need to go for that maintaining the
34:58inventory that will carry cost
34:59non-critical supplier no profit no
35:02Supply risk so there also you can
35:04Implement as transaction management if
35:07you see all the products coming from
35:09maruti Suzuki are not equally demanded
35:12right so then how what you will do with
35:14the low profit but still the partner who
35:16are supplying
35:19maybe uh if we'll talk about maruti
35:21Suzuki SX4 was not that much successful
35:25but still partners are there who are
35:27supplying component for SX4 if you talk
35:30about maruti Vitara Mara Grand Vitara
35:33Swift desire so highest unit they have
35:37sold or Alto how you can forget Alto or
35:40maruti
35:41800 at that time every other vehicle was
35:45a maruti 800 right so that situation is
35:48also there let's talk about quickly
35:50Global sourcing when we are talking
35:52about developing vendor overseas and you
35:54know why we are going overseas either we
35:56are getting enhanced features quality
36:00reduced price right so then we are going
36:03for uh overseas vendors so we need to
36:06identify evaluate and against suppliers
36:08from different countries again only
36:12thing is whether you can Implement just
36:14in time with those or not but you cannot
36:16completely shift to overseas vendors
36:18first is cost obviously one dimension or
36:21Outsourcing means cost is first main
36:24Criterion you will evaluate quality what
36:26quality level he is Supply
36:28obviously if you are going overseas one
36:30very basic purpose is you are getting
36:32access to latest technology latest
36:34technology means enhanced version
36:37enhanced features enhanced quality
36:40corporate social responsibility if you
36:42in that way you are very very sincere
36:44about that how your suppliers is
36:46ensuring risk will be higher overseas
36:49whenever political scenario will change
36:51whenever any disaster will happen any
36:54dispute War like Russia Ukraine is going
36:57on since last 2 years right other
36:59countries are also participating what
37:02when will happen you can never predict
37:04those challenges risk are always there
37:07political disruptions anything goes
37:09wrong how the scenario will change right
37:12and then the infrastructure local
37:14context also you will evaluate right
37:16with the overseas
37:19vendors so this is very interesting uh
37:22case study of Colorado manufacturer so
37:25they are actually uh producing the
37:27Machine Products right so you can see
37:30Machine products are high in quantity
37:32and uh uh required Special Operations
37:35when they are producing used in almost
37:37all the equipments you are using at home
37:39at garage or maybe in the vehicles also
37:42so they were you uh manufacturing that
37:44so uh they experienced fluctuating
37:47fortunes until
37:4919990 but then the product demand served
37:53right but this increase in demand led to
37:57the expansion obviously company will
37:59expand size product offerings right but
38:02when one company was growing in that
38:05other competitors were attracted towards
38:07that so because com Colorado the main uh
38:13thing was they were building to order
38:17once they were getting the order then
38:18they were start manufacturing right so
38:21that means high lead time was one thing
38:24they were suffering a lot and and their
38:28market share erode due to this shorter
38:31lead time and lower cost of the
38:34competitive products now competitors
38:37they tapped this parameter that their
38:39lead time is very high let us produce
38:42quickly and capture the market so this
38:44is how they started dropping their
38:47market share and again another reason
38:49was outdated uh material resource
38:52planning system and you can see uh $1
38:56million excess inventory and went
38:59obsolete huge cost huge cost is there
39:03right then average lead time which I was
39:05talking about was 12 week almost double
39:08than the competitors so you can just
39:10imagine in this era if you are saying 12
39:13weeks uh you know uh lead time so there
39:17is uh you know uh Justin Time system
39:20where is minimizing the inventory all
39:22those things right so then overall
39:26scenario started changing their
39:27competitors started you know acquiring
39:29their position so then the new president
39:33joined and he was expert in implementing
39:35lean manufacturing Supply management
39:37practices and he developed one strategy
39:40for 3 to 5 years and the main purpose
39:42was how they can globally implement this
39:45system of implementing lean right how
39:48they can evap their this Supply Chain
39:51management you know uh platform right
39:54and they can minimize the total cost and
39:56as well as lead lead time the main
39:58function here was lead time and then
40:00they were lacking in house strategic
40:02sourcing if you are not producing inh
40:04house so that means majorly you are
40:06depending outside outside means lead
40:09time will be higher your dependency on
40:11others so then he prepared one cross
40:14functional team including all the uh
40:16different experts from all the team
40:18purchasing Marketing sales uh R&D
40:21manufacturing so that he can have the
40:24overall uh comprehensive View so they
40:27defined strategic objective obviously
40:30reducing lead time and at least they
40:32want to reduce 80% 2 weeks should be
40:35there right because their competitors
40:38were producing delivering in five to 6
40:40weeks so they wanted to reduce this they
40:43specified what are the critical parts
40:46and those critical Parts due to which
40:48the total Supply is interrupted In the
40:51End Market can we find some local
40:54players for that if we'll find local for
40:57the critical parts noncritical parts we
41:00can invent inventor eyesee and we can
41:03maintain the inventory then they
41:05assessed and select qualified suppliers
41:07only who can you know uh go for that
41:12agreement they can deliver quality
41:15quantity price right and then supplier
41:18selection and part allocation was done
41:21they Consolidated large number of
41:23supplier into smaller parts and they fed
41:26them large order but only only thing was
41:29only promise they took from their
41:31vendors you need to reduce the lead time
41:34maintain the quality and minimize the
41:36price efficiency they awarded those
41:39players Consolidated which I already
41:41talked about right so then they
41:45Implement Canan quantities now they
41:48implemented Canan production system with
41:50the vendors that means they designed bin
41:54depending upon the requirement of that
41:56particular component and then they
41:59decided depending upon the forecasting
42:01depending upon their manufacturing
42:03requirement they uh Place different
42:05types of bins right and then they ask
42:08their vendors to you know replenish
42:09those bins as per the required quantity
42:12so can quantities they went for they
42:15tracked the results and made the
42:16adjustment if any required and quickly
42:18we can go through the results marvelous
42:21results decreased from 6 to 8 weeks to
42:25only 2 days lead time
42:27and because you have reduced the lead
42:29time obviously ontime delivery increased
42:32from 50% to 95% you are now on time and
42:36quality is also improved nearby vendors
42:39supplying quality with latest technology
42:43price stability 30% inventory dropped by
42:4650% because earlier you were storing
42:49products for 6 s weeks because it was
42:51taking uh 6 seven weeks to replen the
42:54inventory so that much cash you were
42:56taking in hand so they implemented this
42:58lean concept and these are some of the
43:02uh you can see supplier on time delivery
43:05is 95% more than that this is how they
43:09achieved so uh this is a beautiful case
43:13study we have seen supplier relationship
43:15management how we can develop the
43:17suppliers and then we need to develop
43:19long-term relationship not at the arm
43:22length we need to keep them very near to
43:24us we need to segment all the suppliers
43:27group into different categories how they
43:29are producing how they are you know uh
43:32EV uh contributing towards the total
43:34profit uh the uh risk in the Supply
43:38right and then we talked about the
43:40global sourcing can be very important
43:43access to uh new suppliers and we talked
43:47about Outsourcing how we can do
43:49Outsourcing we can be more efficient and
43:51we can improve the overall quality of
43:54the value chain so these are the
43:56reference you can go for further reading
43:59that's all thank you very much

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