Fabric Sourcing

Chapter Objectives

a) Discuss the various strategic issues

surrounding sourcing decisions

b) Identify key factors favoring one

approach over the other.

c) Perform a simple total cost analysis.

 Chapter Objectives

d) What a sourcing strategy is

e) How portfolio analysis is used to identify

appropriate sourcing strategy

f) How multi-criteria decision models can

be used to evaluate suppliers, and
interpret the results.
 Chapter Objectives

g) Discuss some of the longer-term trends

in supply management and why they are
important.
 Introduction
• Sourcing decision
• Sourcing strategies
• Supplier evaluation
• Trends in supply management
 Factors affecting Sourcing decision

• Fabrics (voile, prints, yarn dyed, etc.)

• Delivery Time/lead time
• Location (Patna, Mumbai, Shanghai)
• Antidumping duties/CVD
• COST
• Design on Value added styling
• Reliability/Dependability (performance)
 Factors affecting Sourcing decision

Sources of fabrics
• Handloom Powerloom
• Dyed Yarn dyed
• Natural Manmade
• Circular Knits Flat Knits
 The Sourcing Decision
Sourcing decisions and purchasing activities serve
to link a company with its supply chain partners
Sourcing decisions –
• High level
• Internally OR externally
Purchasing activities –
set of activities associated with identifying needs,
locating and selecting suppliers, negotiating
terms, and following up to ensure supplier
performance
 Advantages & Disadvantages of
Insourcing
Advantages Disadvantages
• High degree of • Required strategic
control flexibility
• Ability to oversee • Required high
the entire program investment
• Economies of scale • Loss of access to
and/or scope superior products and
services offered by
potential suppliers
 Advantages & Disadvantages of
Outsourcing
Advantages
• High strategic flexibility
• Low investment risk
• Improved cash flow
• Access to state-of-the-
art products and
services
Disadvantages
• Possibility of choosing
a bad supplier
• Loss of control over the
process and core
technologies
• Communication and
coordination challenges
• “Hollowing out” of the
corporation
 Factors Affecting the Decision to
Insource or Outsource
Favors Favors
Factor Insourcing Outsourcing
Environmental uncertainty low high

Competition in the supplier market low high

Ability to monitor supplier performance high low

Relationship of product/service to high low

buying firm’s core competencies
 Total Cost Analysis
A process by which a firm seeks to identify and
quantify all of the major costs associated with
various sourcing options

• Direct costs –
Costs that are tied directly to the level of operations or
supply chain activities
• Indirect costs –
Costs that are not tied directly to the level of operations
or supply chain activity
 In-sourcing & Outsourcing Costs
Insourcing Outsourcing
•Direct material •Price (from invoice)
•Direct labor •Freight costs
Direct •Freight costs
costs
•Variable overhead
•Supervision •Purchasing
•Administrative support •Receiving
Indirect •Supplies •Quality control
costs •Maintenance costs
•Equipment depreciation
•Utilities
•Building lease
•Fixed overhead
 Portfolio Analysis

High Bottleneck Critical

(Trims from H.K.) (Finished fabric from
Italy)

Complexity
Routine Leverage
or Risk (voile, ggt, poplin from (Regular denim from
Impact domestic market) Ahmedabad)

Low
Low High
Value Potential
 Critical Quadrant
a. Critical to profitability and • Strategy
– Form partnerships with
operations suppliers
• Tactics
b. Few qualified sources of – Increase role of selected
suppliers
supply • Actions
c. Large expenditures i. Heavy negotiation

d. Design and quality critical ii. Supplier process management

iii. Prepare contingency plans

e. Complex and/or rigid
iv. Analyze market/competitions
specification
v. Use functional specifications
 Bottleneck Quadrant
• Complex specifications • Strategy
– Ensure supply continuity
requiring complex
• Tactics
manufacturing/processing – Decrease uniqueness of
suppliers
• Few alternate – Manage supply
productions/sources of • Actions
– Widen specification
supply – Increase competition
• Big impact on – Develop new suppliers
– Medium-term contracts
operations/maintenance – Attempt competitive
bidding
• New technology or untested
processes
 Leverage Quadrant
• High expenditures,
commodity items
• Large marketplace capacity,
ample inventories
• Many alternate products
and services
• Many qualified sources of
supply
• Market/price sensitive
• Strategy
– Maximize commercial
advantage
• Tactics
– Concentrate business
– Maintain competition
• Actions
– Promote competitive
bidding
– Exploit market cycles/trends
– Procurement coordination
– Use industry standards
– Active sourcing
 Routine Quadrant

• Many alternative products • Strategy

– Simplify acquisition
and services process
• Tactics
• Many sources of supply
– Increase role of systems
– Reduce buying effort
• Low value, small
• Actions
individual transactions – Rationalize supplier base
– Automate requisitioning,
• Everyday use, unspecified e.g., EDI, credit cards
– Minimize administration
items costs
– Little negotiating
• Anyone can buy it
 Sourcing Strategies
• Single sourcing –
The buying firm depends on a single company for all or nearly all of an
item or service
• Multiple sourcing –
The buying firm shares its business across multiple suppliers
• Cross sourcing –
Using a single supplier for a certain part or service and another supplier
with the same capabilities for a similar part
• Dual sourcing –
Using two suppliers for the same purchased product or service
• 70% - 30%
 Multi-criteria Decision Models in
Sourcing and Purchasing

How do we evaluate alternatives when criteria

include both
quantitative measures
(such as costs and on-time delivery performance)
AND
qualitative factors
(such as management stability and trustworthiness)?
Weighted-Point Evaluation System

Purpose:
• Evaluating potential suppliers
• Tracking suppliers’ performance over time
• Ranking current suppliers

The Process:
• Assign weights to performance dimensions
• Rate the performance of each supplier with
regard to each dimension
• Calculate the total score
 Weighted-Point Evaluation System

Summary Data for Alternative Suppliers

Performance
Dimension Vardhaman Century Morarji
40/mt 50/mt 20/mt
Price
Quality 5% defects 1% defects 10% defects

Delivery 95% on time 80% on time 60% on time

reliability
 Weighted-Point Evaluation System

n
Score X   Performance XY  WY
Y 1

Criteria Weights Scoring Scheme

WPrice = 0.3 5 = excellent

4 = good
WQuality = 0.4 3 = average
2 = fair

WDelivery = 0.3 1 = poor

 Weighted-Point Evaluation System

Performance Values for Alternative Suppliers

Performance
Dimension Vardhaman Century Morarji
4 3 5
Price
Quality 3 5 1

Delivery 4 2 1
reliability
 Weighted-Point Evaluation System

Total Scores for Alternative Suppliers

Score Vardhaman = (4 x 0.3) + (3 x 0.4) + (4 x 0.3) = 3.6

Score Century = (3 x 0.3) + (5 x 0.4) + (2 x 0.3) = 3.5

Score Morarji = (5 x 0.3) + (1 x 0.4) + (1 x 0.3) = 2.2

Vardhaman should improve their quality

Century should improve their delivery and price
Morarji is out of the running as a potential supplier
Trends in Supply Management

• Sustainable Supply*
• Supply Base Reduction
• Global Sourcing
– Supply Chain Disruptions
– Supply Chain Capacity
– Transportation Costs