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Page 460
454
PART
VI
+
Managing
Cross-Functional
Drivers
in
a
Supply
Chain
Intellectual property risk can be mitigated by bringing
or
keeping sensitive produc-
tion in-house.
Even
when production
is
outsourced, firms can maintain ownership of part
of
the
equipment
if
it
is
viewed as having significant intellectual property value. This
is
a
reason
that
Motorola owns some testing equipment
at
its contract manufacturers.
14.12
MAKING
SOURCING
DECISIONS
IN
PRACTICE
1.
Use
multifunctional teams.
Effective strategies for sourcing result from multifunc-
tional collaboration within
the
firm. A sourcing strategy from
the
purchasing group
is
likely
to
be relatively narrow
and
focus
on
purchase price. A strategy developed with the
collaboration
of purchasing, manufacturing, engineering,
and
planning
is
much more
likely
to
identify the correct drivers
of
total cost. The collaboration must be continued
beyond strategy formulation
to
the
procurement
phase, because
that
is
where manufac-
turing
and
engineering
are
most likely
to
realize the full benefits
of
good sourcing strategy.
2.
Ensure appropriate coordination across regions
and
business units.
Coordination of
purchasing across all regions
and
business units allows a firm
to
maximize economies of
scale in
purchasing
and
also
to
reduce
transaction
costs.
Other
opportunities
from
improved sourcing, such as
better
supply chain coordination
and
design collaboration,
however, may require strong involvement
at
the
business-unit level
to
be really effec-
tive.
Mandating
global
coordination
across all business units
may
complicate
these
efforts. Items such as
MRO
supplies, for which transaction costs
and
total purchase vol-
ume
have a significant impact
on
total cost, benefit most from coordinated purchasing
across geography
and
business units.
On
the
other
hand, items for which most of the
value
is
extracted from
better
design collaboration
and
coordinated supply chain fore-
casting
and
fulfillment are
better
served with somewhat more decentralized sourcing.
3.
Always
evaluate the
total
cost
of
ownership.
An
effective sourcing strategy should
not
make
price reduction its sole objective. All factors
that
influence
the
total cost of
ownership should
be
identified
and
used
in selecting suppliers. Supplier performance
along all relevant dimensions should be measured,
and
its impact
on
total cost should
be quantified. Focusing
on
the
total
cost of
ownership
also allows a
buyer
to
better
identify opportunities for
better
collaboration in design, planning,
and
fulfillment.
4.
Build
long-term relationships with key suppliers.
A basic principle
of
good sourcing
is
that
a
buyer
and
supplier working
together
can
generate
more
opportunities for sav-
ings
than
the
two parties working independently. Solid
cooperation
is
likely
to
result
only
when
the
two
parties
have
a
long-term
relationship
and
a
degree
of
trust.
A
long-term relationship encourages
the
supplier
to
expend
greater
effort
on
issues that
are
important
to
a particular buyer. This includes investment in buyer-specific technol-
ogy
and
design collaboration. A long-term relationship also improves communication
and
coordination
between
the
two parties. These capabilities
are
very
important
when
sourcing direct materials. Thus, long-term relationships should
be
nurtured
with sup-
pliers of critical
and
strategic direct materials.
14.13
SUMMARY
OF
LEARNING
OBJECTIVES
1.
Understand the role of sourcing in a supply chain.
Sourcing encompasses all processes required for a firm to purchase goods from suppli-
ers.
Over
the last decade, manufacturing firms have increased the fraction of purchased


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