Sourcing of Fabric

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 – • 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

Sourcing decisions and purchasing activities serve to link a company with its supply chain partners

Advantages & Disadvantages of Insourcing

Advantages• High degree of

control• Ability to oversee

the entire program• Economies of scale

and/or scope

Disadvantages• Required strategic

flexibility• Required high

investment• Loss of access to

superior products and services offered by potential suppliers

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

Advantages & Disadvantages of Outsourcing

Factors Affecting the Decision to Insource or Outsource

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

FactorFavors

InsourcingFavors

Outsourcing

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

•Direct material•Direct labor•Freight costs•Variable overhead

•Price (from invoice)•Freight costs

•Supervision•Administrative support•Supplies•Maintenance costs•Equipment depreciation•Utilities•Building lease•Fixed overhead

•Purchasing•Receiving•Quality control

Insourcing Outsourcing

Directcosts

Indirectcosts

Portfolio Analysis

Bottleneck(Trims from H.K.)

Critical(Finished fabric from

Italy)

Routine(voile, ggt, poplin from

domestic market)

Leverage(Regular denim from

Ahmedabad)

Value Potential

High

Complexity or Risk Impact

HighLow

Low

Critical Quadrant

a. Critical to profitability and

operations

b. Few qualified sources of

supply

c. Large expenditures

d. Design and quality critical

e. Complex and/or rigid

specification

• Strategy– Form partnerships with

suppliers

• Tactics– Increase role of selected

suppliers

• Actions

i. Heavy negotiation

ii. Supplier process management

iii. Prepare contingency plans

iv. Analyze market/competitions

v. Use functional specifications

Bottleneck Quadrant

• Complex specifications

requiring complex

manufacturing/processing

• Few alternate

productions/sources of

supply

• Big impact on

operations/maintenance

• New technology or untested

processes

• Strategy– Ensure supply continuity

• Tactics– Decrease uniqueness of

suppliers– Manage supply

• Actions– Widen specification– Increase competition– Develop new suppliers– Medium-term contracts– Attempt competitive

bidding

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

and services

• Many sources of supply

• Low value, small

individual transactions

• Everyday use,

unspecified items

• Anyone can buy it

• Strategy– Simplify acquisition

process

• Tactics– Increase role of systems– Reduce buying effort

• Actions– Rationalize supplier base– Automate requisitioning,

e.g., EDI, credit cards– Minimize administration

costs– Little negotiating

• 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%

Sourcing Strategies

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

• Assign weights to performance dimensions

• Rate the performance of each supplier with regard to each dimension

• Calculate the total score

• Evaluating potential suppliers

• Tracking suppliers’ performance over time

• Ranking current suppliers

Purpose:

The Process:

40/mt 50/mt 20/mt

5% defects 1% defects 10% defects

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

Vardhaman Century Morarji

Price

Quality

Delivery reliability

Summary Data for Alternative Suppliers

Performance Dimension


5 = excellent

4 = good

3 = average

2 = fair

1 = poor

Scoring Scheme Criteria Weights

WPrice = 0.3

WQuality = 0.4

WDelivery = 0.3

n

YYXYX WePerformancScore

1


4 3 5

3 5 1

4 2 1

Performance Dimension

Price

Quality

Delivery reliability

Performance Values for Alternative Suppliers

Vardhaman Century Morarji


Total Scores for Alternative SuppliersScore 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 qualityCentury should improve their delivery and priceMorarji 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

Sourcing of Fabric

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