Enhance your procurement process with sales process analysis for Procurement

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welcome to this video on the concepts of sourcing and procurement in operations and Supply Chain management in this video we'll cover the basics of sourcing and procurement including what they are why they're important and how they fit into the broader field of operations and Supply Chain management before we do we discuss the concept of procurement and sourcing it is important to understand that organizations engage other organizations in their operations and Supply chains because these two activities are critical to the success of any business the reason for this is because procurement and sourcing impact everything from cost and quality to customer satisfaction and overall business performance sourcing and procurement are integral parts of operations and Supply Chain management they form the backbone of the supply chain and contribute significantly to the efficient functioning of the organization effective sourcing and procurement enable organizations to optimize their supply chain minimize lead times and ensure customer satisfaction now that we have explained how sourcing and procurement are important to operations and Supply Chain management let's now Define these two concepts first we Define sourcing as referring to the process of identifying and selecting suppliers of resources used to produce Goods or to render services includes finding potential suppliers assessing their capabilities negotiating contracts and placing orders to meet the needs of the organization as for procurement this is the activity that follows sourcing and we Define this as the process of obtaining goods and services from suppliers this involves ordering receiving and managing goods or services as well as developing relationships with suppliers to ensure a reliable supply of quality products having defined sourcing and procurement it is worth noting that the primary objective of these activities in operations and Supply Chain management is to guarantee that the goods meet the required description and are ordered accurately delivered at the appropriate time and location and comply with the designated quality and performance standards to achieve this organizations need to consider choosing the right sourcing and procurement strategy by the sourcing and procurement strategy we refer to a plan or approach that an organization adopts to acquire goods or services from suppliers to meet its business needs there are four prominent sourcing and procurement strategies used by organizations to acquire resources from suppliers and have also been identified in the academic literature these are single sourcing multiple sourcing delegated sourcing and parallel sourcing now let us explain these types of sourcing and procurement strategies one after the other single sourcing single sourcing strategy is where an organization purchases goods or services from a single supplier strategy is used when a supplier has a unique or proprietary product or technology or when the costs of switching suppliers are high an example of single sourcing strategy is the sourcing strategy used by Lockheed Martin for the engines used in the production of the F-35 fighter jets known as f-135 Pratt and Whitney a subsidiary of United Technologies Corporation was awarded the exclusive contract to produce the f-135 engine in 2001 and since then no other supplier has been able to compete for the engine contract considering the approach used to Source the F-35 jet engine Lockheed Martin adopts a single sourcing strategy multiple sourcing this is where an organization purchases goods or services from two or more suppliers this strategy is used to spread risk increase competition and ensure a reliable supply of resources used in the production of goods or the rendering of services an example of multiple sourcing strategy is how Apple sources for components used to produce its phones for instance Apple sources memory chips from Samsung SK hynix and Micron and semiconductors from suppliers such as Intel Qualcomm and broadcom Apple also sources display screens from multiple suppliers including LG display Japan display and Samsung delegated sourcing delegated sourcing is a strategy where an organization outsources the sourcing and procurement process to a third-party provider this strategy is used to reduce costs increase efficiency and free up internal resources McDonald's fast food chain is a prominent example of this as McDonald's operates in over 100 countries to ensure consistency in supply of high quality potatoes for their french fries McDonald's delegates the sourcing of potatoes to a group of preferred potato processors these potato processors are responsible for sourcing and processing the potatoes into the frozen french fry products that are then distributed to McDonald's locations around the world nevertheless McDonald's still maintains overall control of the sourcing and quality standards finally we have parallel sourcing this sourcing strategy is where an organization purchases the same goods or services from two or more suppliers simultaneously this strategy is used to spread risk and ensure a continuous supply of goods or services particularly for critical components or items that are difficult to obtain it is worth noting that we're parallel sourcing and multiple sourcing sound similar they are in fact different parallel sourcing is when a single component is sourced from different suppliers but when different components are sourced from different suppliers this is what we describe as multiple sourcing an example of parallel sourcing is how American Airlines sources for its jet engines American Airlines sources jet engines from both General Electric and Rolls-Royce fitter Boeing 777 and Airbus A330 aircraft by sourcing from multiple suppliers American Airlines relies on each supplier to deliver the same product to the same specifications to ensure a continuous supply of engines even if one supplier experiences production delays or quality issues it is worth mentioning that organizations can also adopt a hybrid sourcing strategy hybrid sourcing strategies refer to procurement strategies that combine elements of different sourcing approaches such as single multiple parallel and delegated sourcing by combining elements of different sourcing strategies organizations can create a sourcing approach that is tailored to their specific needs and goals these are the sourcing and procurement strategies used by organizations when managing their operations and Supply chains although this is where we will stop for this video there are other activities involved in sourcing and procurement in operations and Supply chains these are Logistics and supplier relationships in the next video we will discuss these and we encourage you to look out for the next upload in the interim this is where we will be stopping and we want to say thank you for watching and supporting this channel please remember to like share and subscribe thank you all for watching and see you in the next one