Multi Tier Sourcing

1 comment November 29th, 2006 David Bush - Iasta

I found a good article on the IACCM site the other day titled Multi-Tier Sourcing Practices for Commodities Supplier Relationship Management that indicates that effective procurement strategies for increasingly scarce resources are becoming more important than ever as global price volatility and supply risks increase due to the increased demand from emerging countries such as Brazil, Russia, India, and China.

The article lays out a five step process for guaranteeing supply and containing costs for global enterprises with geographically distributed operations through smart sourcing. These are:

• Identify and Aggregate the Material Requirements on a Global Basis
• Aggregate the Requirements for Multiple Tiers of the Supply Chain
• Secure Supply for the Entire Supply Chain using Contracts that Delineate Innovative Pricing
• Focus on Total Landed Price
• Smart Execution against Contracts

Essentially, this is a process designed to mitigate risk in a cost-effective manner by dividing up work across the supply chain participants (transport, warehousing, handling, etc.) in a manner that minimizes overall costs while addressing the risks.

However, the article did not mention decision optimization, which confuses me a little. Despite popular misconception, decision optimization is not just for cost reduction. The right model will also take supply risk constraints into account and give you the lowest cost of ownership, not just landed cost, subject to the levels of risk you are willing to tolerate - thereby providing you the solution with the highest overall value to your organization - Total Value Management. That’s why Iasta is working hard to develop additional constraint categories to make sure that buyers can balance cost savings and all types of risk appropriately.

Entry Filed under: General, Global Supply Issues/Risk, Optimization