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Solution
Executive Summary
In the modern highly competitive business environment, success in procurement and supply management require a holistic selection criteria and sourcing strategies. In this regard, this report has delved on formulation of a selection criteria and sourcing strategies for enabling appropriate selection of suppliers for goods, services and works. By actively focusing on Ericsson organisation different spend categories, a set of sourcing approaches have been identified. From the findings, the approaches have been evaluated through the application of different tools and techniques. This is with different available data from Ericsson spend categories being evaluated in detail. Also, for the different approaches which have been identified as appropriate for sourcing, the risk analysis and potential challenges impacting their implementation have been reviewed. The obtained findings similarly indicate that there is no one-size-fits all approach for selection criteria and sourcing strategies. The best practice is dependent on the organisation category of spend and suppliers availability.
From the analysis, the different gaps identified can be managed through the following recommendations;
- Ericsson can make investments in modernised technology including AI, machine learning in improving their sourcing strategies
- Pursue the best practice which would be to harness collaborative and partnerships relations for success of their sourcing.
- Implementing a holistic L&D practices by the PS&M in order to understand the best sourcing approach which would be in a position of enhancing the overall process of sourcing
- Invest on a strategy for continuously updating supply chain networks for identifying potential risks which are internal and external.
Table of Contents
1.1 Organisation Background. 3
2.0 Selection Criteria and Sourcing Strategies. 4
2.1 Selection Criteria Background. 4
2.2 Sourcing Strategies Background. 6
2.3 Sourcing Strategies Types. 11
2.3.3 Single and Sole Sourcing. 16
3.0 Conclusion and Recommendations. 17
Figure 1:10Cs Model of Selection Criteria. 5
Figure 2:Porter’s Value Chain Model 7
Figure 4:Global Sourcing Strategies. 13
Figure 5:Low-Cost Country Sourcing. 14
Figure 6:Internal and external risks in supply chain. 15
Figure 7:Risks Management Approaches. 15
Figure 8:Outsourcing decision matrix. 16
Table 1:Ericsson STEEPLED Analysis. 9
1.0 Introduction
Selection criteria and sourcing strategy assists in capturing decisions made which would later assist informing and directing sourcing activity. According to CIPS (2023), it is essential understanding the market position which would assist in developing the sourcing strategy. For instance, the areas of consideration would include whether to be a cost leader or adding differentiation to the market. Also, CIPS (2023a) note that a sourcing strategy assist in formalising the manner in which information is sourced to obtain the most appropriate value aligning with the organisation goals, long-term. An example of this is strategic sourcing which is a long-term process and demand consistent re-evaluation of sourcing practices, market analysis and recognition of organisation goals. Hence, based on this background information, this report intend to evaluate the best practice in formulating a selection criteria and sourcing strategies. This is for ensuring an organisation achieves the best choice of supplier for bought-out goods, services or works.
1.1 Organisation Background
In order to best formulate a selection criteria and sourcing strategies for effective selection of suppliers, Ericsson organisation has been selected. Since the organisation began its operations in 1800’s in Stockholm, it operate in more than 180 countries with approximately 100,000 people involved (Ericsson, 2023a). This is in their active operations in different portfolios of solutions, products and services. These portfolios are involved in supporting an effective communications services provision for addressing consumers and enterprise needs. Further, Ericsson engaged an upward of 20,000 suppliers internationally with products and services accounting for their large part of deliveries for their clients. Therefore, it is essential formulating selection criteria and sourcing strategies for enabling appropriate selection of suppliers for these different categories of spend.
2.0 Selection Criteria and Sourcing Strategies
2.1 Selection Criteria Background
The selection criteria is defined as the minimum requirements/standards in which the bidders are supposed to achieve for progressing further in procurement process. According to Buzzetto et al. (2020), bidders failing in demonstrating they have achieved the baseline are not included in the sourcing process. For instance, considering Ericsson selection criteria, they could adopt carter’s 10C’s of suppliers evaluation (Lintunen, 2021) as illustrated in the following;
Figure 1:10Cs Model of Selection Criteria
Competency- For Ericsson, this entail evaluation of entire capability and measuring them against their needs. This include an in-depth evaluation of existing reviews from past organisations which had similarly engaged the suppliers.
Capacity- As evidenced in Lintunen (2021), a supplier is required to possess sufficient capability of handling the entire organisation demands. For instance, considering Ericsson, their suppliers would be evaluated in terms of their capacity for prompt responses to their needs and market and supply chain fluctuations. The capability is dependent on existence of resources such as human resource, equipment, and other materials.
Commitment- As part of the selection criteria, it would be appropriate for supplier to affirm their commitment to assuring high-level quality standards. For instance, in Ericsson, they prioritise on ISO 9001 and Six Sigma requirements (Taherdoost & Brard, 2019).
Control- This entail evaluation of the scope of control of the suppliers on their policies , processes, procedures and entire supply chain. For Ericsson, this would evaluate scope of ensuring delivering in a consistent and reliably particularly in regard to scarce resources.
Cash- Financial health of a supplier is instrumental. As evidenced in Ghadge et al. (2021), the cash-positive organisations are appropriately positioned in weathering economic ups and downs. For Ericsson, suppliers balance sheet and state of bankruptcy is prioritised.
Cost- A comparative analysis of products and services costs for the suppliers is prioritised. As evidenced in Badi and Pamucar (2020), this is while comparing with entire options under prioritisation.
Consistency- This factor evaluate scope of suppliers ensuring they are consistent in provision of high-level quality goods and services. The evaluation prioritise on existence of strong track records or being industries newcomers and innovativeness.
Culture- For a supplier, they would need to possess matching workplace values. For Ericsson case organisation, they always evaluate their potential supplier culture to identify where they match or mismatch.
Clean- This is used in evidencing the scope of a supplier to sustainability and adhering to environment legislations and best practice. For Ericsson for instance, in sourcing for vehicles, suppliers of environment friendly vehicles are prioritised.
Communication– The supplier must be aligning with preferred approaches. Ericsson prioritise on notifications on potential disruptions, communication implementation and core services provision.
2.2 Sourcing Strategies Background
The sourcing strategy in supply chain include identification and selection of best suppliers and vendors for meeting organisation supply needs. According to Dey et al. (2021), this entail evaluating likely suppliers informed by quality, prices, reliability and delivery times with negotiations of contract terms of agreement aligned with an organisation goals and objectives. It is at this point where strategic sourcing is initiated (CIPS, 2023a) which entail an embrace of targeted strategy for the procurement activity. As a best practice in developing sourcing strategy, the Porters Value Chain is applicable (CIPS, 2023a).
Figure 2:Porter’s Value Chain Model
Through the embrace of value chain, this entail various activities for organisations pursuing in adding value. This is for assisting entities in understanding and examining entire activities and their interconnectedness. As illustrated in figure 2, value is categorised in two distinct activities which are primary and support activities.
Primary activities– According to Awan et al. (2022), these entail creation, sales, maintaining and supporting product of service (inbound logistics, operations, outbound logistics, marketing and sales).
Support activities– These are used in supporting the identified primary activities and playing an instrumental function (procurement, HR, IT and infrastructure).
Hence, for Ericsson, for identifying the value chain, the best practice would include identification of primary activities and their sub-activities creating value. For instance, their HR teams creating value to logistics would be essential.
Further, in identifying the most appropriate sourcing strategy appropriate for an organisation, the STEEPLED analysis is applicable (Georgiadou et al., 2021). This is used as a strategic planning approach relevant in distinct business functions for discovering, evaluating, organising and tracking external risk. For Ericson in Saudi Arabia, a summary of the analysis is as illustrated in table 1;
Table 1:Ericsson STEEPLED Analysis
In summary, as part of identifying the most appropriate sourcing strategy, the different factors identified in table 1 are in favour of Ericsson. The suppliers selected must be aligned with identified social aspects, technology growth, embracing in innovation and legislations such as the Saudisation. Also, the identified sourcing strategy would need to be based on ethical best practice, trust-based relations and honesty in undertaking. This is while embracing modern technologies in their operations.
SWOT Analysis
In formulating the sourcing strategy being used , CIPS (2023b) identify this tool as evidencing the organisation objective or project and identify external and internal factors supporting sourcing strategy or whether it is not attainable. A summary of this analysis is as illustrated in table 2;
From the SWOT analysis, the sourcing strategy selected would achieve in ensuring a high-level collaboration amongst all stakeholders and utilisation of available resources. This is while ensuring economic uncertainties are prioritised particularly Post-COVID19 sourcing approach would need to manage cost overruns. This is while leveraging on support from administration and technology growth.
Kraljic Matrix
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