Page 106 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 5: Procurement and Manufacturing Strategies

operations, finance, marketing and distribution. Lastly sourcing strategy involves planning to Notes
competitive buying sources for its raw materials, components and services along with alternative
variables.
Sourcing is a standard and formal process that incorporates ongoing analysis to evaluate the
right mix of tools and technologies to improve right supplier generation and management and
also reducing the total cost. Outsourcing can be at three levels which are:
1. Transactional outsourcing
2. Tactical outsourcing

3. Strategic outsourcing

5.2.1 Shift in Sourcing Strategic Approach

Having realized that suppliers play a key important role in the supply chain network of the
business, there has been a change in the way organizations perceive and approach supplier
relationships. Several factors have contributed to the shifting of the perceive value of supplier
partnerships. Complex business models at global scales coupled with market demands have
necessitated companies to set up manufacturing or assembly facilities closer to markets as well
as in locations where conversion costs are relatively cheaper.

Did u know? This necessitates that the business be supported by a solid vendor base which
is able to ensure supplies at all locations.
Lean Manufacturing and cost per unit concept is demanding that the managers keep looking to
reduce the procurement cost as well as procurement logistics cost. By developing a relationship
with suppliers in a collaborative mode, buyers are able to get supplier companies to hold
inventories for them at buyer location and postpone taking inventory ownership up to the point
of consumption. Today preferred suppliers follow the buyer into countries where buyer is
setting up facilities and take on value added services including managing warehousing in the
spirit of customer relationship management. Therefore managements have realized the fact that
to be able to develop global business model, they have to develop supplier partnerships and
work with collaboration spirit and invest in developing the supplier capabilities as well as
invest into building the relationship. Supplier management is no longer just transactional.

5.2.2 Third Party Provider (3PL)

Third Party Logistics Provider (3PL) is defined as, “the services offered by a middleman in the
Logistics Channel that has specialized in providing, by contract, for a given period, all or a
considerable number of the logistics activities for other firms.”
A middleman could be a broker, a freight forwarder, Shippers’ Association etc.

How is a 3PL Distinguished from a Transportation Provider?

Transportation provider gets product from point A to point B and could be believed a 3PL.
However, transportation provider carries out just one function of logistics whereas a 3PL provider
assists in multiple functions.

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