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Skip to 0 minutes and 8 secondsZAKIAH SUHAIMIEFT: Hello, Learners. Welcome to week three roundup video. So with us today is Catherine Bowser, the lead educator. Hello, Catherine.

Skip to 0 minutes and 17 secondsCATHERINE BOWSER: Hi, Zakiah.

Skip to 0 minutes and 18 secondsZAKIAH SUHAIMIEFT: How are you doing today?

Skip to 0 minutes and 20 secondsCATHERINE BOWSER: I'm good, thank you, yep.

Skip to 0 minutes and 21 secondsZAKIAH SUHAIMIEFT: All right. So we have come to the roundup video for this week, very interesting topic, the sourcing decision-making. So what struck you about this topic?

Skip to 0 minutes and 33 secondsCATHERINE BOWSER: So what I want to do is I think it's always useful to stand back from individual elements of the week and just think about the big picture and where we would position this in some overarching thinking. So really I'm thinking this sourcing process-- this decision-making that we've been looking at this week-- really does fit within a supply chain strategy framework. And what's important about that is that we constantly check what is it that we're making this decision for, what are our objectives. So what we've seen as we've gone through the week isn't a disjointed set of decision-making points, but really a journey or a process that starts with understanding what are our customer values, our customer needs.

Skip to 1 minute and 22 secondsBecause then we can start exploring the supply markets that can deliver those needs and make great sourcing choices that ensure that we are creating value, adding value for our customers, and that we can go on and put in place the right relationships and the right measures to ensure supply chain success. So for me, I see this as a process. That really does facilitate great decision-making as we strive for supply chain success.

Skip to 1 minute and 51 secondsZAKIAH SUHAIMIEFT: All Right. So you did mention about customer values. What is the significance of us to understand these customer values?

Skip to 2 minutes and 0 secondsCATHERINE BOWSER: Yeah, I think its really important. And we've heard it before within the context of supply chain thinking that we really do segment our customers. This is based on the fact that if we look at customers, they all have different perceptions of value, what's important to them. We can think individually-- it's getting more and more. But if we look within the context of businesses, we can look at groups or segments that are differentiated around characteristics of their perception of value, whether that's around trade-offs of cost, quality service-- which might include dependability, flexibility, and indeed more and more the factors of sustainability, those social and ethical factors.

Skip to 2 minutes and 46 secondsSo if we move on from understanding those different value representations, we can start making choices that max their-- match them. And if we go back to-- not that I want to talk about horse meat, per se-- but the whole-- if we think of burgers, just a simple product, and it's always two factors, in a way, around quality, for example, the specifications. So we might have a segment of customers who want 80% beef in their burgers. They're prepared to pay more for that beef content. It's a higher specification than someone in a group looking for a 30% beef burger that has a lower cost representation. So that's a specification difference.

Skip to 3 minutes and 33 secondsBy the way, not one bit of that expects a supply chain to deliver something that isn't to that specification. So I want to dismiss almost the appalling behaviour of the horse meat scandal. Because that really does demonstrate a sourcing strategy for those organisations that is all about sell and misses the whole point about delivering to supply chain ends. So the point about value and why we need to understand customer segments is that we need to make buying choices that match into and deliver to those specifications, whatever it is, in terms of quality, cost, value, whatever the representation. And I think the other point is that we need to not just think our products.

Skip to 4 minutes and 19 secondsBut more and more, there's complexity added in terms of a product and service offering. So how do we bound what it is that we're delivering to, and therefore what's part of our product offering, product and service offering, and therefore part of what we're going to source against what supply markets we need. We just need to think, for example-- actually, this week I bought a washing machine.

Skip to 4 minutes and 43 secondsZAKIAH SUHAIMIEFT: Oh really?

Skip to 4 minutes and 44 secondsCATHERINE BOWSER: Washing machine.

Skip to 4 minutes and 46 secondsZAKIAH SUHAIMIEFT: All right.

Skip to 4 minutes and 47 secondsCATHERINE BOWSER: But this is the trade-off in terms of my value. So I don't ever buy very expensive washing machines because I know that I'm going to use them and I'd rather throw them away. But what was important to me and what I did pay for-- and also was prepared to wait for; so this is about speed-- I wanted a washing machine that was delivered, fitted, and my old one taken away. So this wasn't about a washing machine choice per se. It was about the whole service offering that gave me access to a washing capability rather than the machine itself. So I'm extending the bounds of the product service offering.

Skip to 5 minutes and 29 secondsAnd I'm also thinking about what is it that I value and what are my trade-offs, and what's significant as a consumer, as a customer grouping. Because then I can make good choices. And that choice is again back to that key component of supply chain thinking-- so values, customer values, customer segments, understanding what it is that we're doing is the first question, the first point that we think about in sourcing strategy. We don't have clarity of that, we're going to make suboptimal choices.

Skip to 6 minutes and 2 secondsZAKIAH SUHAIMIEFT: But in your opinion, what are the key considerations that we need to look at in making the sourcing decisions?

Skip to 6 minutes and 9 secondsCATHERINE BOWSER: Yeah. So if we have these value representations, if we understand what it is that we need, then I think it's really about going out, and asking good questions, and evaluating the supply market from which we can procure, from which we can draw what we need. And if we don't ask good questions at the supply market, as in raise our awareness, then again we're going to miss the nuances, the subtleties of what we want to buy, or where we can buy, or what's out there in the supply market that can effectively create and add value.

Skip to 6 minutes and 49 secondsSo rather than just thinking of a lump of things that we need to buy within one category of spend, let's start segmenting our spend. Let me think. For example, airlines. We can think air travel, it's just getting someone from a to b. But actually we need to segment that supply market. Because there's the supply market that provides very high spec. We can pay for flexibility for our ticket, the time that we fly. Baggage is included at a much more significant weight. We can get free food and drink.

Skip to 7 minutes and 28 secondsLet's think BA, that sort of a service for maybe let's talk about a business class travel as opposed to something that might be a low-cost carrier, Ryanair maybe, where everything is additional-- we can't take very much luggage, everything is paid for. These are very different supply markets. There's the high spec, high value flier and a low spec. And when I say lower value, that's the wrong term really. It's meeting a different customer need-- requirement. So what we've got to be really careful about is making sure that we're segmenting our supply market appropriately to match our objectives.

Skip to 8 minutes and 12 secondsAnd another dimension of segmenting and understanding the supply market, as we talked about this week when we were asking that question in the-- I think it was the third block. There are different types of characteristics of the products that we buy. We called commodity items where they were very plentiful, the supply market was plentiful. And we weren't really-- our objective wasn't really to lower cost per se. Might have been transaction cost. But there's a market that is pretty much the same price, the same quality, the same service. We would absolutely go through the same process, by the way. It would just take us less time to make sourcing choices. Up to what we saw as very complex buys.

Skip to 8 minutes and 56 secondsWe'd call it a more complex and more risky supply market because there are fewer providers. The opportunity that we see for ourselves in the supply chain working very closely with those providers would be taking cost out of design, would be taking out transactional costs, would be connectively working together to manage risk, et cetera. So actually again we're saying what are the characteristics of the supply market, a really fundamental question-- how easy is it for me to get what I want? And what are the levers that I'm playing with in terms of risk, in terms of cost reduction, in terms of supply chain success? So again, the world isn't flat. It's horses for courses.

Skip to 9 minutes and 40 secondsThis is really based on a model by Kraljic back in the early '80s, a seminal HBR article. Talked about a lot, discussed, still actually at the core with many sourcing strategies. But a great way of just codifying the world. It doesn't ever, these models, give you absolute answers. More importantly it feeds you with the questions that you need to ask to make good decisions. And on top of that, we can overwrite, overlay, the right relationships, the right degree of collaboration, again, to get what the supply chain needs. This isn't about being nice. This is the state of the world. This is how it interacts.

Skip to 10 minutes and 24 secondsAnd we know that by working in more knowing ways, we're going to have greater success from the supply chain perspective. So, considerations-- what's the supply market shape, what does it look like, how do we segment our suppliers, what pool of suppliers are we looking at to make our selection choices, what's significant, what would be the development trail with those particular suppliers, how do we make this work? Those would be the considerations all around that. And I think what's important is there is never one answer.

Skip to 10 minutes and 58 secondsZAKIAH SUHAIMIEFT: Yeah, yeah. Exactly, I wanted to say that actually.

Skip to 11 minutes and 1 secondCATHERINE BOWSER: Yeah, honestly. And it's like if someone says, well, what should I do about this. And I think, oh goodness, it's almost missing the point. It's actually what questions should I be asking that leads me down this journey, this trail, to make good rational choices and know how to develop those relationships and where they're going rather than an answer that we can copy from anywhere else. It's actually about the learning and the understanding that is the richness of sourcing decisions.

Skip to 11 minutes and 32 secondsZAKIAH SUHAIMIEFT: Yeah. And I think we also need to adjust ourself. Rather than looking at specific answer, we need to adjust ourself to meet the demand of the market.

Skip to 11 minutes and 45 secondsCATHERINE BOWSER: Yeah, absolutely. So rather than thinking-- so a world that thinks we'll carry on making the choices we always have because that's worked for us in the past, it doesn't mean that it is the right decision. And actually, Zakiah, you make a great point that all of these processes-- these questions, they're dynamic because the supply market changes. It changes so quickly. There's consolidation, there's competition. Consumer choices are ever expanding as people see and have an expectation of this mass customisation. If that is happening, how do we respond to that in our buying choices? So this is so dynamic. We just need to think about the risks that we've seen.

Skip to 12 minutes and 29 secondsHow do we build risk into supply-- into our sourcing strategies? So rather, I can think back a few years where single sourcing-- sole sourcing-- was a primary driver. Whereas more and more we just look at the Japanese automotive manufactures, for example, dual sourcing. And to handle the risk is much more prevalent. And that's about how we perceive cost as well. So cost-- the cost of making sure we have capacity and inventory right in our supply chain, in our sources wherever they are, versus failure of supply-- we have to think about costs differently as well.

Skip to 13 minutes and 8 secondsZAKIAH SUHAIMIEFT: All right. So is there any rounding comments from you?

Skip to 13 minutes and 13 secondsCATHERINE BOWSER: I think there is another significant thing that I think we touched on again, and I think we've talked about it a little bit, which is this whole perception of cost. I think too much-- and this is if we're not seeing this strategically, if we're not really understanding that we're delivering value to our customers, is how we think about cost. And too often decisions even now are based on price, invoice price alone. And we talked about pre-transaction components, how much is it costing us to set up new supply, to negotiate new contracts. There's the transaction component, which is also called total acquisition cost. It's not just the invoice price. Just go back to BOGOFs.

Skip to 13 minutes and 55 secondsExtend that to a bigger world. What's the cost of holding stuff that we're not using in the moment? What's the cost of capital tied up for bulk buying when we could be using that for something else, something different? What about obsolescence? What if we decide that we don't want that product or it degrades over time? There's an awful lot of other costs we need to think about and the post-transaction element. So now we're extending it to total cost of ownership perspective and indeed a supply chain cost. So where is cost being incurred through the supply chain? And I just go back to my washing machine buying decision.

Skip to 14 minutes and 40 secondsWe do this process subconsciously in every buy that we make. When we drive into a petrol station and pay over the odds in one of those Marks & Spencers convenience stores it's because speed, accessibility is really important to us, not cost. We're not going to Tesco's for a week to shop. We make these decisions. But I just go back to when I bought my washing machine. And so I buy cheap because I'm going to throw it away after two years. But actually what I am thinking about is the total cost of ownership. What I could do is think actually do I need to buy a maintenance contract?

Skip to 15 minutes and 19 secondsIf I buy a maintenance contract, will this keep it going longer than me buying another washing machine within that four year period or whatever I'm evaluating? So let's think about the total service provision, not just the-- this crude evaluation as we select suppliers that surround price. So always I'm thinking let's just be rational with this, let's go back to a bigger framework-- what are the objectives, how does this fit, what are my trade-offs, how are we valuating this, how do we ensure success, how do we make sure that we're developing relationships, putting in the right measures? And by no means does every relationship need to be deep, collaborative. Every bit of this is about contingent and contextual thinking.

Skip to 16 minutes and 10 secondsBut if we don't see the big picture so that we can ask and explore these individual questions, get data, form hypothesis, come up with some good decisions, then actually we're not going to achieve supply chain success, which is really what this is all about.

Skip to 16 minutes and 26 secondsZAKIAH SUHAIMIEFT: Yeah, indeed. So do you have any other comments that you want to highlight?

Skip to 16 minutes and 31 secondsCATHERINE BOWSER: No. I think we've touched on-- and hopefully the week has touched on. There's an awful lot written and explored about this. Just want to say thank you for everybody who has participated. And it is always great to read your comments. And just wish you success in everything that you're doing as listeners as you explore this. Both personally, and in a business context.

Skip to 16 minutes and 56 secondsZAKIAH SUHAIMIEFT: OK, thank you Catherine for this week discussion. So I hope to see you again.

Skip to 17 minutes and 1 secondCATHERINE BOWSER: Yeah, thanks, Zakiah. Thanks for that opportunity to think about the bigger picture and passion around this arena. Thanks, Zakiah.

Skip to 17 minutes and 10 secondsZAKIAH SUHAIMIEFT: See you later.

Skip to 17 minutes and 11 secondsCATHERINE BOWSER: Bye.

Week 3 summary

Week 3, focused on the topic of ‘Shop till you drop: Purchasing and procurement in context’. Before immersing yourself in the world of manufacturing, take some time to consolidate your learning from last week by watching the summary video.

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This video is from the free online course:

Supply Chains in Practice: How Things Get to You

The University of Warwick