External Supply and Key Support Functions
Sourcing and supplier management
External supply covers purchasing, supplier development, contracts, inbound logistics, and the support functions - finance, engineering, HR, IT - whose constraints shape the plan. The purchasing cycle runs from need recognition through requisition, supplier selection, PO release, expediting, receipt, and settlement.
Kraljic's matrix plots profit impact against supply risk. Non-critical (low/low): simplify and automate. Leverage (high impact, low risk): use volume, tenders, and competitive bidding. Bottleneck (low impact, high risk): secure supply, qualify alternates, hold buffer. Strategic (high/high): partnership, long-term contracts, early supplier involvement.
Traps
- Choosing on purchase price instead of total cost of ownership (freight, duty, quality, lead time, inventory, risk).
- Single sourcing purely for price - that buys risk; multiple sourcing buys flexibility but loses volume leverage.
- Mixing up Incoterms responsibilities for freight, insurance, and risk transfer.
- Overlooking consignment and VMI ownership in inventory valuation and liability.
- Communicating engineering changes to suppliers after the effective date.
- Using supplier scorecards as a purchasing report rather than a joint improvement tool.
Support functions matter: finance sets the cost of capital and cash limits; engineering sets specifications and change control; HR sets labor availability and skills; IT enables visibility and EDI.
Worked example - weighted scorecard
Weights: quality 40%, delivery 30%, cost 20%, risk 10%. Supplier A scores 90/80/70/60 → 36 + 24 + 14 + 6 = 80.0. Supplier B scores 70/95/90/80 → 28 + 28.5 + 18 + 8 = 82.5. B is preferred. Rule of thumb: agree the weights before anyone sees the scores.