Chapter 6, Intro to Supply Chain, Rutgers
key areas of a typical spend analysis:
1. Total historic expenditures and volumes 2. Future demand projections or budgets 3. Expenditures categorized by commodity and sub-commodity 4. Expenditures by division, department, or user 5. Expenditures by supplier
reverse auctions WILL BE ON EXAM
A sourcing technique where pre-qualified suppliers enter a website and at pre-designated time and date, and try to underbid competitors to win the buyer's business.
Spend Analysis
Collecting, cleansing, classifying, and analyzing expenditure data for the purpose of decreasing costs, improving efficiency, and monitoring compliance.
Non-critical Items
Low Supply Risk Low value to the company Simplify and streamline the purchasing process Reduce number of suppliers and simplify ordering Transfer buying responsibility to "users' within the company
Functional Products
MRO items and other commonly low profit margins with relatively stable demands and high levels of competition
Multi-Source Example WILL BE ON EXAM
Need more capacity Spread risk of supply disruption Create competition More sources of information Dealing with special kinds of business
Single-Source Examples WILL BE ON EXAM
To establish a good relationship Less quality variability Lower cost [100% of volume] Transportation economies Proprietary product or process Volume too small to split
pain
Using a penalty or punishment a negative outcome for poor performance, cost overruns, quality problems, etc.:
Ethical sourcing WILL BE ON EXAM
is that which attempts to take into account the public consequences of organizational buying, or to bring about positive social change through organizational buying behavior
Supplier of Choice
- Achieved a specific and exceptional level of performance over time as measured by a set of criteria agreed upon by both buyer and supplier. - Typically a trusted partners who know the buyers organization, processes, procedures, and requirements. - Provides a higher value than their competitors and are characterized as reliable, responsive, flexible, and cost effective.
Framework for Sourcing Strategy Development
-Classify the company's products and suppliers as belonging to either the functional or innovative category. -Develop strategic sourcing goals and strategies for each category -Create the sourcing team (typically a cross-functional team led by Procurement) -Develop a team strategy and communication plan Identify the targeted spend area(s) and conduct a spend analysis. -Gather information on supplier capabilities. Use Request for Information (RFI) -Develop a supplier portfolio (i.e., a profile of each supplier in each category) -Develop a future state (i.e., vision of what the company wants the future to look like) -Conduct supplier selection and negotiation -Implement Supplier Relationship Management (SRM)
Ethical Policies should include
-Create a Supplier Code of Conduct -Inform suppliers of ethical sourcing expectations -Create specific provisions within supplier agreements accordingly. -Determine where all purchased goods originate -Have knowledge of their suppliers' workplace principles -Seek independent verification of supplier compliance with ethical standards -Include ethics as part of their supplier performance rating system -Routinely report supplier compliance to key stakeholders
Steps for spend analysis
1. Defining the scope. 2. Identify all of the data sources. 3. Gathering and consolidating all of the data into one database. 4. Cleansing the data and standardizing it for easy review. 5. Categorizing the data. 6. Analyzing the data for: 7. Repeating the process on a regular schedule.
Drivers of Strategic Sourcing
1. Improve long-term financial performance 2. Increase customer focus 3. Improve product quality 4. Reduce the cost of materials 5. Reduce delivery lead times 6. Optimize the number of global suppliers. 7. Deliver more innovative products
Objectives of Strategic Sourcing
1. Improve the value-to-price relationship 2. Understand the category buying and management process 3. Examine supplier relationships across the entire organization. 4. Develop and implement multi-year contracts 5. Leverage the entire organization's spend
Strategic Sourcing
A comprehensive approach for locating and sourcing key suppliers, so that an organization can leverage its consolidated purchasing power to find the best possible values in the marketplace
Single Source WILL BE ON EXAM
A sourcing strategy where there are multiple potential suppliers available for a product or service, however, the company decides to purchase from only one supplier.
Utilitarianism
An ethical act is that which creates the greatest good for the greatest number of people, and should be the guiding principle of conduct.
Collaborative Negotiations
Both sides work together to maximize the outcome or create a win-win result. Requires open discussions and a free-flow of information between parties
Supplier Selection Criteria
Cost Quality Capacity Service Location Reliability Communication capability Order system and cycle time Willingness to share information Product and process technologies
Go "Green"
Ensuring that the products or materials used meet environmental objectives for things like waste reduction, reuse, and recycling
Leverage Items
Low Supply Risk High Value to the Company Consolidate volume as a negotiation tool Use competitive marketplace to reduce costs Automate supplier interfaces to minimize process related costs
Grow Revenues
Growing the company through the launch of new sustainable products
Strategic Items
High Supply Risk High Value to the Company Ensure availability of supply Focus on relationship building Encourage process integration and innovation Frequent communications Establish mutually agreeable supplier performance criteria
Bottleneck items
High Supply Risk Low Value to the Company Maintain safety/strategic stock Develop contingency plans Strengthen relationships Search for alternatives
reduce costs
Increasing resource efficiencies which will also help to reduce costs
Manage Risks
Link company brands to the social consciousness of consumers
Insourcing
Producing goods or services using a company's own internal resources
Multi-Source WILL BE ON EXAM
Purchasing a good or service from more than one supplier. Companies may use multi-sourcing to create competition between suppliers in order to achieve higher quality and lower price.
Supply Base Rationalization
Reduction in the supply base to the lowest number of suppliers possible without significantly increasing risk
Distributive Negotiations
Refers to a process that leads to self-interested, one-sided outcome
Build Intangible Assets
Such as social and environmental responsibility, increasing consumer awareness of sustainable sourcing and sustainability
Vendor Managed Inventory
Suppliers directly manage buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer
Supply Base
The group of suppliers from which a company acquires goods and services.
Sourcing
The process of identifying a company that provides a needed good or service
Outsourcing
The traditional definition involves purchasing an item or service externally, which had been produced using a company's own internal resources previously
gain
Using a reward as a positive outcome from exceptional performance:
Supplier Co-location
Very similar to VMI and CMI, except that a representative of the supplier is actually embedded in the buyers purchasing group to forecast demand, monitor inventory, and place orders.
Strategic Alliance
an agreement between a buyer and a supplier to pursue some agreed upon objectives, while remaining independent organizations.
Co-Managed Inventory (CMI)
an arrangement where a specific quantity of an item is stored at the buyer's location
Strategic Alliance Development
an extension of supplier development which refers to increasing a key or strategic supplier's capabilities.
Innovative Products
characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition
Leverage
commodity items where many alternatives of supply exist and supply risk is low. Spend is high and there are potential procurement savings.
Sustainability
is the ability to meet current needs of the supply chain without hindering the ability to meet future needs in terms of economic, social, and environmental challenges.
Rewarding Supplier Performance
recognition of a supplier for exceptional performance, contributions, and/or capabilities
Non-critical
routine items that involve a low percentage of the firms' total spend and involve very little supply risk.
Rights & duties
some actions are just right in and of themselves, regardless of the consequences. Do the right thing!
Strategic
strategic items and services that involve a high level of expenditure and are vital to the firm's success.
Business Ethics
the application of ethical principles to business
Corporate Social Responsibility
the practice of business ethics
Bottleneck
unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers.
Supplier Certification
verification that a supplier operates, maintains, improves, and documents effective procedures that relate to the buyer's requirements