Intro to Supply Chain Chapters 5-8

Ways to Minimize Processing Costs for Small Value Purchases

-Credit Card -Blanket Orders -Petty Cash -Accumulate Small Orders into Larger Ones

When does e-procurement not work?

-During the procurement of mission-critical items that are available only through a few suppliers -Where inventory is very low

Batch

Manufactures a small quantity of an item in a single production run

Engineer-to-Order (ETO)

Manufacturing process in which the component is designed, engineered, and built to specifications only after the order has been received

Assemble-to-Order (ATO)

Products ordered by customers are produced quickly and are customizable to a certain extent

What is described as "the transactional function of procurement for goods and services"?

Purchasing

Centralized Purchasing

Purchasing department located at firm's corporate office makes all of the purchasing decisions

Non-Tariff Barriers to International Trading

Quotas, licensing agreements, embargoes, laws and regulations imposed on imports/exports

Supply Base Rationalization

Reduction int he supply base to the lowest number of suppliers possible WITHOUT increasing risk

Make-to-Stock (MTS)

To manufacture products for stock based on demand forecasts, which is a push system

Buy American Act

US government purchases and 3rd party purchase using federal funds must buy from US source if US good isn't more than a certain differential above the foreign good

Bottleneck Spend Category

Unique procurement problems; supply risk is high and availability is low; small number of alternative suppliers

Spend Analysis

Collecting, cleansing, classifying, and analyzing expenditure data to decrease costs

Leverage Spend Category

Commodity items where many alternatives of supply exist and supply risk is low; spend is high and there are potential procurement savings

Kaizen (LEAN Manufacturing)

Continuous approach to reduce process, delivery, and quality problems

Role of Management in a LEAN System

Create cultural change needed for LEAN to succeed

Job Shop

Creates a custom product fro each customer

Main difference between Co-Managed Inventory (CMI) and Vendor Managed Inventory (VMI)

In Co-Managed Inventory (CMI) the supplier is just recommending an order which is not confirmed unit and unless the buyer approves it

Supplier Development

The technical and financial assistance given to existing and potential suppliers to improve quality and/or delivery performance

Changeover Time

The time taken to adapt and modify the manufacturing equipment and systems to produce a different product or a new batch of the same product

Merchants

Wholesalers and retailers who purchase for resale

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

Six Sigma

An enterprise and supply chain-wide philosophy that emphasizes a commitment toward excellence, encompassing suppliers, employees, and customers

Strategic Alliance Development

An extension f supplier development which refers to increasing a key or strategic supplier's capabilities

Continuous FLow

An inflexible process with high capital investment

LEAN

An operating philosophy of waste reduction and value enhancement

Collaborative Negotiations

Both sides work together to maximize the outcome or create a win-win result

5 LEAN Principles

1. Define Value 2. Map Value Stream 3. Create Flow 4. Establish Pull 5. Pursuit Perfection

3 Primary Goals of Purchasing

1. Ensure uninterrupted flows of materials & services at lowest cost 2. Improve quality of finished goods produced 3. Optimize customer satisfaction

Keiretsu Relationship

Involves companies both upstream and downstream of a manufacturing process, remaining independent but working closely together for mutual benefit

Purchasing

Obtaining merchandise, capital equipment, raw materials, services or MRO supplies, in exchange for money or its equivalent

Competitive Bidding

Offers submitted by multiple individuals or firms competing for a contract, privilege, or right to supply specified services or merchandise

E-procurement

The business-to-business purchase and sale of supplies and services over the internet

Analysis Step in Purchasing Process Steps

-Measurements of the efficiency and accuracy of the procurement process -Specific purchase order data information captured and used during periodic supplier performance meeting

Reasons for Multiple Suppliers

-Need more capacity -Spread risk of supply disruption -More sources of info -Create competition

When does a buyer issue a Request for Proposal (RFP) versus a Request for Quotation (RFQ)?

-RFP is for items which haven't been previously purchased, or not purchased from this specific supplier -RFQ is for routine/repeat purchased items

Federal Acquisition Streaming Act (1994)

-Removed restrictions on bids less than $100,000 -Micropurchases (less than $2500) can be made without bidding

Purchasing Order

-The buyer's offer to the supplier to acquire goods or services -Becomes legally binding when accepted by supplier

Reasons for a Single Supplier

-To establish a good relationship -Less quality variability -Lower Cost -Volume too small to split

Role of Supplier in a LEAN System

Build long-term supplier-buyer relationship

Steps in Purchasing Process (1-7)

1. A need is identified & purchase requisition issued 2. Obtain authorization as needed 3. Identify & evaluate potential suppliers 4. Make supplier selection 5. Purchase order is created and delivered to supplier 6. Supplier confirmation of purchase order 7. Fulfillment

5 Key Points to Consider in Development/Implementation of a Supplier Relationship Management System

1. Automation 2. Integration 3. Visibility 4. Collaboration 5. Optimization

3 Attributes of Supplier Recognition Programs

1. Companies should recognize and celebrate the achievements of their best suppliers 2. Award winners exemplify true partnerships, continuous improvement, organizational commitment, and excellence 3. Award-winning suppliers serve as role models for other suppliers

Public purchasing for the government & non profit sector is characterized by what?

1. Competitive Bidding 2. Sealed Bids

8 Quality Management Principles on which ISO 9000 is based

1. Customer Focus 2. Leadership 3. Involvement of People 4. Process Approach 5. Systems Approach to Management 6. Continual Improvement 7. Factual Approach to Decision Making 8. Mutually Beneficial Supplier Relationship

4 Steps of Continuous Improvement Process

1. Plan 2. Do 3. Check 4. Act

When was the Toyota Production System (TPS) created?

1940s

Supply Management

A newer term that encompasses all acquisition activities beyond the simple purchase transaction

JIT 2

A representative of the supplier is actually embedded in the buyer's purchasing department to forecast demand, monitor inventory and place orders

ISO 9000

A series of management and quality standards in design, development, production, installation, and service

Single Sourcing

A sourcing strategy where there are multiple suppliers available for a product or service, however the company decides to purchase from only one supplier

Import Broker

Agents licensed by the government to conduct business on behalf of importers for a service fee

Purchase Requisition

Document that defines the need for goods and/or services

Pull System in Supply Chain

Each stage in the supply chain requests quantities needed from the previous stage; no excess inventory generated

Line Flow

Has standard products with a limited number of variations moving on an assembly line through stages of production

Value Engineering

Help the buyer's company to reduce cost, improve quality, and reduce new product development time

Inventory Turnover Effect

Increased inventory turnovers indicate optimal utilization of space and inventory levels

Decentralized Purchasing

Individual, local purchasing departments make their own purchasing decisions

Industrial Buyers

Individuals within an organization who purchase raw materials for conversion into products and/or purchase services, capital equipment, and MRO supplies

5 Ss of Workplace Organization

Sort Straighten Shine Standardize Sustain

LEAN Layouts

Move people and materials when and where needed, and as soon as possible

2 Most Important Functions of a Supplier Development Program

1. Providing information about products, expected sales growth, etc. 2. Training suppliers in the application of lean and six sigma

3 Parts of Procurement

1. Purchasing Management 2. Strategic Sourcing 3. Supplier Relationship Management

4 Elements of Cost

1. Quality 2. Service 3. Delivery 4. Price

In the 1990s, supply chain management was made up of what 4 things?

1. Quick response 2. Efficient consumer response (ECR) 3. Just-in-Time (JIT) 4. Keiretsu Relationships

5 Key Areas of Spend Analysis

1. Total historic expenditure and volumes 2. Future demand projections or budgets 3. Expenditure categorized by commodity and sub-commodity 4. Expenditure by division, department, or user 5. Expenditure by supplier

7 Elements of LEAN Manufacturing

1. Waste Reduction 2. LEAN Layouts 3. Inventory, Setup Time & Changeover Time Reduction 4. Small Batch Scheduling and Uniform Plant Loading 5. LEAN Supply Chain Relationships 6. Workforce Empowerment 7. Continuous Improvement

Steps in Purchasing Process (8-14)

8. Receipt of goods 9. Invoice 10. Reconciliation 11. Payment 12. Reclamation of taxes 13. Close out purchase order 14. Analysis

Strategic Sourcing

A comprehensive approach for locating and sourcing key suppliers, which often includes the business process of analyzing the total-spend by material category

Bid Bond

A debt secured by a bidder for purpose of providing guarantee that the successful bidder will accept the contract once awarded

Performance Bond

A debt secured by a bidder for the purpose of providing a guarantee that the work will be on time and meet specifications

Profit-Leverage Effect

A decrease in purchasing expenditures directly increases profits before tax

Request for Proposal (RFP)

A detailed low-level capabilities evaluation document that is used to precisely determine a supplier's capability and interest in the production of a customized product or service

ISO 14000

A family of standards for environmental management

Innovative Products

Characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition

Decentralized-Centralized Purchasing Organization

Decentralized purchasing at the corporate level and centralized purchasing at business unit level

Reclamation of Taxes

In some situations, the supplier will be obligated to charge a tax, but the buyer may be eligible to retain some or all of the tax based on corporate status

Countertrade

International trade by exchange of goods rather than by currency

Who created the LEAN philosophy? What was it originally called?

It was created by key Toyota executives and was originally called the Toyota Production System (TPS)

Non-Critical Spend Category

Items that involve a low percentage of the firms' total spend and involve very little supply risk

Who first coined the term LEAN? When?

John Krafcik in 1988

Early Supplier Involvement

Key suppliers become more involved in the internal operations of the buyer's company, particularly with respect to new product and process design, concurrent engineering, and design for manufacturability

3 Elements of LEAN

LEAN Manufacturing Total Quality Management Respect for People

Centralized-Decentralized Purchasing Organization

Large national contracts centralized at the corporate level and smaller specific items decentralized at the business unit level

What does LEAN focus on? What does Six Sigma focus on?

Lean focuses on eliminating wastes and improving efficiency Six Sigma focuses on reducing defects and variations

Total Cost of Ownership (TCO)

Made up of all costs associated with the acquisition, use, and maintenance of a good and service

Functional Products

Maintenance, repair, and operations items and other commonly low profit margin items with relatively stale demands and high competition (ex: office supplies)

Make-to-Order (MTO)

Manufacturing strategy that typically allows customers to purchase products that are customized to their specifications

Role of Workers in a LEAN System

Perform different tasks and actively pursue company goals

Import Merchants

Person/company engaged in purchase and sale of imported commodities for profit (buy products internationally then sell domestically)

Forward Vertical Integration

Refers to a company acquiring one or more of their customers (ex: buying a wholesaler)

Backward Vertical Integration

Refers to a company buying/acquiring one or more of their suppliers

Distributive Negotiations

Refers to a process that leads to self-interested, one sided outcome

Kanban

Signals used for communication between workstations; authorizes production or movement of materials to the next workstation

"Rights and Duties" ethical approach

Some actions are just right in and of themselves, regardless of the consequences

Reverse Auctions

Sourcing technique where pre-qualified suppliers enter a website and at pre-designated time and date, try to underbid competitors to win the buyer's business

Strategic Spend Category

Strategic items and services that involve a high level of expenditure and are vital tot he firm's success

Supplier Relationship Management

Strategically planning for, and managing, all interactions with the third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions

Vendor Managed Inventory (VMI)

Suppliers directly manage buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer

Operations Management

The design, execution, and control of the operations that convert resources into desired goods and services, aligned with the company's business strategy

Procurement

The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods and services

Sole Source

When there is only one supplier for an item