MGT333

SC and Organization's Nature^ •Reputation: Good vs not so good reputation

-Ability to maintain good relations with world-class suppliers -Access to the best deals and offers

5 M's

1)Materials, 2)Manpower, 3)Machine, 4)Management, 5)Money

The supply function in public sector organizations can differ from those in private sector organizations in the following area:

Regulatory requirements regarding the acquisition process and policies.

Supply management

The integration of related functions to provide effective and efficient materials and services to the organization

Supply makes a significant contribution to organizational risk management since many supply decisions have downside risks that might impact the organization's strategy.

True

The profit-leverage effect of supply savings means that:

a reduction in purchase spend increases profit more than an equivalent increase in sales.

decentralized purchasing authority is

leveraging the divisional experience

Specialization within SC

sourcing- identify suppliers materials management- ensures deliveries research- forecast demand administration- procedure, budgeting, reporting

Hybrid supply structures can capture the benefits of both centralized and decentralized organizational sctructures

true

improving the efficiency and effectiveness of the process for small value orders can be achieved through

vendor/supplier managed inventory systems and the use of purchasing cards

centralized

•Authority and responsibility for most supply-related functions assigned to a central organization

S.C. Impact on Revenue/Sales

•Pricing Flexibility (more flexibility for marketing depart.) •Improved Quality (75% of quality problems could be traced back to defects in purchased materials) •Reduced Time to Market, Shorter Cycle Times and Lead Times (relevant for Time-Based Competition) •Customer Satisfaction and Customer Fulfillment Flexibility Assist in becoming a Supplier of Choice (higher value offer)

Org objectives

•Survival •Growth •Financial •Environmental

Six Major Supply Strategy Areas

1.Assurance of supply (prime SC responsibility) 2.Cost reduction (min TCO) 3.Risk management (reduce organization's risk) 4.Competitive edge (org. strengths; market opportunities) 5.Supply chain support (relations, communication, IS) 6.Environmental change (understand, foresee external changes)

9 SC goals

1.Improve the organization's competitive position 2.Provide an uninterrupted flow of materials, supplies and services required to operate the organization 3.Purchase required items and services at lowest TCO 4.Keep inventory investment and loss at a minimum 5.Maintain and improve quality 6.Standardize, where possible, the items and services bought and the processes used to procure them 7.Find or develop best-in-class suppliers 8.Achieve harmonious, productive relationships Accomplish supply objectives at the lowest possible operating costs

steps in supply process

1.Recognition of the need 2.Description of the need 3.Identification and analysis of possible sources of supply 4.Supplier selection and determination of terms 5.Preparation and placement of the purchase order 6.Follow-up and/or expedite the order 7.Receipt and inspection of goods 8.Invoice clearing and payment 9.Maintenance of records and relationships

For an organization with annual sales of $500 million, purchases of $300 million and profit of $50 million, a 10 percent reduction in the cost of purchases would result in a profit-leverage effect of:

60 percent (sales increase of 60 percent would be required to achieve the same percentage increase in profit).

Profit-Leverage Effect

A 5% reduction in purchase cost creates a 60% increase in profit

Supply objectives

Delivery Costs Quality, Quantity Services, etc.

strategic orientation

Global supply chains Executive level leadership Challenges: risk management, TCO, sustainability, security, globalization

The role of supply management is best captured by the following question:

How can supply and suppliers help decrease costs and increase revenues?

S.C. Cost Impact

Product Design (70-80% of total cost of ownership is set during the product design process) •Acquisition costs (both items and services) •Processing, Quality, Conversion costs •Non-Value-Added (activities) costs •Downtime and Cycle Time1 costs •Supply Chain Costs (SC processes and activities including suppliers management) Post Ownership Costs (waste, service, warranty)

Key Success Factors for Teams

Right Participation All functional areas involved The right talent - people with needed skills Common Purpose Customer Focus vs. Individual Success Motivation Measurable Goals, Dedication and Good Communication Organizational support, Culture Proper Communication and Resources

Return-on-Assets

Sales - Total Costs (CGS + Other Costs) Total Assets (Current Assets + Fixed Assets)

What is the profit-leverage effect for supply chain? is it the same for all organizations?

`

specialization within the supply function

allows staff to develop expertise in particular areas.

information flows

between and among supply, and other internal functions and external sources

challenges for centralized and decentralized

centralized: •Lack of business unit focus •Lack of recognition of unique business unit needs •Focus on corporate requirements, not on business unit strategic requirements •Distance from users Decentralized: •Encourages users not to plan ahead •Operational versus strategic focus Too much focus on local sources lacks clout, no critical mass

when a team has decided about a task of function currently performed by company employees is a core competency, the team will probably recommend

continuing to make

why should an organization switch from buying to making

control protect stability

internal business partners between supply and other functional areas such as marketing/sales, finance/accounting, and engineering are

desirable because of the interdependencies between and among functions

it is recognized that in the transition from a centralized supply structure to a decentralized one organizations are

expect to increase the speed of response to specific divisional needs

Globalization of supply chains has increased the complexity of purchasing responsibilities and made identification of risk easier.

false

One of the most important steps in achieving the potential of the supply function is hiring someone from outside of the company's industry into the top supply position.

false

There is increased emphasis on purchase transactions and less on strategic supply management processes.

false

maverick buying is a talented member of the supply department whose creativity and innovations have saved the organization large sums of money

false

the most common source of potential friction between SC and finance/accounts payable is

finances inclination to hold on cash which can result in postponing payments towards suppliers

why is the make or buy decision considered strategic

focus on core competancies

Clerical and tactical

focuses on policies and procedures challenges: availability of supply, cost management

To effectively manage supply risks, the supply manager must:

identify and classify risks, assess the potential impact, and develop a risk mitigation strategy.

sourcing was presented in class as one of the main specialization within the SC. which of the following will you consider to be the core responsibility of a SC professional working in sourcing

identify and select best suppliers

Outsourcing

increasing in volume and scope

the organizational structure (centralized, decentralized, or hybrid) of the supply function:

influences supply processes, internal cross-functional relationships, and procedures and systems

If organizational objectives and supply objectives are incongruent:

it will be difficult to translate organizational objectives into supply objectives.

concerns about outsourcing include

layoffs, develop dependency on supplier, and loss of control

what is not considered a danger or a potential issue of outsourcing

loss of centralization

expediting

may be caused by the buyer or supplier

outsourcing

may reduce operating costs, improve focus on core competencies, and gain access to world-class capabilities

The greatest opportunity to affect value in the purchasing process is when:

needs are recognized and described

Evaluation of the supply function's contribution to organizational goals and strategies can be viewed in the context of:

operational and strategic direct and indirect

before deciding to outsource, one company should consider the following

outsourcing risk factors (including risk of creating strategic vulnerabilities) the importance of the internal control over production processes and quality a switch back transition plan

Close to 70% of the value of any given requirement is established during

recognition and description of need

blanket purchase orders

reduce costs by decreasing the number of purchase orders issued

If the buyer has a clear and unambiguous description or specification and wants to find out which supplier can deliver the best value when and where needed, he or she will typically issue a:

request for quotation (RFQ)

To contribute to organizational strategy, the supply department should:

seek opportunities to provide competitive advantage.

online reverse auctions are best suited for situations where

specifications are clearly defined, there is competitive supply market with qualified suppliers willing to participate, and the buyer is prepared to switch suppliers if necessary

which of the following is a consideration that favors buying a product

supplier has unique know-how/ capability

Normally, most organizational objectives can be summarized under four categories:

survival, growth, financial, and sustainability.

efficient and effective supply processes are needed because of

the large volume of items, dollar value, severe consequences, the potential contribution to organizational objectives, and the need for an audit trail.

why should a supply manager consider hiring or obtaining internally an employee without any supply background

the need for the organization can be quickly grasped and shows the individual's ability and willingness to make sound decisions and assume responsibility

one purpose of a requisition

to clarify the description of need before communicating with potential suppliers

an organization may decide to produce a good or service in-house rather than outsource

to control the quality of customer service and to reduce risk

By identifying and eliminating the causes of uncertainty and risk in the supply chain, the supply manager may be able to reduce the needed inventories and therefore buy a lower quantity.

true

Terms such as purchasing, procurement, supply, and supply chain management are terms that are used almost interchangeably.

true

The three levels of strategic planning are corporate, business unit, and functional.

true

purchasing activity could require a large spectrum of involvement of SC personnel. Among those activities there are certain ones that require no involvement of SC/Purchasing personnel

true

some of the reasons an organization may decide to make rather than buy are: need to control the production process, stringent quality requirements, and very small quantity requirements

true

When developing supply strategies, the supply manager must determine:

what to make or buy, what to insource or outsource, and what standard items or what customized items will be acquired.

Decentralized

•Authority and responsibility for supply-related functions dispersed throughout the organization

Procurement Involvement Level!

•Could be "Æ" - no involvement in a specific process •Documentation only (clerical - keep records, track documents) •Professional - full engagement; provide assistance and expertise •Consultant for developing corporate strategies (mergers; acquisitions; planning; new product development and other corporate activities)

Risk management: operational

-Delivery concerns: •Production Idle Time, Disruptions, Quality, etc. -Suppliers •Evaluation & Selection •Management of the Relationship -Organization's Environment Monitoring •Natural and Unpredictable Events •Political & Economic Conditions and Regulations -Effect on: Org. capacity to fulfill its contracts, to produce and deliver value

SC and Organization's Nature •Private (for profit, fig 1-4)

-Identic to Public 1. & 2. (mission and efficiency & effectiveness) -Lower restrictions on supply process - Commerce Law (mainly) -A tool for obtaining and securing competitive advantage -Commitment to shareholders

Risk management: financial

-Price Fluctuations, -Supply Market Volatility, -Purchasing Timing, -Economic and Monetary Policies: •Exchange rates, Tariffs, Import Duties and Fees, Taxes, etc. -Effect on: Organization's financial performance and wellbeing

Risk management: reputation factors

-Quality issues -Supplier relations -Ethical issues -Legal issues -Environmental issues -Effect on: •Customer Loyalty •Positive/ Negative Publicity •The ability to Maintain a World Class Supply Base

SC and Organization's Nature^- •Size: Large vs. Small

-Size enables and/or requires specialization -Location, number of sites affects SC organization and structure Financial - ability to obtain "good deals", bargain power

SC and Organization's Natur. •Non Government Organizations - non profit

-Strong social focus -Support organizational objectives -More flexibility, less restrictions (compare to gov. org.) -Could operate globally

nonstrategic spend

-Usually low-spend products and service (e.g., "B" and "C" items) -Dollar value and repetitiveness drive decisions -Establish a small dollar threshold -Prequalify suppliers -Use efficient order placement tools

5 R's of purchasing

1)Right Item and/or Service 2)Right Quality 3)Right Quantity 4)Right Price 5)Right Time (some include Place and extend the statement to the right Delivery)

Managing supply risk

1.Identify and classify potential risk factors ● 2.Assess impact and probability of risk event -Evaluate and Prioritize ● 3. Develop a risk management strategy -Develop and implement risk mitigation strategies: A.Risk avoidance strategies B.Contingency mitigation plans

Some operational risks in a supply chain are beyond the control of the purchaser or supplier, and some are within their control.

true

Supply is of great consequence in most manufacturing organizations since the costs of purchased materials and services greatly exceeds labor and other costs.

true

Supply managers may be able to provide information to identify risks to the organization, and can develop strategies to mitigate those risks.

true

the procurement of indirect or noncore spend is more likely to be outsourced than procurement of direct or core spend

true

Three Challenges in Setting Supply Objectives and Strategies

•Effective interpretation of corporate objectives and supply objectives • •The choice of the appropriate action plan or strategy to achieve the desired objectives • •The identification and feedback of supply issues to be integrated into organizational objectives and strategies

SC and Organization's Nature- public -(Gov. - local, state, federal)

•Focus on the mission of the organization •Supports the efficiency and effectiveness of the org. •Transparency & Fairness of the supply process •Social aims •Minority support •National security considerations (mostly services)

Opportunities for Supply to Contribute to Organizational Success

•Increase revenue •Reduce total costs of ownership •Reduce lead times through process efficiencies •Improve customer satisfaction •Identify opportunities for product/service innovations by collaborating with suppliers •Minimize financial, operational and reputational risks •Improve supply chain sustainability performance •Provide information to others in the organization in areas such as market conditions and new products and services.

Steps in procurement process

•Need recognition •Description: translation of that need into a commercially equivalent (specification) •Search for potential suppliers •Selection of a suitable source(s) •Agreement on order or contract details (Price!) •Delivery of products and/or services •Payment of suppliers

Supply strategic questions

•What -Make or buy/insource or outsource -Standard versus special - •What Quality -Quality versus cost -Supplier involvement - •How much -Large versus small quantities (inventories) •Who -Location of staff -Centralized or decentralized authority -Top management involvement •When -Now versus later -Forward buy •What Price -Premium, standard, lower -Cost-based, market-based -Lease/make/buy •Where -Local, regional -Domestic, international -Large versus small -Multiple, single versus sole source -Current, new or newly developed supplier -High versus low supplier turnover Supplier certification How Systems and procedures/ MRP/ e-Commerce Selection method: Negotiation/ Competitive Bid Blanket orders/Open orders/ Systems contracting/ Group buying Short-term or long-term contracts Use of Purchasing research; Value analysis Follow an aggressive or passive strategy Why Objectives congruent operationally and strategically Market conditions current and future

strategic spend

•goods or services critical to the mission of the organization -Typically high-spend products or services (e.g., in ABC classification, focus on "A" items1) -Can be low dollar value purchases if they are critical to the organization