Supply Mgmt Exam 2

Disadvantages for Supply Management (e-commerce)

-Costs and benefits are hard to quantify -Requires highly educated supply professionals -Problems with integration of databases, data accumulation systems, and software -Exposes a company to a myriad of global issues: --Currency conversions, --tariffs, import and export restrictions --local business customs --laws of each country -High cost of entry -Resistant to change may be high -Call for a reduction in the supply management staff -Static systems often result

Two issues must be addressed to make an electronic system capable of sharing information:

-Data must be in a form that is transferable and understandable -The organizations involved must be willing to share critical and confidential information

Understand what subcontracting is and when it is used

-Def: When a prime contractor bids out part of the work to other contractors. -Use: When you have an item that you need help making (ex. A building) --appropriate when placing orders for work that is difficult to define, will take a long period of time, and will be extremely costly.

Describe the three EDI choices.

-Direct connections --Computer to computer links -Value Added Networks (VAN) --Use of a 3rd party provider to link companies -Open EDI --Via the internet

When does an online bidding process become a negotiation?

-If the buying firm changes the criterion for awarding the contract during the bidding process -Engaging in this type of buying can create a poor reputation for the buying firm

Be able to describe the uses of information technology for Information Sharing.

-Information sharing through eCommerce can create synergies between supply chain -Most existing systems are used for tactical sharing -Information sharing can be expanded to include strategic information -(Two issues must be addressed to make an electronic system capable of sharing information)

Why buy?

-Lack of expertise in-house -Lack of capacity in-house -Noncore activity -Inability to make in-house -Supplier is more competitively priced -Supplier is more capable than buyer's firm -Gain a competitive advantage by using supplier

Identify the key issues involved in deciding what to make (internally) and what to buy from outside suppliers?

-Make in house if it is core to your company (competitive advantage) --Requires resources, labor, capital, time, money, training, decision making -Non-core products consider buying --Loss of control, exposure to supplier risk, unexpected fees, or "extra use" difficulty in quantifying economics, supply restraints, attention required by senior management, tied to obsolete technology, concerns with long term flexibility

What are the benefits of follow-up and expediting?

-Meet delivery promises -Identifies problems ahead of time -Used for large dollar items or critical items -This ensures that you will have the supply of goods, earlier knowledge allows appropriate action. Ensures supply. Expediting may show that changes in the internal organization may be needed

Need to think strategically about the supplier selection

-Number of suppliers, relative importance of the item being sourced, supplier qualification, location of the supplier, type of relationship desired •Simple analysis of the bid •Or, complex negotiation process

Explain the uses of information technology Bidding.

-Online bidding is dynamic, where multiple bids from the -Online bidding speeds up the bidding process -It also encourages suppliers to reduce profit margins

Formal supplier evaluation

(weighted point evaluations) usually in larger organizations where communication lines are stretched, internal users maybe at other locations (used to track over time)

What contribution to purchasing efficiency might be effected through the use of a p-card?

-A procurement card is a credit card that is provided to internal customers to purchase directly from established suppliers. -These cards reduce administrative costs by reducing the number of purchase orders generated and processed and by shortening the process cycle time for authorizing, tracking, purchasing, reconciling, and reporting purchases. -It also helps consolidate spend and suppliers. -They eliminate purchase orders and individual invoices and ensure suppliers of fast payment.

Be able to explain the strategic importance and criticality matrix

-Categorizes manufacturing parts -Produce in-house -Outsource -Strategic value of the part - meaning it has value on its own and can be marketed -Criticality of the part to the final product in terms of its value to the performance of the final product Want to manage things more critically that have a high dollar spend, value)

•Expediting

-Pressure on the supplier to meet a required need (the suppliers mistake, so all the associated costs are put onto the supplier)

Be able to discuss how Supply can play a role in insourcing and outsourcing decisions

-Providing a comprehensive, competitive process -Identify opportunities for insourcing or outsourcing -Aiding in selection of sources -Identifying potential relationship issues -Developing and negotiating the contract -Ongoing monitoring and management of the relationship

Why make?

-Quantity too small to source -Quality restriction -Assurance of supply -Proprietary information (Core) -Lower cost option -Available capacity -Stability of workforce -Lead time constraint

The benefits are that EDI....

-Reduces paperwork -Reduces administrative requirements -Improves data accuracy -Reduces lead time

Advantages for Supply Management (e-commerce)

-Share customer demand information -Enable collaboration among supply chain members -Enable collaboration -Enable collaboration on design of new products and services. -Share information -Identify new suppliers -Compare potential suppliers -Improve information exchange -Run 24/7 -Reduce purchase order cost

•Cash discounts and late invoices

-Suppliers need to bill for items delivered under a contract -Avoid payment until the goods are received -Pay in advance when the supplier is reliable and the financial consideration is large if the discount is forfeited.

What approaches, other than the standard purchasing procedure, might be used to minimize the small value order problem?

According to the book, some ways to solve the small value order problem are by "simplifying or automating the process or consolidating purchases to reduce the acquisition cycle time, reduce administrative cost, and free up the buyer's time for higher-value or more critical purchases."

What are some problems with implementing an e-procurement system?

Already answered

When would you issue an RFP rather than an RFQ and why?

An RFP is a request for proposal, whereas an RFQ is a request for quote. When doing an RFQ, you are extending this request to the supplier and asking for a quote on a product or products. This is different from an RFP because an RFP is a request to purchase the product itself rather than for the price of the product. So, you would extend an RFP originally, and then once that is fufilled and agreed upon, one might extend an RFQ.

Be able to discuss e-procurement systems, their use and benefits in supply management.

An e-procurement system is an applications software package that allows the requisitioning, authorizing, ordering, receiving, invoicing, and paying for goods and services over the Internet. Benefits- better visibility of what they are spending globally by the supplier, region, and commodity, faster, better product development by tapping suppliers as an innovation source, and tighter risk and mitigation

What contribution to purchasing efficiency might be effected through the use of BOM?

Bill of Materials Supply sets up blanket orders against which internal customers issue release orders; suppliers provide summary billing. -These order have an original order that is negotiated with the terms and conditions. -These order could cover a variety of items. -Open-end order allows for additional items and an extension of time. -These order allows buyers to reorder certain items without spending the time to negotiate similar orders.

Explain the uses of information technology for Negotiation and Bidding.

Cost reductions and efficiency gains. Online and reverse auctions.

Be able to explain the concept of make vs buy decision.

Deciding to make means to produce a good or provide the service internally. On the other side, deciding to buy means that the good or service will be provided by a supplier. If a good or service is a core activity in an organization it should not be outsourced. However, if product or service is not core to an organization they should consider outsourcing. A reason to choose to make is an organization wouldn't want to share knowledge about making a certain product due to fear of losing a competitive edge. A reason to buy would be if there are scarce resources or if it is too expensive to make. However, cost is not the only thing an organization should consider when making this decision. Overall, choosing to make or buy is extremely important to an organization and much thought and consideration should be done before making final choice.

Be able to discuss e-commerce, and its advantages and disadvantages for supply (A)

Ecommerce is when business activities are conducted using electronic data transmission via the internet and the WWW. Advantages- ability to share customer demand info, enable collaboration among supply chain members and functional areas, reduce costs, run 24/7. Disadvantages-costs and benefits are hard to quantify, professionals need to be highly educated, associated global issues

What is EDI?

Electronic Data Interchange -EDI is the direct electronic transmission, computer to computer, of standard business forms, such as purchase orders, shipping notices, invoices, and the like, between two organizations

When should the buyer conduct an informal, rather than a formal supplier evaluation?

Executive roundtable discussions -when users & supply managers in daily contact & feedback on supplier performance is quick -typically in smaller orgs because bigger orgs' communication channels are too stretched

What is XML?

Extensible Markup Language ¨(XML) appears to meet most of the needs of data transferability today ¨XML works in the same way as HTML except that, instead of defining the format of a Web page, XML's tags define the context and meaning of the text ¨The information in an XML document can appear and be in whatever order or length the sender desires

What are the costs of follow-up and expediting?

One form of risk assessment and mitigation is matching the degree and type of follow-up with the spend category strategy (typically based on the importance of the purchase to the organization). -Follow-up and expediting that cost more than the value added is a form of process waste. It should be captured and included in the total cost of ownership assessment. -Expediting may be a prime target for root cause analysis and a reduction or elimination plan. Often, the analysis reveals that the need for expediting is driven by decisions made in the buying organization, not by the supplier, and internal change is needed.

Discuss the importance of developing and managing suppliers

One of the greatest untapped frontiers in supply chain management, builds a collaborative relationship Managers must ensure the suppliers perform as required (could damage your business if not) suppliers must meet the firm's long-term needs. Buying firm assist with financing/technological assistance, develop new sources, be required to develop the capability internally

Understand the motivation associated with outsourcing the firm's activities?

Outsourcing gives the company the opportunity to downsize and solely focus on core competencies

Be able to explain the strategic decision making process for outsourcing and insourcing

Outsourcing- decision to buy something that was made in house Insourcing- past buy decisions that are reversed New circumstances inside organization, market, or environment

RFB

Request for Bid similar to RFP but no negotiation occurs after the bid is received

RFP

Request for Proposal -requirement is complex and desire supplier's expert input (tend to be relatively thick, Some through government or contractors must meet certain requirements)

RFQ

Request for Quote buyer and user can clearly describe the need (External -sent to the supplier (quote is price))

RFB

Request for bid. Used in a competitive bid process. Important to communicate with suppliers how the final selection will take place

RFI

Request for information. Used to gather information about a potential suppliers' products and services. IS NOT A SOLICITAION FOR BUSINESS or an offer to do business. Information gathering purposes only

RFP

Request for proposal. Used for more complex requirements in which prices is only one of the several decision factors. Typically, buyer is planning on negotiating price and terms. Invites bidders to use their expertise to develop and propose one or more solutions.

RFQ

Rrequest for quote. Issued when there is a clear and unambiguous description of need.

Be able to explain the levels of outsourcing pyramid

The deeper you go into the supply chain, the more suppliers there are Bottom- Last-tier suppliers Second-tier suppliers First-tier suppliers Top- Final assembly unit (First tier suppliers could negotiate a better deal that could roll over to the lower tiers and they too will benefit from the deal)

Be able to discuss the benefits of ERP systems for supply management?

¨Cycle time reduction ¨Faster information transactions ¨Better finacial management ¨Laying the groundwork for eCommerce ¨Making tacit process knowledge explicit

Supplier Evaluation Methods

¨Informal and Semiformal Evaluation and Rating ¤Executive roundtable discussions ¨Formal Supplier Evaluation and Rating ¤Weighted point evaluation systems

Compare Internet, Intranet and Extranet.

¨Intranets are networks internal to an organization that use the same technology that is the foundation of the global Internet ¨Often start out as ways to link employees to company information ¨Intranets can easily become Extranets by extending them to include customers and suppliers -Intranet (inside the company) -Extranet (outside the company) -Intranet and extranet usually have a firewall

Be able to discuss the criticisms of ERP systems for supply management?

¨Long implementation ¨Inflexibility ¨Overly hierarchical organizations ¨Antiquated technology ¨High cost

Considerations for Single Sourcing

¨Lower total cost results from higher volume ¨Quality considerations dictate ¨Buyer obtains more influence with the supplier ¨Lower costs to source, process, expedite, inspect ¨Just-in-time requirements ¨Significantly lower freight costs may result ¨Special tooling is required ¨Total system inventory will be reduced ¨Supplier will have an improved commitment ¨Improved interdependency and risk sharing result ¨Time to market is critical

Be able to discuss on-line bidding

¨Online bidding is dynamic, where multiple bids from the same firm are possible ¨Online bidding speeds up the bidding process ¨It also encourages suppliers to reduce profit margins

Evaluating Potential Suppliers

¨Supplier provided information ¨Financial Condition Analysis ¨Third Party Evaluators ¨Evaluation Conference ¨Supplier Facility Visits ¨Quality, Capacity, Management Team, Service, Flexibility Capability Analysis ¨Supplier preferred lists ¨Internal customer surveys ¨Current supplier scorecards ¨Information Technology Capability Analysis

Be able to discuss reverse auctions

¨The buying firm specifies a particular requirement and allows suppliers to bid on it ¨Typically, the lowest bid wins ¨However, some auctions can support very complex auctions ¨Buying firms can determine what information will be visible to the suppliers ¨Multiple bids may be accepted right up to the closing moments of the bidding process ¨An open reverse auction is where any supplier can respond ¨A closed reverse auction is where the bidders are limited to those who meet some predefined criteria ¨Some auctions allow additional rounds of bidding --1 buyer. Want the bid to go down

Be able to discuss the use of Bidding Versus Negotiation

¨The selection of bidding or negotiation should be decided by using objective criteria, a total cost perspective and sound supply management logic Bidding- request for bid, quote a price, usually a one time activity, usually online, can usually get a lower price due to the competitive nature of bidding Negotiation- used for more complex buying decisions, need to work through the details and come to an agreement in the terms of a contract (focus is not always on just the price in a negotiation; it could be a number of things)

Be able to discuss e-commerce, and its advantages and disadvantages for supply --powerpoint

•- The buying organization can purchase and install on its servers a package from a solutions provider •- The buying organization can use a third-party to host the e-procurement application for the organization •- An e-marketplace serving multiple buyers and multiple sellers can purchase and operate the e-procurement application •- "Content Vendors" may supplement the e-procurement package by creating catalogs or providing access to existing ones

Supply Risk and Dollars Extended: Strategic

•Continuous availability is essential to the operation •Custom design or unique specifications •Supplier technology is important •Few suppliers with adequate technical capability or capacity •Changing source of supply is difficult •Substitution is difficult

•Follow-up to track the status of an order is important

•Follow-up to track the status of an order is important

Follow-up and expediting

•Follow-up to track the status of an order is important •Expediting •Rush orders

The purchase order

•Format and routing -Requirements -A PO must be accepted by the supplier to be considered a contract -Blanket and Open-end orders

-Standard requisition

•Information includes: date, identification number, originating department, account to be charged, description of material/service desired & quantity, date needed, special shipping requirements, signature of requisitioner

Invoice clearing and payment

•Invoice is a claim for the buyer to make payment •Aligning supply and accounts payable -Avoid late payments •Cash discounts and late invoices

Maintenance of records and relationships

•Keep a record of Pos •Supplier history •Outstanding contracts •Database of suppliers •Commodity classifications of items purchased •Purchases from MWBE suppliers •Status of union labor contract of all major suppliers •Tool and die record showing tooling purchased •Bid award history file ... helps to identify inconsistencies or possible supplier violations

What records should be maintained by the purchasing/supply organization?

•Keep a record of Pos •Supplier history •Outstanding contracts •Database of suppliers •Commodity classifications of items purchased •Purchases from MWBE suppliers •Status of union labor contract of all major suppliers •Tool and die record showing tooling purchased •Bid award history file ... helps to identify inconsistencies or possible supplier violations

The risk associated with outsourcing the firm's activities?

•Layoffs • Loss of control. • Exposure to supplier risks: financial strength, loss of supplier commitment, slow implementation, promised features or services not available, lack of responsiveness, poor daily quality. • Unexpected fees or "extra use" charges. • Difficulty in quantifying economics; conversion costs. • Supply restraints. • Attention required by senior management. • Possibility of being tied to obsolete technology, and • Concerns with long-term flexibility and meeting changing business requirements.

Supply Risk and Dollars Extended: Leverage

•Price per unit is key because of volume •Substitute is possible •Competitive supply market with several sources

Receipt and Inspection of goods

•Receiving department checks incoming materials •Use certified suppliers in a JIT environment to by pass receiving department •Purpose of receiving: -Confirm receipt of the items -Check the condition of the items -Check the quantity -Forward to next point -Ensure proper documentation •Ensuring supplier quality through certification eliminates the need for inspection

Requirements

•Serial number, date of issue, name and address of the supplier receiving the order, quantity and description of the items ordered, date of delivery required, shipping directions, price, terms of payment, conditions governing the order

Supply Risk and Dollars Extended: Non-critical

•Standard specification or "commodity" type items •Substitute products readily available •Competitive supply market with many suppliers

Recognition of Need

•The first step in the supply process -What, how much and when it is needed

Blanket and Open-end orders

•The original order is negotiated with the terms and conditions •Blanket order covers a variety of items •Open-end order allows for additional items/ extension of time •SMI or VMI is a form of stockless buying with periodic billing •Third-party MRO suppliers who provide MRO supplies for all of the requirements in the organization

Problems Related to Implementing e-Procurement

•The requirement for explicit approval prior to making an on-line purchase »e.g., manual sign-off •- Reliance and comfort with fax and email lead to clumsy links between buyers and suppliers •- Transaction-by-transaction review prior to payment rather than paying on proof of shipment •- Haphazard review of buying and supplying behavior that leaves people unsure of the degree of success of e-procurement

Description of the Need

•Types of requisitions (User Internal (their request)) -Standard requisition -Traveling requisition -Bill of materials

Supply Risk and Dollars Extended: Bottleneck

•Unique specification •Supplier's technology due to low demand and/or few sources of supply •Substitution is difficult •Usage fluctuates and is not routinely predictable Potential storage risk

-Traveling requisition

•Used for recurring requirements •Contains a complete description of the item needed •Travels from the requisitioner to purchasing and back to the requisitioner with a PO number •The process can be automated (goes back and forth (does not need to be remade))

-Bill of materials

•Used to make a standard purchase over a long period of time •Originated by a materials scheduler and can be computer generated (Description of the end item and its parts)

Identification of potential sources

•When to issue an RFx (x is a placeholder.. Figure out Q,P,B) •Need to think strategically about the supplier selection

•Rush orders

-An item that the buyer needs the supplier to provide that was not originally ordered (buyers mistake, so all associated costs are put onto the buyer)

Why do some companies still use traditional EDI?

-As one manager recently put it "If it ain't broke, don't fix it!"

Where in the process is there the greatest opportunity to add value and why?

-The first step in the supply process is building consensus within the organization around the opportunities to add value to the organization. -You can add the most value to the first two steps (recognition of need and description of need) are where you can lead to cost avoidance or reduction, faster time to market, greater competitiveness. It is important to assess your need and know what your company needs.

Describe the importance of strategy and goal alignment

-The first step in the supply process is building consensus within the organization around the opportunities to add value to the organization. •Vertical and horizontal alignment of strategy and goals •Users recognize and describe their need for purchased items •Cross-functional teams help to identify and source for purchased items •To enforce a compliance with the supply process supply councils could be used

Describe how to evaluate potential suppliers

Limit suppliers in selection pool ¤Purchasers often perform a first cut or preliminary evaluation of potential suppliers to narrow the list ¤Time and resources prohibit in-depth evaluation of all suppliers ¤Methods to reduce suppliers in the pool-- --Financial risk analysis --Evaluation of previous performance --Evaluation of supplier provided information ---What kind of information should we ask suppliers to provide?

What, how much and when it is needed means...

-•Origination may occur in the using department or be initiated by the procurement system -•Requirements need to be clearly stated -•The supply department establishes lead time requirements for processing an order

Multiple sourcing

1. It has been traditional practice to use more than one source, especially on the important requirement. 2. Knowing that competitors are getting some of the business may keep the supplier more alert to the need for giving good value. 3. Assurance of supply is increased. Should fire, strikes, breakdowns, or accidents occur to any one supplier, deliveries can still be obtained from the others for at least part of the needs. 4. The supply organization has developed a unique capability of dealing with multiple sources. 5. To avoid supplier dependence on the purchaser. 6. To obtain greater flexibility, because the unused capacity of all the suppliers may be available. 7. Even in situations involving close and cooperative supplier relationships, it is possible to make backup arrangements so that supplier X specializes in product Q and backs up supplier Y, who specializes in product R and backs up supplier X. 8. Strategic reasons, such as military preparedness and supply security, may require multiple sourcing. 9. Government regulations may insist that multiple suppliers, or small or minority sources, be used. If there is high risk associated with a small or single-minority source, multiple sourcing may be necessary. 10. Sufficient capacity may not be available to accommodate the purchaser's current or future needs. 11. Potential new or future suppliers may have to be tested with trial orders, while other sources receive the bulk of the current business. 12. Volatility in the supply market makes single sourcing unacceptably risky.

Why buy?

1. The organization may lack managerial or technical expertise in the production of the items or services in question. 2. Lack of production capacity. This may affect relations with other suppliers or customers as well. 3. To reduce risk. 4. The challenges of maintaining long-term technological and economic viability for a noncore activity. 5. A decision to make, once made, is often difficult to reverse. Union pressures and management inertia combine to preserve the status quo. Thus, buying outside is seen as providing greater flexibility. 6. To assure cost accuracy. 7. There are more options in potential sources and substitute items. 8. There may not be sufficient volume to justify in-house production. 9. Future forecasts show great demand or technological uncertainty, and the firm is unable or unwilling to undertake the risk of manufacture. 10. The availability of a highly capable supplier nearby. 11. The desire to stay lean. 12. Buying outside may open up markets for the firm's products or services. 13. The ability to bring a product or service to market faster. 14. A significant customer may demand it. 15. Superior supply management expertise.

Why make?

1. The quantities are too small and/or no supplier is interested or available in providing the goods. 2. Quality requirements may be so exacting or so unusual as to require special processing methods that suppliers cannot be expected to provide. 3. Greater assurance of supply or a closer coordination of supply with the demand. 4. To preserve technological secrets. 5. To obtain a lower cost. 6. To take advantage of or avoid idle equipment and/or labor. 7. To ensure steady running of the corporation's own facilities, leaving suppliers to bear the burden of fluctuations in demand. 8. To avoid sole-source dependency. 9. To reduce risk. 10. The purchase option is too expensive. 11. The distance from the closest available supplier is too great. 12. A significant customer required it. 13. Future market potential for the product or service is expanding rapidly. 14. Forecasts of future shortages in the market or rising prices. 15. Management takes pride in size.

Be able to explain in detail each of the steps in the supply management process

1.Recognition of need 2.Description of need 3.Determination and analysis possible sources of supply 4.Determination of price and terms 5.Preparation and placement of the purchase order 6.Follow-up and/or expedite the order 7.Receipt and inspection of goods 8.Clear the invoice and pay the supplier 9.Maintain records and relationships

What contribution to purchasing efficiency might be effected through the use of VMI?

In Vendor-Managed Inventory, the supplier is responsible for maintaining the buying organization's inventory levels. -The supplier pulls stock, packs, ships, and invoices. -This procedure reduces process cycle time by reducing the number of people/functions touching the process.

Explain how supply managers discover potential suppliers

Information Sources-on-line (websites, search engines) Supplier Information Files (based on performance and experience of other buyers in the company) Supplier Catalogs Trade Registers & Directories Trade Journals Phone Directories Supplier and Commodity (raw materials, standard items, prices set by market) Databases Visits to Suppliers Trade Shows Colleagues (networking) References Professional Organizations

Be able to discuss the role of information technology in Supply Management.

Interconnected components that collect, process, and store raw data and distribute information to support decision making, and coordination within the organization. Allows them to be connected to partners in supply chain network. Exchange reliable information quickly and cost efficiently. Makes data more accurate and accessible to decision makers and relieve supply decision makers of lower value adding tasks. Facilitates more complex decisions

What is a weighted point evaluation system? Why is it used?

It is when a weight is assigned to each criterion and then is multiplied by each rating. It is used to more accurately get a gauge on where suppliers lay