Topic 11

List the opportunities for you to involve suppliers at each stage of the new product development (NPD) process.

0) Idea Generation: Share new product ideas 1) Screening/Scoping: Provide feedback on technical feasibility of materials and processes; suggest alternatives 2) BCA: Provide cost and lead-time data to help assess viability; refine concept to improve "doability" 3) Development: Refine concept to improve "doability"; Provide critical components for (or even make) the prototype 4) Test/Validate: Offer suggestions on how to improve the product/process 5) Launch: Provide adequate capacity to support successful launch

What are the 2 rules of negotiation?

1) "If you don't ask, the answer is no" 2) "Information is power"

List the 5 steps in the strategic sourcing process.

1) Analyze 2) Source 3) Bid/negotiate & contract 4) Procure 5) Reconcile & pay

What are 4 benefits of early supplier involvement?

1) Better overall design & quality 2) Increased product manufacturability 3) Reduced overall development time 4) A fresh set of eyes to discover design and production efficiencies

What are the 3 eras of Purchasing?

1) Clerical 2) Transactional 3) Strategic

What are the 5 essential steps to multi-criteria analysis (sourcing)?

1) Decide on Criteria (most critical criteria) 2) Set weights (prioritize) 3) Define Scoring System (score each supplier on same scale) 4) Evaluate Options (involve more people in more important buy decisions) 5) Calculate Results (Multiply score for each criterion by associated weight and sum up; perform a sensitivity analysis)

At each stage of the make-versus-buy process, you ask key questions to help you make the right decision. What are 3 key takeaways from these questions?

1) Don't outsource strategic activities 2) Don't outsource activities that you do better than suppliers 3) Consider outsourcing when a supplier does something better than you do

As you evaluate each item you're buying based on importance and supply market complexity, you can segment your buys into what 4 types?

1) Generic (routine) 2) Leverage 3) Unique (bottleneck) 4) Strategic (critical)

Building strategic value co-creation relationships requires that you invest in your partners' capabilities. This supplier development takes what 2 forms?

1) Increase Supply Options: Working with suppliers to bring a unique device to market 2) Improve Process Capabilities: Help suppliers improve their own capabilities; Goal = build a stronger more competitive supply base that will help you win in the marketplace

What are some approaches that are good for managing bottleneck items?

1) Join a purchasing consortium for project-oriented items that you buy periodically 2) For critical items that are bought in small volumes, enter into a collaborative partnership and work to build supplier skills and increase production capacity

What skills/tools do you need to build strategic partnerships with suppliers?

1) Long-term contracts 2) How to build trust

What are the 7 rights of purchasing?

1) Obtaining the RIGHT material 2) in the RIGHT quantity 3) with the RIGHT service 4) for delivery to the RIGHT place 5) at the RIGHT time 6) from the RIGHT supplier 7) at the RIGHT total cost

What are 4 opportunities that a career in purchasing gives you to make a difference in your company?

1) Profit-Leverage Effect: Each dollar saved = profit 2) Organizational Scope: As you decide what to make vs buy, you determine your company's strategic capabilities and its future 3) Social responsibility: Who you buy from and how can make the work a better place 4) Building the team: No company wins global competitive battles alone; companies compete as part of a team with their suppliers

As a supply professional, what 4 areas do you need to become an expert in?

1) Resources 2) Suppliers 3) Processes 4) Technologies

What 4 categories make up the SSM? Describe their location within the matrix.

1) Routine (low complexity, low importance = bottom left) 2) Bottleneck (low importance, high complexity = bottom right) 3) Leverage (high importance, low complexity = top left) 4) Critical (high importance, high complexity = top right)

Early Supplier Involvement in NPD

Supplier is part of you NPD efforts in the very early stages, tapping into their expertise and optimizing product or service design

Supplier-Integrated Manufacturing

Suppliers establish manufacturing or assembly operations within your facilities; a close parallel involves co-locating a facility next to your plant to deliver materials more quickly direct to your assembly line

SCOR Model

Supply Chain Operations Reference; A supply chain framework that seeks to standardize and illustrate business processes, performance metrics, practices and people skills into a unified structure

Outsourcing

The act of obtaining goods or services from a supplier in place of internal sourcing; You are only outsourcing if you could've produced the good/service internally but choose to source outside the company

Supply Management

The identification, acquisition, access, positioning, management, of resources and related capabilities the organization needs or potentially needs in the attainment of its strategic objectives

Supply Base Rationalization

The process of 1) determining how many and which suppliers you should buy from as well as 2) defining the type of relationship you should build with each supplier

Who's job is it to buy the right stuff to keep your company running smoothly?

The purchasing professional

As a purchasing professional, what is your most important (time consuming, costly, & impactful) job?

To find, select, and develop the right suppliers

Why does Honda use prompt payment terms with suppliers?

To show them respect and become a customer of choice (because it lowers supplier's costs)

Describe the purpose behind Honda's BP Program.

To win suppliers hearts and create long-term relationships, Honda "lends" suppliers a process development team for a 13 week carefully charted program designed to teach suppliers how to improve their own processes with the goal of helping suppliers learn the skills to become more competitive and self-reliant

Profit-Leverage Effect

Translates the cost savings into logistics to the sales equivalent required to have the same profit impact

T/F: Multi-criteria analysis is a tool that helps you compare "distinctly different" options.

True

T/F: Purchasing savings can have a huge impact on the firm's profit leverage.

True

T/F: To calculate results you multiply the score for each criterion by the associated weight and add up the results.

True

Collaborative Forecasting

Work together with supplier to develop a joint demand forecast, enabling both sides to plan better

Describe the bid/negotiate and contract step of the strategic sourcing process for each different type of buy.

1) Routine: Buy at list price and avoid contracting process 2) Leverage: Competitive bidding (clearly express requirements and identify a number of suppliers who want the business) 3) Strategic & bottleneck: Use negotiation to help you and the supplier better understand each other's needs and come to a better deal

Total Cost of Ownership (TCO)

An approach that goes beyond measuring price to consider all of the associated, and often hidden, costs of doing business with a particular supplier, or the cost of pursuing various options (like using alternate processes, or insourcing vs outsourcing)

What is your goal when managing bottleneck buys?

Avoid supply disruptions and manage price as best as possible

Describe Category Importance (SSM).

Based on how much impact the category has on your performance; spend = key measure

Critical items (on the strategic sourcing matrix) are: a. Also called strategic items b. Suppliers are fairly interchangeable c. Are straightforward markets d. You want to generate a high amount of market competition

a. Also called strategic items

What type of costs might still remain after you outsource an item? a. Fixed overhead costs b. Variable plant costs c. Materials costs d. Processing labor costs

a. Fixed overhead costs

During WWII, ___________ increased the emphasis on purchasing. a. Materials shortages b. Rationing of food supplies c. Women in the workforce d. Lean management

a. Materials shortages

Which step in the process asks you to fill in your comparison matrix? a. Define scoring system b. Evaluate options c. Decide on criteria d. Set weights e. Calculate results

b. Evaluate options

A purchase where there are a large number of competitive suppliers and you buy a fairly large amount relative to the market would most likely be classified as: a. Routine b. Leverage c. Unique d. Critical

b. Leverage

During which step of the strategic sourcing process do you actual purchase items you have contracted for? a. Source b. Procure c. Reconcile and pay d. Bid/ Negotiate and contract e. Plan

b. Procure

During which era did outsourcing make purchasing strategic? a. Cost savings era b. Strategic era c. Clerical era d. Transactional era

b. Strategic era

Because you NEED critical items to build competitive products, meet customer needs, and stay in business, you need to learn to do what with key suppliers?

build strategic partnerships

Supplier segmentation using the strategic sourcing matrix occurs during which step of the strategic sourcing process? a. Reconcile and pay b. Source c. Analyze d. Plan e. Procure

c. Analyze

When it comes to negotiations, it is important to know that: a. Getting the best price is paramount b. Contracts are always very complex and time consuming c. Knowledge is power d. They are never a win win situation

c. Knowledge is power

Which of the following is not a step in the strategic sourcing process? a. Procure b. Reconcile and pay c. Plan d. Analyze e. Source

c. Plan

A leverage buy (on the strategic sourcing matrix) is one where there is: a. High risk b. Unique, value-added suppliers c. You spend enough money to generate supplier competition for your business d. You want to have the max number of suppliers possible in order to get competition

c. You spend enough money to generate supplier competition for your business

Purchasing's strategic importance starts with the fact that purchased goods/services are almost certainly your organization's largest __________ category.

cost

The strategic sourcing matrix: a. Is used to segment purchases b. Is widely used in practice c. Considers the importance of the category and the complexity of the market to classify purchases d. All of the above

d. All of the above

When considering outsourcing, you should evaluate which of the following factors? a. Whether the item is strategically important to you b. How good you are at making the item versus how good suppliers are at making it c. The total cost of ownership of the item compared to the cost to make the item internally d. All of the above

d. All of the above

Bottleneck buys: a. Represent a large dollar volume b. Are a good place to focus on cost reduction c. Have sudden price spikes or a supply disruptions d. Are difficult to manage because there are few options

d. Are difficult to manage because there are few options

In its relationship with Gordon Foods, Bob Evans did which of the following? a. Consolidated to a single source b. Gave the drivers free food to encourage loyalty and good service c. Gave the drivers access to the restaurants at night for delivery when no one else was there. d. Both a and c

d. Both a and c

The make or buy decision analysis tells us: a. It is not that important to the company's success to outsource items that are not strategic to our success b. We should make all strategic items internally c. Before outsourcing a strategic item, we should seriously consider our own ability to successfully make that item d. Both a and c

d. Both a and c

Which of the following statements is correct? a. Landed costs include TCO b. TCO includes landed costs c. You should use landed cost analysis for all purchase decisions d. Both b and c

d. Both b and c

A strategic alliance is most likely in which spend category? a. Transactional b. Routine c. Leverage d. Critical

d. Critical

What are the 5 activities of the SCOR model? a. Prepare, Source, Make, Determine, Respond b. Prepare, Service, Make, Deliver, Respond c. Plan, Service, Manufacture, Determine, Respond d. Plan, Source, Make, Deliver, Return

d. Plan, Source, Make, Deliver, Return

During which step of the strategic sourcing process would you identify potential suppliers? a. Analyze b. Procure c. Plan d. Source e. Reconcile and pay

d. Source

Leverage purchases: a. High volume, high complexity b. You don't have to worry about a sudden price spike c. Are an example of the KISS principle d. Your best opportunity to really save money and a buyer's dream

d. Your best opportunity to really save money and a buyer's dream

Potential supplier contributions from ESI include: a. Providing feedback on feasibility of materials and processes b. Suggesting alternatives c. Improve cost d. Improve lead time e. All of the above

e. All of the above

As part of supplier integration: a. You help finance the supplier's supply chain b. You share information on your plans with the supplier c. You communicate seamlessly d. You build in contractual yearly price reductions e. Both b and c

e. Both b and c

Reasons for early supplier involvement is: a. To better train the supplier for the future b. To utilize the supplier's innovative ideas c. Because the most cost and functionality is determined during design. e. Both b and c

e. Both b and c

Which of the following is not one of the four reasons to include a multi-criteria analysis in your toolkit? a. Quantifiability b. Applicability c. Disciplined d. Intuitiveness e. Comprehensiveness

e. Comprehensiveness

Which step in the process helps you determine how important each criterion is? a. Define scoring system b. Evaluate options c. Calculate results d. Decide on criteria e. Set weights

e. Set weights

When referring to bottleneck buys, ____________ transfers power to the supplier and makes your job harder. When possible, try to persuade the end user to accept a more _____________, readily available item.

scarcity; standardized

If your initial analysis suggests that outsourcing is a good idea, you should perform a __________ analysis to gain insight into how your assumptions affected your analysis.

sensitivity ("what-ifs")

Describe the clerical era of purchasing.

Before WWII, purchasing was viewed as a clerical function. WWII materials shortages increased emphasis on purchasing.

Cost of Goods Sold (COGS)

Cost to company for goods it sells, including purchased costs and internal value-added such as manufacturing labor and other manufacturing costs; For non-manufacturers, it's the amount they pay for goods for resale

Sustainability

Development that meets the needs of the current generations without compromising the ability of future generations to meet their own needs; includes environmental, social, and financial activities

When is most of a product's cost and functionality determined?

During product design

Why don't all companies involve suppliers early in the NPD process?

Early supplier involvement is hard work that requires a collaborative mindset and exposes you to real risks (like losing control of proprietary know-how)

T/F: In bidding or contracting, you also use the same approach and try to get the best price.

False

T/F: Outsourcing just means that you are buying something instead of making it.

False

Describe critical buys.

High volume/value items you buy in complex, risky markets; supplier dominating these markets possess something unique (technical capabilities, valued brand names) that are hard to copy and thus posses greater market power

Value Proposition

How the company competes; Why customers buy from you versus a competitor

Procure-to-Pay (P2P)

Integrated process from placing an order through receipt of goods/services to supplier payment

Describe routine buys.

Items (like office supplies) that firm doesn't spend much money on and supply markets are straightforward; lots of supply options = stable price and supply; require little time and effort

Describe leverage buys.

Items you buy in large volumes from stable supply markets; can 'leverage' competing suppliers to obtain optimal price and performance; if problems arise you can easily switch suppliers

When buying routine items, you want to remember the KISS principle, which stands for?

Keep It Simple and Straightforward; set up a simple, cost-effective system that won't take a lot of time to manage

Vendor Managed Inventory

Let supplier take care of your inventory levels for their products (they decide when to reorder more)

Describe bottleneck buys.

Low volume, low dollar value; never sure of availability or getting best price; suppliers often have special expertise or tech that's hard to replicate, limiting your options; you don't buy a large enough quantity to be a supplier's priority

Describe Market Complexity (SSM).

Measures how difficult it is for you to guarantee a reliable, uninterrupted flow of supply at an affordable price

______________ volume means more leverage with suppliers and more opportunities to take advantage of scale economies.

More

Purchase Order

Order formally placed with external supplier; expresses terms and conditions -Typically comes from purchasing personnel, if not, it may be an example of maverick spend

The make-versus-buy decision is also called ____________ if you used to produce the good/service internally.

Outsourcing

Honda's BP Process follows Deming's widely used 4-stage _______________ model.

Plan, Do, Check, Act (PDCA)

Landed Costs

Price paid, plus all the costs (transportation, duties, handling) to get the items to the location where you need them -Subset of TCO analysis

Insourced Warehousing

Rely on teh vast warehousing capabilities of companies like FedEx and UPS to flexibly manage distribution

What is the first step in effective sourcing?

Segmenting your buy and your supplier relationships

Consideration

Something of value needs to be exchanged by both parties

Describe the source step of the strategic sourcing process.

-Identify potential suppliers, consider the type of relationship you need to establish with selected suppliers, and understand the total costs associated with buying the item including the underlying cost drivers

Describe the 2 measures within the SSM.

-Importance of category: Volume or total cost of materials -Complexity of market: High risk, rapid technology change, high entry barriers

Describe the Supplier Relationship Continuum.

-Manage the relationships with the least value-added potential as more transactional (routine) relationships. As importance and value-added capability increases, you invest in more strategic, collaborative relationships

What are some results that Honda got from using its BP process?

-On average, Honda helps suppliers improve quality by 30% and labor productivity by almost 50% -Helps suppliers change their operating culture to one that emphasizes continuous improvement and often extends upstream to supplier's suppliers

Describe the reconcile & pay step of the strategic sourcing process.

-Receive what you ordered, verify the items are in good condition and that invoice price matches the agreed upon price in the contract or purchase order -Procure-to-Pay (P2P) -Pay on time (lower supplier's costs)

What tools do you have to manage leverage buys?

-Spend analysis: carefully look at how/where you spend your money to find opportunities to combine requirements across your organization -Supply-base rationalization: buying each item from the right number of suppliers, generally fewer suppliers

Describe the goal and nature of transactional relationships.

-Goal: Minimize costs and assure availability -Nature: Low value co-creation potential, arms-length, short-term, transitory

Describe the transactional era of purchasing.

-1950-70s: Purchasing became a managerial function -1973-1980s: Scarcity/inflation increased purchasing's visibility

Describe the strategic era of purchasing.

-1985-1995: Lean management makes purchasing quasi-strategic -1995-2005: Outsourcing makes purchasing strategic -Tomorrow: Supply chain integration invites purchasing to C-suite

Describe the continuum of buyer/supplier integration initiatives.

-As you move from left to right, the degree of integration (amount of interaction and commitment of resources) goes up and both your risks and opportunities to do something really cool increases -Collaborative forecasting, vendor managed inventory, insourced warehousing, early supplier involvement in NPD, supplier-integrated manufacturing

Describe the procure step of the strategic sourcing process.

-Begins as contract is finalized and you begin to take deliver y of the purchased goods/services -Goal = effectively manage and measure supplier, ensuring continuous improvement for ongoing buys -Supplier scorecards, periodic business reviews

Describe the analyze step of the strategic sourcing process.

-Develop a deep understanding of what you're buying, the market, the opportunities, and how you'll manage the purchase

Describe the bid/negotiate and contract step of the strategic sourcing process.

-Getting the supplier on contract, ready and able to perform -Different approaches for different types of buys -Want to develop contracts that clearly define role and responsibilities for both your firm and the supplier -Ranges from simple purchase order to complex contracts

Describe the goal and nature of strategic alliance relationships.

-Goal: Maximize value co-creation, assure availability -Nature: High value co-creation potential, interdependent, long-term, joint planning via teams, share resources, shared risks and rewards

An in-depth TCO analysis isn't needed for everything you buy, but you should always consider the truly relevant costs. What are 2 scenarios in which your analysis would vary?

1) Standard buy: For simpler purchases, you can use a limited TCO view called total landed cost analysis (price paid + all costs to get items to location) 2) Capital Acquisitions: For capital purchases (equipment, buildings), you need to capture the present value of lifecycle costs (purchase price, repairs, maintenance) based on how you anticipate the asset will be used

What factors define complexity?

1) Supply Market Competitive Landscape (influences negotiating power) 2) Risk (minimize to assure continuous, on-time delivery) 3) Technological Uniqueness (don't want to become obsolete; price & availability)

Purchasing Consortium

2+ organizations that join together for the purposes of leveraging their combined spend volume to generate advantageous pricing and service conditions from suppliers

For the typical manufacturer, purchased inputs are about ___________% of COGS.

50-80

Negotiation

A discussion between 2+ parties who are attempting to reach an agreement through value claiming and possibly value creation; expensive & time consuming (save for complex situations)

Critical Items

A purchased input of relatively high importance/spend volume, and relatively high supply market complexity

Leverage Items

A purchased input of relatively high importance/spend volume, and relatively low supply market complexity

Bottleneck Items

A purchased input of relatively low importance/spend volume, and relatively high supply market complexity

Strategic Sourcing Matrix (SSM)

A strategic tool used to classify all purchased inputs according to relative value/spend volume and supply market complexity; Different categories suggest different strategic approaches to supply management

Supplier Scorecard

A tool that measures and displays supplier performance along criteria that you select

Contract

A written or spoken agreement between 2 parties; to be valid, it must include an offer, an acceptance, and consideration