MGSC 487 Final
Private carriers
provides transportation for its company's own products and the company owns (or leases) all related equipment and facilities
Sarbanes oxley act
public company accounting reform and investor protection act
When to appraise
purchase of strategic items, purchase of non standard items, changing normal mode of operation, entering into outsourcing agreement, capital equipment purchases basically whenever you're doing something new unchartered territory
Emphasis on total quality management and customer satisfaction
-part of a larger trend over past few decades to improve value -supply had to buy into responsibility for the quality of output of goods -requires a focus on understanding total costs of supply decisions and cost mgmt capabilities -cost mgmt begins with early supply involvement and ongoing efforts to analyze and reduce total supply chain costs
7 steps of Strategic sourcing process
1. Analyze Category Spend (Define) 2. Determine Business Needs (Define) 3. Assess supply Markets (Measure) 4. Develop Category strategy (Analyze) 5. Execute strategy (Improve) 6. Operationalize (Improve) 7. Sustain results (Control)
SCOR Identifies Top 5 Challenges
1. Customer Service 2. COst control 3. Planning and risk management 4. supplier/partner relationship management 5. talent
Selection process
1. Identifying Potential sources 2. Single vs Multiple Sourcing 3. Determine channel 4. Evaluate possibilities 5. Make decision
BATNA
Best Alternative To a Negotiated Agreement Best we can hope for if negotiations don't succeed Even if no other negotiations succeed, you can get this much your walk away point
Other
Financial Environmental Social Political Values if you want to work with a company based on their values etc
What to appraise
Financial stability, capacity, production, facilities, human resources, quality, environment, social and ethical practices, info technology
FOB
Free on board goods are delivered to specified point with all transport charges paid
Logistics costs (Total cost of Ownership)
Inventory carrying Administrative Transportation (40% of total cost of items) whole logistics process is viewed as an area where cost avoidance and cost reductions will reap bottom line rewards
Operationalize
Just do it! Let negotiations begin, engage the new suppliers (ABF)
Traditional
Supply and supply base are examined from basis Think "operational excellence"
Basic Model of TCO
TCO = Material + Freight + Inventory + Administration
Logistics
That part of supply chain management that plans, implements, and controls the efficient, effective forward + reverse flow + storage of goods, services, and related information between the point of origin to the point of consumption Minimize costs while maximizing service needed
Establishing price
The cost approach The market approach
Fair price
The lowest price that ensures a continuous supply of the proper quality where and when needed occurs over the long run only if supplier is making a reasonable profit a fair price to one seller may be higher than a fair price to another for an equal item
Modes of transportation
The means by which people, freight, or information gain mobility Land, water, air, pipeline, drone, radio frequency
3PL
Third party logistics provider - A company who performs logistics processes for other companies, both physical goods and information/financial flows.
Audits
Third party: ISO9000/14000 Second Party: customer on supplier
TL and LTL
Truckload and Less than truckload Discount/lower rates if quantity of an individual shipment is large enough
VA/VE
Value Analysis/Value Engineering VA- Redesign VE- upfront design effort analyzing the functions of a product to satisfy all needed quality and user requirements at optimum TCO Value = Function/Cost ex: Function of a cup: to hold liquid Focusing on VE will avoid unnecessary costs
Evaluating possibilities
Who creates the best value? 1. strategic- portfolio analysis 2. traditional- KPIs 3. other- social/political factors
Contract carrier
for hire carrier that provides service to a limited # of shippers and operates under specific contractual arrangements rates are generally lower than common carriers because high volumes with individual shippers
Exempt carrier
for hire carriers, but they are exempt from regulation of rates + services
SCOR framework
framework for evaluating and comparing supply chain activities People Performances Processes Practices
Quality
generally not higher than domestic, but sometimes more consistent
SCOR People
global view of needs/issues surrounding skills of supply chain professionals key elements- skill, experience, aptitude, training, competency (novice -> expert)
Global sourcing
globalization as source of revenue growth companies changing their global sourcing practices because of TCO Reshoring: bringing back domestically Factors making offshoring more expensive: increased transportation costs, pay wages, etc Changes arent expected to drive a resurgence of manufacturing in North america. More likely to focus on supply alternatives from regions close to their markets (sourcing beyond china) China will continue to be an attractive option tho
UCC
governs the transaction of goods in the US rules may be adapted by each state
Trade discounts
granted by a manufacturer to a particular type of distributor or user
Government influence
help develop economies of countries they operate in
Leading practices
high risk, high reward innovative
Poor practices
high risk, low reward
Seek joint advantage with supplier
high supply power, high demand power competitive advantage corner the market
Metrics and performance measurement
how to measure actual attribution of supply to organizational goals and strategies requires new measures IT will provide easier access to data to measure supply and supplier performance focus on manageable number of key measures and resist temptation to measure everything
The market approach
implies that prices are set in the market place and may not be directly related to cost follow a supply and demand model (if supply is high, cost is low and vice versa) Live with it or find a way around it
Total cost of ownership (TCO)
includes all relevant costs, such as administration, follow up, expediting, inbound transportation, inspection and testing, rework, etc acquisition price and all other associated costs TCO- Pre transaction costs, transaction costs, post transaction costs
indirect costs
incurred in the operation of a plant, but cannot be related directly to any given unit or production or service provided (overhead costs)
Ethics principles
integrity to your decisions and actions value for your employer loyalty to you profession
Type of item being shipped
large and bulky items may require a specific mode of transportation
Shipment size
larger shipments need to be moved more economically by rail or truck
Faster delivery and continuity of supply
limited domestic capacity, sometimes offshore can deliver faster than domestic
Leverage company among suppliers
low demand power, high supply power
Common practices
low risk and reward
Best practices
low risk, high reward proven and established
Change nature of demand
low supply power, high demand power
manage spend
low supply power, low demand power
Price and total cost
lower labor costs, exchange rates, equipment and processes may be more efficient, international supplier may be focusing on certain products and pricing to gain volume
Cost of transport service
lowest total transport cost that will provide for safe movement within required time
Cash discounts
offering a discount of __% if payment made in __ days
Institute of Supply Managament
outlines codes of ethics and principles and standards for professional behavior of purchasing practitioner
semivariable costs
partly variable and partly fixed
Legal perspective
perspective of an alignment between a commercial contract and a lawful obligation
Ethics perspective
perspective of an alignment between values and behavior
The cost approach
price is a certain amount over direct costs, allowing for a sufficient contribution to cover indirect and overhead costs and leaving a certain margin for profit find cost and add some fluff to it
Firm fixed price (FFP)
price wont change under any circumstance buyers prefer, but risky to suppliers if delivery is far into the future (chance of price escalation)
Internal costs
process improvement, supply chain efficiencies
Handling of claims
prompt and efficient investigation and settlement of claims
The Learning curve
provides analytical framework for quantifying the commonly recognized principle that one becomes more proficient with experience "more we make, more proficient we become" every time volume doubles, time to produce unit drops by some percent (logarithmic in nature)
Single vs Multiple Sourcing
"It all depends"
SCOR Processes
"Nested processes" ex: Russian Doll Level 1- high level configuration of a supply chain Level 2- differentiate strategies of level 1 Level 3- process steps of lvl 2 gets more detailed as it goes down, Level 1 is all encompassing
Create competitive advantage
#1 reason
Issues with sourcing globally
1. Source location and evaluation 2. Lead time and Delivery 3. expediting 4. Political, labor, security problems 5. Hidden costs 6. Currency risk 7. Quality 8. Warranties and claims 9. Tariffs and duties 10. Admin costs 11. Legal issues 12. Logistics + Transportation 13. Language 14. Time zones 15. Culture and customs 16. Ethics and social responsibility
Strategic sourcing process matrices
4 basic strategies -> 16 operational leveragaes -> 64 tactical operating tool
Strategic Sourcing Process
7 step process with a procurement chessboard uses demand power vs supply power
Corporate Social Responsibility (CSR)
A business's concern for the welfare of society.
Cost Plus Incentive Fee (CPIF)
Buyer and seller agree on a target cost figure, a fixed fee, and a formula under which any cost over or under runs are shared Ex: Target cost 100,000, Fixed fee 10,000, 50/50 shared Cost 120,000, So the buyer and seller split the 20,000 overage cost 50/50 Motivates the supplier to be efficient because their profit will increase if they get under the target cost
Strategic sourcing process 4 basic strategies
Change Nature of demand Seek joint advantage with supplier Manage Spend Leverage company among suppliers specifically designed to support decisions between the company's procurement department and top management
Preference Matrix
Converting qualitative to quantitative data Criteria, wight, scale (decide on your own ex: 1-10, 10 is best) Find their weighted scores and add together to compare
Marketing tool
Counter trade/bartering sell domestic products off shore, may be necessary to agree to purchase from suppliers in those countries
Selection Criteria
Delivery time Reliability and Service Quality Available Services Type of item being shipped Shipment size Possibility of damage Cost of transportation service Carrier financial situation Handling of claims
Supply chain management trends
Emphasis on total quality management and customer satisfaction Sustainability Global Sourcing Risk Management Supply Process and technology Metrics and performance measurement
Target Cost =
Estimated Selling Price - Normal (desired) Profit
Delivery time
Ex: need 2 day shipping? Air shipment. More time = more modes of transportation that can be considered
Supply process and technology
Expansion of global trade management software (GTM) -integrate existing info systems w mobile, cloud, etc -evolution provides potential to ease employee access to date and create opportunities for collab -easier to share info with suppliers and customers in real time -Disruptive technology: big data, cloud, drones, 3d printing
Negotiation tactics
Extreme claims followed by small, slow concessions Commitment ("best I can do") Take it or leave it Try to make you flinch Getting personal Bluffing, Puffing, Outright lying Belittling Alternative Good cop, bad cop
Regulatory influence on prices
Government can have strong role in setting prices Sherman Antitrust Act 1890 Robinson-Patman Act
Strategic
High Risk High Value need assurance of supply and a low total cost of ownership
Bottleneck
High risk low value Need assurance of supply strategy
Assess Supply Markets
Identify potential suppliers Analyze market place Take a TCO perspective
Ethical Standards
Impropriety Conflict of Interest Influence Responsibility to employer Supplier +Customer relationships Sustainability and social responsibility Confidentiality Reciprocity Laws, regulations, trade agreements Competence
Incoterms
International Commercial Terms; created to simplify international transactions shipping terms and responsibilities of buyer and seller in international contracts are covered by incoterms
SCOR Model
Supply Chain Operations Reference Model developed by supply chain council
Noncritical/Routine
Low value and low risk Focus on continuous improvement
Identifying potential sources
Make or buy? Acquire new need from current supplier? Engage in search for potential suppliers? Info sources: online, catalogs, trade journals, trade directories, sales rep
Target Pricing (target costing)
Management team establishes the price at which it plans to sell its finished product, then subtracts out its normal operating profit, leaving the target cost the organization seeks Further divided into appropriate cost sectors Manufacturing, Overhead, Material, Services sourcing professionals may work in material & services
Leverage/Commodity
Need a total cost of ownership strategy
Cost No Fee Contract (CNF)
Negotiated deal- strategic strategy for supplier suppliers may agree to just be reimbursed if enough subsidiary benefit to them ex: they may be giving supplier new technology or product knowledge that they could later use to make large profits
Activity Based Costing (ABC)
Not ABC Analysis tries to turn indirect costs into direct costs by tracking the cost drivers behind indirect costs transactional process
Determine Business needs
Opportunities
Sustainability
Organizations paying close attention to the combination of their social, environmental, and financial performance Triple bottom line = times are changing and its more important to focus on the impact theyre making
ABC Analysis
Pareto Analysis assigns items to A,B,C category (high to low dollar) A is 80% of value, B is 15% of value, C is 5% More time and managerial attention is directed toward A items
Single sourcing
Partnership, Intellectual property, quality, quantity, set up costs
Accuracy in making judgment on "fair and just" price
Past Experience Knowledge of product processes Sellers and revenue strategy Logistics costs
SCOR Structure
Plan -> Source -> Make -> Deliver <-------Return
Price Vs Cost
Price - amount buyer (or consumer) pays Cost - amount seller pays to produce a good
AT Kearney
Procurement Consulting "invented Strategic sourcing"
Portfolio Analysis
Quadrant Analysis- Risk VS Value Provides a framework for developing strategic plans for spend categories and for applying price and cost management tools BottleNeck Noncritical/Routine Strategic Leverage/Commodity
Reefer
Refrigerated trailer to transport perishables
SCOR Performance Metrics
Reliability Responsiveness Agility Cost Assets Judge each on 3 levels of metrics (tiered approach)
SCOR Best Practices
Return vs Risk Best practices Leading practices Common practices Poor practices
Reverse logistics
Reuse of products and materials
Develop category strategy
Scenario/sensitivity analysis
Win-Win solution
Separate people from the problem Focus on interests not positions Generate many options Use objective standards
Purchaser-Supplier Satisfaction Matrix
Supplier's Satisfaction VS Purchaser's satisfaction Desirable region, both parties dissatisfied, and the stability line that runs through Suppliers should be treated as partners communicate and find out what each of you could be doing better if you arent in the desirable region
WATNA
Worst Alternative to Negotiated Agreement the worst we can realistically fear ex: offer withdrawal
cost management
a continuous improvement process apply tools and techniques to sustain cost savings year over year as supply develops expertise in cost management, attention turns to avoiding/reducing costs through design/redesign, and process improvements internally within the suppliers process
Direct costs
a given unit of production or a specific identifiable task performed by a service provider
Supplier selection
a sourcing decision challenge is to make decision that minimizes risk
Contracts
a valid contract is based on 4 factors 1. competent parties 2. legal subject matter or purpose 3. an offer and an acceptance 4. consideration an esignature is binding verbal contracts can be binding
Quantity discounts
a volume purchase offered at a discount if certain number is reached creates pressure to maintain large inventory Optimal order quantity when discounts are offered is either the EOQ or some Qty more than EOQ that qualifies for discount
Contracts that must be in writing
agreements that cannot be performed within 1 year from date of the contract formation contracts for the sale of goods exceeding $500
Negotiation
an attempt to find an agreement that allows both parties to achieve their objectives
Strategic cost management
an externally focused process of analyzing costs in terms of the overall value chain external costs
UN CISG
applies to sale of goods. creates uniform international law for the sale of goods
Positional Negotiation
arguing based on position "I am older therefore.."
Weighted point evaluation system
assigning points and scales to each factor and each rating 1. Identify factors or criteria for evaluation 2. determine the importance of each factor 3. establish a system for rating each supplier on each factor relevant factors or decision criteria should be determined in context of the purchase and the sourcing strategy for that item
Multiple sourcing
assurance of supply, keep each supplier honest, flexibility
Carrier financial situation
avoid carriers that are on margin financially
EOQ
tells how much to order to minimize total annual costs assumes fixed price
Reasons to source globally
better value is perceived to be available from that source than a domestic one 1. Unavailability of items domestically 2. Price and total cost 3. Government Influence 4. Quality 5. Faster delivery and continuity of supply 6. Better technical service 7. Technology 8. Marketing tool 9. Tie in w/ offshore subsidiaries 10. Create Competitive Advantage!!!
Contract breach
breach of contract is a failure, without legal excuse, to perform any promise that forms all or part of the contract non conforming goods perfect tender good faith standard statute of fraud
Possibility of damage
buyer may select a mode without transfers in order to avoid damage
Better technical service
call centers/ customer service
Unavailability of items domestically
cant get it in the US ex: cocoa
Technology
capital investment, offshore suppliers may be more advanced technologically, offshoring attractive for software development, engineering, acct, etc
Risk management
chief purchasing officers search for methods to improve risk mitigation capabilities -multiple sourcing (assurance of supply)
Forward buying
commitment of purchases in anticipation of future requirements beyond current lead times
Supply chain management
concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantity, to the right locations, at the right time in order to minimize total system cost, satisfy customer service level policy/requirements
Rotterdam rules
establishes a uniform and modem global legal regime governing the rights and obligations of stakeholders in maritime transport industry under single contract for door to door carriage international carriage of goods by sea
Categorical evaluation and rating
different levels of performance are described and assigned a category rating quantifying assessment is often preferred because it signifies an attempt to remove subjectivity from the process
Determine channel
direct purchase from original manufacturer vs distributor? local vs regional vs national? onshore vs offshore vs nearshore?
Execute strategy
dont forget the "who?"
Tie in with offshore subsidiares
many firms operate in other countries, decisions may be made to support local economies
Sustain results
measure, monitor, feedback
Cost Plus Fixed Fee Contract (CPFF)
occurs if item is experimental and the specifications are not firm, or if costs in future cannot be predicted reimburse for reasonable costs incurred, plus a specified dollar amount for profit
Common carriers
offer transportation service to all shippers at published rates on a nondiscriminatory basis. they have flexibility in establishing rates and routes because of deregulation
Last mile logistics
refers to final step of delivery process from a distribution to end user
fixed costs
remain same regardless of number of units produced
UN CISG
same purpose as UCC but on an international level
Robinson Patman Act
says that a supplier must sell the same item in the same quantity to all customers at the same price exceptions: moving obsolete material, meeting local competition, large purchase (quantity discounts would work around this)
Available services
shippers want warehousing and inventory management in addition to transportation
Sherman Antitrust Act
states that any combination conspiracy, or collusion with the intent of restricting trade in interstate commercial is illegal price fixing chocolate company example from class
Strategic
supply and supply base are integral to organizations competitive advantage think Mission control: quadrant analysis
Interest based negotiation
takes into account the needs of various parties
Price
the price to be paid is a major supply chain decision
Legal purpose
to facilitate fair and efficient transactions
Carrier
transports property or people by any means of conveyance
Reliability and Service quality
two carriers can vary greatly here
Analyze category spend
understand organzational spend, characterize consumption ABC Analysis
Intermodal
using multiple modes of delivery
Cumulative discounts
varies in proportion to quantity purchased based on quantity over a period of time not just one order
Ethical questions to ask yourself
what would my mom think of me? in my role, what are my obligations to others in this situation? do any specific policies/laws apply rn? how can i serve my best interest without violating the law? what leads to the greatest good for the greatest number?
