Purchasing Final
When is competition an effective tool?
Immediate cost savings. Auctions (competition) are associated with fixed price contracts
What is moral hazard?
Impossible to monitor actions of others when you do not directly observe them (Sales effort, false failure returns, using child labor, incorrect raw materials)
Name the sourcing strategy (Multiple, single, or dual): Economies of scale Supplier more willing to make relationship-specific investment
Single
What type of sourcing strategy encourages the most competition before the award and the least cooperation after the award.
Single sourcing
What are some impacts of large minimum decrements?
Speed up auctions - may result in higher buyer costs of the minimum decrement would cause a bidder to "jump over" his cost
What type of products is VMI best suited for?
Standard products (packaged soups or standard hygiene products) with predictable sales
What drives performance along key metrics beyond price alone, launch dialogue between buyer and supplier about how to improve performance?
Supplier scorecards
How is the winner determined in: Non-binding
The buyer does not commit to how the winner is determined
What is VMI
Vendor Managed Inventory (VMI) 1994 o Vendors get information on sales and inventory levels and are committed to keep a certain level of service. o Manufacturers control sales, order forecasts, placement and replenishment. o Pull the forecasting risk across customers
Who first used CPFR?
Wal-Mart in a pilot with Warner-Lambert in 1995
What makes eliciting cooperation easier?
When there are benefits to maintaining a reputation for cooperating.
When is TCO used?
When to use o Sourcing high dollar value items o Sourcing ongoing, repetitive buys o Suppliers are familiar with the TCO format o Buyer has detailed knowledge of the product/service o Largest components of TCO are known o Often used to source capital equipment (i.e. HVAC systems) and MRO items
Why does less feedback generate lower prices?
With less feedback bidders bid more aggressively. When bidders are not sure (during the auction) whether they are winning, they tend to bid lower, to decrease the chance of losing. Psychological explanation Risk aversion Anticipated regret of losing the auction you could have won
Why did many OEMs chose private platforms over auctions?
because they already had strong relationships with their supply base and adapted auctions to fit into their current procurement processes
Bidding Strategy for Reverse Auction with Proxy Bidding: If you are losing and the price is above your cost
bid down
Auctions : defined as a mechanism of __________ , together with ___________ based upon the submitted bids
bid submission, rules assigning payments and contracts
Tit-for-tat is a form of _______?
direct reciprocity
Bidding Strategy for Reverse Auction with Proxy Bidding: If you are winning...
do nothing
VMI is not difficult to manage for a manufacturer?
false
Bidding format (auction types)
how bidders place bids
CPFR is one important application of...?
how collaboration enters into relationships with suppliers
Winner Determination
how is the winner or winners selected
What are some examples of attributes that cannot be controlled by the suppliers?
incumbent status, reputation, location, access to expertise, established relationships...
Why were the collaborative aspects of the historical processes never implemented as originally envisioned on a large scale?
mainly due to the cultural difficulties associated with collaborative management and the lack of scalable software
What is the definition of (Reverse) English auctions?
o A fast-paced downward auction in which suppliers are only able to submit market leading bids instead of simply improving their own bid by a pre-determined amount from their previous bid (as in a regular reverse auction). o First line opens and Supplier A submits a bid o Supplier B submits a bid that is lower than Supplier A o Event ends when pre-determined bidding time has elapsed or no new bids are placed o Lowest bidder is automatically awarded the bid
What is the definition of Japanese Auctions?
o A sequential second price auction in which the buyer sets the initial price and price decrements o Prices start high, falling over time o At each interval (dollar per time), a bidder must submit bid at the current price in order to stay in the event o Price falls and continues to fall until one bidder is remaining
What are the benefits of (Reverse) Dutch auctions?
o Allows bid to be awarded to multiple suppliers to ensure demand is fulfilled o Buyer can quickly arrive at the winning bid o Suppliers have significant pressure to bid on a part of the business, driving competition
What is the definition of Tiered Pricing/Matrix pricing?
o Allows bidders to offer different prices based on volume ordered o Buyer realizes volume discounts when a certain threshold is reached
What is the definition of (Reverse) Dutch auctions?
o An auction format in which buyer sets initial price and price increments for each line item: o First line opens and the price increases at specified intervals o Multiple suppliers can "win" the auction at different market clearing prices o Suppliers bid and commit to quantities at each price level o Bid ends when: ! Suppliers have committed to entire quantity ! Ceiling price is reached ! Pre-determined end-time is reached
What was Efficient Consumer Response (ECR) 1992 by the US grocery industry?
o Application of JIT II to the grocery industry o Continuous Replenishment (CR)
What are some aspects of face-to-face negotiation?
o Are traditional o Can take several weeks o Iterative communication o Can adjust to imperfect initial RFQ o Spec changes, alternatives, etc. o With one supplier, outcome dependent on buyer-supplier power relationship
How is the winner determined in: Buyer-determined
o Binding: Lowest Total Cost of Ownership (TCO) wins o Highest score wins
When are Dutch auctions used?
o Buyer committed to awarding per auction bids o Pre-qualified supply base o Very few, but highly competitive suppliers o Buyer has detailed market knowledge and understands market level pricing o Requirements and specifications can be defined and quantified o Often used to source raw materials and capital expenditures o Fuel or Construction project
What are the challenges of (Reverse) English auctions?
o Buyer has no control over bid award o Because this format considers price only, buyers must be aware that quality of service, delivery and product quality will not play role in award. Therefore, buyer must be sure to allow only qualified suppliers to bid o Buyer cannot opt out of awarding the bid to the lowest bidder
What are the benefits of multi-stage event?
o Buyer has the opportunity to gain deeper market intelligence with each stage of the process o Can be used to methodically and objectively narrow list of potential suppliers when there is a large supply base
When are (Reverse) English auctions used?
o Buyer is committed to awarding bid to winning supplier o Many highly competitive suppliers o Bidding a pure commodity o Price is the only decision factor o Often used to source OEM, MRO, and labor services
What is/are the challenge(s) of tiered pricing/matrix pricing?
o Buyer must setup tiers prior to event, requiring some understanding of market economy of scale o Volume and corresponding discounts can be difficult to track over the life of a contract
What are the benefits of Japanese auctions?
o Can be used to judge market conditions, gauging competitiveness of supply market o Considered to be less 'offensive' to suppliers than the Dutch auction
What is the definition of multi-stage event?
o Combination of several RFx types into a single sourcing process o Emulates the natural sourcing process o RFx data is passed from one stage to the next
What is determined during the eRFQ negotiation over quotes?
o Contract winner o Price o Attributes of winning contract
Why do most procurement auctions tend to be non-binding?
o Difficult for buyers to implement binding buyer-determined auctions o Scoring rules o TCO calculations o Loss of flexibility
How can incentives be re-aligned?
o Gather information o Develop trust; reputation systems o Redesign contract (Fixed Price and Cost Based contracts)
Why do many CPFR often fail?
o Lack of an efficient way to implement CPFR (eg EDI) o Pilots choose "low hanging fruit" and full scale benefits may be more limited. o Trust may be insufficient for a large-scale implementation.
When are Japanese auctions used?
o Limited knowledge of supply base and the market in general o Supply base is pre-qualified o Price is the primary or only decision criterion
When is multi-stage event used?
o Limited knowledge of supply base and the market in general o Uncertain of supplier qualifications and/or capabilities o Category requirements are not well-defined o Category market pricing is not well understood o Overcapacity in the marketplace o Cost structure is unknown
What are the challenges of (Reverse) Dutch auctions?
o Must be sure that suppliers are highly competitive, particularly when there are only a few participating o May be difficult to set starting price o Without a thorough understanding of the market, buyer could discourage participation by starting too low, with increments that are too small. Alternatively, buyer could miss out on potential savings by setting an initial price that is too high.
What are the benefits of (Reverse) English Auctions?
o Quickly arrive at winning bid o Provides great incentive for participating suppliers to submit the lowest bid because only first place will win (unlike the regular reverse auction where the buyer can use his/her discretion in awarding the bid)
What are the critical ingredients to sustaining direct reciprocity?
o Repeated game o Reputation matters o A belief that some (maybe just a few) are willing to cooperate in spite of the economic temptation.
What is/are the benefit(s) of Tiered pricing/matrix pricing?
o Serves as a tool to gather market knowledge o Opportunity to receive volume discounts even when volume is unknown at time of sourcing event
What are the challenges with TCO?
o Some TCO components are difficult to estimate o Strong TCO models requires the collaboration and participation from both internal and external (suppliers) stakeholders o Can be time intensive, implement the 80/20 rule when identifying cost elements and focus only on those categories where you can realize considerable return on your time investment
What is/are the challenge(s) of Japanese auctions?
o Suppliers may not respond well to the feeling of being forced on how to lower prices
When is Tiered pricing/matrix pricing used?
o Target price is known o Moderate understanding of the market o Historic pricing o Economies of scale o Most often seen when sourcing direct materials
What are the benefits of TCO?
o The true lowest cost option is identified and implemented o Facilitates the comparison of different supplier selection or award scenarios o Provides broader perspective of sourcing business impact than price alone o Identifies new opportunities for savings o Shifts focus from purchasing price alone to life cycle costs to provide a broader basis for cost reductions o Promotes cross-functional communication
What is the definition of TCO / Transformation analysis?
o Total Cost Analysis is a framework for evaluating the combination of price and nonprice financial impacts of procured goods and services o The total cost is the sum of all costs incurred through the acquisition, use, support, maintenance and ultimate disposal of a component or product; i.e., the total of procurement and ownership costs:
What are the CPFR challenges?
o Trust: a retailer might leak information to a competitor. o Value: Measuring value for both parties in terms of financial results. o Culture: Differences in organizational cultures and processes.
What are the CPFR pre-conditions?
o Trust: share information and gains. o Variability: opportunity for savings. o Aligned Incentives: benefits to both parties
What are some aspects of auctions?
o Usually enabled by internet o Typically completed in hour or two o Communication over quote details front-loaded o Leverages competition
When might buyer-determined auctions be appropriate?
o When enough suppliers compete o When the relationship between supplier's cost and desirable attributes is clear.
Describe open bid second price (English) auction
o bidders submit bids sequentially with knowledge of previous bids o Best bidder wins at price of second highest bidder (plus one increment) o Examples: Sothebey's
Negotiations are more effective when...?
o projects are complex, o contractual design is incomplete and o there are few bidders
Rationale for CPFR: If they have better visibility into the retailers' ________ they can plan their _________ better, so they can serve retailers better
order forecast, replenishment
CPFR implementation should start with a....
pilot
In CPFR and based on the joint sales forecast, what do the partners coordinate?
production, delivery, inventory, and marketing.
Rationale for CPFR: If suppliers have better visibility into the retailers' _________ they can plan their ________ better
sales forecast, operation
Variability can be _________ or _________
systematic or unsystematic
What sourcing strategy was used by the government in "Pushing the envelope" and why did they use that strategy?
the government went with dual sourcing of the jet engines, and sacrificed efficiency for the ability to keep the supplier honest by having a second credible supplier available.
What is systematic variability?
variability that can be predicted
Feedback
what information bidders have about competitors' bids
Ending Rules
when does the auction end
How can bidders take advantage of auction rules?
¡ Bidders may legitimately take advantage of auction rules. ¡ Scoring rules ¡ Default rules... ¡ Sometimes auction designers have not considered all strategic implications of the rules.
How should a pilot be designed and implemented?
• A pilot should be designed to have measurable metrics so that success/failure can be assessed. • Pilot partner should be chosen in a way that there are benefits perceived for both sides. Partner should be motivated, and the level of trust should already exist.
What are the components of Auction Design
• Bidding Format (auction types): how bidders place bids • Ending Rules: when does the auction end • Eligibility rules and bidding decrements • Feedback: what information bidders have about competitors' bids • Winner Determination: how is the winner or winners selected
What are some ways to plan ahead when variability is systematic?
• Build inventory in advance of the peak season • Hire temporary workers for a peak season
What are some advantages of non-binding buyer determined auctions (why buyers prefer this type)?
• Control • Flexibility • Avoids having to specify a "scoring rule" • Since feedback is difficult for bidders to interpret, sometime yield lower prices.
Name a few eProcurement types.
• Electronic catalogues • Third party exchanges o Commodity auctions between many buyers and sellers • Electronic Request For Quotes (eRFQs) o One buyer, many sellers
What is the cross-sourcing process and what is the benefit?
• Expands supply base without increasing the number of suppliers. • Both suppliers A and B can produce parts 1,2,3,4 and 5. • Assign parts 1,2 and 3 to A and 4 and 5 to B. • This assures supply and provides a potential for competition without the increased cost of dealing with more suppliers.
What are the methods of negotiation?
• Face-to-face • Auctions
What are some objections to auctions?
• Hurt long-term relationships • "Squeeze" suppliers • Savings not sustainable
What are some of the historical collaborative efforts?
• JIT II 1991 by Bose Corp. • Efficient Consumer Response (ECR) 1992 by the US grocery industry. • Quick Response (QR) 1993 by the fashion and textile industries.
What are some disadvantages of non-binding buyer determined auctions?
• Loss of credibility • Possibility of (tacit) collusion • More difficult to bid • May not be fully efficient.
Describe Dutch Auction (clock)
• Price moves automatically according to a "price clock" • First bidder to "accept" wins at current price • Used to sell millions of dollars worth of fresh flowers each day • In a reverse Dutch auction the price starts low. The first supplier to "stop the clock" gets the contract at this price. And might also set quantity.
What are some of the common goals that manufacturers and retailers have?
• Reduced inventory • Increased service levels • Increased sales • Lower supply chain costs • Fewer returns
Name some simple auction types
• Sealed-Bid First Price (RFQ) • Open-Bid • Open-Bid with Proxy Bidding (like eBay) • Multi-Round • Clock
Define auction
A mechanism of bid submission, together with rules assigning payments and contracts based upon the submitted bids
What are some examples of variability that can be predicted?
• Seasonal patterns to sales • Growth trends • Correlations with new store openings, new market entries
What causes CPFR exceptions?
• Unexpected demand • A constraint on key material • Damage to warehoused products • Delays in shipment • Unannounced promotion
What are some examples of indirect reciprocity?
• eBay's feedback forum • Maghribi Traders (from early 11th century) • Li & Fung is a Hong Kong-based supply chain intermediary
Any bidder is not allowed to bid on more in a current round than the previous round is an example of...
An activity rule
What type of sourcing strategy attempts to capture the benefit of both with a smaller supply base?
Cross-sourcing
When is eRFQ used?
Detailed quotes, used for detailed, complex, or non-standard contracts
How/why can procurement auctions be better?
Expressive Bidding o Transportation Auctions o Shipper bids out freight business on 10,000 lanes. ! Traditional: ! All carrier bids consist of single lanes ! Combinatorial auctions: ! Carrier bids on packages of lanes, use if-then bids, etc. Use real-time optimization ! Computer program evaluates bids, finds lowest total cost combination
True or false: eRFQ are only electronic
False - Can be hardcopy or electronic
True or false: In TCO auctions, the supplier makes decision based on total cost, not just price
False - The buyer
True or false: Not many procurement auctions are non-binding
False: Most procurement auctions are non-binding
What is Private Information problem?
Firms sharing information strategically
Auctions (competition) are associated with what type of contracts...?
Fixed price contracts
Where and how are internet exchanges still used?
For commodity raw materials and focus on price and supplier discovery
Where and how are electronic catalogues used?
For standard materials with stable pricing. They fix prices and avoid off-contract purchasing
Identifying and resolving exceptions is part of what two CPFR processes
Forecasting and replenishment
Why are binding buyer-determined auctions ideal?
Guarantee to award the contract to the best supplier
What is a main cause of supply chain mis-alignment?
Hidden Information
What is the result for a poor performance supplier in a TCO auction?
High markup & supplier must compensate with lower price if they want the business. Suppliers realize buyer is serious about quality and performance results in higher markup.
Describe sealed bid first price (RFQ).
Bidders submit bids simultaneously. The bidder with the best (lowest) bid wins. The buyer pays the winning bidder the amount of the winner's bid.
What are some challenges to collaboration?
Collaboration requires effort There must be mutual benefit (savings opportunity and aligned incentives)
Why is less feedback better for the buyer/seller relationship?
Competition is less obvious, makes relationship seem less adversarial Suppliers are more willing to make relationship-specific investments after sealed-bid events than after reverse auctions. (Jap 2007)
What do negotiations over quotes determine?
Contract winner Price Attributes of winning contract
What are some due diligence checklist items that a buyer must perform prior to contracting?
Financial status of supplier (will they go bankrupt?) Surge capacity availability Supplier quality Supplier management team (e.g., a lean manufacturer might require supplier has lean manufacturing initiative) Supplier reputation Supplier's suppliers
What is buyer-determined, Binding?
Lowest Total Cost of Ownership (TCO) wins Highest score wins
What are some elements of a successful cooperative strategy?
Make the interaction long-term Make the situation clear - including what needs to be flexible Keep the competitor viable Reward a reputation as problem-fixer Punish breaches of trust
What is a traditional "Push" system?
Manufacturer decides on what to produce. Retailers place orders and bear inventory risk.
What is the downside of promotions?
Packaging costs Setup costs Logistics costs: higher safety stock Complex negotiations with retailers Major costs: Mismatch between supply and demand - Obsolete inventory - Stockouts
How do promotions help manufacturers re-capture some of their lost power?
Product differentiations. Provide "value-added" personalized service to retailers. Provide value to consumers, so can change higher prices. Make it more difficult for consumers to compare products. Encourage impulse buying gains market share Increased sales of non-promotion products too. Increase share of shelf space.
What is the value of CPFR?
Quickly identify and deal with exceptions - Unexpected demand - A constraint on key material - Damage to warehoused product - Shipment delays Institutionalizes and formalizes information flow - Decreases supply/demand mismatch (stock outs and obsolete products). Critical role of information sharing and required cultural change
What is the new "Pull" system?
Retailers decide what to sell and tell manufacturers. Manufacturers deliver "just-in-time" and bear inventory risk.
How are scorecards and TCO auctions linked?
Scorecards systematically track suppliers' past performance. Use scorecard information to monetize quality performance. Charge suppliers for poor quality at the time of the sourcing decision.
How is SPM (supplier performance multiplier) used to calculate a price in TCO auction?
Suppliers submit price bids Supplier Performance Multiplier applied to price total-cost bid = (price)*(SPM) Lowest total cost wins the contract Winner is paid their winning price offer Example 1: First-price sealed-bid total-cost auction Suppose: Supplier 1's SPM = 1.5 , Supplier 2's SPM = 1.2 Supplier 1'price bid = 40, Supplier 2'price bid = 60 Supplier 1's total-cost bid is 40 x 1.5 = $60 Supplier 2's total-cost bid is 60 x 1.2 = $72. Then winner is ____Supplier 1__ and is paid ___$_4_0 _______
What is soft close?
The "going, going, gone" rule
What is buyer-determined, non-binding?
The buyer does not commit to how the winner is determined. Most procurement auctions are non-binding
What are some components of successful auctions?
Two or more suppliers willing to bid for the business Willingness to change current sourcing situation (e.g., re-source) Likelihood that the current pricing is above the market price
True or false - A good reputation system often does not cost anything to acquire?
False
What are some items to be considered when structuring an auction?
- Define the items to be purchased. Define specifications clearly up-front. Winner take all or multi-source? - Who may bid? Should all suppliers be pre-qualified prior to the auction? Are suppliers allowed to form joint ventures? What happens if a winner cannot fulfill the contract? - Entry fees - Preparing a bid may be costly. Should bidders pay entry fee to offset cost of qualification? - Auction format - Sealed or open bid? Clock format (Dutch or Japanese). Single or multi-stage event? - Minimum bid decrements - Payments
What are some different types of auction payments?
- Flat sum - Per-unit price - Profit share - Mark-up
True or false: CPFR deals minimally with exceptions?
False
What do auctions govern?
- How to submit bids - How bids determine the winner - How the winner is paid
What are some other items that contribute to the total cost of a contract (TCO)?
- Quality - Warranty - Service - Switching costs
What are some recommendations for Casturn when doing auctions in the future?
1. Do technical screening before the auction. 2. Conduct the auction only for parts for which there is an adequate supply base and a high likelihood of making a strong business case. 3. Conduct the TCO Auction so that considerations other than price are taken into account. 4. Set a reserve price to make sure bidders know what it would take to win Casturn's business. 5. Re-source the part after the auction.
What are the 9 steps in the CPFR Process
1. Front end agreement 2. Joint business plan 3. Create sales forecast 4. Identify exceptions 5. Resolve exceptions 6. Create order forecast 7. Identify exceptions 8. Resolve exceptions 9. Generate order
When is it best to use e-Auctions?
1. Items can be clearly specified and translated into prices a supplier will commit to charge the buyer 2. There is a strong likelihood that the current price is sufficiently higher than the market price 3. Switching costs are acceptable 4. A sufficient number of qualified, competitive suppliers exist in the marketplace 5. Qualified suppliers are willing to participate in an e-Auction
How can firms set up contracts to reward partners for acting in the channel's best interest?
1. Pay the retailer based on sales and deduct cost of stale inventory 2. Pay salespeople a percentage of the total net profit in the store.
What are the three causes for incentive misalignment?
1. Poorly-Designed Contracts 2. Hidden Actions 3. Hidden Information
True or false: Often CPFR does scale?
False
True or false: VMI should be used for promotional items?
False
What are the two propensities that reputation systems exploit in people?
1. Some people, perhaps a minority, are willing to tolerate some cost to better the group. 2. Virtually no one is indifferent to being exploited.
What percentage of large-scale firms report using on-line reverse auctions?
60%
What percentage of large-scale firms report using eRFx?
65%
What type of auctions are most susceptible to (implicit) collusion?
Open bid auctions
Bidding Strategy for RFQ: Bid above or below your cost?
Above
The ability of reputation to enforce cooperation rests with...?
Accurate information dissemination about how a firm has dealt with others.
What is the solution to the following problem: it is better to let other bidders bid first so that I can react. In an open-bid auction, we want bidders to bid throughout the event (not just come in at the end) because this makes the event more competitive. Also, o Bidders cannot hide their information o Bidders cannot unnecessarily prolong auctions.
Activity Rules
What was the core of Casturn's problem and reason their attempt to use an eRA failed?
At the core of the problem is their re-sourcing process, that includes the technical evaluation, as well as the business case approval by the re-sourcing board after the auction. While this is possible in some circumstances, this process was inappropriate for Casturn because they did not yet have an established, credible market. In other words, suppliers really did not believe that Casturn would re-source. And therefore, suppliers did not take Casturn's auctions seriously. This lack of commitment by suppliers to bidding seriously resulted in lack of bidding activity in the first auction, and incumbent's last-minute entry and subsequent error in the second auction.
________ can stifle communication between buyer and seller, preventing buyer from using contractor's expertise.
Auctions
Why is VMI difficult to manage for manufacturers?
Because it requires quick response
When is cooperation an effective tool and how can firms encourage it?
Better efficiency (bigger pie). Negotiation (cooperation) with cost-plus contracts. Firms can try to set up contracts to reward partners for acting in the channel's best interest.
Multi-Round
Bidders place sealed bids each round; results are revealed; process continues for multiple rounds.
Open-Bid
Bidders submit multiple bids, reacting to competitors' bids, for a predetermined period of time
What was JIT II 1991 by Bose Corp?
Bring key suppliers in-house and gave them authority to function as an integral part of the material and purchasing systems.
Fixed price vs cost plus contracts: Risk allocation mainly on _______ in Cost plus.
Buyer
What is CPFR and the process?
Collaborative Planning, Forecasting and Replenishment (CPFR) • Retailers and suppliers undertake joint sales planning, drawing on the data available from both sides. • Based on the joint sales forecast, the CPFR partners then coordinate production, delivery, inventory, and marketing. • The objective is to merge the experiences and skills of the retailer and the manufacturer and benefit from the synergies.
How/why can procurement auctions be cheaper?
Competition & Discipline o Transparent bidding process can bring out competition. o Buyer's internal rules for scoring bids in real-time promotes buy-side discipline and transparency. o Using exchanges, new suppliers can be located. o With shorter procurement cycle times, buyer's time is better utilized.
In procurement, there is a tension between ______ and _____. What are they and why is there tension?
Competition and cooperation. Competition is a way to immediate cost savings. Cooperation is a way to better efficiency (bigger pie)
How/why can procurement auctions be faster?
Compressed Timeline & Discipline o Auction requires only 1-2 hours to complete negotiation over winner, price, and attributes. o Synchronization among buyer and several suppliers raises barrier to delaying auction. o Initial investment in buyer and supplier training and front-loaded RFQ process required.
Bidding Strategy for Reverse Auction with Proxy Bidding: set proxy bid = ...
Cost
What are the tradeoffs when using auctions?
Cost and risk
What are the new sourcing strategies that pinpoint the optimal amount order sizes across suppliers, how to share costs/risks, etc...called?
Cost modeling
Negotiation (cooperation) are associated with what type of contracts...?
Cost-plus contracts
Name the sourcing strategy (Multiple, single, or dual): Might generate advantages of both Long contracts provide stability Short contracts used to punish
Dual
What type of sourcing strategy attempts to capture the benefit of both single and multiple sourcing?
Dual sourcing
Sealed-Bid First Price (RFQ)
Each bidder submits a single bid
What is critical for implementing CPFR and without it, CPFR does not scale
Electronic Data Interchange (EDI)
What is eRFQ?
Electronic Request for Quotes
What is the most complex eProcurement type?
Electronic Request for Quotes (eRFQs) - one buyer, many sellers
What is the least complex eProcurement type?
Electronic catalogues
Why is EDI critical to CPFR and what are some of its usages?
Enables information sharing that is essential for downstream planning Usages - POS data - Automatic order generation - Billing - Shipping notification
The goal of demand forecasting is to _______ the systematic variability and _________ the unsystematic variability.
Explain, Describe
The goal of demand forecasting is to _______ as much variability as possible and _________ or _______ variability that cannot be explained.
Explain, describe, quantify
When did auctions become used on open third party exchanges for buyers and sellers and emphasize price
Late 1990s
Fixed price vs cost plus contracts: Buyer administration (more or less) for fixed price?
Less
Fixed price vs cost plus contracts: Incentive for quality (more or less) for fixed price?
Less
How is the winner determined in: Price-Based
Low bid is guaranteed to win
Does VMI lead to lower or higher retailer inventory?
Lower
Do manufacturers or retailers have the following types of supply chain information: Promotional information, new product introductions, supply constraints, product seasonal profiles
Manufacturers
Why are benefits of VMI limited?
Many retailers have replenishment capabilities for these types of products already, so benefits are limited
What reason causes firms to often not act in ways that maximize supply chain profits?
Misaligned incentives
What are the two types of incentive misalignment?
Moral Hazard & Private Information
Fixed price vs cost plus contracts: Adversarial relationship (more or less) for Fixed price?
More
Fixed price vs cost plus contracts: Flexibility for change (more or less) for cost plus?
More
Name the sourcing strategy (Multiple, single, or dual): Competition Ensured supply Improved market intelligence Improved supplier appraisal effectiveness
Multiple
What type of sourcing strategy encourages the least competition before the award and the most cooperation after?
Multiple sourcing
Describe a basic "private cost" framework with one supplier.
Payoff of supplier is = Price - Cost; Payoff of buyer is = Buyer's Value - Price
What could be the impact of small minimum decrements?
Potentially slow down auctions
Clock (Dutch Auction)
Price goes down automatically and bidders drop out when price gets too low; the auction ends when supply = demand
What was Quick Response (QR) 1993 by the fashion and textile industries?
Relies on customers along the supply chain to define when, where, and how much of a given product is needed.
Create order forecast is part of what CPFR process?
Replenishment
Do manufacturers or retailers have the following types of supply chain information: Store promotions, store openings and closings, changing distribution profiles, competitive manufacturer activity
Retailers
What was a major problem that retailers had with VMI?
Retailers not satisfied with forecasting ability of the suppliers, which led to low level of service.
Open or sealed bid: Winner knows she won, losers only know they did not win
Sealed bid
What type of auctions are less transparent?
Sealed-bid
What is the objective of CPFR?
The objective is to merge the experiences and skills of the retailer and the manufacturer and benefit from the synergies.
What is/are the challenge(s) of multi-stage event?
The process can be lengthy, therefore buyer must make an effort to keep suppliers engaged and communicate regularly
Fixed price vs cost plus contracts: Good at minimizing (costs or time) for cost plus?
Time
True or fales: Ideally, binding buyer-determined auctions should be used
True
True or false - Maintaining a good reputation matters more when there are ways to avoid those who have a bad reputation?
True
True or false: Many CPFR efforts succeed in pilots, yet fail in full scale implementation?
True
True or false: Many VMI Programs have been discontinued?
True
True or false: Most procurement auctions are non-binding?
True
True or false: SKU proliferation greatly increases the complexity of the supply chain and thus causes more exceptions?
True
True or false: The buyer knows all SPM (supplier performance multiplier)?
True
True or false: Less feedback is better in auctions
True 1. Less feedback generates on average lower prices. 2. Less feedback makes the buyer/seller relationship less adversarial.
Open-Bid with Proxy Bidding (like eBay)
a proxy bid triggers automatic bidding
