Supply Chain Management CH 4

Primary Strategic Benefit of E-Procurement

Significant cost savings and the freeing up of time for purchasing staff to concentrate on more of the firm's core business activities

Rights and Duties

Somme actions are right in themselves without regard for the consequences. Ethical actions recognize the rights of others and the duties those rights impose on the ones performing the actions.

Value Engineering Techniques

Techniques with help from the supplier allows firms to design better quality and cost savings into the products from the time a product first hits the shelves.

Business Ethics

The application of ethical principles to business situations

Distributive Negotiations

The belief that there is more to gain from collaborating, rather than trying to seek an outcome that favors primarily one side's interests

Co-Managed Inventories

The buyer and supplier reach an agreement regarding the buyer's periodic demand forecasts, how information is shared, the order quantity, when an order is generated and the delivery timing and location.

Corporate Social Responsibility (CSR)

The practice of business ethics

Benchmarking

The practice of copying what other businesses do best. Successful benchmarking allows firms to potentially leapfrog the experience-gaining stage by trying things that have worked well for other companies.

Co-Sourcing (Selective Sourcing)

The sharing of a process or function between internal staff and an external supplier Firms will retain the more strategic activities while outsourcing the more resource-intensive, non-value-adding activities

Reorder Point

The time when the supplier determines inventory levels have become low enough to ship an order quantity out.

Two approaches to deciding whether or not an action is ethical

Utilitarianism Rights and Duties

Third-Party Logistics (3PL)

•Refers to a firm that supplies logistics and possibly other supply chain management services •Nearly 80 percent of U.S. Fortune 500 companies are using 3PLs, and the larger it is, the more likely a firm will be to have a 3PL relationship.

Many formal strategic supplier agreements allow suppliers to benefit in the following ways:

• A share of the cost reductions resulting from supplier improvements • A share of the cost savings resulting from a supplier's suggestions made to the focal firm • More business and/or longer contracts for high performance • Access to in-house training seminars and other resources • Company and public recognition in the form of awards

Leading companies practicing sustainable sourcing seek to:

• Grow revenues • Reduce Costs • Manage Risk • Build Intangible Assets (Brand and Reputation)

Key disadvantages when using 3PL providers

• Loss of control • Loss of communication with customers and suppliers • The potential spread of confidential information to customers and suppliers • The potential damage to the firm's reputation if mistakes are made by the 3PLs

Arguments in favor of outsourcing most or all of the supply management or purchasing functions to 3PL services

• Overhead costs are reduced • Skilled personnel can be utilized • Purchase costs can be lowered since 3PLs gain huge purchase volume leverage by combining demands for the same items from all of their customers, resulting in pricing discounts

Some of the successful benchmarking sourcing practices found to be common among the companies

• Use of a central database to access information on parts, suppliers, lead times, and other purchasing information • Software applications for sharing information with suppliers • Use of the Internet for supplier searches • Alliances with key suppliers for specific components • Supplier certification and the elimination of incoming quality checks for key supplier deliveries • Involving suppliers in the research and development processes of new products • Reducing the firm's supply base • Continuous measurement of supplier performance, and establishing supplier improvement targets; and most recently • creating an ethical and sustainable supply chain

Ethical Sourcing

"That which attempts to take into account the public consequences of organizational buying or bring about positive social change through organizational buying behavior" Practices include: - Promoting diversity by intentionally buying from small firms, ethnic minority businesses, and women-owned enterprises - Discontinuing purchases from firms that use child labor or other unacceptable labor practices - Sourcing from firms with good labor treatment or environmental protection credentials

Sustainability

"The ability to meet the needs of current supply chain members without hindering the ability to meet the needs of future generations in terms of economic, environmental and social challenges"

Benefits of supply base rationalization programs

+Reduced purchase prices due to quantity discounts +Fewer supplier management problems +Closer and more frequent collaborations between buyer and supplier +Greater overall levels of quality and delivery reliability, since only the best suppliers remain in the supply base.

Objectives Accomplished when Rewarding Suppliers

-Provides a continuous incentive to all suppliers to meet and surpass specific performance goals -Provides an incentive for marginal (unrewarded) suppliers to achieve a level of performance that will allow their supplier status to be upgraded, resulting in rewards -Gives suppliers an incentive to create and share rewards, in turn, with their suppliers

Developing a Collaborative Negotiation Infrastructure

1. Build a preparation process 2. Develop a negotiation database 3. Design a negotiation launch process 4. Institute a feedback mechanism

Maintaining a Successful Strategic Alliance Program

1. Determine the key strategic parameters to organize around 2. Facilitate the dissemination of information 3. Elevate the importance of the strategic alliance program 4. Provide continuous evaluation of alliance performance, visibility, and support. 5. Reward suppliers as performance merits.

The Ethical Trading Initiative's Base Code

1. Employment is freely chosen 2. Freedom of association and the right to collective bargaining are respected 3. Working conditions are safe and hygienic 4. Child labor shall not be used 5. Living wages are paid 6. Working hours are not excessive 7. No discrimination is practiced 8. Regular employment is provided 9. No harsh or inhumane treatment is allowed

Supply Chain Ethical and Sustainable Sourcing Strategy Framework

1. Establish corporate ethical and sustainable sourcing policies 2.Train purchasing staff; implement policies among users, suppliers 3. Prioritize items based on ethical and sustainability opportunities and ease of implementation. Get started 4. Develop a performance measurement system 5. Monitor progress, make improvements. Increase use of certified fair trade and green products and services. 6. Expand focus to include other departments and customers. Increase brand value.

Fair Trade Products

A fair trade product is one manufactured or grown by a disadvantaged producer in a developing country that receives a fair price for their goods. Thus, the term fair trade most often refers to farming products such as coffee, cocoa, sugar, tea and cotton that are produced in developing countries and exported to large firms in developed countries.

Supplier Co-Location

A more advanced and dedicated extension of the vendor managed inventory concept. A supplier's employee is permanently housed in the purchasing department of the buyer's organization, acting as both buyer and supplier representative.

Strategic Supplier Alliance

A more formalized type of collaborative relationship, involving commitments to long-term cooperation, shared benefits and costs, joint problem solving, continuous improvement, and information sharing. Ethical and sustainable supplier certifications + ISO 9000 + ISO 14000

Ethical Trading Initiative (ETI)

An alliance of organizations seeking to take responsibility for improving working conditions and agreeing to implement the ETI Base Code, a standard for ethical practices for the firm and its suppliers.

Strategic Alliance Development

An extension of supplier development refers to increasing the firm's key or strategic suppliers' capabilities.

Cloud Computing

Anything that involves delivering hosted services over the Internet

Successful Collaborative Negotiations

Both parties must: trust each other, believe in the validity of each others perspective, be committed to working together, and gave a free flow of information between parties

Collaborative Negotiations / Integrative / Win-Win Negotiations

Both parties work together to maximize the joint outcome, or create a joint optimal results

Insourcing (Backsourcing)

Bringing activities that were once outsourced back into the company

Most popular aspect of green sourcing

Energy conservation

ISO 14000

Environmental certification

Billback Penalty

Equal to the incremental cost resulting from a late delivery or poor material quality

Purchasing Spend

Expense

Supply Base Rationalization / Supply Base Reduction / Supply Base Optimization

Firms taking an active role in supply chain management seek to reduce purchases from marginal or poor-performing suppliers while increasing and concentrating purchases among their more desirable, top-performing suppliers

Vendor managed inventory (VMI)

For the supplier, it means they avoid ill-advised orders from buyers, they get to decide how inventory is set up, when to ship it, how to ship it, where it goes, and they have the opportunity to educate their customers about other products.

Green Purchasing

Green purchasing is a practice aimed at ensuring that purchased products or materials meet environmental objectives of the organization such as waste reduction, hazardous material elimination, recycling, re-manufacturing and material reuse. "Making environmentally conscious decisions throughout the purchasing process, beginning with product and process design, and through product disposal"

Sustainable Sourcing

Includes green purchasing, some form of financial benefit, as well as aspects of ethical sourcing "A process of purchasing goods and services that takes into account the long-term impact on people, profits, and the planet"

Innovative Products

Innovative products might be new types of control mechanisms, new software applications, or a new robotics system. Characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition.

Social Sustainability

Involve worker safety, hourly wages, working conditions, child workers, and basic human rights

Utilitarianism

Maintains that an ethical act creates the greatest good for the greatest number of people

Functional Products

Maintenance, repair, and operating (MRO) materials and other commonly purchased items and supplies These items are characterized by low profit margins, relatively stable demands, and high levels of competition. Thus, companies purchasing functional products most likely concentrate on finding a dependable supplier selling at a low price

Strategic Sourcing

Managing the firm's external resources in ways that support the long-term goals of the firm

Lead Logistics Provider (LLP) / 4PL

One primary 3PL provider and overseer

ISO 9000

Quality certification