Chapter 13 Global Sourcing and Procrument
Request for Proposal (RFP)
• A company interested in procurement of a product or service requests potential suppliers to submit business proposals. • Used when there are many product/service options available. (Expertise from supplier) Example: Home Remodeling.
Request for Bid (RFB) or Request for Quote (RFQ)
• A company interested in procurement of a product or service requests the price from multiple providers. • Used for well-defined products/services.
Strategic Alliance
• An agreement between two or more parties to pursue a set of agreed upon objectives while remaining independent organizations. • Used when the supplier is critical to the success of the buyer. • Each company possesses assets or expertise that will help the other by enhancing their businesses.
Define the Organizational reasons a company would outsource and the benefits?
• Focus on what the firm does best • Increase flexibility to meet changing demand for products and services • Increase product and service value by improving response to customer needs
The Bullwhip Effect
• The variability in demand increases as we move from the customer to the supplier in the supply chain. • A slight change in consumer sales ripples backward as magnified oscillations upstream, like the result of a flick of a bullwhip handle.
The Bullwhip Effect (more in depth) 1. Forward Buying 2. Continuous Replenishment
• Forward buying - A customer buys far in advance of when the item will be used (e.g. due to promotion). • Will typically make the bullwhip effect worse. • Continuous replenishment - inventory is replaced frequently, as part of an ongoing process to reduce variability. • Will typically lessen the impact of the bullwhip effect.
Define the financial reasons a company would outsource and the benifits?
• Gain access to new markets, particularly in developing countries • Reduce costs through lower cost structure • Turn fixed costs into variable costs
What does the term "Specificity" mean?
• How common the item is and how many substitutes might be available. • Low specificity = commonly available items • High specificity = very specific items, not commonly available. • Commonly available products can be purchased using a relatively simple process (e.g. online catalogs).
Define the Improvement reasons a company would outsource and the benefits?
• Improve quality and productivity • Obtain expertise, skills and technologies that are otherwise unavailable • Improve risk management
What is Electric Catalog?
• Provides information on services and/or products offered by a vendor or service provider. .• Used for repetitive purchases of items.
What are the types of Sourcing Relationships?
• Spot Purchase • Electronic Catalog • Request for Bid • Request for Proposal • Vendor Managed Inventory • Strategic Alliance
Vendor Managed Inventory (VMI)
• Supplier is responsible for all inventory decisions. • Used when the supplier is better positioned than the buyer to decide what inventory should be held. They have more knowledge of the product.
What is Outsourcing?
- It means to move some of a firm's internal activities and decision responsibility to outside providers. - This allows a company to create a competitive advantage while reducing cost.
What is Strategic Sourcing?
- The development and management of supplier relationships to acquire goods and services - Due to globalization, sourcing has become more critical and strategically important to a company
What are the 4 Supply Chain Strategies?
1. Efficient Supply Chains (Cost Focused) 2. Responsive Supply Chains 3. Risk-Hedging Supply Chains 4. Agile Supply Chains
What are the three main reasons to Outsource?
1. Financial 2. Improvement 3. Organizational
What are the three categories of the Total Cost of Ownership?
1. Purchase Cost 2. Usage Cost 3. Disposal Cost
How should a green sourcing effort be assessed for a company?
A comprehensive green sourcing effort should assess how a company uses items that are purchased internally
What would be the reasons not to outsource?
Difficult to coordinate with supplier. Weak intellectual property protection. Activity/product has a strong relationship with firm's core competency Low suppler market uncertainty Low supplier market competition
What would be the reasons to outsource?
Easy to coordinate supplier Strong intellectual protection Activity/product has a little relationship with firm's core competency High Supplier market uncertainty High supplier market competition
What is Green Sourcing?
Environmentally friendly sourcing
What's a Spot Purchase?
Its a one-time purchase of an item. This usually occurs when there is an emergency.
What does Usage Costs include?
Maintenance and Repair Costs Energy Costs Financial Costs Supply Chain Costs
What is an Innovative Product?
Products with new innovations that incentivize customers to buy. Typically innovations have a life cycle of just a few months. Newness of the innovative products makes demand for them unpredictable. Imitators quickly erode the competitive advantage that innovative products enjoy.
What does the Purchase Cost include?
Purchase price costs Taxes Financial costs
What are Functional Products?
These include the staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations.
What is Efficient Supply Chains?
This term includes utilizing strategies aimed at being cost efficient.
What is Responsive Supply Chains?
This term includes utilizing strategies aimed at being responsive and flexible.
What is Risk Hedging Supply Chains?
This term includes utilizing strategies aimed at pooling and sharing resources in a supply chain to share risk.
What does the Total Cost of Ownership mean?
This term refers to the estimate of the cost of an item that includes all of the costs related to the purchase, use, and disposal of the item.
What is Agile Supply Chain?
This term refers to utilizing strategies aimed at being responsive and flexible while hedging risks of supply shortages.
What does Disposal Costs include?
Warranty Costs Product liability Customer dissatisfaction costs