Chapter 4

capital investment, complex, restructured, underutilized

ERP systems challenges and disadvantages Implementation involves substantial ____ _____ (TCO evaluation can be prohibitive). Software is very _____ and difficult to implement. Existing business processes must be _______ to achieve conformance with built-in models. Change management becomes a critical factor for successful implementation. Most ERP systems are _______ following implementation, even after several years.

once, automates, standardizes, real time, responsive

ERP Systems Benefits Information is entered _____ and then shared across the entire business enterprise. ______ and _____ business processes. Provides ______-______ information for improved decision making and control. Enables flatter, more ______ org structures.

online reverse auction

a declining price auction for goods and services between one buying organization and a group of pre-qualified suppliers supplier with the lowest bid / lowest TCO is usually awarded the business

strategic sourcing

a disciplined, systematic process for reducing the total costs of externally purchased materials, equipment and services while maintaining/improving levels of quality, service, and technology

spend category

a group of items which are likely to be sourced in the future from the same set of suppliers using similar approaches

e procurement systems

applications software package that allows the requisitioning, authorizing, ordering, receiving, invoicing and paying for goods and services over the internet typically driven by existing process inefficiency, low internal compliance, high transaction costs, low spend visibility, and low control over organizational spend

competitive bidding

bids from competing suppliers, buyer chooses best fit

best price evaluation

sourcing strategy: Benchmark internal prices Renegotiate/rollback prices Un-bundle prices and model should-costs Threaten-back leverage Use competitive bidding Use commodity hedging/trading Index/cap prices Compare TCO among potential suppliers Base pricing on profitability Develop long-term contracts

global sourcing

sourcing strategy: Expand geographic supply base Examine new suppliers Capitalise on currency fluctuations Take advantage of trade incentives Optimise counter trade Leverage second-tier suppliers

product specification improvement

sourcing strategy: Rationalise/standardise parts Substitute materials/parts Apply product value analysis Apply product value engineering Use functional/black-box buying Examine life cycle costs Develop long-term contracts

joint process improvement

sourcing strategy: Reengineer joint processes Optimise physical material flow Integrate logistics Support supplier operations improvement Use simultaneous engineering/joint R&D Develop long-term contracts Share productivity gains

volume concentration

sourcing strategy: Reduce/consolidate number of suppliers Pool volume across business units Redistribute volume among suppliers Combine volume from different sourcing group Develop alliances among purchasers Rationalise/standardise parts

rationalized, reductions, specialized, time

strategic sourcing outcomes: ______ supplier base Identification of potential key suppliers Cost ______ / improved profitability Opportunity for continuous improvements Can be disruptive, switching suppliers Requires _______ sourcing skill sets Extended _____ and resource commitment

business

strategic sourcing overall objective: align the company's ______ requirements with a rationalized supply base in each major spend category

kickback

the payment of something of value to a recipient as compensation or reward for providing favorable treatment to another party

product specification improvement, joint process improvement, relationship restructuring

these sourcing strategies create an advantage

volume concentration, best price evaluation, global sourcing

these sourcing strategies exploit buying power

kraljic matrix

this positioning matrix separates items between being bottleneck, non-critical, commodity, and strategic shows criticality of items

lump sum, hourly rates, cost plus, unit price with estimated quantities, unit price without estimated quantities

typical structures of a request for quotation (5)

blanket order

usually covers a variety of items, reduce costs by reducing the number of purchase orders issued used to buy maintenance, repair, and operations items and production line requirements used in volume and purchased repetitively over a period of months

non critical, commodity

volume concentration, best price evaluation, and global sourcing are used for _______ and ______ items

demand analysis supply analysis sourcing strategy development negotiations and supplier selection implement

what are the 5 steps in the strategic sourcing process

5%-25%

what is a general savings range for a spend category

implement

what step of strategic process? develop implementation plan communicate supplier selection set-up process to measure supplier performance and to track benefits rollout agreement to business units manage on going supplier relationships for continuous improvement

demand analysis

what step of strategic sourcing process? confirm strategic and tactical internal user requirements determine linkages to business unit strategy define the spend category and its boundaries collect and analyze data (quantity, quality, cost, delivery) identify any internal constraints or considerations

negotiations and supplier selection

what step of strategic sourcing process? create and issue RFP's / RFQ's evaluate supplier proposals operational considerations commercial considerations negotiate and select suppliers complete contract or agreement

supply analysis

what step of strategic sourcing process? market analysis: segment the existing market place, analyze current and potential market forces, develop supply market evolution general supplier portfolio: define supplier universe, screen potential suppliers, develop facts about suppliers, identify key market players

sourcing strategy development

what step of strategic sourcing process? sourcing strategy: determine market complexity, analyze business impact, develop sourcing strategy finalize supplier portfolio: determine supplier capabilities, develop "short list"

corporate p cards

credit card that is provided to internal customers to purchase directly from established suppliers reduce administrative costs by reducing the number of purchase orders generated and processed and by shortening the process cycle time for authorizing, tracking, purchasing, reconciling, and reporting purchases

unbalanced bids, low balling, bid collusion, kick backs

deceptive procurement practices (4)

need, statement of work, competitive bid, negotiations, purchase order

essential steps in the traditional procurement process: Recognition of _______ - by the internal client Client submits either the "Purchase Requisition" or a "_______" ( for services) to Procurement Procurement identifies and evaluates possible sources of supply - either assigns to an existing supplier, or goes out for ____ _____ with an RFQ or RFP Procurement conducts _______ - when warranted Procurement selects supplier and finalizes T's & C's _____ ______ issued, or formal contract created Receipt and inspection of goods / services by client Invoice clearing and payment - the "3 way match"

relationship restructuring

sourcing strategy: Analyse core competencies Examine strategic make vs buy decisions Adjust degree of vertical integration Create market entry alliances Establish joint ventures Employ strategic alliances/partnering Establish/develop key suppliers

ERP System

An "umbrella" information system that ties together planning, engineering, marketing, production, purchasing, logistics, finance, accounting, HR, SRM and CRM using a central database.

specifications, competitive, 3, 6, costs, initial starting bid price,

Condition that should exist for online reverse auctions: Clearly defined _________, including technological, logistical and commercial requirements (T's and C's). A _______ market with qualified suppliers willing to participate. Typically, at least ____ suppliers are required. More than ____ suppliers may add unnecessary ______ and complexity. An understanding of the market conditions in order to set appropriate expectations for the ______ _______ _____ ______. Buyer and seller familiarity and competency using the auction technology. Clear rules of conduct for auction execution. The buyer is prepared to switch suppliers if necessary. The buyer believes that the projected savings justify a reverse auction.

C

____ items in pareto analysis: roughly 70 to 80% of transactions account for only 10 to 15% of spend typically maintenance, repair, and operating supplies with low average transaction amounts

identified, defined, quantified

in strategic sourcing, first all externally purchased items must be ____, _____, and ______ this includes direct materials, indirect materials, services, and capital expenditures

alliance, single

key questions when adopting new information technology systems: Should we be a leader or a follower? What should be acquired through e‑commerce? What tools should we use to acquire those items? Who should we use as a service provider? Should we enter into an _____, and if so, what type, or work privately? Should we select a _____ integrator or utilize multiple best-in-breed?

sources of supply, labor conditions, prices and discounts

list 3 external information flows into purchasing

orders placed, budget commitments, product availability

list 3 information flows out from purchasing

new products, planning, budgeting

list 3 internal information flows into purchasing

corporate P-cards, vendor managed inventory, blanket PO's/system contracts, e procurement systems, e marketplaces, online supplier catalogs

methods for handling small dollar or repetitive transactions (non strategic) (6)

spend categories

must segment purchases into ______ ______ to enable development of the most effective sourcing strategies

unreasonably low prices, phantom, unqualified

potential buyer-related execution issues with reverse auctions: Buyer knowingly accepts bids from suppliers with _____ ______ ______ (unethical). Buying firm submits _______ bids during the event to increase the competition artificially (unethical). Buyer includes _______ suppliers to increase price competition (unethical).

interrupting good existing supplier relations,

potential problems with using online reverse auctions: The risk of ___________ The risk of developing a reputation for aggressive price-buying over other procurement considerations. The costs of running auctions too high versus expected savings. The cost savings potential of auctions versus traditional sourcing processes such as RFP/RFQ competitive bidding. Significant up-front preparation and set-up costs required compared to use of traditional competitive bid process.

supplier collusion, low, collect market intelligence

potential supplier related execution issues with reverse auctions: ______ ______ (always a concern). Suppliers bid unrealistically ____ prices and then attempt to renegotiate after winning the auction. Suppliers "bird watch" or participate in the event only to _____ ______ ______. (A rule requiring initial bids before entering the auction may thwart this behavior.) Suppliers submit bids after the auction closes in an attempt to secure the business.

strategic, bottleneck

product specification improvement, joint process improvement, and relationship restructuring are used for ____ and _____ items

systems contracting

rely on periodic billing procedures, allow non supply personnel to issue order releases, employ special catalogs, and require suppliers to maintain minimum inventory levels normally, the volume of contract items is not specified and these systems improve inventory turnover rates used most frequently in buying repetitive items

position the category identify sourcing strategy and negotiating tactics

sourcing strategy development steps (2)

large, dollar, audit

why the need for robust supply management processes / systems: Managing _____ information flows Large number of inventory items - SKU's Large ______ volumes involved Critical SRM requirements for business success Severe consequences of poor performance Potential contribution to effective organizational operations inherent in the function Ensuring procurement process compliance Need for an _____ trail