Intro to Supply Chain

Formula to find the return on assets

profit/assets

GOAL of supply chain

"the Seven R's", having the RIGHT product with the RIGHT quantity in the RIGHT condition at the RIGHT place ... etc aka balancing low cost manufacturing with cariable customer demand

Ways to reach the goals of purchasing...

-Actively seek better materials and reliable suppliers, always making sure they are still working well with them -working closely with strategic suppliers to improve quality materials -involving suppliers and purchasing personnel in new product design and development efforts

Push/Make-to-stock Business Model

-anticipatory, pushing stock into market based on predicted demand ... leads to low cost manufacturing because constant manufacturing

International Purchasing/Global Sourcing

-gives different oppurtunities for cost quality etc -challenges that require skills and knowledge to deal with international suppliers -you must import sales agent, import merchant or trading company, consider tariffs and non-tariff barriers such as laws

Making vs Buying: Reasons for making it:

-if you have good technology -you get better quality control -you need such specific ideas so you just do it yourself -you have control of lead time, transportation -you get more cost advantage because you don't have to pay other company ... this is worth it IF you are as efficient as the other company could be in making it

Evaluating Supplier's Total Cost

-it's MORE than just the purchase price -also transportation, payment terms, tooling/set up -These ALL buy into the "Total Cost of Ownership" including the quality, reliability and order processing costs

Pull/Make-to-order Business Model

-responsive, produce stock in response to actual demand, ex:) sell in advance/online THEN make, (restaurants, online store) this method eliminates inventory costs

Making vs Buying: Reasons for buying or outsourcing

-you can get someone who specializes in it -cost is cheaper to buy from other source rather than make it yourself sometimes -helps you relationships with other companies -you get someone else to make it if your team doesn't have capacity to make -other suppliers will have better quality and technology to make it

Strategic Sourcing Decisions

1. Backward Vertical Integration: acquiring sources of supply 2. Forward Vertical Integration: acquire channel partner operations 3. Outsourcing: deciding to purchase from suppliers rather than making it.. helps reduce costs and increase flexibility, allows organizations to concentrate on core capabilities because other outsources are doing some of the work, reduces staff levels, improve flexibility Risks to Outsourcing: loss of control and intellectual ability, you must put more reliance on suppliers, youre going to need to manage that source still Strong Supplier Partnerships: important to achieve win-win competitive performance for buyer and supplier, imvolves a mutual commitment between both companies, again there is a mutual benefit

Keys to Successful Partnerships

1. Build trust 2. shared vision and goals 3. personal relationships 4. mutual benefits 5. commitment 6. change management, when things chance you work togehter 7. open lines of communication 8. aligned capability -always measure your partner's performance against benchmarks, measure quality, cost, flexibility, tech development, financial stability, etc -all these measures must align with the goals of your company, "Quarterly Business Reviews"

The Purchasing Process

1. Material Requisition: identify need to get product (quantity and price) 2. Supplier Determination: identify the supplier to purchase from, supplier selection is very important 3. Issue Purchase Order: determine flow of info and goods. Establish terms of sale. State item, quantity, price 4. Receive, Inspect, Pay: get product, confirm quantity/quality. pay.

International Trade Organizations and Agreements

1. World Trade Organization (WTO): only international orgs dealing with global rules of trade between nations, its goal is to make sure everything runs smoothly, the result is assurance 2. North America Free Trade Agreement (NAFTA): eliminated tariffs between countries, currently the largest trade organization by GDP 3. Regional Comprehensive Economic Partnership (RCEP): proposed expansion of ASEAN 4. European Union (EU): acts as a single market to compete with larger economies, all have euros so common currency, Brexit- England voted to exit, EU is good because it eliminates tariffs, eases travel, created after WWII 1950

E-Procurement (electronic)

Advantages of e-procurement: saves time and costs more accurate more mobility better tracking real time (no waiting) you can just order things where ever you are benefits to suppliers better management decentralizes ORDERING (not purchasing)

Ethical Sourcing

promote diversity. promote good work conditions, promote environmental protection

T or F: In a TCO system, certification and training of suppliers would be considered post-transaction costs.

false

Which of the following was a popular way in the 1990's of developing radically new business processes in an effort to reduce waste and increase performance?

Business Process reengineering

Ways/Types of purchasing

Centralized Purchasing: purchasing department at the firm makes all purchasing decisions ADVANTAGES: consolidate orders, low transportation costs Decentralized Purchasing: local purchasing departments make own purchasing decisions (plant-based level) ADVANTAGES: close knowledge of requirements etc Hybrid Purchasing: centralize national contracts at corporate level

TRUE OR FALSE: Successful strategies are the same for functional and innovative products

FALSE they're different

TRUE OR FALSE: The basic goal of Supply Chain Management is to increase customer service by increasing inventory and reducing costs.

FALSE, goal is never to increase inventory, rather about OPTIMIZING the inventory level while maintaining customer satisfaction levels

T or F: When using a weighted-criteria evaluation system with five or more categories, vendors should be ranked based on their score in the two highest weighted categories, the others should be discarded.

False

While most public procurement is focused on goals similar to those of purchasing departments in the private sector, U.S. federal government purchases must comply with the:

Federal Acquisition Recognition

Other special rules for gov/non profit procurement

Federal Acquisition Streamlining Act: this removed restrictions on purchases less than $100,000 so you don't have to bid Small Business Promotion: purchases between $2,500 and $100,00 are reserved for small businesses to let small ones compete Buy American Act: says US government must buy DOMESTIC goods instead of FOREIGN goods.... probably with this is some domestically produced goods are foreign companies so doesn't even help America in that case Green Companies: variety of federal state and local order environmental requirements GSA (General Services Administration): makes contracts for products purchased by government agencies... rule is the "Best Pricing Rule" State and Local Contracts and Buying Groups: helps to consolidate volume of companies to get best pricing, certain states have their own contracts then local towns can use those contracts so suppliers can tell them which contract to buy off of

What are the two international certification programs discussed in the text? What does each certification attempt to certify?

ISO 9000 - quality management ISO 14000 - environmental

ISO (International Organization for Standardization)

ISO 9000- quality management ISO 14000- environmental management about how to improve quality and shows your ability to improve say environment

Primary Goals of Purchasing

Is it to find the lowest price?? NO.. 1. Ensure UNINTERRUPTED flows of products at the lowest TOTAL cost (NOT price) aka costs including transportation and warranty costs 2. Improve quality of the finished goods produced 3. optimize customer satisfaction

Field failures, loss of goodwill, a decreased reputation, and warranty costs can all be classified as:

POST transaction costs

Costs associated with supplier certification, investigating alternative suppliers, and investigating alternative delivery options can all be classified as:

PRE transaction costs

The TCO is then broken up into three major cost categories. List the three cost categories and provide two examples of each of the three types of costs

Pretransaction Costs − supplier certification, supplier training, investigating delivery options for new suppliers, cost associated with finding a new supplier, costs associated with comparing suppliers and their supplies... Transaction Costs − purchase price of the product, order preparation, delivery costs, insurance, packaging, costs associated with requesting the order... Post-Transaction Costs − Field failures, defective items delivered to the customer, damage to the companies reputation, costs with maintaining broken items, warranty costs, legal costs, fines, and logistical costs associated with retrieving damaged or defective items in the field.

Financial Significance of Supply Management (3 "Effects")

Profit Leverage Effect: a decrease in purchasing expenditures directly increases profits before taxes; assumes no decrease in quality or other costs Return on Assets Effect: improving profit for a set of assets or reducing assets requirements to produce profit both improve ROA. Formula= profit/assets Inventory Turnover Effect: increased inventory turnovers indicate improved utilization of inventory levels and reduced impact of inventory obsolescence Formula= COGS(cost of goods sold)/inventory

Procurement for Gov and Non Profit Agencies

Public procurement is characterized by: -competitive bidding: contract is usually given to lowest priced AND most responsive and responsible bidder -sealed bids: used to ensure fairness and are only opened in public -Performance Bonds: incentive to fulfill contract, Bid or Surety Bonds: successful bidder will accept the contract, Performance Bond: work will be on time and meet specifications, Payment Bonds: protection against 3rd party people who dont pay their suppliers

How many suppliers to use???

Reasons to have ONE supplier: good relationship, less variability, low cost, transportation Reasons to have MORE: if you need more capacity, spread risk of supply interruption, get expanded amount of information

SRM

Supplier Relationship Management

True or False: Reverse logistics activities include the return of defective and damaged items to the manufacturer, and the recycling of used packaging.

TRUE

Lean production is typically associated with which of the following company's production systems?

Toyota

T or F: Blank check purchase orders, Corporate purchasing cards, Petty cash, and Open-end purchase orders are all possible alternatives to dealing with small value purchases such as those for office supplies.

True

Ethical Trading Initiative

a base code for companies to go off of, 9 rules including no forced labor, safe and clean work conditions, no child labor, etc

Green Purchasing

a type of sustainable sourcing, meets environmental objectives

T or F: In a weighted-criteria evaluation system the weights of all the performance dimensions must add up to total more than 1.00 and less than 100.

false

Sustainability

ability to meet current needs without hindering ability to meet future needs in terms of economic, social

Supply Base Rationalizeation Program

aka supply base reduction/optimization, when suppler base is lowered, get lower TCO, fewer supplier management probs, more frequent interaction with supplier

Reverse Logistics

all operations related to the reuse of products and materials

Supplier Certifications

an organizations process for evaluating the quality systems to eliminate incoming inspection, looks at product quality rates (defective product), non-product issues (on time delivery), go to a recognized agency

SRM software should be capable of:

automating transactional processes, making information flow between partners more visible, integration of the supply chain making it possible to monitor multiple departments and processes both internally and externally

T or F: In a TCO system, the costs associated with defective products, including repair and warranty costs would be considered post-transaction costs.

true

true or false; According to the text, driving your suppliers to offer the lowest possible prices, which in turn will lower your cost of goods sold, could prove to be beneficial to buyer-supplier relationships since it intensifies competition between suppliers and will likely increase the quality levels of the items produced.

false, not beneficial but harmful!!

If a distribution company that focused on warehousing and distribution of grocery items decided to purchase a chain of grocery stores, the distribution company would be exemplifying: a. backward vertical integration b. forward vertical integration c. backward horizontal integration d. forward horizontal integration

b. forward vertical integration

Which of the following documents is considered the buyer's offer to purchase products or services from a supplier, is legally binding once the supplier accepts it, and usually has the terms and conditions of purchase preprinted on the back of the document?

purchase order

Forward Integration

business activities are expanded to include control of the direct distribution or supply of a company's products

Supplier Development

buyers activity to improve your suppliers ability rather than finding a whole new supplier (more cost effective)

2 types of buyers: #1=Industrial Buyers

purchase raw materials, services, capital equipment and maintenance supplies to produce another product or service

Which of the following is NOT a form of countertrade? a. barter b. offset c. incotermen d. counterpurchase

c. incoterming

ISO helps companies because ...

companies can then just say that you must have ISO 9000 to be our supplier so it eliminates work and research for the business

Supplier Recognition Programs

companies should recognize the acheivements of their suppliers, award improvements

Benchmarking

comparing what you do to other businesses that do it best to implement changes to improve

Best Practices

copying what other businesses do best and implementing them, make sure it fits the culture

T or F: the United States' Federal Acquisition Streamlining Act (FASA) allows government purchases that are less than $250,000 to occur through a simplified procedure that includes full and open competitive bidding.

false, the streamling act removed restrictions on purchases less than $100,000 so you don't have to bid

T or F: Retail items, which would likely be found at a store like Target or Wal-Mart, like lamps, blankets, microwave ovens, and candy bars would be classified as innovative products.

false, they would be FUNCTIONAL products

Pull Business Model aka RESPONSIVE model

fast response, minimal stock outs or sell outs, but need to have a variety of products for customers to buy, ideal for INNOVATIVE products like rapidly changing products, variety

Purchasing Organization

dependent on many factors ex:) market conditions, materials required

GOOD and PREFERRED suppliers provide:

early supplier involvement, information on the supply market, capacity for meeting unexpected demand, cost efficiency due to economies of scale

Business Ethics

ethical principles, ex:) Utilitarianism: greatest good for the greatest number of people ex:) rights and duties: recognize rights of others

Supply Chain

everything that happens from raw materials to use, connected by transportation, technology and communication among supply chainers -can be a short supply chain or very complicated (through many different manufacturers)

T or F: Examples of tariffs include quotas, licensing agreements, and embargoes.

false

Compare Cost to Make vs Cost to Buy

find the breakeven point by setting total cost of the 2 options equal ex:) 25,000 + 5Q = 500 + 7Q and solve for Q if requirement to make for the year is $15000, the breakeven point comes out to be $12,500 so making them is cheaper than buying if the amount of money is less than requirement to buy, it is cheaper if you make it

Centralized Purchasing

finding the best deals with local vendors for the corresponding location of the company department

Keys to Successful partnerships

focus on total cost of ownership, group costs around the transaction aka shipping etc, pre and post transaction

Current Trends in supply chain are

globalization- expanding supply chain internationally, growing markets Flexibility- firms must be flexible and responsive to customers needs Cost Reduction and Continuous Improvement- reducing costs, make more lean (eliminate wasted time/$) Sustainability- minimizing social and economic impact, ex:) no lead in product

Sustainable Sourcing seeks to ...

grow revenue, reduce costs, manage risk, build intangible assets like enhance brand through social and ethical/environmental repsponsibility

According to the textbook, the Las Vegas division of Harrah's Entertainment utilizes which of the following purchasing structures?

hybrid

The top supply chainers are ...

integrated and create partnerships for competitive advantage and sustainability

The importance of Supply Chain

it creates competitive advantage, optimized inventory levels which lead to improved cash flow, improves operating costs by lowering transportation/manufacturing/etc costs... basically about reducing the TCO (total cost of ownership)

Supply Base

list of suppliers a firm uses to get its materials, supplies, etc firms should have long term, strategic supplier alliances, try to have a smaller supply base by condensing buying to one or fewer suppliers, costs less to have less suppliers

Push Business Model aka EFFICIENT model

low cost and predictable supply, ideal for FUNCTIONAL products like things people buy everywhere

Continuous Improvement (Kaizen)

making small improvements over time results in elimination of waste, buyers and sellers must be willing to continuously improve

Strategic Sourcing

managing a firms external resources to support long term goods you want to reduce costs and devliery times, improve quality, increase customer focus

Which one??---->Merchant/(or)Industrial supply chain member buyers purchase their merchandise in volume to take advantage of quantity discounts, transportation economy, and storage efficiency, and then they create value through services like consolidating merchandise or break bulking.

merchant

Small Value Purchase Orders

need to minimize processing costs for small value purchases... procurement credit card, online catalog, accumulating small orders to create large orders so won't process an order until it gets big enough

Purchasing (aka Sourcing)

obtaining merchandise, capital equipment, raw materials, services, or maintenance, repair and operating (MRO) supplies in exchange for money

Supply Chain, in short, is ...

planning for the consumer

Sustainable Sourcing

process of buying goods that looks at long term impact on people, profits and the planet

Supplier Evaluation Provides:

process to identify best suppliers, decisions made on facts not perception/personal relationship with people, frequent feedback helps avoid surprises like why you fired someone, suppliers can provide constructive feedback to customer

Supplier Relationship Management

refers to extended procurement processes like sourcing analytics, supplier scorecard, involves developing partnerships with key suppliers, focus on small set of critical suppliers

Risks of focusing too much on continuous improvement?

sometimes the cost of improvement isnt worth the value, sometimes dont realize that tastes and technology are changing so they keep improving a product that no one wants ex:) mp3 players like now people buy ipods

Vendor Managed Inventory

suppliers manage buyers inventories to reduce inventory carrying costs and avoid stock outs

Value Engineering

suppliers proving their value to buyer to build relationships

The 4 parts of Supply Chain

supply management (building trusting relationships), operation (production and capacity planning), logistics (transportation management, develop loyal customers), integration (supply chainers working for common goal)

Vertical Integration

the combination in one company of two or more stages of production normally operated by separate companies.

Corporate Social Responsiblity

the pratice of busienss ethics

Supplier Selection

the process of selecting suppliers is complex and should be based on: -product/process technology, willingness to share technology and info, quality, service, the KEY is to align your business strategy with your supplier aka make sure your priorities are the same

Quarterly Business Reviews

the supplier evaluation system uses a weighted average scoring method -categorize suppliers based on their score

Contracting

the term normally used for the acquisition of services

Supply Management

the term used to encompass all activities in acquiring goods and services

Which type of requisition is used for materials and standard parts that are requested on a recurring basis?

traveling requisition

T OR F The assembly or production of finished products, producing the right amount of product, and ensuring that finished products meet specific quality, cost, and customer service requirements can all be considered elements of operations.

true

T or F According to the Annual Survey of Manufacturers, the cost of materials exceeds the value added to the materials during manufacturing.

true

T or F: Decentralized purchasing is the practice where individual, local purchasing departments throughout a single corporation make their own, individual purchasing decisions to fulfill their individual local needs.

true

T or F: Smoother processes, faster cycle times, reduced new product development, and improved time-to-market are possible benefits from the increased visibility that is offered by SRM software.

true

T or F: While Inventory turnovers can be calculated a number of different ways, a common way to calculate inventory turnovers is by dividing the cost of goods sold by the average inventory at cost.

true

2 types of buyers: #1=Merchant Buyers

wholesalers, distributors and retailers who purchase completed product for resale , ask "what are the consumer trends right now?" ex:) Macy's buying products for their store