Intro to Supply Chain Chapters 5-8
Ways to Minimize Processing Costs for Small Value Purchases
-Credit Card -Blanket Orders -Petty Cash -Accumulate Small Orders into Larger Ones
When does e-procurement not work?
-During the procurement of mission-critical items that are available only through a few suppliers -Where inventory is very low
Batch
Manufactures a small quantity of an item in a single production run
Engineer-to-Order (ETO)
Manufacturing process in which the component is designed, engineered, and built to specifications only after the order has been received
Assemble-to-Order (ATO)
Products ordered by customers are produced quickly and are customizable to a certain extent
What is described as "the transactional function of procurement for goods and services"?
Purchasing
Centralized Purchasing
Purchasing department located at firm's corporate office makes all of the purchasing decisions
Non-Tariff Barriers to International Trading
Quotas, licensing agreements, embargoes, laws and regulations imposed on imports/exports
Supply Base Rationalization
Reduction int he supply base to the lowest number of suppliers possible WITHOUT increasing risk
Make-to-Stock (MTS)
To manufacture products for stock based on demand forecasts, which is a push system
Buy American Act
US government purchases and 3rd party purchase using federal funds must buy from US source if US good isn't more than a certain differential above the foreign good
Bottleneck Spend Category
Unique procurement problems; supply risk is high and availability is low; small number of alternative suppliers
Spend Analysis
Collecting, cleansing, classifying, and analyzing expenditure data to decrease costs
Leverage Spend Category
Commodity items where many alternatives of supply exist and supply risk is low; spend is high and there are potential procurement savings
Kaizen (LEAN Manufacturing)
Continuous approach to reduce process, delivery, and quality problems
Role of Management in a LEAN System
Create cultural change needed for LEAN to succeed
Job Shop
Creates a custom product fro each customer
Main difference between Co-Managed Inventory (CMI) and Vendor Managed Inventory (VMI)
In Co-Managed Inventory (CMI) the supplier is just recommending an order which is not confirmed unit and unless the buyer approves it
Supplier Development
The technical and financial assistance given to existing and potential suppliers to improve quality and/or delivery performance
Changeover Time
The time taken to adapt and modify the manufacturing equipment and systems to produce a different product or a new batch of the same product
Merchants
Wholesalers and retailers who purchase for resale
Strategic Alliance
An agreement between a buyer and a supplier to pursue some agreed upon objectives, while remaining independent organizations
Co-Managed Inventory (CMI)
An arrangement where a specific quantity of an item is stored at the buyer's location
Six Sigma
An enterprise and supply chain-wide philosophy that emphasizes a commitment toward excellence, encompassing suppliers, employees, and customers
Strategic Alliance Development
An extension f supplier development which refers to increasing a key or strategic supplier's capabilities
Continuous FLow
An inflexible process with high capital investment
LEAN
An operating philosophy of waste reduction and value enhancement
Collaborative Negotiations
Both sides work together to maximize the outcome or create a win-win result
5 LEAN Principles
1. Define Value 2. Map Value Stream 3. Create Flow 4. Establish Pull 5. Pursuit Perfection
3 Primary Goals of Purchasing
1. Ensure uninterrupted flows of materials & services at lowest cost 2. Improve quality of finished goods produced 3. Optimize customer satisfaction
Keiretsu Relationship
Involves companies both upstream and downstream of a manufacturing process, remaining independent but working closely together for mutual benefit
Purchasing
Obtaining merchandise, capital equipment, raw materials, services or MRO supplies, in exchange for money or its equivalent
Competitive Bidding
Offers submitted by multiple individuals or firms competing for a contract, privilege, or right to supply specified services or merchandise
E-procurement
The business-to-business purchase and sale of supplies and services over the internet
Analysis Step in Purchasing Process Steps
-Measurements of the efficiency and accuracy of the procurement process -Specific purchase order data information captured and used during periodic supplier performance meeting
Reasons for Multiple Suppliers
-Need more capacity -Spread risk of supply disruption -More sources of info -Create competition
When does a buyer issue a Request for Proposal (RFP) versus a Request for Quotation (RFQ)?
-RFP is for items which haven't been previously purchased, or not purchased from this specific supplier -RFQ is for routine/repeat purchased items
Federal Acquisition Streaming Act (1994)
-Removed restrictions on bids less than $100,000 -Micropurchases (less than $2500) can be made without bidding
Purchasing Order
-The buyer's offer to the supplier to acquire goods or services -Becomes legally binding when accepted by supplier
Reasons for a Single Supplier
-To establish a good relationship -Less quality variability -Lower Cost -Volume too small to split
Role of Supplier in a LEAN System
Build long-term supplier-buyer relationship
Steps in Purchasing Process (1-7)
1. A need is identified & purchase requisition issued 2. Obtain authorization as needed 3. Identify & evaluate potential suppliers 4. Make supplier selection 5. Purchase order is created and delivered to supplier 6. Supplier confirmation of purchase order 7. Fulfillment
5 Key Points to Consider in Development/Implementation of a Supplier Relationship Management System
1. Automation 2. Integration 3. Visibility 4. Collaboration 5. Optimization
3 Attributes of Supplier Recognition Programs
1. Companies should recognize and celebrate the achievements of their best suppliers 2. Award winners exemplify true partnerships, continuous improvement, organizational commitment, and excellence 3. Award-winning suppliers serve as role models for other suppliers
Public purchasing for the government & non profit sector is characterized by what?
1. Competitive Bidding 2. Sealed Bids
8 Quality Management Principles on which ISO 9000 is based
1. Customer Focus 2. Leadership 3. Involvement of People 4. Process Approach 5. Systems Approach to Management 6. Continual Improvement 7. Factual Approach to Decision Making 8. Mutually Beneficial Supplier Relationship
4 Steps of Continuous Improvement Process
1. Plan 2. Do 3. Check 4. Act
When was the Toyota Production System (TPS) created?
1940s
Supply Management
A newer term that encompasses all acquisition activities beyond the simple purchase transaction
JIT 2
A representative of the supplier is actually embedded in the buyer's purchasing department to forecast demand, monitor inventory and place orders
ISO 9000
A series of management and quality standards in design, development, production, installation, and service
Single Sourcing
A sourcing strategy where there are multiple suppliers available for a product or service, however the company decides to purchase from only one supplier
Import Broker
Agents licensed by the government to conduct business on behalf of importers for a service fee
Purchase Requisition
Document that defines the need for goods and/or services
Pull System in Supply Chain
Each stage in the supply chain requests quantities needed from the previous stage; no excess inventory generated
Line Flow
Has standard products with a limited number of variations moving on an assembly line through stages of production
Value Engineering
Help the buyer's company to reduce cost, improve quality, and reduce new product development time
Inventory Turnover Effect
Increased inventory turnovers indicate optimal utilization of space and inventory levels
Decentralized Purchasing
Individual, local purchasing departments make their own purchasing decisions
Industrial Buyers
Individuals within an organization who purchase raw materials for conversion into products and/or purchase services, capital equipment, and MRO supplies
5 Ss of Workplace Organization
Sort Straighten Shine Standardize Sustain
LEAN Layouts
Move people and materials when and where needed, and as soon as possible
2 Most Important Functions of a Supplier Development Program
1. Providing information about products, expected sales growth, etc. 2. Training suppliers in the application of lean and six sigma
3 Parts of Procurement
1. Purchasing Management 2. Strategic Sourcing 3. Supplier Relationship Management
4 Elements of Cost
1. Quality 2. Service 3. Delivery 4. Price
In the 1990s, supply chain management was made up of what 4 things?
1. Quick response 2. Efficient consumer response (ECR) 3. Just-in-Time (JIT) 4. Keiretsu Relationships
5 Key Areas of Spend Analysis
1. Total historic expenditure and volumes 2. Future demand projections or budgets 3. Expenditure categorized by commodity and sub-commodity 4. Expenditure by division, department, or user 5. Expenditure by supplier
7 Elements of LEAN Manufacturing
1. Waste Reduction 2. LEAN Layouts 3. Inventory, Setup Time & Changeover Time Reduction 4. Small Batch Scheduling and Uniform Plant Loading 5. LEAN Supply Chain Relationships 6. Workforce Empowerment 7. Continuous Improvement
Steps in Purchasing Process (8-14)
8. Receipt of goods 9. Invoice 10. Reconciliation 11. Payment 12. Reclamation of taxes 13. Close out purchase order 14. Analysis
Strategic Sourcing
A comprehensive approach for locating and sourcing key suppliers, which often includes the business process of analyzing the total-spend by material category
Bid Bond
A debt secured by a bidder for purpose of providing guarantee that the successful bidder will accept the contract once awarded
Performance Bond
A debt secured by a bidder for the purpose of providing a guarantee that the work will be on time and meet specifications
Profit-Leverage Effect
A decrease in purchasing expenditures directly increases profits before tax
Request for Proposal (RFP)
A detailed low-level capabilities evaluation document that is used to precisely determine a supplier's capability and interest in the production of a customized product or service
ISO 14000
A family of standards for environmental management
Innovative Products
Characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition
Decentralized-Centralized Purchasing Organization
Decentralized purchasing at the corporate level and centralized purchasing at business unit level
Reclamation of Taxes
In some situations, the supplier will be obligated to charge a tax, but the buyer may be eligible to retain some or all of the tax based on corporate status
Countertrade
International trade by exchange of goods rather than by currency
Who created the LEAN philosophy? What was it originally called?
It was created by key Toyota executives and was originally called the Toyota Production System (TPS)
Non-Critical Spend Category
Items that involve a low percentage of the firms' total spend and involve very little supply risk
Who first coined the term LEAN? When?
John Krafcik in 1988
Early Supplier Involvement
Key suppliers become more involved in the internal operations of the buyer's company, particularly with respect to new product and process design, concurrent engineering, and design for manufacturability
3 Elements of LEAN
LEAN Manufacturing Total Quality Management Respect for People
Centralized-Decentralized Purchasing Organization
Large national contracts centralized at the corporate level and smaller specific items decentralized at the business unit level
What does LEAN focus on? What does Six Sigma focus on?
Lean focuses on eliminating wastes and improving efficiency Six Sigma focuses on reducing defects and variations
Total Cost of Ownership (TCO)
Made up of all costs associated with the acquisition, use, and maintenance of a good and service
Functional Products
Maintenance, repair, and operations items and other commonly low profit margin items with relatively stale demands and high competition (ex: office supplies)
Make-to-Order (MTO)
Manufacturing strategy that typically allows customers to purchase products that are customized to their specifications
Role of Workers in a LEAN System
Perform different tasks and actively pursue company goals
Import Merchants
Person/company engaged in purchase and sale of imported commodities for profit (buy products internationally then sell domestically)
Forward Vertical Integration
Refers to a company acquiring one or more of their customers (ex: buying a wholesaler)
Backward Vertical Integration
Refers to a company buying/acquiring one or more of their suppliers
Distributive Negotiations
Refers to a process that leads to self-interested, one sided outcome
Kanban
Signals used for communication between workstations; authorizes production or movement of materials to the next workstation
"Rights and Duties" ethical approach
Some actions are just right in and of themselves, regardless of the consequences
Reverse Auctions
Sourcing technique where pre-qualified suppliers enter a website and at pre-designated time and date, try to underbid competitors to win the buyer's business
Strategic Spend Category
Strategic items and services that involve a high level of expenditure and are vital tot he firm's success
Supplier Relationship Management
Strategically planning for, and managing, all interactions with the third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions
Vendor Managed Inventory (VMI)
Suppliers directly manage buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer
Operations Management
The design, execution, and control of the operations that convert resources into desired goods and services, aligned with the company's business strategy
Procurement
The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods and services
Sole Source
When there is only one supplier for an item