Mgt 333
Managing Risk
1) Identify and classify potential risk factors 2) Evaluate and prioritize risk factors 3) Develop and implement risk strategies a. Risk avoidance strategies b. Contingency mitigation plans
What are the steps in a robust supply management process?
1) Need Recognition 2) Need Description- Authority, clarity, and clearance 4) Supplier Selection & Contract 5) Purchase order 6) Follow-up/ Vs. Expediting 7) Receiving & Inspecting a. Confirm the compliance with contract requirements. 8) Invoice clearing and payment 9) Record keeping
Purchasing Process
1) Need Recognition- Anticipation role, track historical data, identify and take advantage of opportunities. 2) Need Description- Authority, clarity, and clearance a. Requisition's- Standard R, Bill of Materials, Traveling R. 3) Source Identification a. Information, Quotation, Proposal, Bid 4) Supplier Selection & Contract a. Offers analyses, enforceable contract 5) Purchase order a. Essential info- from description to delivery to payment 6) Follow-up/ Vs. Expediting a. Routine (Follow-up) vs. Pressure measures (expediting) to ensure delivery. 7) Receiving & Inspecting a. Confirm the compliance with contract requirements. 8) Invoice clearing and payment a. Who is responsible/ payment timing 9) Record keeping a. Document the purchase transaction b. Supplier performance database
Why would an organization outsource its logistics?
An organization can choose to outsource these sectors simply to remain lean, reduce risk, and reduce inventories. This eliminates headquarter staff to focus on value-added activities and core competencies.
What are the reasons for giving the CPO a title and reporting line equal to marketing, engineering, or other key business functions?
CPO's can effectively manage day-to-day supply decisions with efficiency and implement organizational change into the company, allowing complete integration for successful supply management.
Centralized/ Decentralized/ Hybrid purchasing authority Advantages, disadvantages and transition issues
Centralized CPO responsible High volume leverage Decrease duplication Reduce admin, Transportation costs Centralized control/perspective Decentralized Responsibility on departments Speed & Responsiveness Leveraging divisional expense Following a decentralized organizational structure Specific scope of purchasing. Hybrid Departments operate as profit center Local authority Need and want the control $$$ expenditures & specific procurement. Corporate level Retaining/strategy Towards Centralizations Lack of experienced senior corporate level personnel Develop new ordering procedures (Advanced planning) Towards Decentralized Loss of senior expertise Responsibility transferred to divisional level
What are the challenges faced by a supply manager working in a highly centralized structure? In a highly decentralized structure?
Centralized- lack of recognition of unique business needs, most knowledge sharing one-way, people in business units, lack purchasing control, the slower response time for purchase/supply needs Decentralized- lack of standardization, business unit, preferences not congruent with corporate preferences, sub-optimization, too much focus on local sources→ ignores better supply opportunities
IS; IS and SC
Cost reduction & Efficiency gain • Data accuracy & accessibility • Better control & communication • System integration
Strategic planning in SC (5 points)
Cost reduction strategy Competitive Edge Strategy Risk Management Org's Environmental Change Supply support strategies.
Risk Management Operational ...
Delivery concerns (production idle, disruptions, quality) How to help suppliers Evaluation and selection manage relationship Org. Environment monitoring Natural/unpredictable events, political and economic.
How can an e-procurement system reduce the problem of small orders? Rush orders?
E-Procurement systems can reduce the problem of small orders and rush orders by having a faster ordering, faster fulfillment, and a broader range of choices. Orders can by systematically consolidated to help limit rush orders and small value orders.
How does supply management affect return on assets (ROA)? In what specific ways could you improve ROA through supply management?
Effectively managing inventory investment can increase the return on assets for an organization. Essentially, reducing inventory to operating level in a constant stream can increase an organization's return on investment.
What are the costs and benefits of follow-up and expediting? Are there opportunities to reduce total cost of ownership at this stage of the process?
Follow up is a strategic or critical spend, especially large dollar/long lead-time buys. Expediting is putting pressure on the supplier to meet deadlines, or even deliver ahead of schedule. Matching the degree of follow up with the degree in value is important, expediting frequently usually means internal change is necessary.
SC role in outsourcing
Identify opportunities for outsourcing • Selection of sources • Identify potential relationship issues • Develop and negotiable contact • Manage supplier relationships.
5 Acquisition steps
Identify the need, Identify the source, establish a price, generate an affordable contract, Manage the relationship.
What role is expected of supply once an insourcing decision has been made?
Identifying potential relationship issues, developing and negotiating the contract, and ongoing monitoring and management of the relationship
Importance, Responsibilities, and Impact of SC
Importance/Impacts Is function of organizational dollar spent on materials/parts/components. Has operational and strategic importance. On profit & profit leverage effect. On ROA/ ROI On risk; Image Direct (Bottom-line) Indirect (others' performance) Responsibilities In/Out bound transportation Receiving Inspection Material Handling Warehousing Inventory control
How does the use of an e-procurement system change the nature of the skills and knowledge required of supply management personnel?
It reduces the process of manual input and shifts instead from an accounting perspective to a technology-based background.
Acronyms MRO, TCO, CPO, PO
MRO- Maintain, Repair, Operating TCO- Total cost of ownership CPO- Chief procurement officer PO- Purchase order
Factors that influence your make/ buy decision (how they can influence the outsourcing decisions)
Make • Raw materials • Delivery Costs • Labor costs • Inventory/overhead • Receiving and inspection costs Buy • Purchase price of part • Delivery costs • Receiving and inspection costs
5 M's & SC evolution form clericals to strategic importance for organizations
Materials, Money, Machines, Man Power, and Management/Manager. Man Power use to be the biggest problem but now it is materials. Clerical to strategic (Transactional vs. Collaboration and alliance relations) (short term vs. long-term perspective) 2010-Now Sustainability, Security, Globalization, Risk Management
What implementation factors would you consider when asked to change the supply organization from a Centralized to a hybrid structure? What factors would you consider if moving from decentralized to centralized?
Moving to a hybrid structure would be simpler as you are simply allowing the business unit to have more flexibility with purchasing and inventory management. Moving to a centralized structure is more difficult as you are taking some authority away from the business unit and moving it to the home office, however it can ease.
"Supply is not profit making; instead, it is profit taking since it spends organizational resources." Do you agree?
No. A refined supply chain and proper supply management can save organizations' bottom line more so than an increase in sales in most cases. Savings on the back end increase the boom line almost directly opposed to increasing sales.
9 Objectives Supply involvement / importance in organization
Objective Strategic 1) Improve Organizations competitive advantage position. Tactical/Operational 2) Uninterrupted flow of suppliers & services required by the organization. 3) Maintain inventory and loss to a min Others 4) Insure the lowest TCO for all purchases 5) Maintain & improve quality 6) Standardize materials, MRO, ETC. As well as operations 7) Select best-in-class supplies 8) Marinating good relationships with all partners (Internal & External) 9) Accomplish all the above at the lowest operating costs.
Financial impact - on profit, costs, ROA (comparison cost reduction vs. sales volume increase)
On Revenue- Volume & Price On Profit- Material & Labor ROA- (Sales - Total Costs (CGS+ Other Costs))/ Total Assets (Current + fixed) Cost reduction and sales volume both increase but reducing cost has a higher impact than increasing sales volume.
Strategic vs. Operational/ Tactical SC responsibilities
Operational Day to Day, insure flow of materials and services, managing contracts, blanket orders, and supplier relations, transactional activities. Failure will result In disruptions/higher costs Strategic Long-term, Developing/integrating supply strategies, supply chain risk management, collaborative & alliance relations. Ensures Competitive advantage, maximizes opportunity.
Reasons to make
Operations • Quantities to small • Quality requirement Risk • Need for control • Avoid supply dependency Other • Large and long-term growth • Future shortages • Competitive, social, cultural, political reasons.
Supply and Organization: Objectives & Strategies
Org Objectives Survival Growth Financial Environmental Supply Objectives Delivery Costs Quality Services Org strategies relates to the org objectives, while the supply strategies relate to the supply objectives. They all work together to achieve the single goal.
What can be outsourced and what should not the
Outsourceable • Materials, Parts, Services • Non-critical activities o Provides competitive advantage and reduce costs • Potential for developing supplier dominance o Creates dependency and strategic vulnerabilities. Non-Outsourceable • Any item within core-competencies • Critical to success of product/service • Item requires specialized design, manufacturing, skills
SC and Organization's Nature
Ownership Public- local, state, federal) Focuses on mission of organization Support efficiency & effectiveness of the org Transparency & fairness of the supply process Social aims Minority support National security consideration NGO- Non-Profit Similar issues More flexibility Could operate globally Private- Identical to public 1&2 Lower restriction on supply process. A tool for obtaining & securing competitive advantage. Commitment to shareholders Size Large/Small Enables and/or requires specialization Location, number of sites Financial (Ability to obtain "good deals", discounts). Reputation What the society thinks of your company and business
Risk Management Financial
Price fluctuation Supply market volatility Timing Economic and monetary policies (tariffs, exchange rates, taxes) Effects on organization finances will begin.
Impact on sales
Pricing flexibility Improved Quality Reduce time to market Customer satisfaction & Customer fulfillment flexibility Assist in becoming a supplier of choice
How can the expectations of supply differ for private versus public organizations?
Public sector organizations tend to be service providers and have a very strict code of operations for acquisition processes. Private organizations have fewer constraints on the definition, specification, and supplier selection. With goods, the largest needs are direct requirements, which comprise a product.
Risk Management Reputational
Quality Issue Supplier relations Ethical/legal issues Environmental issues Effects on- Customer loyalty and positive/negative publicity.
Why might an organization decide to insource?
Reasons to insource include when an existing source of supply goes out of business or drops a product or service line and no supplier is available. Others include price increases, the purchase of a sole source by a competitor, or regulatory changes.
When would you issue an RFQ rather than an RFP and why?
Request for quotation is used as a price comparison tool for commonly used commodities, while a request for proposal is used for more complex requirements which price is only one of several key decision factors.
5 R's
Right product/service, Right Quality, Right Quantity, Right Price, Right Time
SC organizational structure in small as well as in medium/ large organizations
Small Few Resources Low Purchasing specialization Possible secondary responsibility Low leverage Few supplies options Medium/Large Have different operations and departments that are headed by a person. Can even have multiplied people head different SC departments.
How does specialization within supply differ in small and large organizations?
Small organizations using centralization structure. They are confined to one placeand supplying all places. Large organizations will use a decentralized structure.This is because they will deliver supplies to the whole place. It is not focused on acertain area.
Specializations in SC (four major groups)
Sourcing Identify suppliers Analyze suppliers Prices Contracts Materials Management AFTER CONTRACT Transportation Supplier Relationship Research Item Alternatives Forecast demands Prices Performance and Benchmarks Administration Procedure Budgeting Reporting
Strategic vs. Non-Strategic Spending (small order problem)
Strategic • Direct support for organizations mission • Create opportunities for competitive advantages • Stress the effectiveness • Early supply/supplier involvement. Non-Strategic Spending • Stress efficiency (time) • Reduce the number of R.O and P.O. • Small value-order o Understand ABC pareto inventory classification A most expensive; low-dollar amount o Corporate purchasing cards o Centralized store, blanket orders, system contracting.
What can supply do to assist in minimizing a firm's risk of product liability lawsuits?
Supplier quality assurance programs such as zero defect plans, process quality control programs, and quality certification programs can help a firm minimize the risk of product liability lawsuits.
Supply Chain, Value Chain, Distribution Chain (meanings and usage)
Supply Chain- Looks at all components to create your final product. Activities to deliver your product to consumer. Creates an organizational chain that adds value. Part of the value chain. Value Chain- Value chain that can be added through value-added activities. It is both upper and lower stream.
Why should a supply manager consider hiring (or obtaining internally) an employee without any supply background?
Supply management is a relatively new field, as it draws in expertise from other business areas. With that being said, not all will have supply backgrounds. But will have a different perspective on supply strategy.
What type of data would supply need to contribute to an organization's strategic growth? How might supply obtain such data?
Supply would need information on the organization's systems and procedures, e-commerce, systems contracting, and group buying, as well as information on the industry's options for supply.
Outsourcing at Strategic and Tactical levels.
Tactical • Suppliers performance • Changes in sales demand • Internal capacity issues • Time constraints Strategic • Necessity argument- Don't want to outsource, but you have no other options • Opportunity argument- Looking for strategic competitive advantage.
What possible improvements in supply could the Internet offer in the future?
Technology will continue to simplify the supply process, and automated purchasing systems could account for more of the work than it currently does today.
Why should supply be concerned about the balance sheet?
The balance sheet determines for supply what the cost advantages can be with the resources a company currently has. The balance sheet is a ledger of purchases, which is the supply's main concern regarding inventory.
Where in the supply chain is there the the opportunity to add value and why?
The greatest opportunity to add value is when needs are recognized and described because the supply manager and supplier can contribute more to these steps than later in the acquisition process. Can lead to price reduction and faster time to market. More competitive.
Why is the make or buy decision considered strategic?
The make or buy decision is considered strategic because it deals with a company-wide decision that can affect multiple product lines.
What do you believe to be the most difficult obstacles to making a supply functions strategic?
The most difficult obstacle of making a supply function strategic is that the supply objectives are expressed in terms of quantity, delivery, quality, price, terms and conditions, credit period and so on whereas most organizational objectives can be summarized under four categories-- survival, growth, financial, and environmental.
1- What is profit-leverage effect of supply? Is it the same in all organizations?
The profit-leverage effect of supply savings is measured by the increase in profit obtained by a decrease in purchase spend. While this leverage is more effective than boosting sales, its different for organizations who have spent years on their supply system. Increasing savings through supply will become increasingly difficult.
How is team buying likely to affect the purchasing/supply function over the next decade?
This will make corporations leaner, more project-oriented and allow for flexibility of decentralized supply management and the buying power and information sharing of centralized supply through the use of teams.
"IN the long term, the success of any organization depends on its ability create and maintain a customer." Do you agree? What does this have to do with purchasing and supply management?
Yes. Customer satisfaction is the backbone of building good supplier relationships and maintaining a healthy business structure.
Why should an organization switch from making to buying?
when the product is available at less cost than producing, then usually they go for buying it from others. it helps not only in terms of cost but also the firm can focus on other activities and improve their performance on those.
Dangers of outsourcing
• Control • Costs • Confidential data Double outsourcing • Subcontracting
SC and Marketing
• Customer needs o Helps us know what to buy and make • Helps us figure out our 5R's. • Consumes advertising, which we can work with directly • Helps maintain the production schedule.
SC and Engineering
• Drafting the ideas and bringing them to life but need the parts to do so. Driven by performance. Focused on quality. Have to set checks and balances to make sure cost and values don't get out of hand.
SC and Manufacturing/Operations
• Focused on capacity utilization. Want all the materials when they want and need them. • Goes with us because we decide when to buy, what best for the long-run • Interact through ERP's.
SC and Finance/Accounting
• Guardians of the money. Their main focus is cost. Keep track of funds availability. • We fight over prices & TCO's. • Accounts payable & supplier relationships can be related. Have to pay suppliers to get suppliers.
Costs considerations
• Material, Labor • Accounting "hidden" costs • Suppliers could help reduce cycle time • Capacity factor (fixed- if at full; variable- not at full)
Reasons to buy
• Operation (Capacity, flexibility, volume) • Customer preference • Availability of highly capable supplier • Technological uncertainty • Current plan is hard to reserve • Open new markets/ risk reductions