SCM 371 Exam 1

Evolution of PSM 1990s

- Global supply chains - increase reliance on suppliers - outsourcing

Agile Supply Chain

- High Supply Uncertainty (evolving process) - high demand uncertainty (innovative products) - telecom, high-end computers, semiconductor

Risk-Hedging Supply Chain

- High Supply Uncertainty (evolving process) - low demand uncertainty (functional products) - hydroelectric power

Commodity strategy questions

- Insource or outsource? If you're sourcing from a supplier, should you bring that capability in house? Depends on context - Type of suppliers? High or low technology Depending on what I'm looking for (lower cost might not be up to date) Full service After sale service? VMI? Basic, no additional services? Niche or distributor Focus on one particular area or more general distributor Niche will be more helpful/ more expertise if you have any problems Distributor = one stop shop for materials Granger - millions of MRO items, but don't have expertise - Local or global supplier? Local: better relationship with, more F2F interactions, more collaboration, quicker, lower lead time, lower transportation cost, maybe better quality/control quality, marketing factor Global: might be cheaper for product, variety of products, more innovative, travel cost, customs, abiding by both countries laws - Single, dual or multiple source? - Percentage of spend from each supplier?

Responsive Supply Chain

- Low supply uncertainty (stable process) - high demand uncertainty (innovative products) -fashion apparel, computers, popular music

Evolution of PSM (General early 1990s)

- clear and tactical - focus on policies and procedures - key challenge: availability of supply and cost management

Red Ocean

- compete in existing mkt - beat comp - exploit existing demand - make value/cost trade off -align company activities w/ differentiation OR low cost - Traditional market place, where most companies are in cut-throat competition ---only way for you to get business is to steal business from someone else

Pressures affecting PSM

- cost savings (basically one and only driver, smarter negotiations not only initial cost savings, but life cycle savings - logistics/time lines/dependability - info sharing, trust - forecast accuracy - customer expectations

Blue Ocean

- create uncontested mkt - make competition irrelevant - create new demand - break value/cost trade off - align company activities in pursuit of differentiation AND low cost (7/11 and Hershey's eatable straw, Netflix, Kiosks only at 7/11 first)

Resource-based view

- emphasizes mgt of internal sources to establish a unique skill set - unique skills/process (core competence) lead to competitive advantage, the ability to deliver distinctive products/services in a way that adds value in the eyes of the customer VRIN: Valuable, Rare, In-imitable, Non-substitutable

Responsibilities of PSM

- evaluate and select suppliers - review specifications - act as the primary contact w/ suppliers - determine the method of awarding purchase contracts

The value of internal integration

- everyone needs to be pursuing the same objectives

The Purchasing Process (procure-to-pay (P2P) process)

- forecast and plan requirement - need clarification/requisition -suppler identification/selection -approval/contract/PO Generation -receive material and documents (3 way match: PO, Invoice, Packing Slip) -settle, pay, and measure performance

Innovative = responsive SC

- high profit margin - uncertain demand - flexibility (mix/volume) - short life cycle - higher market mediation costs Supplier Characteristics - fast/responsive - domestic - better relationships - capacity/volume - customer needs - R and D budget - # of innovations - flexible machinery/variety - top quality - customization

Evolution of PSM 1970s

- international shortage of basic raw materials - price inflation

Efficient Supply Chain

- low supply uncertainty (stable process) - low demand uncertainty (functional products) - grocery, basic apparel, food, oil, gas

SCOR Model

- most famous depiction of a supply chain - illustrates importance of internal integration, lists basic functions within comapny

Barriers to strategic PSM

- procurement is not seen as strategic - lack of staff with appropriate skills - organizational reluctance to follow or adopt recommended processes - inadequate technology infrastructure for spend mgmt - lack of supplier interest or readiness to implement change being recommended

Evolution of PSM (General early 21st century)

- strategic orientation - global supply chains - executive level leadership - key challenge: technology and the internet

Evolution of PSM Technological Developments (internet and B2B e-commerce)

- supply chain integration - lower transaction costs - faster response times

Objectives of PSM

- supply continuity - manage purchasing process efficiently and effectively - develop supply base - develop aligned goals w/ internal functional stakeholders - develope integrated purchasing strategies that support organizational objectives

Megatrends affecting PSM

- technology - social media (RFQ, crowd sourcing, foster greater relationships btwn buyers and suppliers - sustainability (triple bottom line, social environmental responsibility) - integration of departments/cross functional collaboration - globalization (high standards, opportunities, and risks) - quality focus (opposed to price) - big data, data mining - price fluctuations (risk management, natural disasters, political) - regulations - conflict minerals

Functional = efficient SC

-lower cost? -lower profit margin -stable competition/demand -price sensitive -less variety -more predictable/longer life cycle Supplier Characteristics - efficient - global scouring (less responsive) - CPFR -VMI - JIT - continuous Replenishment - consistent quality

Total Evolution of SCM

60s - Fragmentation (multiple different functions) 80s - evolving integration (joined all functions and split between Materials Mgmt and Physical Distribution) 2000s - Total Integration (SCM)

Organizational designs used to structure the purchasing department

CEO CPO, CFO, COO, CMO VP Americas, VP Asia/PC, VP Euro Directors/groups Individual buyers Industry (service or not) Philosophy of the owner/founder of company Based on spend, amount of purchased materials Often divided into regions, components, strategic vs tactical, direct/indirect(MRO) maintenance, repair and operating supplies

Efficiency vs Effectiveness

EffiCiency - Cost effectiVeness - value

Article "What is the right supply chain for your product"

Functional = efficient SC Innovative = responsive SC

Definition of strategy/ commodity strategy

Goals/objectives Core competencies Actions Constraints Models (planning) strategy (implementation) practice CS: A strategy for a select number of items (aka category strategy) because developing a strategy takes a long time, a lot of courses, can't make a strategy for everything individually. Group like things together (metal, plastic), and then make broad strategies

Optimizing the P2P process

IDK (See slide 10???)

Savings Leakage

Identified savings is (usually) significantly lower than realized savings, and that difference is savings leakage

Purchasing Organizational Structure - Importance

It defines your responsibility, your span of control, what you can and cannot do Ask their total spend, cost savings, cost avoidances, services levels/stock out levels, internal performance measures for cost savings, do you have a CPO?, Where is purchasing in your companies' organizational hierarchy? Having a CPO tells you purchasing is highly regarded in that company

Strategic Purchasing

Most improvements have been made on strategic side only so many strategical improvements to be had each improvement is getting smaller and smaller

Importance of PSM

Relationships, dependence, cost savings, fluctuations/trends, quality, new product development, risk, price, inventory, customer service

Porter's 5 Forces

Rivalry megatrends Supplier power: Ability to pass on price increases Do they have interest in forward integration, taking me out of the picture Ex) if Bosch wanted to start manufacturing cars itself Supplier concentration, how powerful are my suppliers? How many suppliers are there out there Ex) Bosch more profitable than the big 3 Buyer power Volume Switching costs Substitutes New entrants Skilled workers Technology, R&D Supplier relationships, difficult to replicate (FCA and ZF, doesn't happen over night, but several years) Substitutes Relative performance compared to price Switching costs

SWOT Analysis

Strengths Weakness Opportunities Threats Purchasing Department Example Strength Bargaining power, leverage Weakness Opportunities Expanding your business and your products, go into different market segments New supplier comes into market New technologies Threat Not a lot of power, or if supplier has greater bargaining power Supplier going out of business if you're single sourcing

Evolution of PSM 1887

The Handling of Railway Suppliers - Their Purchase and Disposition

Definition of PSM

The identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives

face-to-face negotiations

They invite you over and you negotiate More likely to develop relationships More control over the outcome/more communication More quality assurance See company culture Information exchange Identify needs Issues of more importance than price (new products)

Pushing PSM to the next level (LOOK AT SLIDE 10)

Toyota Audi and Hella 7/11 and Frito Lay

Competitive bidding

Typical RFQ situation Many suppliers (3+) More standardized products Time (shorter process), but can be drawn out Administration Focus on price, distracts from quality Wider reach Competitive market place

Read ocean / blue ocean strategy

Utilize your PSM Strategy to sail in a blue ocean

Best in class PSM strategies and trends

align sourcing activities and objectives w/ that of the greater organization is more important than -adopting technologies to automate and improve sourcing and negotiations - establish formal strategic sourcing organization w/ standardized and formal processes last - establish better KPIs to measure supplier effectivemness

Evolution of PSM 1900's

attention to reliable supply of raw materials, supply and services

Audi and Hella

came up with LED headlights Audi differentiated themselves by being one of first car companies with LED lights

Trends in organizational design

center led (hybrid) centralized business Unit Regional Highly decentralized oursourced

Evolution of PSM 1980s

customers became more demanding, for new products, new releases, cheaper products companies relied on suppliers to help by outsourcing

Kraljic's Purchasing Portfolio Matrix

don't spend time developing product X with supplier A because only very small spend, instead focus on suppliers with bigger spend/impact

Frito Lay and 7-11 (from article)

focus on your core competencies, what you are best at. sometimes this can be very narrowly defined, more narrow than the past any instance where you think someone else can do it better than you, it's an opportunity to outsource information exchange - 7-11 was not a logistics company or warehousing company, so sought help from outside product development - Coca-Cola, Hershey jointly developing products, and then 7/11 is the only place that can sell it leveraging the strengths of each other combined distribution centers -leverage distribution network of others capability sourcing (term used to summarize this article) all of these examples illustrate this. Numerous advantages: more agile, more flexible by outsourcing all of these things, 7-11 can adapt to changes more quickly asset light - let suppliers worry about that intangible capabilities know how, R&D, innovation change in mindset - needs to take place in order for this to work TQM (total quality management) Malcolm Caldrige quality award - meant to reward those US companies that reached the best in qualities, was an incentive for the US companies to catch up to Japanese companies Vertical Integration sooner or later ford and 7-11 realized they weren't the best at everything, went to outsourcing

Leverage (portfolio)

high importance low risk ex) butter/flour for food industry. COFFEE BEANS and STARBS

strategic (portfolio)

high risk high importance ex) specialized products, engine in a car

critical/bottleneck (portfolio) (5%)

high risk low importance ex) General Mills - sugar is normally in leverage, but for some reason, an engineer wanted to specify and use a rare sugar from a small island try to eliminate these items, move into another quadrant

Spend analysis

important in improving purchasing (chart) doesn't give you answers, but raises important questions to find answers to identify opportunity, ask questions, how can spend be improved

Tactical Purchasing

improvements have neglected the tactical side, so now it's more important

Product-process matrix (SEE SLIDE 5)

job shop, batch, assembly line, continuous flow low volume/standardization, multiple products, low volume, few major products, higher volume, high volume/standardization, commodity products commercial printer/french restaurant heavy equipment/coffee shop automobile assembly/burger king sugar refinery

Strategic Sourcing Gemstone

left side: volume concentration - putting the results of your spend analysis to use, consolidate suppliers or products best price eval - competitive bidding global sourcing - look for better pricing over seas right side (more creative): -product specification improvement - value analysis/value engineering - joint process improvement - how you streamline processes - relationship restructuring - portfolio approach (approach relationships strategically, which ones are more transactional and which you should grow)

non-critical (portfolio) (5%)

low importance low risk ex) operating suppliers, pens, MRO, janitorial supplies (indirect items)

Evolution of PSM 1947 - 1960's

nothing much

The impact of PSM on the bottom line

one small adjustment in purchase price can have a large impact/outcome in overall profit, ROI

Strategic sourcing process

profile category select sourcing strategy generate supplier portfolio select implementation path negotiate and select supplier integrate suppliers monitor supply market

Backdoor/maverick buying

purchasing something that you aren't authorized to purchase spent under management % of purchasers that purchasing has direct control over. If it is not under management, if is being purchased by someone not authorized and will be reimbursed won't get preferential deals/pricing off contract spending all interchangeable terms that should not be done ex) responsible for Kan Ban (an inventory replenishment system, relies on visual cues (cards), minimizes buffer as much as possible, minimize WOP), needed a special pen to write on the cards, so she requested more pens, so she went out and bought some at local staples, saved the company money from not having to shut down, but got reprimanded when asked to be reimbursed If you buy the item yourself, then try to find the root cause, and make sure it does not happen again

Functional goals of internal integration

purchasing: minimize price production: minimize costs logistics: minimize costs marketing: sales/market share

RFI

request for information Very open ended: can you do? What's your capacity? Can you do this type of work?

RFP

request for proposal More clear idea of what you want, but not absolutely certain. Have a decent blueprint of what you want to do, send to supplier, this is what we're thinking, but supplier is the expert, so give me a proposal/solution to fulfill my need

RFQ

request for quotation You know everything, just want a price. Very standard items, items you've purchased in the past

Proactivity of PSM

should it ALWAYS be as high up as possible in the hierarchy? NO, only 95% of the time, doesn't always make sense 95% of the time, purchasing should play a PROACTIVE role in the business enterprise The other 5% of the time... some industries you can't predict (fashion industry, innovative products) services companies

Tactical vs. strategic purchasing

tactical purchasing is more important because so much emphasis has already been put on the strategic side, the benefits have been maxed out, but there is still "low hanging fruit" on the tactical side to benefit from

Organizational Structure/Design

the structure and formal system of communication, division of labor, coordination, control, authority, and responsibility required to achieve organizational goals and objectives Characteristics: 1. Fit 2. alignment 3. should it ALWAYS be as high up as possible in the hierarchy? NO, only 95% of the time, doesn't always make sense

Impact of SCM on strategic thinking

used to be common strategic posture, now days supply chain enabled perspective instead of thinking of changes at a threat, thinking of them as opportunities two way info flow/idea sharing instead of just customers to suppliers