SCM Exam 3
Traits of Procurement Leaders
A key ingredient in successful procurement is the presence of skilled employees involved in the sourcing process . One of the most important sourcing positions would be the chief procurement officer. Successful CPOs possess several important characteristics such as: ¡Collaborating internally and externally ¡Acting as a role model for organizational values ¡Delivering results ¡Shaping and influencing future successful strategies Creating alignment across the organizations ¡Pioneering change and inspiring others ¡Identifying talents and optimizing their current performance ¡Investing in innovation that delivers competitive advantage ¡Disrupting the execution of business plans or projects to drive more value from resources ¡Leading digital and analytical transformation
Types of Practices
A practice is a unique way to configure a process or a set of processes ¡Emerging practices ¡Emerging practices may be the introduction of new technology, knowledge or a fundamental change in the organization of processes ¡Emerging practices are the riskiest practices to implement because they are unproven and not easily repeatable ¡Best practices ¡Have a proven track record of successes, carry a moderate amount of risk to implement because not all best practices will yield similar results for all industries and supply chains ¡Best practices are, current, repeatable, and structured ¡Standard practices ¡Are the default practices companies use to do business ¡ While these practices get the job done, rarely do they provide the competitive advantage or any significant cost savings
Calculating the Total Cost of Ownership
For most organizations, sourcing cost elements that are typically most important includes acquisition costs operating costs and personal costs
Enterprise Resource Planning (ERP)
¡ERP is an expansion of MRP (and MRPII). ¡ERP incorporate financial, customer relationship management (CRM), human resources, asset tracking, marketing automation, project management, and other aspects of SCM. ¡ERP contains all the core processes to run a company. ¡Utilizes a shared database accessed by all relevant functions and processes.
Make-to-stock Versus Make-to-order
¡In MTS, products are made in advance of orders and are based on demand forecasts ¡In MTO, customer orders initiate production of the products
Digital Technologies in Purchasing and Procurement
Mature Tech: Cognitive computing and artificial intelligence ¡Intelligent content extraction ¡Predictive and advanced analytics ¡Virtualization ¡Collaboration networks ¡Crowdsourcing ¡3-D printing Robotics Emerging Tech: ¡Blockchain ¡Sensors and wearables ¡Cyber tracking ¡Virtual reality and spatial analytics
Managing Technology with People
While technology allows organizations to conduct spend analysis activities ,it still takes people to make many of the day to day as well as long term sourcing decisions. people are needed to manage technology associated with the following activities and processes : ¡sourcing and operational buying ¡supplier management (including performance ,risk ,relationship, and innovation ) ¡Ordering ¡category management ¡Payments contracting Technologies expected to impact sourcing and procurement ¡ERP upgrades ¡Mobile and social media ¡Cloud computing ¡Robotics ¡Artificial intelligence (AI) ¡Cybersecurity ¡3-D printing ¡Internet of Things (IoT) ¡Augmented reality Cognitive computing
Make-to-Order (MTO)
Production based on customer order Requires production flexibility Typically longer delivery time Typically fewer stock-outs Better if set-up costs are low
Make-to-Stock (MTS)
Production based on demand forecast Requires finished goods inventory Typically shorter delivery time Typically more stock-outs Better if demand uncertainty is low
Approaches To Use To Create Process Maps
¡Business scope diagrams ¡Set the scope of a project or an organization ¡Geographic map ¡Will display the material flows in geographic context and will highlight node intricacy or the convolutedness of the supply chain ¡Thread diagrams ¡Shows how processes are interconnected and the complexity or redundancy of higher level processes ¡Value stream mapping ¡Analyzes and designs the flow of materials and information required to bring a product or service to a consumer ¡Workflow diagrams ¡Brings together the lower level processes to highlight information, people, and system interaction issues
Lean and Agile Manufacturing
¡In lean production, the production process runs as much as possible in a constant flow. ¡The goal is to reduce production cost and improve quality through the elimination of waste. ¡In agile manufacturing, the goal is to timely respond to changes in demand ¡Agility relies on manufacturing flexibility.
Methods To Define And Integrate Processes
¡To integrate and better align processes and/or the functional areas in a firm, companies can use two different methods ¡A business process framework or process mapping ¡Both methods provide value for companies using them and can be used separately or together
¡Preferred provider
¡Buyers seek to do business with a Preferred Provider to streamline their buying process and build relationships with key suppliers ¡They often enter into longer-term contracts with Preferred Providers using a Master Services Agreement that allows for the companies to do repeat business efficiently ¡It is common for Preferred Providers to work under a blanket PO with pre-defined rates for work ¡Preferred Provider is still engaged in a transactional business model, but the nature and efficiencies for how the companies work together goes beyond a simple purchase order
¡Penny Wise and Pound Foolish
¡Buying organizations focus too much on price versus lowest total costs or value ¡The danger in focusing on the cheapest offer is that it inevitably leads to tradeoffs in quality and/or service ¡Companies suffering from a "Penny Wise and Pound Foolish" mentality fall into a loop of using frequent bidding to pick the lowest price provider, and then transitioning to the cheaper supplier without thinking through the costs involved in making the change
Scor Benefits and Criticisms
¡A key benefit of the SCOR model is that is helps focus companies on improving the efficiency of internal processes ¡SCOR's assessment phase is very helpful in establishing the "as is" status of a company's supply chain and assists in developing the "to be" plan for supply chain users ¡ One criticism of the SCOR model is that it limits processes—focusing only on supply chain processes ¡The model does not integrate cross functional areas such as: ¡Sales and marketing ¡Research and technology development ¡Product development ¡Some elements of post delivery customer support ¡A company that wants to have a comprehensive view of all its processes may have to use another process framework for other non-supply chain-related processes SCOR model is complex and requires significant training to understand and customize
How Are Frameworks Used Today?
¡According a survey completed by APQC: ¡69% of respondents use frameworks to identify current processes ¡64% of the respondents build process maps ¡63% create process definitions ¡63% use the framework to establish a standardized language ¡53% use frameworks to organize content
¡Element 7 - Relationship Management Framework
¡All trading partner relationships should clearly spell out their relationship management framework ¡ A good contract will clearly spell out all six of the relationship management components cited above
Relationship Implementation Strategies: Outcome Based
¡An outcome-based business model pays a supplier for the realization of a defined set of business outcomes, business results, or achievement of agreed-on key performance indicators ¡They are typically used when there is a service component to a business relationship (call center support services, facilities management and maintenance services, third party contract logistics services), but they can be used for product suppliers as well ¡A well-structured outcome-based agreement compensates a supplier's higher risk with a higher reward. ¡ There are two types of outcome-based business models: A performance-basedagreement and a Vested Outsourcing agreement
The Marketing Concept and Supply Chain Management (cont)
¡Any marketing effort must integrate the ideas of having the right product at the right price combined with the right promotion and available in the right place. ¡Supply chain activities primarily occur in relationship to the time and place components of the marketing mix (4-Ps). ¡SCM + marketing efficiencies + technology = a more efficient and effective supply chain (which benefits customers and supply chain members).
¡The Honeymoon Effect
¡At the beginning of any relationship, both parties go through a honeymoon stage ¡Often the level of excitement decreases after the initial ramp up of the relationship ¡While the partner remains conscientious about meeting the company's expectations and service levels outlined in the contract, it never progresses beyond this point ¡The problem: while the honeymoon lasts, there's no inherent incentive to raise service levels (or decrease the price) beyond what's contained in the Service Level Agreements ¡There is an opportunity in any relationship to use lessons learned to develop innovative new ways to deliver the desired outcomes in ways that can benefit both partners ¡Sadly these opportunities are frequently dismissed because there is no incentive to improve performance ¡As the marriage moves toward the contract end date the supplier may bring the innovations to the table in an attempt to secure a new agreement This leads to the next ailment "Sandbagging"
Business Process Frameworks
¡Business Process Frameworks, or BFP's, provide a common language that can be easily adopted by an organization to facilitate communication between the different departments or functions such as IT, finance, marketing, distribution and transportation, and sales ¡It allows organizations to better understand their current state and define their future, or "To Be," state ¡They are more comprehensive, when compared to process mapping, as they are typically implemented at a higher level within the firm ¡A BFP enables an organization to quickly get on the same "process page" and drive consistency across performance initiative ¡Companies can either create their own BFP or use a generic approach, such as the SCOR Model or APQC's Process Classification Framework
Conflicts In Relationships: Perverse Incentives
¡Business contracts and agreements are sometimes innocently structured with fundamental flaws in the business model that will ultimately impact relationships ¡In other cases, a trading partner uses their power and use procurement and negotiation tactics to shift risk to a weaker partner ¡Regardless, a business agreement that is not structured well can result in "perverse incentives" ¡Direct negative behaviors or unconscious behaviors that drive unintended consequences ¡10 common ailments are as following
Forms Of E-sourcing
¡Buying/RTP applications ¡Website that allows buyers to obtain information ,search for products ,place orders ,pay for purchases ,initiate product returns and track orders ¡Supplier catalogue sites ¡The modern equivalent to the hardcopy catalog that used to be sent to customers via mail. ¡Electronic marketplaces ¡Web portals which offer an online store for buyers and suppliers to conduct transactions ¡Reverse auctions ¡Real time bidding occurs with subsequent bids lower until a sale is completed ¡e-RFX ¡Provides buyers analysis of supply markets using scoring systems
Financial Aspects of Supply Chain Activities
¡Chief financial officers (CFOs) can have a positive impact on supply chain management: ¡Help to create consistency across the supply chain ¡Challenge rational used for new supply chain investments ¡Use data analytics to support supply chain decisions ¡Effectively manage risk with a long-term approach to business decision making.
The Process of Spend Management
¡Collecting the necessary data to make spend decisions ¡Combining data from multiple sources into a single dataset ¡Normalizing or standardizing the data so that they are directly comparable ¡Classifying the data into a specific structure to aid analysis ¡Reporting and analyzing the spend data in order to assist decision makers
¡The Zero Sum Game
¡Companies that play this game believe that if something is good for the trading partner, then it's automatically bad for them ¡Many organizations fail to understand that the sum of the parts, when combined effectively, can actually exceed the whole. ¡In a properly structured relationship both parties are aware of how working toward a common outcome can present opportunities for improvements which can benefit both parties ¡An innovative new approach could be rewarded through pricing incentives or longer contract terms ¡Ultimately the innovation could grow the customer's business creating more demand from the supplier partner.
Relationship Implementation Strategies: Investment Based
¡Companies that struggle to meet complex business requirements using conventional transaction-based or outcome-based approaches typically invest to develop capabilities themselves ¡There are two primary types of investment-based business models: ¡Shared services and equity partnerships such as a joint venture
The Three "C"s Of Business Relationships
¡Contracts ¡Businesses use a variety of mechanisms as the basis of their formal or implied business relationship ¡Contracts are the most formal, sometimes being quite detailed as to what is expected from each party, but could range to a handshake between the parties involved in the exchange ¡Contacts ¡The next step is to understand the contacts that you will work with to manage the relationship ¡Often there could be multiple contacts at different levels in each organization (functional, managerial and executive) depending on the significance of the relationship. ¡The nature of the interaction and frequency of interaction between contacts will differ considerably based on the role and level of the contact within the organization ¡Collaboration ¡Collaboration is a process where two or more people or organizations work together to realize shared goals ¡Many firms pursue collaborative relationships, but do not have a clear understanding of what it takes to collaborate
¡Element 6 - Pricing Model
¡Contracts should spell out pricing or pricing model that will be used to compensate a supplier. ¡Well-structured contracts consider the balancing of risk versus simply shifting risk to a supplier ¡Partners should also regularly review their pricing models and the risk assigned to parties over the life of the agreement to ensure that compensation is appropriate to the level of effort and the risk ¡As the supplier gains more experience, the contract type can evolve into a more strategic form and the pricing model may need to shift from a transaction-based pricing model to a more strategic outcome-based pricing model ¡Trading partners should also spell out the contract length. ¡The contract length should be commensurate with the payback period for supplier's investments
Product Returns
¡Controllable versus uncontrollable returns. ¡Economies of scale are important. ¡Customer friendly returns processes.
Relationship Implementation Strategies: Transaction Based
¡Conventional approaches to buyer-supplier relationships are transaction-based and keep trading partners independent of each other ¡Procurement teams endeavor to limit relationship dependency to reduce the price of goods or services ¡Buyers strive to have uniformly available goods and services (e.g. commodities) that can be easily compared across various suppliers ¡This procurement focused approach works well for suppliers which provide general supplies, commodity goods and general services ¡There is no intent to partner, only to achieve short term goals related to pricing or delivery. ¡ Three types of transaction-based business relationships have evolved over time: ¡Simple transaction providers, approved providers, and preferred providers
Procurement metrics that matter
¡Cost savings ¡Can occur from a lower cost for the item being procured ,reductions in freight or warehousing costs ,what greater efficiencies in the various aspects of purchasing and procurement ¡Cost avoidance ¡Cause that can be reduced by avoiding them ;engaging in forward buying ¡Procurement ROI ¡Is a macro-measure of the total cost of procurement ¡Spend under management ¡The percentage of overall spend that is categorized and actively managed by procurement through savings optimization ¡Spend under contract ¡Measure of total spend that is covered by an active contract in comparison to all potential contractable spend
Relationship Management Governance Framework
¡Create a tiered management structure ¡Establish formalized roles for service delivery, transformation and commercial management ¡Establish communication protocols ¡Develop a communications cadence ¡Establish a continuity of resources Establish performance management protocols
Omnichannel Distribution
¡Defined as a strategic customer care initiative designed to deliver seamless customer experiences across multiple channels (e.g. phone, social media, web, email) and devices(in-store, laptop, smartphone) . ¡Each channel may require a different or modified supply chain.
Conflicts In Partnerships
¡During the course of business a customer may be concerned: ¡That the trading partner's performance is not trending in the right direction in a specific area ¡a supplier may believe that their customer has expectations beyond the scope of the expected outcomes ¡Issues between buyers and suppliers can be segmented into three categories: ¡Concerns ¡Problems Conflicts
¡Element 1- Business Model
¡It is imperative that trading partners enter into the right type of business agreement to support their relationship ¡Prior to establishing a formal agreement, trading partners should discuss the pros and cons of each of the various relationship models and determine which one is the best fit
¡The Outsourcing Paradox
¡It typically afflicts companies that work with partners who supply products or services which they (the customer) consider themselves to be fairly knowledgeable ¡It begins when the "experts" at the buying company developing the "perfect" set of specifications for delivery of the product or service. ¡The result is an impressive statement of work document containing all the possible details on how the work is to be done ¡However, this "perfect system" can actually sow the seeds of failure of the relationship as is not one designed by the supplier whose team is supposed to be the experts at getting the job done
The Six scor Processes (cont)
¡Make ¡Activities associated with all types of material conversions ¡These conversions include assembly, chemical processing, maintenance, repair, overhaul, recycling, refurbishment, remanufacturing, etc. ¡Make processes are recognized by the fact that one or more item numbers go in and one or more different item numbers come out of this process ¡Deliver ¡Deliver processes are the activities generally associated with Logistics ¡This represents the receipt, validation and creation of customer orders, scheduling order delivery, pick, pack and shipment, and invoicing the customer
The Role of Manufacturing
¡Make-to-stock versus Make-to-order ¡Material Requirements Planning (MRP) ¡Lean and agile manufacturing ¡Enterprise Resource Planning (ERP)
¡Sandbagging
¡Many times during contract negotiation, someone on the company side, often a senior manager, will ask, "Just how much can I save?" ¡Rather than establishing the highest level of savings achievable as early as possible (which would be most beneficial to the buying company), the provider will sandbag and offer up the savings in smaller increments over time ¡They often hold back some improvements in an effort to manufacture future savings opportunities in case they don't perform well in a given quarter or year
Element 10 - Special Concerns and External Regulations
¡Many trading partner relationships require the supplier to adhere to specific customer requirements or external regulations ¡A good example of a specific customer requirement is when Microsoft outsourced their back office financial processes to Accenture. they required Accenture to use Microsoft systems
True Collaboration Reflects The Degree Of Dependency
¡Mutual goals ¡Mutual respect ¡Mutual understanding of objectives ¡Mutual reward systems ¡Teamwork
Relationship Implementation Strategies
¡Not all business relationships are the same ¡As such, they should be treated differently, based on their impact on the mission of the firm ¡Research has suggested three basic business relationship models ¡Transaction based ¡Outcome based ¡Investment based
Performance Attributes in the scor Model
¡One of the key features of the 12.0 SCOR-model is that it utilizes three distinct performance elements: ¡Performance attributes ¡Performance attributes are a grouping of metrics used to describe a strategy ¡The attribute itself cannot be measured; instead it is used to set strategic direction or an objective for the company. ¡Metrics ¡Metrics are aligned to performance attributes ¡Metrics are used to measure the ability to achieve the strategic direction or objective ¡Process/practice maturity ¡Process/practice maturity evaluates how well processes and practices execute best-practice process models as well as leading practices
People in the SCOR Model
¡One unique aspect to the SCOR Model is the belief that skills of workers in the supply chain needed to be evaluated ¡The People section of SCOR introduced standards for managing talent in the supply chain that is complementary to the other sections of SCOR (Processes, Performance and Practices) ¡SCOR Model has identified over 150 skills for supply chain employees
¡The Junkyard Dog Factor
¡Outsourcing usually means that jobs will be lost as the work and jobs transition to the contract manufacturer or service provider ¡This often results in employees staking their territorial claim to certain processes that "simply must" stay in house ¡Even if the majority of the jobs are outsourced, many companies choose to keep their "best" employees on board to manage the new outsource provider ¡Since the new provider is doing the job these 'best' employees used to do, they find fault with everything the new provider attempt to implement
The Six scor Processes
¡Plan ¡Plan processes are the distinct activities associated with developing plans to operate the supply chain ¡They determine the requirements and corrective actions needed to be successful in operating the supply chain ¡Source ¡Source processes are the distinct processes around ordering, delivery, receipt and transfer of raw materials, subassemblies, products and/or services ¡Source represents the release of purchase orders or scheduling deliveries, receiving, validating and storage of goods and accepting the invoice from the supplier
Process Mapping
¡Process mapping develops documentation around the activities being performed ¡Companies use process mapping as a tool to identify where the activities of a process are executed, who is responsible within the process, and how other activities and processes interact with and affect other processes within the firm ¡It is also used to help a company identify bottlenecks in their workflow ¡Mapping makes determining why a process is being executed visible, which can make it easier to identify activities within a process that are not adding value
Purchasing VS Procurement
¡Purchasing generally refers to the actual buying of materials and those activities associated with the buying process ¡ ¡Procurement is broader in scope and includes purchasing, traffic, warehousing, and receiving inbound materials
Element 8 - Transformation Management
¡Ramping up a supplier is important to ensure needed milestone are met ¡A good contract will outline any transition expectations as the supplier ramps up, including agreeing on projects milestones, reviews and escalation paths ¡The contract should outline a formal change management process ¡More strategic relationships may also include provisions for the parties to develop a continuous improvement process ¡Highly strategic relationships should outline a formal continuous improvement program (e.g. Six Sigma, Lean, etc.) that can effectively drive improvements against the top-level desired outcomes. The contract should also outline how the trading partners will manage innovations
The Six scor Processes (cont.)
¡Return ¡Return processes are the activities associated with the reverse flow of goods in the supply chain ¡The Return process represents the return of products for repair, recycling, refurbishment, remanufacturing or scheduled maintenance ¡The Make processes detail the activities associated with the actual repair, recycling, refurbishment, remanufacturing or scheduled maintenance activities ¡ Enable ¡Enable processes are the activities associated with establishing, maintaining, and monitoring assets, business rules, compliance, contracts, information, and relationships that are required to operate a supply chain ¡Enable processes interact with processes in other functional areas such as Finance, Information Technology, and Human Resources
Other apics Frameworks
¡SCOR ¡Supply Chain Operations Reference Model ¡PLCOR ¡Product Life Cycle Operations Reference model and manages product innovation and portfolio management ¡Customer Chain Operations Reference model ¡CCOR manages the customer interaction process ¡DCOR ¡Design Chain Operations Reference model manages the product and service development process
Sourcing
¡Scheduling deliveries ¡Receiving, verifying, and transferring products ¡Authorizing supplier payments ¡Identifying and selecting supply sources ¡managing business rules ¡assessing supplier performance ¡managing inventory, capital assets, incoming products, supplier network imports/exports requirements and supplier agreements ¡Over 50% of an organization's revenue might be used to acquire the goods and services needed to conduct business
¡Element 2 - Shared Vision Statement and Statement of Intent
¡Shared Vision Statement is a declaration of the shared vision of the relationship based on the desired outcomes, showing what has been documented and agreed to ¡It is an affirmation of the 'What's In It For We' (WIIFWe) approach the relationship ¡Statement of Intent is a formal document that outlines the overall intent of what the parties will include in the agreement ¡ The document should outline the opportunity and the outcomes that are desired
¡Shared services
¡Shared services structure is the establishment of an internal organization to perform key functions on behalf of an organization ¡A key driver when developing a shared services organization is to centralize and standardize operations that improve operational efficiencies ¡APQC (American Productivity and Quality Center) research shows a direct correlation between low procurement cost and a centralized or shared services procurement function ¡Companies with centralized and shared services procurement functions have procurement costs almost one-third of those that have decentralized functions ¡Shared services organizations typically act like an outsourced service provider, performing services and then "charging" their internal customers on a per-transaction or headcount basis
¡Equity partner
¡Some companies decide they do not have the internal capabilities, yet they do not want to outsource for a variety of reasons ¡In these cases, companies may opt to develop a joint venture or other legal form in an effort to acquire mission-critical goods and services. ¡Sony formed a joint venture in China to more effectively make and market PlayStation consoles and games ¡Renault-Nissan Alliance is working to produce electric vehicles in the same China market. ¡These equity partnerships can take different legal forms, from buying a service provider, to becoming a subsidiary, to equity-sharing joint ventures ¡These partnerships often require the strategic interweaving of infrastructure and heavy co-investment. ¡They , bring costs "in house" and create a fixed cost burden ¡This may conflict with the desires of many organizations to create more variable and flexible cost structures on their balance sheets
Spend Management
¡Spend management is part of an organization's overall sourcing process ¡"Do more with less" for sourcing and procurement means that the organization must operate as lean as possible, while at the same time, maintaining or improving customer service ¡Spend analysis is the term used to represent the various efforts of an organization to manage how much they spend on various activities to conduct business ¡Most procurement executives are concerned with identifying cost reductions
¡Element 9- Exit Management Plan
¡Successful contracts include adequate exit criteria and off ramps to cover probable contract end requirements. ¡More strategic relationships will need to spell out a detailed exit management plan. ¡These should also include provisions such as how the trading partners will manage more complex aspects of the relationships such as data rights, customer rights to asset ownership, or mutually created intellectual property
Supplier Relationship Management
¡Supplier relationship management is the discipline of strategically planning for, and managing, all interactions with third party organizations that supply goods or services to an organization in order to maximize the value of those interactions. ¡Sourcing becomes more complex as the amount of unique raw materials, parts, components, products, equipment, suppliers, and services increases ¡Total value perspective is a way of evaluating suppliers in a sourcing situation to determine which supplier is likely to provide the highest total value to the firm
The Role of Finance
¡Supply Chain Financing Options ¡ ¡Financial Aspects of Supply Chain Activities
Supply Chain Financing Options
¡Supply chain financing is a financial solution that provides support to the different partners engaged in the different stages of the supply chain, from the time the purchase order is issued until the corresponding invoice is paid. It is important how and where firms in the supply chain pay and get paid
What Makes An Effective Framework?
¡Supply chain frameworks establish a common language for communicating ideas, concepts, and methodologies and for discussing and documenting supply chain activities ¡They build a structure for modeling supply chains and communicating with participants while supporting the communication and comparison of benchmarks and best practices ¡They create a process framework linked to performance measurement that can communicate the relevance of the SCM strategy to everyone in the organization ¡Without such a framework, it is difficult to capture the strategic implications of SCM, because decision makers cannot align or measure the effectiveness of actions and decisions relative to corporate strategy
¡Element 4 - Performance Metrics
¡Trading partners relationships should rely on performance metrics to measure the success. ¡Metrics used should be clearly aligned to desired outcomes (ideally focused on achieving end Customer requirements) ¡Metrics accountability should be aligned with the scope of trading partner's authority
Elements of an Effective SCM Framework
¡Support a standard definition of SCM ¡Establish a common language that allows supply chain professionals to communicate ¡Provide standard definitions for key supply chain processes, allowing for the documentation of processes ¡Promote supply chain excellence by linking a common set of metrics to the framework, which allows the metrics to be measured in a standard manner that avoids ambiguity ¡Support continuous improvement by providing benchmarking data that is aligned to the framework, for the comparison of measured performance with best-practice performance targets ¡Provide an end-to-end supply chain model that can be applied to multiple industries ¡Provide a format that is easy to understand, implement, and practice as a supply chain modeling and improvement tool ¡Provide supply chain transparency by supporting global supply chain mapping through the description of the flows of materials and information ¡Facilitate a cross-functional/cross-enterprise view of the organization and its supply chain partners for process-focused measurement and continuous improvement in the end-to-end supply chain ¡Allow theories and practices to be presented to a facilitating or governing authority, which can share them with its membership using a common point of reference ¡Allow the development of training and education programs to further supply chain knowledge ¡Allow the supply chain profession to expand the awareness of the significance of supply chains to businesses and to the economy
The Role of Marketing
¡The Marketing Concept and Supply Chain Management ¡Omnichannel Distribution ¡Data Analytics ¡Product Stock-outs ¡Product Returns
Industry Developed Frameworks of Process Integration
¡The Supply Chain Council—Supply Chain Operations Reference (SCOR) Model ¡Developed to provide a standardized method for measuring supply chain performance and sharing best practices ¡Released first edition of SCOR Model in 1996. It has been revised on twelve occasions and is currently in its 12th edition ¡Centered around five primary management processes—plan, source, make, deliver, and return ¡Supply Chain Management Institute—Global Supply Chain Forum Process Model ¡Developed in the early 1990's by The Ohio State University's Supply Chain Management Institute ¡Suited for companies whose idea of SCM revolves around relationship management ¡American Productivity and Quality Center—APQC's Process Classification Framework ¡Developed the Process Classification Framework in 1992 ¡Created to be industry, company size or geography agnostic ¡Benchmarking services available to member companies and non-members for a fee ¡Supply Chain Consortium—Supply Chain Best Practices Framework ¡Developed in 2004 by Tompkins International ¡Provides an integrated structure for defining, measuring, and improving supply chain processes
Reasons To Use More Strategic Approaches
¡The act of partnering or declaring that you want to be a partner brings a new dynamic to the relationship between business entities ¡Partners work together to achieve a goal ¡That goal could be reduced cost, improved availability or customer satisfaction, or increased market share ¡ The effort put into partnering should be equal on both sides of the relationship, should lead to a common set of desired outcomes beneficial to both parties and it should not only be a win for each of the partners, but it should create an improved relationship between them
Material Requirements Planning (MRP)
¡The concept of dependent demand ¡The demand for a raw material or a component depends on the demand for the product for which they are an input ¡The operation of MRP systems begins with inputs from the customer order file and demand forecasts for the different products available for sale to customers.
Product Stock-outs
¡The implication of product stock-outs is different for retailers versus manufacturers. ¡Good forecasting and Vendor managed inventory (VMI) can be used to minimize stock-outs.
The Marketing Concept and Supply Chain Management
¡The most significant link between marketing and the supply chain is customer service ( major component of customer satisfaction). ¡Within the supply chain, organizations must be efficient, that is, do more with less, and provide sales and marketing with the goods and services necessary in order to minimize costs and optimize profits.
¡The Power of Not Doing
¡The saddest of all ailments is the one called the Power of Not Doing ¡This happens when a company falls into the trap of establishing measures for the sake of measures, without thinking through how those measures will be used to manage the business ¡This can happen when a company finds that some other firm is using a certain set of metrics and believes that "if it is good for them it must be good for us" ¡ When dealing with trading partners, this ailment can cause much wasted time on the part of the partner collecting data - time which ultimately adds cost in the relationship
Supply Chain Operations Reference (SCOR) Model
¡The widely used SCOR-model, or Supply Chain Operations Reference-model, was developed by the Supply-Chain Council to provide a standardized method for measuring supply chain performance and to create a common set of metrics that could be used for benchmarking purposes ¡SCOR's goal is to enable users to "address, improve, and communicate supply-chain management practices within and between all interested parties" ¡The model is highly process-focused and enables users to build their individual scope to include the extended supply chain and bringing in processes from a supplier's supplier to customer's customer
Supplier/Vendor Selection
¡There are usually numerous vendor possibilities for sourcing goods or services in the marketplace. ¡ It's important to make the right selection from the list of potential suppliers. ¡A five-step approach to vendor selection would include the following steps: 1.Analysis of the business requirements 2.Vendor search 3.Request for proposal (RFP) or request for quotation (RFQ) 4.Proposal evaluation 5.Vendor selection 6.Contract negotiation
¡Simple transaction
¡There is very limited commitment between trading partners and is often used when there are abundant suppliers in the marketplace ¡These relationships are typically best suited for commodity type goods and services where there is little risk in impacting the business ¡Buyers often frequently use competitive bidding tactics with a goal to achieve low price ¡The relationship is typically based on a review of performance against standard metrics (did the supplier work that many hours or provide the good or service in the quantities purchased)
¡Driving Blind Disease
¡This afflicts companies that have not done their homework in preparing for the managing contracted manufacturing and logistics services It relates to the lack of a formal governance process to monitor the performance of the relationship.
¡Element 5 - Performance Management
¡Trading partners should determine which metrics reports they will use to manage the business, as well as determine the frequency of the reports ¡In some cases, performance reporting is as simple as an excel spreadsheet while in other cases reporting might be fully automated and integrated
Data Analytics
¡Traditional methods of data collection and analytics don't work as well, or fast enough, to make the rapid decisions that are required in today's marketplace. ¡Much of the data needed by companies would be considered unstructured, and often come from social media sources. ¡Many organizations are data rich (too much data), but information poor (how to use it).
¡The Activity Trap
¡Traditionally, companies purchasing products and services have used a transaction-based model where the supplier or service provider is paid for every transaction—regardless of whether or not it is needed. In cases where the supplier is paid for each activity performed there is simply no incentive for the supplier to reduce the number of non-value-added transactions because it would result in a reduction of revenue
Partnership Success Factors
¡Trust is a key factor in relationships ¡The more strategic a relationship is to the business, the more there is a need for mutual trust, open communications, and balanced risk among partners ¡Trust provides a foundation for collaboration, sharing of resources, and risk taking that help to ensure the highest level of profitability for themselves and their supplier partners, while delivering the utmost in customer satisfaction ¡Knowledge of a partner's business ¡Understanding a partner's business puts a company in a better position to create a winning relationship that can help both organizations succeed ¡Good relationship management governance structure ¡Partners must develop mechanisms to govern the relationship ¡A successful relationship management structure creates joint policies that emphasize the importance of building collaborative working relationships, attitudes, and behaviors
¡Approved provider
¡Typically occurs when a buyer identifies a supplier who has been identified to offer a unique differentiation from other transactional suppliers and provides a cost, efficiency, or other competitive advantage for the client company ¡The differentiation could come in the form of geographical location advantage, a cost or quality advantage, or a small disadvantaged business ¡An Approved Provider is identified as a pre-qualified option in the pool of transactional suppliers and has fulfilled preconditions for specified service ¡An Approved Provider may or may not operate under a Master Services Agreement — an overarching contract with the buying company ¡Using a Master Services Agreement enables the buying companies to easily engage the Approved Supplier because they are already "under contract". ¡Approved Suppliers typically also receive more management attention from buying companies
¡Performance-based Relationship
¡Typically performance-based agreements begin to shift the thinking away from activities to outcomes ¡However they often still pay a supplier using transaction-based pricing triggers ¡These contracts are often also called "pay for performance" because they often have an incentive, or a penalty tied to specific service level agreements (SLAs) outlined in the contract ¡The term length of Performance-based relationship is typically longer in a performance-based agreement. It is not uncommon to see agreements spanning three to five years ¡Performance-based agreements typically require a higher level of interface between trading partners in order to review performance against objectives and determine the reward or penalty options that are typically embedded in the contract
¡Vested Outsourcing Relationship
¡Vested Outsourcing is a highly collaborative business model where both the client and service provider have an economic vested interest in each other success ¡Companies enter into highly collaborative arrangements designed to create value for all parties involved above and beyond conventional buy-sell economics of a transaction-based agreement ¡This business model is best used when a company has transformational, innovation, or competitive advantage objectives that it cannot achieve itself or by using conventional transaction-based approached or performance-based approaches ¡These objectives are referred to as Desired Outcomes which form the basis of the agreement ¡ A Desired Outcome is a measurable business objective that focuses on what will be accomplished as a result of the work performed ¡The Vested Outsourcing business model can be used for service or product suppliers
¡ Measurement Minutia
¡When companies try to measure everything, they usually succumb to the malady of Measurement Minutiae ¡What's remarkable is the scale of the minutiae that some organizations are able to create ¡Some organizations use spreadsheets with 50 to 100 metrics on them ¡Measurement minutiae are often associated with companies that are suffering from the junkyard dog factor and with agreements that have fallen into the activity trap
¡Element 3 - Statement of Objectives/Workload Allocation
¡Work Scope - Trading partners should mutually define the work scope ¡This can be done using a ¡Statement of Work (a very formal and detailed document outlines in great detail the specifications of how the work should be performed) ¡Statement of Objectives (a less rigid document that specifies the buying company's desired outcomes in terms of high-level objective metrics with minimal prescriptive direction ¡Performance Work Statement (which is a detailed specification written by the suppliers) ¡Workload Allocation - Trading partners should develop a formal management strategy that focuses on maximum integration (management and visibility) of end-to-end business process effectiveness ¡A workload allocation strategy will show how trading partners work together to optimize the end-to-end process, versus internal process effectiveness ¡ Workload allocation strategies should describe the level of transparency of each partner's involvement, showing clear roles and accountabilities for the overall processes/flow
Importance Of Collaboration!
¡coordination is necessary for companies to execute their supply chains ¡For companies to create higher levels of coordination, it is necessary to have true collaboration—a common understanding of what drives each function toward the company's overarching goals ¡If two firms were to agree to collaborate on a project, they need to identify each other's responsibilities, and determine deadlines ¡True collaboration is not just interaction through a series of internal functional meetings and document exchanges, but rather is associated with a greater inter-dependence to succeed
Definition Of Supply Chain Process Integration
¡supply chains integrate activities external and internal to organizations ¡The striking commonality between most definitions is that supply chain management is an integrating function ¡That means supply chain management is primarily responsible for linking and coordinating major business functions and business processes within and across companies into a cohesive and high-performing business model ¡Supply chain process integration, can be defined as seamless, coordinated processes that optimize informational and operational flows between departments and partners in the supply chain, which allows improve service capabilities while achieving lower total supply chain costs
Global Sourcing Issues
ØSourcing occurs locally, nationally, or globally. ØThere are factors that can help us determine the optimal sourcing strategy for an organization to pursue ; ¡Risk ¡Supply chain disruption ¡Regulations ¡Standards ¡Global terrorism Customer service