SCM465 Exam

How to Classify Spend

-Critical (One to few options, Low to moderate spend) -Standard (Few to many options, Low to moderate spend) -Strategic (One to few options, Moderate to high spend) -Market (Few to many options, Moderate to high spend)

Criticality Grid

-Evaluations or strategies are usually set by material, commodity, or service -NOT by Supplier -UNLESS... We have no other realistic options whether by market place capabilities or investments or strategic decisions.

Global Trade has led to globalization resulting in

-Global competition -Increase competitors, partners and customers from around the world -Global sourcing Companies obtaining a global presence -Access to knowledge and new technologies -Rapid pace of technological change -Fast rate of product commoditization

One Time Purchase

Do your best to get the lowest cost

Sourcing

Finding a source from where the goods and services can be procured. -It is considered to be the first step taken by the business before its first sale. -Is concerned with acquiring of goods and services, sourcing is finding a least expensive supplier for those goods.

Peer to Peer (Supplier Relationship)

Idea stage, create a win-win relationship

Identify (The Procurement Process)

Identify suitable potential suppliers who are able to meet the defined requirements or specification.

Feedback(SRM)

Internal company feedback can improve supplier performance or level of Service

Purchasing

Is a subset of Procurement. -Though these terms are being used interchangeably they mean different. -Purchasing simply involves buying and selling of the goods and services. -Purchasing is only restricted to receiving and making payments. -Purchasing can be best known as the transaction-oriented function of Procurement

Supply Chain Collaboration

Is the relationship between SC partners

Sales vs Purchasing Relationship

It's the epitome of a love-hate relationship as, not only are they undoubtedly the proverbial thorns in each other's sides, they actually require each other's existence in order to function and go about doing what they do.

KPI

Key Performance Inicator

What is SRM?

Key processes, definitions, tools, and roles to drive coordinated proactive management of suppliers across the business.

Decision is to outsource. How does procurement approach outsourcing?

Leveraged buy, collaborative buy, transactional buy, one time purchase

Leveraged Buy

Look for overall savings (Single sourcing)

Master Servant - Standard (Supplier Relationship)

Low cost is main driver

SRM

Supplier Relationship Management

Collaboration with suppliers (SRM)

this will create new value (co-creation is key).

External Factors that Impact Procurement Strategy

-# of Suppliers that can deliver (real or perceived) -Monopolistic market? -Personal Relationships -Market price fluctuations -Technology - "high tech" -Custom made - captive supplier

Interenal Factors that Impact Procurement Strategy

-# of qualified suppliers -Internal Customer decides not to competitively bid (RFP) -Perception of value -Fear of transition -Quality or Technical requirements -Single or multi-source

Supply Chain Integration

--Alignment and Linkages of communication and business processes within the SC --Does not equal collaboration --Enabler of collaboration

Why Consider Re or Near Sourcing? (Reshoring)

--Cost of facilities and utilities --Landed material cost --Labor cost

External Integration

--EDI is a key enabler of supply chain integration -It streamlines information sharing and processing --Effective and efficient organisational design is a prerequisite --Keiretsu (pronounced ka' resoo)

Reasons for Offshoring

--Lower cost in offshore region --Less stringent regulatory controls --Lower communication and IT cost --Improve capabilities --Region specialization

Benefits of Internal Integration

--Non-value adding activity is minimized --Costs are reduced --Lead times are reduced --Service quality is improved --Functional silos are reduced

Keiretsu (pronounced ka' resoo)

--Original equipment manufacturers work closely with their first tier suppliers to integrate manufacturing, logistics and information processes; which is passed upstream -This enables just-in-time line-side delivery at their assembly plants -A seamless lean supply chain is created -The supply chain is viewed as one extended operation

Why Consider Re or Near Sourcing? (Offshoring)

--Outbound logistics cost --Interest rate and insurance --Tax and duty

Drawbacks of Offshoring

--Poor communications --Quality control --Cultural differences --Possible delays --Insufficient client attention by vendor --Difficulty exchanging documents

Internal Integration

--To integrate communications and information systems so as to optimize their effectiveness and efficiency --Can be achieved by structuring the organisation and the design and / or implementation of information systems for improved communication and information sharing

Metrics Definition

-A traditional procurement metric is purchase price variance (PPV) -A measure of the variance between the actual price paid versus the standard cost of the item -Minimum order quantity (MOQ) is an alternative

Factors that Impact Procurement Strategy

-Level of Spend being considered -Risk -One-off or recurring / Contract Duration -Market Maturity -Technology Lifecycle of market -Number of sources and potential suppliers -Performance Improvement and Cost Reduction

How to Classify Spend (Market)

-Many sources & high value -Minimize cost -Strategy - leverage cost by competition - drive out non value adds. -Pricing - lowest market offering that meets specs

How to Classify Spend (Standard)

-Many sources, low value & risk. -Strategy - minimize effort (repetitive auctions) -Traditional buy/sell relationship -Standardize, Aggregate, and Leverage. -Pricing - list price minus discount.

How to Classify Spend (Strategic)

-Partnerships -Relationship adds competitive advantage -Strategy - strategic planning, long-term contracts, JV, etc. -Pricing - cost plus...open-book discussions. -B2B reciprocity

The Why Reasons For Manufacturing Outsourcing

-Reduce direct and indirect costs -Reduce capital costs -Reduce taxes -Reduce logistics costs -Overcome tariff barriers -Provide better customer service -Spread foreign exchange risks -Share risk -Build alternative supply sources -Pre-empt potential competitors -Learn from local suppliers, foreign customers or competitors -Gain access to world class capabilities or attract talent globally

What is Supplier Performance Management?

-SPM is the means & ways of capturing, measuring, analyzing and reporting Supplier performance. -The long-term purpose of SPM is to ensure a long & sustainable supply base together with a win-win relationship with the Supplier. -Supplier performance can also be termed as the 'Appraisals' of their performance. -KPIs are determined early in the process and verified with the bidders and winners.

How to Classify Spend (Critical)

-Single or few options -Supplier collaboration - being a "good customer" -Strategy - reduce risk, ensure supply or delivery. -Pricing - value application - it is not about best price...it is reduce risk & ensure supply. Optimize value of dollar spend.

RFP 'Request For Proposal

-The Request For Proposal (RFP) outlines the bidding process and contract terms, and provides guidance on how the bid should be formatted and presented. -A RFP is typically open to a wide range of bidders, creating open competition between companies looking for work. -Typical, 3 quotes and a buy.

Metrics

A transparent, top-down approach including: -Spend analysis -Strategic sourcing -Contract management -Collaborative buying -Compliance Its performance metrics: -Cost containment -Strategic sourcing -Spend management -Economic inclusion -Supplier enablement -Purchase to pay (P2P) -Operations

Transactional Buy

All about the price

The Difference Between Buying And Selling

Buyer motivation and seller motivation.

The Need for Outsourcing

By transferring non core functions to a specialized and/or lower cost agent upstream we can focus on innovation and downstream functions.

Why SC Collaboration Fail?

Collaboration is dependant on the provision of mutual benefit; cared -In supply chains, mutual benefit between suppliers is difficult to achieve -Hence trust becomes an issue

Procurment

Comes first, then equals (Sourcing + Purchasing)

Supplier Relationships

Competitive, Consultative, Master Servant, Peer to Peer

Manage (The Procurement Process)

Manage the contract to ensure that the key deliverables are fully met.

Criteria For Evaluating And Selecting Outsourcees

Order qualifiers (qualified supplier) -Reliability of delivery on time -Quality certifications -Conformance to agreed specifications -Delivery lead time -Financial capability -Performance track record -Price or cost reduction -Senior management attitude -Responsiveness to demand uncertainty -Record of corporate social responsibility

Sourcing Strategies

Outsource, Insource, Off-Shore, Nearshore

Competitive (Supplier Relationship)

Outsourcer starts to compete with outsourcee

Vendor Metrics

Purchasing, delivery performance, quality, price, other.

Consultative - Best(Supplier Relationship)

Quality, reliability, and responsiveness in addition to cost.

Procurement Techniques And Tools

RFQ, Negotiation, Formal tender process, e-auction.

Select (The Procurement Process)

Select a suitable supplier or suppliers to deliver the contract.

Outsource (Sourcing Strategies)

Someone else is doing the work for us

Specify (The Procurement Process)

Specify the requirements that contract must deliver.

The Procurement Process

Specify, identify, select, and manage.

Nearshore (Sourcing Strategies)

The work is done close to home

Off-Shore (Sourcing Strategies)

The work is done overseas

Growth In International Trade

There has been considerable growth in recent decades in world trade; world exports grew from $62 billion in 1950 to a peak of $16,000 billion by 2008 before subsequently declining in 2008 as a result of the recession and increasing again in 2012

The Role Of The Buyer

To create an appropriate level of competition to manage the level of risk and value that the business faces when sourcing or procuring goods, services or works -Meet cost objectives -Negotiate (cost and contract terms/risk) -Supplier relationship management

Collaborative Partnership

Understand partner's Costs and margins

Supplier Motivation

Wants the highest price? Decrease scope? Supplier power? Fit for purpose? Limit liabilities?

Buyer Motivation

Wants the lowest price? Increase scope? Buyer power? Best Service? Limit risk?

Insource (Sourcing Strategies)

We will do the work ourselves

COST due to Inaccurate data (SRM)

in today's competitive fast-paced environment, the impact of lack of timely-accurate data is huge.

Supply chain disruptions (SRM)

knowing your suppliers and performance capabilities are critical if your supply chain is disrupted.

Visibility into Spend (SRM)

procurement must know spend breakdown of key or preferred suppliers.