Supply Chain Chapter 6

Reverse Auctions

A sourcing technique where pre-qualified suppliers enter a website and at pre-designated time and date, and try to underbid competitors to win the buyer's business.

Functional Products

MRO items and other commonly low profit margin items with relatively stable demands and high levels of competition

Reasons for multiple suppliers

Need more capacity, spread risk of supply disruption, create competition, more sources of information, dealing with special kinds of business

Pain Share Agreement

Using a penalty or punishment is a negative outcome for poor performance, cost overruns, quality problems

Outsourcing

The traditional definition involves purchasing an item or service externally, which had been produced using a company's own internal resources previously.

Reasons for a single supplier

To establish a good relationship, less quality variability, lower cost, transportation economies, proprietary product or process, volume too small to split

Five key areas of a typical spend analysis are

Total historic expenditure and volumes, future demand projections or budgets, expenditure categorized by commodity and sub-commodity, expenditure by division, department, or user, expenditure by supplier

Gain Share Agreement

Using a reward as a positive outcome from exceptional performance

Supplier Certification procedures verify

verifying that a supplier operates, maintains, improves, and documents effective procedures that relate to the customer's requirements

Strategic sourcing requires analysis of

what an organization buys, from whom, at what price and at what volume.

Strategic Sourcing

A comprehensive approach for locating and sourcing key suppliers, which often includes the business process of analyzing the total-spend by material category.

Single Sourcing

A sourcing strategy where there are multiple potential suppliers available for a product or service, however, the company decides to purchase from only one supplier.

Collaborative Negotiations

Both sides work together to maximize the outcome or create a win-win result. Requires open discussions and a free-flow of information between parties

Benefits of strategic alliance include

Potential to increase revenue and profits for both parties, Potential to create a competitive advantage or block a competitor from gaining market share, Mitigate risks and ensure a continuity of supply, Position the partners for future strategic opportunities.

Insourcing

Producing goods or services using a company's own internal resources.

Multiple Sourcing

Purchasing a good or service from more than one supplier. Companies may use multiple sourcing to create competition between suppliers in order to achieve higher quality and lower price.

Supply Base Rationalization

Reduction in the supply base to the lowest number of suppliers possible without increasing risk

Leverage Category

commodity items where many alternatives of supply exist and supply risk is low. Spend is high and there are potential procurement savings.

Vendor Managed Inventory

Suppliers directly manage buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer

Supply Base

The group of suppliers from which a company acquires goods and services.

Sourcing

The process of identifying a company that provides a needed good or service.

Supplier Selection is typically conducted by

a cross functional team

Distributive Negotiations

a process that leads to self-interested, one-sided outcome

A strategic alliance is

an agreement between a buyer and a supplier to pursue some agreed upon objectives, while remaining independent organizations.

Co-Managed Inventory (CMI)

an arrangement where a specific quantity of an item is stored at the buyer's location

Strategic Alliance Development

an extension of supplier development which refers to increasing a key or strategic supplier's capabilities.

Strategic Sourcing

an institutional procurement process; an approach to supply chain management that formalizes the way information is gathered and used so that an organization can leverage its consolidated purchasing power to find the best possible values in the marketplace.

Innovative Products

characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition

Sustainable sourcing should seek to

grow revenues, reduce costs, go green, manage risk, build intangible assets

Strategic sourcing differs from conventional purchasing because

it places emphasis on the entire life-cycle of a product, not just its initial purchase price.

Non-Critical Category

items that involve a low percentage of the firms' total spend and involve very little supply risk.

Strategic Category

strategic items and services that involve a high level of expenditure and are vital to the firm's success

Ethical Sourcing

that which attempts to take into account the public consequences of organizational buying, or to bring about positive social change through organizational buying behavior

Sustainability

the ability to meet current needs of the supply chain without hindering the ability to meet future needs in terms of economic, social, and environmental challenges.

Business Ethics

the application of ethical principles to business

Corporate Social Responsibility (CSR)

the practice of business ethics

Bottleneck Category

unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers.

Two main ethical approaches

utilitarianism, rights and duties