MGT333
SC and Organization's Nature^ •Reputation: Good vs not so good reputation
-Ability to maintain good relations with world-class suppliers -Access to the best deals and offers
5 M's
1)Materials, 2)Manpower, 3)Machine, 4)Management, 5)Money
The supply function in public sector organizations can differ from those in private sector organizations in the following area:
Regulatory requirements regarding the acquisition process and policies.
Supply management
The integration of related functions to provide effective and efficient materials and services to the organization
Supply makes a significant contribution to organizational risk management since many supply decisions have downside risks that might impact the organization's strategy.
True
The profit-leverage effect of supply savings means that:
a reduction in purchase spend increases profit more than an equivalent increase in sales.
decentralized purchasing authority is
leveraging the divisional experience
Specialization within SC
sourcing- identify suppliers materials management- ensures deliveries research- forecast demand administration- procedure, budgeting, reporting
Hybrid supply structures can capture the benefits of both centralized and decentralized organizational sctructures
true
improving the efficiency and effectiveness of the process for small value orders can be achieved through
vendor/supplier managed inventory systems and the use of purchasing cards
centralized
•Authority and responsibility for most supply-related functions assigned to a central organization
S.C. Impact on Revenue/Sales
•Pricing Flexibility (more flexibility for marketing depart.) •Improved Quality (75% of quality problems could be traced back to defects in purchased materials) •Reduced Time to Market, Shorter Cycle Times and Lead Times (relevant for Time-Based Competition) •Customer Satisfaction and Customer Fulfillment Flexibility Assist in becoming a Supplier of Choice (higher value offer)
Org objectives
•Survival •Growth •Financial •Environmental
Six Major Supply Strategy Areas
1.Assurance of supply (prime SC responsibility) 2.Cost reduction (min TCO) 3.Risk management (reduce organization's risk) 4.Competitive edge (org. strengths; market opportunities) 5.Supply chain support (relations, communication, IS) 6.Environmental change (understand, foresee external changes)
9 SC goals
1.Improve the organization's competitive position 2.Provide an uninterrupted flow of materials, supplies and services required to operate the organization 3.Purchase required items and services at lowest TCO 4.Keep inventory investment and loss at a minimum 5.Maintain and improve quality 6.Standardize, where possible, the items and services bought and the processes used to procure them 7.Find or develop best-in-class suppliers 8.Achieve harmonious, productive relationships Accomplish supply objectives at the lowest possible operating costs
steps in supply process
1.Recognition of the need 2.Description of the need 3.Identification and analysis of possible sources of supply 4.Supplier selection and determination of terms 5.Preparation and placement of the purchase order 6.Follow-up and/or expedite the order 7.Receipt and inspection of goods 8.Invoice clearing and payment 9.Maintenance of records and relationships
For an organization with annual sales of $500 million, purchases of $300 million and profit of $50 million, a 10 percent reduction in the cost of purchases would result in a profit-leverage effect of:
60 percent (sales increase of 60 percent would be required to achieve the same percentage increase in profit).
Profit-Leverage Effect
A 5% reduction in purchase cost creates a 60% increase in profit
Supply objectives
Delivery Costs Quality, Quantity Services, etc.
strategic orientation
Global supply chains Executive level leadership Challenges: risk management, TCO, sustainability, security, globalization
The role of supply management is best captured by the following question:
How can supply and suppliers help decrease costs and increase revenues?
S.C. Cost Impact
Product Design (70-80% of total cost of ownership is set during the product design process) •Acquisition costs (both items and services) •Processing, Quality, Conversion costs •Non-Value-Added (activities) costs •Downtime and Cycle Time1 costs •Supply Chain Costs (SC processes and activities including suppliers management) Post Ownership Costs (waste, service, warranty)
Key Success Factors for Teams
Right Participation All functional areas involved The right talent - people with needed skills Common Purpose Customer Focus vs. Individual Success Motivation Measurable Goals, Dedication and Good Communication Organizational support, Culture Proper Communication and Resources
Return-on-Assets
Sales - Total Costs (CGS + Other Costs) Total Assets (Current Assets + Fixed Assets)
What is the profit-leverage effect for supply chain? is it the same for all organizations?
`
specialization within the supply function
allows staff to develop expertise in particular areas.
information flows
between and among supply, and other internal functions and external sources
challenges for centralized and decentralized
centralized: •Lack of business unit focus •Lack of recognition of unique business unit needs •Focus on corporate requirements, not on business unit strategic requirements •Distance from users Decentralized: •Encourages users not to plan ahead •Operational versus strategic focus Too much focus on local sources lacks clout, no critical mass
when a team has decided about a task of function currently performed by company employees is a core competency, the team will probably recommend
continuing to make
why should an organization switch from buying to making
control protect stability
internal business partners between supply and other functional areas such as marketing/sales, finance/accounting, and engineering are
desirable because of the interdependencies between and among functions
it is recognized that in the transition from a centralized supply structure to a decentralized one organizations are
expect to increase the speed of response to specific divisional needs
Globalization of supply chains has increased the complexity of purchasing responsibilities and made identification of risk easier.
false
One of the most important steps in achieving the potential of the supply function is hiring someone from outside of the company's industry into the top supply position.
false
There is increased emphasis on purchase transactions and less on strategic supply management processes.
false
maverick buying is a talented member of the supply department whose creativity and innovations have saved the organization large sums of money
false
the most common source of potential friction between SC and finance/accounts payable is
finances inclination to hold on cash which can result in postponing payments towards suppliers
why is the make or buy decision considered strategic
focus on core competancies
Clerical and tactical
focuses on policies and procedures challenges: availability of supply, cost management
To effectively manage supply risks, the supply manager must:
identify and classify risks, assess the potential impact, and develop a risk mitigation strategy.
sourcing was presented in class as one of the main specialization within the SC. which of the following will you consider to be the core responsibility of a SC professional working in sourcing
identify and select best suppliers
Outsourcing
increasing in volume and scope
the organizational structure (centralized, decentralized, or hybrid) of the supply function:
influences supply processes, internal cross-functional relationships, and procedures and systems
If organizational objectives and supply objectives are incongruent:
it will be difficult to translate organizational objectives into supply objectives.
concerns about outsourcing include
layoffs, develop dependency on supplier, and loss of control
what is not considered a danger or a potential issue of outsourcing
loss of centralization
expediting
may be caused by the buyer or supplier
outsourcing
may reduce operating costs, improve focus on core competencies, and gain access to world-class capabilities
The greatest opportunity to affect value in the purchasing process is when:
needs are recognized and described
Evaluation of the supply function's contribution to organizational goals and strategies can be viewed in the context of:
operational and strategic direct and indirect
before deciding to outsource, one company should consider the following
outsourcing risk factors (including risk of creating strategic vulnerabilities) the importance of the internal control over production processes and quality a switch back transition plan
Close to 70% of the value of any given requirement is established during
recognition and description of need
blanket purchase orders
reduce costs by decreasing the number of purchase orders issued
If the buyer has a clear and unambiguous description or specification and wants to find out which supplier can deliver the best value when and where needed, he or she will typically issue a:
request for quotation (RFQ)
To contribute to organizational strategy, the supply department should:
seek opportunities to provide competitive advantage.
online reverse auctions are best suited for situations where
specifications are clearly defined, there is competitive supply market with qualified suppliers willing to participate, and the buyer is prepared to switch suppliers if necessary
which of the following is a consideration that favors buying a product
supplier has unique know-how/ capability
Normally, most organizational objectives can be summarized under four categories:
survival, growth, financial, and sustainability.
efficient and effective supply processes are needed because of
the large volume of items, dollar value, severe consequences, the potential contribution to organizational objectives, and the need for an audit trail.
why should a supply manager consider hiring or obtaining internally an employee without any supply background
the need for the organization can be quickly grasped and shows the individual's ability and willingness to make sound decisions and assume responsibility
one purpose of a requisition
to clarify the description of need before communicating with potential suppliers
an organization may decide to produce a good or service in-house rather than outsource
to control the quality of customer service and to reduce risk
By identifying and eliminating the causes of uncertainty and risk in the supply chain, the supply manager may be able to reduce the needed inventories and therefore buy a lower quantity.
true
Terms such as purchasing, procurement, supply, and supply chain management are terms that are used almost interchangeably.
true
The three levels of strategic planning are corporate, business unit, and functional.
true
purchasing activity could require a large spectrum of involvement of SC personnel. Among those activities there are certain ones that require no involvement of SC/Purchasing personnel
true
some of the reasons an organization may decide to make rather than buy are: need to control the production process, stringent quality requirements, and very small quantity requirements
true
When developing supply strategies, the supply manager must determine:
what to make or buy, what to insource or outsource, and what standard items or what customized items will be acquired.
Decentralized
•Authority and responsibility for supply-related functions dispersed throughout the organization
Procurement Involvement Level!
•Could be "Æ" - no involvement in a specific process •Documentation only (clerical - keep records, track documents) •Professional - full engagement; provide assistance and expertise •Consultant for developing corporate strategies (mergers; acquisitions; planning; new product development and other corporate activities)
Risk management: operational
-Delivery concerns: •Production Idle Time, Disruptions, Quality, etc. -Suppliers •Evaluation & Selection •Management of the Relationship -Organization's Environment Monitoring •Natural and Unpredictable Events •Political & Economic Conditions and Regulations -Effect on: Org. capacity to fulfill its contracts, to produce and deliver value
SC and Organization's Nature •Private (for profit, fig 1-4)
-Identic to Public 1. & 2. (mission and efficiency & effectiveness) -Lower restrictions on supply process - Commerce Law (mainly) -A tool for obtaining and securing competitive advantage -Commitment to shareholders
Risk management: financial
-Price Fluctuations, -Supply Market Volatility, -Purchasing Timing, -Economic and Monetary Policies: •Exchange rates, Tariffs, Import Duties and Fees, Taxes, etc. -Effect on: Organization's financial performance and wellbeing
Risk management: reputation factors
-Quality issues -Supplier relations -Ethical issues -Legal issues -Environmental issues -Effect on: •Customer Loyalty •Positive/ Negative Publicity •The ability to Maintain a World Class Supply Base
SC and Organization's Nature^- •Size: Large vs. Small
-Size enables and/or requires specialization -Location, number of sites affects SC organization and structure Financial - ability to obtain "good deals", bargain power
SC and Organization's Natur. •Non Government Organizations - non profit
-Strong social focus -Support organizational objectives -More flexibility, less restrictions (compare to gov. org.) -Could operate globally
nonstrategic spend
-Usually low-spend products and service (e.g., "B" and "C" items) -Dollar value and repetitiveness drive decisions -Establish a small dollar threshold -Prequalify suppliers -Use efficient order placement tools
5 R's of purchasing
1)Right Item and/or Service 2)Right Quality 3)Right Quantity 4)Right Price 5)Right Time (some include Place and extend the statement to the right Delivery)
Managing supply risk
1.Identify and classify potential risk factors ● 2.Assess impact and probability of risk event -Evaluate and Prioritize ● 3. Develop a risk management strategy -Develop and implement risk mitigation strategies: A.Risk avoidance strategies B.Contingency mitigation plans
Some operational risks in a supply chain are beyond the control of the purchaser or supplier, and some are within their control.
true
Supply is of great consequence in most manufacturing organizations since the costs of purchased materials and services greatly exceeds labor and other costs.
true
Supply managers may be able to provide information to identify risks to the organization, and can develop strategies to mitigate those risks.
true
the procurement of indirect or noncore spend is more likely to be outsourced than procurement of direct or core spend
true
Three Challenges in Setting Supply Objectives and Strategies
•Effective interpretation of corporate objectives and supply objectives • •The choice of the appropriate action plan or strategy to achieve the desired objectives • •The identification and feedback of supply issues to be integrated into organizational objectives and strategies
SC and Organization's Nature- public -(Gov. - local, state, federal)
•Focus on the mission of the organization •Supports the efficiency and effectiveness of the org. •Transparency & Fairness of the supply process •Social aims •Minority support •National security considerations (mostly services)
Opportunities for Supply to Contribute to Organizational Success
•Increase revenue •Reduce total costs of ownership •Reduce lead times through process efficiencies •Improve customer satisfaction •Identify opportunities for product/service innovations by collaborating with suppliers •Minimize financial, operational and reputational risks •Improve supply chain sustainability performance •Provide information to others in the organization in areas such as market conditions and new products and services.
Steps in procurement process
•Need recognition •Description: translation of that need into a commercially equivalent (specification) •Search for potential suppliers •Selection of a suitable source(s) •Agreement on order or contract details (Price!) •Delivery of products and/or services •Payment of suppliers
Supply strategic questions
•What -Make or buy/insource or outsource -Standard versus special - •What Quality -Quality versus cost -Supplier involvement - •How much -Large versus small quantities (inventories) •Who -Location of staff -Centralized or decentralized authority -Top management involvement •When -Now versus later -Forward buy •What Price -Premium, standard, lower -Cost-based, market-based -Lease/make/buy •Where -Local, regional -Domestic, international -Large versus small -Multiple, single versus sole source -Current, new or newly developed supplier -High versus low supplier turnover Supplier certification How Systems and procedures/ MRP/ e-Commerce Selection method: Negotiation/ Competitive Bid Blanket orders/Open orders/ Systems contracting/ Group buying Short-term or long-term contracts Use of Purchasing research; Value analysis Follow an aggressive or passive strategy Why Objectives congruent operationally and strategically Market conditions current and future
strategic spend
•goods or services critical to the mission of the organization -Typically high-spend products or services (e.g., in ABC classification, focus on "A" items1) -Can be low dollar value purchases if they are critical to the organization