SUPPLY CHAIN- EXAM 2
Keiretsu Relationships
involves companies both upstream and downstream of a manufacturing process, remaining independent but working closely together for mutual benefit
The 5 How's Technique
questioning technique for drilling down into the details of a potential solution to a known problem.
Cash Discounts
reductions in price to encourage buyers to pay their bills quickly
Quantitative Factors
these are measurable in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability
Changeover Time
time taken to adapt and modify the manufacturing equipment and systems to produce a different product or a new batch of the same product.
Setup Time
time taken to prepare and format the manufacturing equipment and systems for production.
(Ethical Sourcing) The people involved in producing these products should be:
treated fairly and work in a safe environment.
Based on these characteristics, processes can be grouped into ____ broad categories
two
(Purchase Order (PO)) Indicates _____, ________, and _____ _________ for products or services.
types, quantities, agreed prices
Key Supplier Selection
typically conducted by a cross functional team using evaluation forms or scorecards.
Procurement is the overarching or _______ term within which the action of purchasing can be found.
umbrella
Distributive Negotiations:
Refers to a process that leads to self-interested, one-sided outcome
Manufacturing Strategy -vs- Performance Cycle
The manufacturing strategy defines what cycle time (i.e., lead time) the customer will experience for delivery
7. Fulfillment
The supplier delivers the item(s) to the buying organization as per the PO.
Outsourcing:
The traditional definition involves purchasing an item or service externally, which had been produced using a company's own internal resources previously.
scatter diagram
The values of two variables plotted along two axes, to reveal any correlation present.
Value Engineering
activities help the buyer's company to reduce cost, improve quality and reduce new product development time beginning with the initial design
Co-Managed Inventory (CMI)
an arrangement where a specific quantity of an item is stored at the buyer's location
Just-in-Time (JIT)
an inventory strategy to decrease waste by receiving materials only when and as needed in the production process, thereby reducing inventory costs.
Value-added Services
any work that creates greater value for customers
Mobility
Access virtually anywhere
Plan
identify each specific improvement that is needed, what change is necessary to make the improvement, and then plan for that change.
The Make versus Buy decision can be described as=
"the act of deciding whether to produce an item internally or buy the item from an outside supplier".
LEAN approach and tools:
- A wide range of LEAN tools are available - Learn-by-doing approach to performance improvement and capability-building
To exploit global efficiencies:
- Access to low cost labor and materials - Take advantage of tax breaks and low trade tariffs
Line Flow Production (a.k.a., Mass Production)
- For standardized products with a limited number of variations - Product moves on an assembly line through various stages of production - When one task is finished the next task must start immediately, therefore, time taken on each task must be the same
Strong Supplier Partnerships
- Important to achieving win-win competitive performance for the buyer and supplier - These require a strategic perspective as opposed to a tactical position - Involves "a mutual commitment over an extended time to work together to the mutual benefit of both parties, sharing relevant information and the risks and rewards of the relationship"
list the manufacturing strategies from the least time spent on a product to the most time spent
-MTS -ATO -MTO -ETO
Personal Relationships
-Strategic Partnerships begin with the development of personal relationships between key people at each company. -It is people who communicate and make things happen.
Sustainable Sourcing Programs Should Try To:
-grow revenues -reduce costs -go "green" -manage risks -build intangible assets
bath production: process, variety, volume, strategy, lead time
-intermittent -high -low -MTO, ATO -Long
Job Shop: process, variety, volume, strategy, lead time
-intermittent -very-high -very low -ETO, MTO -Very long
Total Cost of Manufacturing
-is the complete cost of producing and delivering products to your customers. -It incorporates both fixed and variable costs used in the manufacturing, storage, and delivery of the product.
LEAN regularly results in:
-large cost reductions -improved quality -increased customer service
The Primary Objectives of Purchasing
1) Ensure an uninterrupted flow of materials and services at the lowest total cost 2) Improve the quality of the finished goods produced 3) Optimize customer satisfaction
4. Make supplier selection
1) If the Buyer already knows which supplier they will buy from, move to step 3. 2) If not, a competitive bidding process may be initiated through the use of a Request for Proposal (RFP) or a Request for Quotation (RFQ). -Buyer issues a Request for Proposal (RFP) for items which have not been previously purchased, or not purchased from a specific supplier being evaluated. Supplier(s) provides their proposal to supply the item(s) including price and delivery. -Buyer issues a Request for Quotation (RFQ) for routine or repeat purchased items. Supplier(s) provides a price and delivery quote on the specific item(s) requested. 3) A Supplier is selected from the RFP or RFQ bids received based on criteria determined by the Buyer, including price, availability, quality, delivery costs, etc.
Purchasing Process Steps
1. A need is identified, and a Purchase Requisition is issued 2. Obtain authorization as necessary 3. Identify and evaluate potential suppliers 4. Make supplier selection 5. Purchase Order (PO) is created and delivered to the supplier. 6. Supplier confirmation of the Purchase Order 7. Fulfillment 8. Receipt of Goods 9. Invoice and Reconciliation 10. Payment 11. Close out the Purchase Order 12. Analysis
trends in supplier relationship management
1. Alignment Supplier Relationship Management with Strategic Sourcing Many companies are determining their negotiation strategies by tying them to their category management strategy, and to their supplier relationship goals. 2. Focus on cross-functional engagement - A best practice for strategic supplier relationships involves SRM teams at both the company and at the supplier, each led by a relationship manager, who form a steering committee to lead the process. 3. Focus on innovation - Companies that engage in more innovation with suppliers, report higher ROI. 4. Investment in people & "soft skills" - Treat suppliers with courtesy and respect. Be candid, and able to disagree without being disagreeable. Hold both sides to the same standards.
The basic e-procurement process consists of:
1. An electronic purchase requisition and/or purchase order. 2. An invoice (which might be one with the receipt) 3. A payment. - For high-dollar purchases, the process will generally also include authorization of the purchase order, and reconciliation of the invoice.
The following are five (5) key characteristics to consider in the development and implementation of an SRM system:
1. Automation is meant to handle routine transactions 2. Integration spans multiple departments, processes, and software applications 3. Visibility of information and clear and concise process flows 4. Collaboration through information sharing Optimization of processes and decision making
Companies spend significant time and resources developing and implementing Strategic Sourcing initiatives to:
1. Improve long-term financial performance 2. Increase customer focus 3. Improve product quality 4. Reduce the cost of materials 5. Reduce delivery lead times 6. Optimize the number of global suppliers. Note: for most companies, this means a reduction in the number of suppliers. 7. Deliver more innovative products, in less time, and less expensively than competitors
LEAN is composed of three components working in unison:
1. LEAN Manufacturing 2. Respect for People 3. Total Quality Management
The Weighted-Criteria Evaluation System
1. Select the key dimensions of performance mutually acceptable to both customer & supplier. 2. Monitor & collect performance data. 3. Assign weights to each of the dimensions. 4. Evaluate performance measures between 0 & 100. 5. Multiply dimension rating by weight & sum of overall score. 6. Classify vendors based on their overall score: Unacceptable, Conditional, Certified, & Preferred 7. Audit & perform ongoing certification review.
appraisal costs include the costs of:
1. Testing, evaluating, and inspecting the quality of incoming materials, process setups, and products, against agreed upon specifications. 2. Quality assessment and approval of suppliers. 3. Performing audits to confirm that the quality system is operating properly.
Key areas of a typical spend analysis are:
1. Total historic expenditures and volumes 2. Future demand projections or budgets 3. Expenditures categorized by commodity and sub-commodity 4. Expenditures by division, department, or user 5. Expenditures by supplier
Value-Added Activities
1. Transform or shape material or information 2. Customer wants it and is willing to pay for it 3. Done right the first time
LEAN focus and scope
1. Using Value Stream Mapping as primary work unit 2. Focusing on improving process performance 3. Having a clear view of the end state
Elements of LEAN Manufacturing
1. Waste Reduction 2. LEAN Supply Chain Relationships 3. LEAN Layouts 4. Inventory and Setup Time Reduction 5. Small Batch Scheduling 6. Continuous Improvement 7. Workforce Empowerment
2. Obtain authorization as necessary
A Purchase Requisition may be routed to an authorized approver(s) depending on the type of material or service being requested and/or the dollar value of the request. Multiple authorizations, may be necessary if the value exceeds a specific threshold.
Strategic Sourcing
A comprehensive approach for locating and sourcing key suppliers, so that an organization can leverage its consolidated purchasing power to find the best possible values in the marketplace.
Profit-Leverage Effect
A decrease in purchasing expenditures directly increases profits before taxes (assuming no decrease in quality or purchasing total cost)
Request for Proposal (RFP)
A detailed capabilities document used to determine a supplier's capability and interest in the production of a product or service.
Request for Quote (RFQ)
A document used to solicit bids (i.e., price and delivery) from interested and qualified suppliers for goods or services that the organization needs to obtain.
Insufficient Capacity
A firm may be at or near capacity and subcontracting from a supplier may make better sense
Histogram
A graphical display where the data is grouped into ranges
Return on Assets (ROA) Effect
A high ROA indicates managerial prowess in generating profits with lower spending
competitive bidding
A procurement process in which bids from competing suppliers, for the right to supply specified materials or services, are requested.
Bid
A proposal or quotation submitted in response to a solicitation from a contracting authority.
Accuracy
A reduction in errors. A virtual elimination of manual paperwork and paperwork handling
Time savings
A reduction in the time between need recognition and the release and receipt of an order
ISO 9000
A series of management and quality standards in design, development, production, installation, and service. § Companies wanting to sell in the global market seek ISO 9000 certification.
Single-Source
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.
Strategic Alliance Development
An extension of supplier development which refers to increasing a key or strategic supplier's capabilities.
_____ _________ (AI) can improve supplier selection and increase the effectiveness of supplier relationship management
Artificial Intelligence
TCM vs Strategic Alternatives
As volume goes up . . . - Manufacturing and Procurement costs go down due to economies of scale. Generally-step function applies as more capital is required to produce. - Inventory and Warehousing costs go up. - Transportation costs go down, but level off at high volumes as the shipping container gets filled to capacity and another container must be used.
For high-dollar purchases, the process will generally also include:
Authorization of the purchase order Reconciliation of the invoice.
Information Sharing and Establishing Lines of Communication
Both formal and informal lines of communication should be set up to facilitate the free flow of information.
Shared Vision and Objectives
Both partners must share the same vision & have objectives that are not only clear but mutually agreeable. The focus must move beyond tactical issues & toward a more strategic path to corporate success.
Buy / Outsource:
Buying materials, components, or products from a supplier(s) instead of, or in addition to, making them in-house (i.e., buying from a 3rd-party external source).
Spend Analysis
Categorizing and analyzing expenditure data for the purpose of decreasing costs, improving efficiency, and monitoring compliance.
Centralized/Decentralized Purchasing (Hybrid Approach)
Centralized purchasing for products and services used throughout the corporation. Decentralized purchasing for products and services used only locally at each facility.
Many companies have a _______ ________ _____________ (CPO) as part of their executive leadership team.
Chief Procurement Officer
Shine
Clean the work area so it is neat and tidy
Managing Change
Companies must be prepared to manage change that comes with the formation of new partnerships.
Six Sigma has two key methodologies:
DMADV Methodology: DMAIC Methodology:
DMADV Methodology
Define --> Measure --> Analyze --> Design -->Verify: which is a data-driven quality strategy for designing products & processes. This methodology is used when the company wants to create a new product design or process that is more predictable and defect free.
DMAIC Methodology
Define --> Measure --> Analyze --> Improve --> Control (essentially you define a problem, quantify/measure it, make an intervention, and see if it worked. IF IT WORKED, it acts as a "control" to prevent you from sliding back into the same pattern of screwing up) * Primary tool for Six Sigma
Kaoru Ishikawa
Developed cause-and-effect diagrams. Identified concept of "internal customer".
Tariffs
Duties, taxes, or customs imposed by the host country for imported or exported goods.
Total Cost of Ownership
Estimate of the cost of an item that includes all the costs related to the procurement and use of the item including disposing of the item after its useful life
natrual variation
Expected and random (can't control)
Administrative Expenses
Expenses incurred that are not related to marketing the company's goods and services.
Lack of Expertise
Firm may not have the necessary technology and expertise
Pareto Analysis
For presenting data in an organized fashion, indicating process problems from most to least severe.
Assignable Variations
Have a specific cause (can control)
Supply Management
Identification, acquisition, access, positioning, and management of resources an organization needs, or potentially needs, in the attainment of its strategic objectives
Non-Strategic
If it is a non-strategic item
11. close out the purchase order
If the PO has been received complete, and all terms and conditions have been met, then the PO should be closed out in the purchasing system.
Act
If the change was successful, implement it on a wider scale and continuously assess your results. If the change did not work, then most likely the root cause was not identified, or the change was not the correct solution, and you may need to begin the cycle all over.
Control of transportation and warehousing costs
If you make an item in-house, you avoid transportation costs, and may be able to keep warehousing costs to a minimum.
Do
Implement the change on a small scale to see if the change improves the process before moving forward with full implementation
Real time
Improved communication both within the company and with suppliers
The term ______ was first coined by John Krafcik in 1988 and the definition was expanded in the 1990 book, The Machine that Changed the World.
LEAN
Inventory Turnover Effect
Increased inventory turnovers indicate optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolesce
Attribute Data
Indicate some attribute such as color and satisfaction, or beauty.
Industrial Buyers
Individuals within an organization who purchase raw materials for conversion into products, and/or purchase services, capital equipment, and MRO supplies.
(Innovative Products) Potential Strategy:
Innovative, high-tech, cutting edge, market leading supplier. Long term partnership. Single-sourced.
External Certification
International Organization for Standardization (known as ISO) is the world's largest developer of voluntary international standards. - Founded in 1947, today ISO has members from 163 countries and about 150 people working full time for the Central Secretariat in Geneva, Switzerland. - ISO certification is highly sought after as it represents achieving and maintaining a standard of excellence verified by an independent third party organization. - Benefits of ISO Certification: - Greater market potential - Compliance to procurement bids - Improved efficiency and cost savings - Higher level of customer service - Heightened staff moral and motivation
Countertrade
International trade by exchange of goods rather than by currency.
sort
Keep only necessary items in the workplace, eliminate the rest
Cost savings
Lower overhead costs in the purchasing area
Functional Products
MRO items and other commonly low profit margin items with relatively stable demands and high levels of competition i.e. office supplies, food staples, etc.
Use existing idle capacity
Make use of excess capacity by making a material instead of letting the capacity sit idle
ATO is a hybrid strategy, attempting to combine the benefits of both ________ and ___________ strategies, getting products into customers' hands quickly while allowing for some customization to take place.
Make-to-Stock, Make-to-Order
The key principles of TQM are:
Management Commitment Employee Empowerment Fact Based Decision Making Continuous Improvement Customer Focus
3. Identify and evaluate potential suppliers
May be determined from a list of approved Suppliers. Alternatively, a Request for Information (RFI) may be used to collect information from potential suppliers on their capabilities in supplying the material or service.
12. Analysis
Measurements of the efficiency and accuracy of the procurement process. Specific PO data and information captured and used during periodic supplier performance meetings.
8. Receipt of Goods
Once the item(s) arrives at the designated location, the Buyer will typically conduct some form of receipt process where the item(s) are checked to ensure that they conform to the details of the PO, including quality and quantity. A confirmation of receipt may also be sent to the Supplier.
Supplier Certification Programs
One of the elements for building a strong strategic supplier partnership is having a well-defined and established Supplier Certification program
Set in Order
Organize and arrange items to promote an efficient workflow
Creating and cultivating relationships with consumer-friendly suppliers creates opportunities for your company to improve product and company image via:
PR and marketing communication with consumers.
10. Payment
Payment is processed using an appropriate payment method assuming the item(s) is received and meets all of the criteria established on the PO.
Non-Value Added Process
Process steps that take time, resources, or space, but do not add value to the product or service
Value Added Process
Process steps that transform or shape a product or service which is eventually sold to a customer.
Make:
Producing (i.e., manufacturing) materials or products internally (i.e., in operations owned by the company).
Insourcing:
Producing goods or services using a company's own internal resources.
Financial Significance of Purchasing
Profit-Leverage Effect Return on Assets (ROA) Effect Inventory Turnover Effect
Purchase Requisition ->
Purchase Order + supplier confirmation of PO = binding contract
Multi-Source:
Purchasing a good or service from more than one supplier. Companies may use multi-sourcing to create competition between suppliers in order to achieve higher quality and lower price.
Management
Purchasing personnel spend less time on processing of purchase orders and invoices, and more time on strategic value-added purchasing activities
Non-tariff Barriers
Quotas, licensing agreements, embargoes, laws and regulations imposed on imports and exports.
What is the goal of Six Sigma
Reach 3.4 defects per million opportunities over the long term. Seeks to reduce the variability present in process.
Trackability
Real-time status tracking
(Functional Products) Potential Strategy:
Reliable, low cost suppliers. Multi-sourced.
1. A need is identified, and a Purchase Requisition is issued
Request for goods or services submitted to theProcurement/Purchasing organization for action. Typically initiated by a user within an organization
In-sourcing:
Reverting (i.e., going back) to in-house production when external quality, delivery, and services do not meet expectations
Standardize
Schedule regular cleaning and maintenance
flow diagram
Sequence of movements or actions of people or things involved in a complex system or activity
LEAN Manufacturing attempts to reverse this though small batch scheduling:
Smaller batches will facilitate producing at the same rate as customer demand.
SMART goals
Specific, Measurable, Attainable, Realistic, Timely
Sustain
Stick to the rules. Maintain and review the standards
___________ sourcing is one method that procurement managers can use to help achieve these supply chain goals.
Strategic
o Most companies today have some type of Corporate Social Responsibility program. Frequently these programs also require suppliers to agree to abide by a ____ ______ _____ ______ in order to be considered an approved supplier.
Supplier Code of Conduct
Vendor Managed Inventory (VMI)
Suppliers directly manage buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer
Quality
Suppliers may have better technology, process, & skilled labor
Cost Advantage
Suppliers may provide the benefit of economies of scale, especially for components that are non-vital to the organization's operations.
Traditional Approach
Supply chains work as "push" systems, and inventory is carried to cover up problems
6. Supplier confirmation of the Purchase Order
The Supplier formally agrees to supply the item(s) per the specifications, terms, and conditions described on the Purchase Order. The Purchase Order then becomes a legally binding contract between the Buyer and the Supplier for the item(s) specified.
9. Invoice and reconciliation
The Supplier prepares an invoice for the item(s) ordered. The invoice either accompanies the item(s) or is sent separately to the Buyer. The invoice may need to be reconciled to the purchase order and goods receipt before payment is made. Referred to as a "3-way match" (i.e., Invoice, Purchase Order, and Goods Receipt must match)
Purchasing
The action of obtaining merchandise, capital equipment, raw materials, services, or maintenance, repair, and operating (MRO) supplies in exchange for money, or its equivalent.
E-procurement
The business-to-business (B2B) purchase and sale of supplies and services over the Internet.
buyer's risk
The buyer accepts a shipment of poor-quality units because the sample falsely provides a positive result against the acceptance standard (type II error)
Suppliers risk
The buyer rejects a shipment of good-quality units because the sample quality level did not meet the acceptance standard (type I error)
Supply Base
The group of suppliers from which a company acquires goods and services.
Import Merchants do what?
They buy and take title to the goods being imported and then sell the goods domestically.
Trading Companies do what?
They mostly work with high production volume products such as raw materials, chemicals, etc. They may carry wide variety of goods (such as from a catalog).
Import Brokers do what?
They take the burden of filling out import paperwork, and clearing products through customs barriers for importers
Advantages of an e-Procurement System
Time savings Cost savings Accuracy Real time Mobility Trackability Management Benefits to the suppliers
Multi Sourcing Strategy
To achieve a multi sourcing strategy using an external supplier in addition to an internal source
5. Purchase Order (PO) is created and delivered to the supplier.
To inform the supplier of the intent to purchase. To identify the item(s) to be procured, the quantity required, the requested delivery date(s), the price to be paid, the delivery location, and any terms and conditions that relate to the order. The PO is the Buyer's formal offer to the supplier to obtain the item(s).
Manufacturing
To process or make raw materials or components into a finished product, especially by means of a large-scale industrial operation, i.e., mass production.
Six Sigma is an integral part of:
Total Quality Management.
Check
Use data to analyze the results to see if the change made a positive impact.
cause and effect diagram
Used to aid in brainstorming and isolating the causes of a problem.
Acceptance Sampling
When a shipment is received from a supplier, a statistically significant representative sample is taken and measured against the quality acceptance standard.
Evaluating and Selecting Key Suppliers
When evaluating key suppliers for developing a collaborative relationship, purchase cost becomes relatively less important
Merchants
Wholesalers and retailers who purchase for resale.
Building Trust
With trust, partners are more willing to work together, find compromise solutions to problems, work toward achieving long-term benefits for both parties, &, in short, go to the extra mile.
Overall lower cost
You may be able to produce the material or product at a lower cost and avoid paying a 3rd party's profit margin.
Better quality control
You may feel that you have more control of the quality of the material / product than a supplier.
Control of lead-time
You may feel that you have more control over the lead time to produce the product than a supplier
Corporate Social Responsibility
a business's concern for society's welfare
bid bond
a debt secured by a bidder for the purpose of providing a guarantee that the successful bidder will accept the contract once awarded. If not, the bond would be forfeited.
performance bond
a debt secured by a bidder for the purpose of providing a guarantee that the work will be on time and meet specifications
Total Quality Management (TQM)
a management philosophy that focuses on satisfying customers through empowering employees to be an active part of continuous quality improvement
Forward Vertical Integration (EXAMPLE)
a manufacturer buying a wholesaler/distributor to take ownership of this aspect of their supply chain.
Backward Vertical Integration (EXAMPLE)
a manufacturer buying the key supplier of a critical material to take ownership of this aspect of their supply chain.
Import Merchants
a person or company engaged in the purchase and sale of imported commodities for profit
Benchmarking
a process by which a company compares its performance with that of high-performing organizations
The 5 Why's Technique
a questioning technique for identifying the root cause of a problem.
There is less likelihood of waste being created by:
obsolescence, expiry, spoilage, or damage with lower inventory levels.
MTO is not:
appropriate for all types of products.
Lean Layouts
are very visual (lines of visibility are unobstructed) with operators at one processing center able to monitor work at another.
Appraisal Costs
associated with the evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications.
(Purchase Requisition) may also contain the __________ to proceed with the purchase.
authorization
The challenge of MTS is to:
avoid having excess inventory
Consumers can drive the success of a company through their ________ and demand for ethical business practices.
awareness
A high turnover ratio means:
beneficial because it means the company is generating sales efficiently to sell inventory.
(strategic alliance) Companies agree to share information and resources to achieve a mutual _______.
benefit
Successful collaborative negotiations start with a clearly expressed understanding of how each company wants to:
benefit from the collaboration.
Effective procurement managers consistently locate the:
best quality materials at the lowest possible cost from the most reliable suppliers.
Philip Crosby
coined the phrase "quality is free" (which is also the title of his book) as defects are costly. He introduced the concepts of zero defects, and focus on prevention and not inspection.
Leverage
commodity items where many alternatives of supply exist and supply risk is low. Spend is high and there are potential procurement savings.
The process of selecting suppliers is ______ and should be based on multiple criteria using evaluation forms or scorecards.
complex
Inventory Turnover Ratio
cost of goods sold/average inventory
TCM is generally expressed as:
cost per unit
Poor Supplier Quality
costs related to defective finished goods, scrap, rework, recycling or recovery of materials, must also be considered, as well as related warranty administration and repair costs
Supplier Selection is typically conducted by: cross functional team.
cross functional team.
Supply chain members work together in:
cross functional teams
In LEAN Manufacturing, employees are _____ ______ on many of the various production processes to enable capacities to be adjusted as needed when machines break down or when workers are absent.
cross-trained
(Make-to-Order (MTO))- This strategy creates additional wait time for the customer to receive the product, but allows customers to purchase products that are ________ to their specifications.
customized
Joseph Juran
defined quality as "fitness for use". He developed the concept of the cost of quality.
Voice of the Customer (VOC)
describes the stated and unstated needs or requirements of a firm's customers
Supply Management includes the function of _________ the materials and services that a company needs
determining
Using strategic sourcing tactics to identify the best suppliers can help companies maintain ______ and _______ supply chains across all company divisions and partners.
efficient, effective
LEAN objective
eliminate everything that does not add value (waste) in the customer's eyes
sealed bid
enclosed in a sealed envelope and submitted in response to an invitation to bid
Managers can also create a culture in which workers are ______ ______ _____ ____ when problems are found.
encouraged to speak out
Emphasis is placed on the ______ _________ _____ _____ _____, not just its initial purchase price.
entire life-cycle of a product
Manufacturing involves the ___ _____ of converting the raw material(s) or the component(s) into a finished goods item.
entire process
(Ethical Sourcing) § The _______ and ____ _______ must also be considered as part of the sourcing process.
environmental, societal impacts
Negotiations are not about each company obtaining the most value, negotiations are more about:
establishing a relationship that works well for both parties.
Inventory is an asset but it also represents _______ _________ tied up and not available for use in other parts of the business.
financial capital
Purchasing is also a term commonly used in business to represent the _______ of, and the ________ for, acquiring materials, supplies, and services for an organization.
function, responsibility
Successful sourcing strategies are almost always different for ________ products versus ________ products.
functional, innovative
Strategic is what level of supply risk and value:
high risk and high value 1. Ensure availability of supply 2. Focus on relationship building 3. Encourage process integration and innovation 4. Frequent communications 5. Establish mutually agreeable supplier performance criteria
Bottleneck is what level of supply risk and value:
high-risk and low value 1. Maintain safety/strategic stock 2. Develop contingency plans 3. Strengthen relationships Search for alternatives
Companies that operate with a MTS model tend to ____ ____ ____ ___ ___ ___ ___ ____ _____, therefore, they struggle to ensure that inventory levels don't get out of control.
hold more inventory just in case they need it
A sound strategic sourcing strategy can create opportunities for your company to:
improve corporate image, increase sales and market share, and reduce costs.
Risks
include lower quality, reliability, and predictability of outsourced solutions as compared with in-house manufacturing or services, as well as risks inherent in the process of identifying and selecting the right supplier and structuring a workable ongoing relationship.
Six Sigma
is a disciplined, statistical-based, data-driven methodology for identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and in business processes. Six Sigma improves the supply chain "process" by reducing variation
strategic alliance
is an agreement between a buyer and a supplier to pursue some agreed upon objectives, while remaining independent organizations.
Purchase Order (PO)
is an external commercial document. It is the official offer issued by a buyer to a seller to acquire goods or services.
LEAN
is an operating philosophy of waste reduction and value enhancement. Lean improves the supply chain "flow" by eliminating waste
Purchasing Organization
is dependent on many factors, such as market conditions and types of materials required
Ethical Sourcing
is that which attempts to take into account the public consequences of organizational buying or bring about positive social change through organizational buying behavior
· Total Cost of Ownership (TCO)
is the sum of all the costs associated with every activity in the supply stream of a product.
Distributive Negotiations are a Counterproductive:
lose/lose -Antagonistic relationships parties work actively against the needs of each other -neither party take responsibility for what happens in the relationship -destructive conflict occurs
Leverage is what level of supply risk and value:
low risk and high value 1. Consolidate volume as a negotiation tool 2. Use competitive marketplace to reduce costs Automate supplier interfaces to minimize process r
Non-Critical is what level of supply risk and value:
low risk and low value 1. Simplify and streamline the purchasing process 2. Reduce number of suppliers and simplify ordering Transfer buying responsibility to "users" within the company
Make-to-Order (MTO)
manufacturing strategy in which manufacturing starts only after a customer's order is received
Engineer-to-Order (ETO)
manufacturing strategy in which the product is designed, engineered, and built to the customer's specifications after receipt of the order.
Assemble to Order (ATO)
manufacturing strategy where products ordered by customers are produced quickly and are customizable to a certain extent.
Make-to-Stock (MTS)
means to manufacture products for stock based on demand forecasts. Push system.
Qualitative Factors
non-measurable factors that may influence business decisions
Internal Failure Costs
occur when the product or service does not meet the designed quality standards and are identified before the product or service is delivered to the customer.
External Failure Costs
occur when the product or service does not meet the designed quality standards, but is not detected until after the product or service is delivered to the customer.
Inventory Considerations
opting to have the supplier hold inventory of the item or the materials required to produce the item
Most procurement professionals view SRM as an _____ _______ to defining what they need and want from a select group of key suppliers.
organized approach
Using a specific supplier that has a _____ _______ ________ with your consumers can create an excellent product differentiation opportunity, potentially leading the consumer to prefer your product over others.
positive brand image
Operations Management
refers to managing the process to convert resources into goods and services, in alignment with the company's business strategy as efficiently and effectively as possible, while also controlling costs.
Prevention Costs
related to the design, implementation, and maintenance of the quality management system. They are planned, and experienced before actual products or materials are acquired or produced.
The MTO strategy ______ the problems of _______ _______ that is common with the Make-to-Stock strategy.
relieves, excessive inventory
Strategic sourcing _____ _______ of what an organization buys, from whom, at what price, and at what volume.
requires analysis
(Ethical Sourcing) This involves the Procurement organization ensuring that the products being sourced are acquired in a:
responsible and sustainable way.
Single Source is:
risky
Non-Critical
routine items that involve a low percentage of the firms' total spend and involve very little supply risk.
Before waste is removed, processes are often ______, which can negatively affect your customers
scattered
Purchasing might be a ________ __________ within a company, or it might be part of the supply chain management department within a company.
separate department,
Five S's
sort, straighten, shine, standardize, sustain
Strategic
strategic items and services that involve a high level of expenditure and are vital to the firm's success.
After waste is removed, processes are more _________, resulting in more satisfied customers. You'll also save your organization time and money
streamlined
Temporary Capacity Constraints
the concept of "extended workbench" which involves short-term supplementing internal capacity with external capacity during time of constraint or overloaded work centers.
transaction costs
the costs that parties incur in the process of agreeing to and following through on a bargain
Manufacturing Management
the management of all the processes which are involved in manufacturing
Quick Response
the rapid replenishment of a customer's stock by a supplier with direct access to data from the customer's point of sale.
open competitive bididng
the sealed bids are opened in full view of all who may wish to witness the bid opening
A low turnover ratio means:
unfavorable as it means the company is not selling through products efficiently. The company is likely making/buying too much inventory for demand and may end up throwing out expired or unsaleable products.
bottleneck
unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers.
§ The primary difference from VMI is that in CMI the supplier is just recommending an order which is not confirmed ______ ____ ______ the buyer approves it.
until and unless
Supplier Certification
used as verification that select suppliers operate, maintain, improve, and document effect procedures that relate to the buyer's requirements for supply elements such as cost, quality, delivery, flexibility, etc
Intermittent Processes
used to produce a large variety of products with different processing requirements in lower volumes
Repetitive Processes
used to produce one, or a few, standardized products in high volumes
(Purchase Requisition) Generated by a ________ __________ to notify purchasing personnel of items to order, their quantity, and the timeframe.
user department
The nature of how Operations Management is carried out ____ _____ ______ and depends on the nature of the products or services in the portfolio.
varies by company
In the ETO world, the cost of poor quality can be _____ ______.
very high
supplier co-location
very similar to VMI and CMI, except that a representative of the supplier is actually embedded in the buyer's purchasing group to forecast demand, monitor inventory, and place orders.
Automation Provides increased __________ of all purchases.
visibility
Cultivating a positive, long-term relationship by working closely with your suppliers can provide many:
win-win scenarios.
Distributive Negotiations are a Competitive:
win/lose -also called adversarial relationships -parties engage in competitive struggle over fixed value -parties attempt to maximize value for their side -minimal sharing of information
Protect proprietary technology
you may not want your intellectual property to be out in the public domain
Benefits of Supplier Certification Programs
1. Reducing the amount of time and resources necessary for the buyer to conduct incoming inspections of products and materials from certified suppliers. 2. Building long-term relationships 3. Decreasing the supplier base 4. Recognizing excellence
Purchasing contributes to these objectives by:
Actively seeking reliable suppliers. Working with the expertise of strategic suppliers to improve quality and materials. Involving suppliers and purchasing personnel in new product design and development efforts.
Post-Transaction Costs
Activities carried out following the actual buy and sell transaction
Pre-Transaction Costs
Activities carried out prior to the actual buy and sell transaction
Import Brokers
Agents licensed by the governmental regulatory authority to conduct business on behalf of importers, for a service fee
Purchase Requisition
An Internal Document that defines the need for goods and/or services
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
Large batches can exacerbate the ____ _______ as production in large batches creates an uneven workload
Bullwhip Effect
Trading Companies
Buy products in one country and sell them in different countries where they have their own distribution network.
International Purchasing - Service Providers
Companies can choose to use service providers that already have the specialized skills and knowledge necessary to deal with international purchasing issues and challenges.
International Purchasing - Specialized Knowledge
Companies interested in pursuing international purchasing arrangements must acquire some specialized knowledge particular to buying products and services internationally.
Benefits. Outsourcing allows a firm to:
Concentrate on core capabilities Reduce staffing levels Accelerate reengineering efforts Reduce internal management problems Improve manufacturing flexibility
Variable Data
Continuous (e.g., weight)
Reducing inventory can:
free up capital and reduce holding costs.
Supplier Evaluation: Performance
It is important to actively monitor a supplier's performance and provide visibility and feedback on supplier performance at each stage of the evaluation process.
Early Supplier Involvement (ESI)
Key suppliers become more involved in the internal operations of the buyer's company, particularly with respect to new product and process design, concurrent engineering, and design for manufacturability.
The process commonly utilized in continuous improvement is:
Plan, Do, Check, & Act
Reducing wastes consequently results in:
Reduced cycle times Greater throughput Better productivity Improved quality Reduced costs
In the 1940's, Taichii Ohno and Shigeo Shingo created the ______ ______ ______ (TPS), which incorporated Ford's production system and other techniques to form the basis of what is now known as LEAN.
Toyota Production System
Lean is a management philosophy based on the:
Toyota Production System (TPS)
Preferred suppliers are potentially _____ ________ for a strategic alliance.
ideal candidates
payment bond
a debt secured by a bidder for the purpose of providing protection against 3rd party liens not fulfilled by bidder
iso 14000
a family of generic standards for environmental management established by the International Organization for Standardization
Efficient Consumer Response (ECR)
a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers.
Supplier Evaluation
determining the current capabilities of suppliers
what lean is not
- Laying off employees by the bus load - Delivering less or working harder - Outsourcing or offshoring - A cost reduction program - Just a set of "tools" like 5S, kaizen events, etc. - Automation or buying a monstrous ERP system - Winning a Shingo Prize so as to look Lean
Mutual Benefits and Needs
- Partnership should result in a win-win situation, which can only be achieved if both companies have compatible needs. - An alliance is much like a marriage, and if only one party is happy, then the marriage is not likely to last
Quality Planning:
1. Develop products satisfying those needs. 2. Mangers set goals, priorities, and compare results.
Risks associated with outsourcing include:
- Potential loss of control - Over production decisions, and intellectual property - Increased reliance on suppliers - Increased need for supplier management
Internal Certification Programs
- Supplier has no incoming product rejections for a specified time period. - Supplier has no incoming late deliveries for a specified time period - Supplier has no significant negative quality related incidents for a specified time period - Supplier is ISO 9000 certified or has successfully passed a recent on-site quality system evaluation - Supplier consistently meets a mutually agreed-upon set of clearly specified quality performance measures - Supplier has a fully documented process and quality system with cost controls and continuous improvement capabilities - Supplier's processes is determined to be stable and in control
Cost Factors for the Buy Analysis
- Unit price of the purchased item - Transportation expenses - Incremental purchasing expenses - Receiving and inspection expenses - Any follow-on expenses associated with service or quality
· Qualitative Reasons for Making
- protect proprietary technology - no competent supplier - control of lead time - use existing idle capacity - better quality control
Continuous Improvements (Kaizen)
-A system involving every employee that is based on making little changes on a regular basis, anywhere changes can be made, to reduce process, delivery, and quality problems. 1. Continuous small improvements 2. Changes are implemented quickly 3. Everyone gets involved
A "Supplier of Choice"
-Achieve a specific and exceptional level of performance over time as measured by a set of criteria agreed upon by both buyer and supplier. -Typically trusted partners who know the buyers organization, processes, procedures, and requirements. -Provide a higher value than their competitors and are characterized as reliable, responsive, flexible, and cost effective.
Cost of Quality
-An approach that supports a company's efforts to determine the level of resources necessary to prevent poor quality, and to evaluate the quality of the company's products and services. -Any cost that would not have occurred if quality was perfect, contributes to the cost of quality. -Helps a company determine the benefits and savings generated by potential process improvements.
Job Shop Production (a.k.a., Project Production)
-Creates a custom product for each customer -One-off or small number of items produced, generally one unit manufactured at a time. -High customization - Normally made to customs specifications -Often undertaken by small, specialist businesses
Vendor Managed Inventory (VMI)- From supplier's perspective:
-Avoids ill-advised customer orders -Supplier decides inventory set up and shipments -Opportunity for supplier to educate customers about other products
The make-vs-buy decision is ultimately based on three key pillars:
-Business strategy -Risks -Economic factors
Kanbans
-Card which indicates standard quantity of production -Derived from two-bin inventory system -Maintain discipline of pull production -Authorize production and movement of goods
Commitment from Top Management to Support the Strategic Partnership
-Commitment must start at the highest management level. -Partnerships tend to be successful when top executives are actively supporting the partnership.
Quantitative Reasons for Buying or Outsourcing
-Cost Advantage -Inventory Considerations
Companies that seek to create ethical policies to ensure compliance in this areas should:
-Create a Supplier Code of Conduct and require all suppliers to formally agree to abide by the code as a condition of being an approved supplier. -Inform suppliers of ethical sourcing expectations and create specific provisions within supplier agreements accordingly. -Determine where all purchased goods originate and the manner in which they are made -Have knowledge of their suppliers' workplace principles -Seek independent verification of supplier compliance with ethical standards -Include ethics as part of their supplier performance rating system -Routinely report supplier compliance to key stakeholders
Waste Categories (remember the acronym "DOWN TIME") :
-Defects- Work not done right the first time such as scrap and rework -Overproduction- Producing sooner, faster or in greater quantities than customer demand -Waiting- People or parts that wait for a work cycle to be completed -Non-Utilized Talent- Not using employees full intellectual contribution -Transportation- Unnecessary movement of materials or parts between processes -Inventory- Raw material, WIP or finished goods which is not having value added to it -Motion- Unnecessary movement of people, or multiple hand-offs -Extra-Processing- Processing beyond the standard required by the customer
Cost Factors for the Make Analysis
-Direct labor expenses -Incremental inventory-carrying expenses -Incremental capital expenses -Incremental purchasing expenses -Incremental factory operating expenses -Incremental managerial expenses -Delivered purchased material expenses -Any follow-on expenses resulting from quality and associated problems
waste reduction
-Firms reduce costs and add value by eliminating waste from the production system. 1. Waste encompasses wait times, inventories, material and people movement, processing steps, variability, any other non-value-adding activity.
Continuous flow production
-High capital investment - frequently dedicated to one specific product -Involves a series of processes which raw materials flow through. These processes are very inflexible. -Generally, highly automated, and workers act as monitors rather than as active participants. -Typically, production runs 24 hours a day with the end result being a large quantity of finished product
(Strategic Sourcing) How it works:
-Identifying Suppliers -Cultivating Relationships -Continuously Improving Skills -Understanding and Embracing the Possibilities
Benefits of Strategic Partnerships with Suppliers (Benefits for Suppliers)
-Increased operating efficiencies · Lower cost of sales · Increased margins · Incremental revenue -Greater visibility into buyer's purchasing plans -Increased scope of business -Opportunities to develop, pilot, and showcase innovative solutions -Longer term buyer commitments; greater predictability of future business -Sustainable competitive advantage
Benefits of Strategic Partnerships with Suppliers (Benefits for Buyers)
-Increased operating efficiencies · Lower costs · Enhanced service · Incremental revenue · Improved quality -Preferred access to the supplier's best people -Influence over supplier investments and technology -Preferred access to supplier ideas -Increased innovation from and with suppliers -Sustainable competitive advantage
Advantages of Decentralization
-Knowledge of local requirements -Local sourcing -Less bureaucracy
Supplier development programs should be designed to achieve:
-Lower supply chain total cost -Increased profitability for all supply chain participants -Increased product quality -Near-perfect on-time-delivery at each point in the supply chain
Continuous Improvement
-Making a series of small improvements over time results in the elimination of waste in a system. -Buyers and suppliers must be willing to continuously improve their capabilities in meeting customer requirements.
Batch production
-Manufacturing of a small fixed quantity of an item in a single production run. -Each individual item in the batch goes through one stage of the production process before the whole batch moves on to the next stage. -Aims to achieve better use of equipment -Produces good quality products more economically than manufacturing them individually
The benefits of these types of arrangements (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.
Components of the Total Cost of Ownership
-Pre-transaction costs -Transaction costs -Post-transaction costs
(Supplier Evaluation: Performance) Some relevant metrics include:
-Price and cost performance -Product quality -Delivery performance -Contractual compliance -Participation in product development initiatives -Cooperativeness in third-party production management -Support of ethics and sustainable practices
Preferred suppliers provide:
-Product and process technology, and expertise. -Product development and value analysis. -Information on latest trends in materials, processes, or designs. -Capacity for meeting unexpected demand. -Cost efficiency due to economies of scale.
SRM is often a part of the rollout of Strategic Sourcing and is typically applied with suppliers:
-Providing high volumes of a product/service -Providing lesser quantities of a crucial product/service -That serve many business units of a company or organization -Where intensive engineering, manufacturing and/or logistics interaction is essential.
Two of the most important functions of a supplier development program are:
-Providing information about products, expected sales growth, etc. Suppliers need to become extensions of their customers. -Training suppliers in the application of lean and six sigma / quality tools. · Asking suppliers to lower their price without giving them the knowledge on how to lower their costs is not sustainable in the long-term.
Other factors beyond purchase price must also be considered:
-Quantity Discounts -Cash Discounts -Value-added services -Administrative expenses -Poor Supplier Quality
Some of the top competencies needed to excel in making the most of a company's strategic sourcing decision-making process include:
-Recognizing and accessing key issues, opportunities, strategies, and techniques, to achieve a competitive advantage. -Identifying internal and external challenges that affect sourcing strategy. -Defining issues involved in global sourcing, electronic procurement, negotiations, and ethics. -Applying problem-solving skills to determine the best course of action pertaining to the above strategy areas.
Buyer-supplier partnerships are easier to manage with a rationalized supply base, and they can result in:
-Reduced purchase prices -Fewer supplier management problems -Greater levels of quality and delivery reliability -Closer and more frequent interaction between buyer and supplier
Strategic Alliance Development benefits:
-Results in better market penetration, access to new technologies and knowledge, and a higher return on investment -Eventually extends to a firm's second-tier suppliers as the firm's key suppliers begin to form their own alliances.
e-Procurement tools typically automate all or part of the following processes:
-Solicitation tools such as RFI, RFP, RFQ -Execution and analysis -Reverse auction capabilities
Use of technical tools
-Statistical quality control. Six Sigma provides a statistical approach for solving any problem and thereby improves the quality level of the product as well as the company. -All employees should be trained to use the seven tools of quality. -Six Sigma is concerned with the permanent fix to quality problems and seeks to identify and correct the root cause of the problem.
Supplier Development
-Supplier Development is the technical and financial assistance given to existing and potential suppliers to improve quality and/or delivery performance. -In simpler terms, it can be described as a buyer's activities to improve a supplier's capabilities.
Vendor Managed Inventory (VMI)- From buyer's perspective:
-Supplier tracks inventories -Supplier determines delivery schedules and order quantities -Buyer can take ownership at the stocking location -Buyer may also be able to avoid taking ownership until the material is actually being used.
Sampling is less time-consuming than testing every unit but can result in errors:
-Supplier's Risk -Buyer's Risk
Resources for learning about and implementing sourcing practices:
-The Center for Advanced Purchasing Studies. -Council of Supply Chain Management Professionals (CSCMP) -Institute of Supply Management (ISM)
Six Sigma History
-The concept of Six Sigma was originated by *Motorola* --Motorola developed the concept in the 1980's, created the methodology, and copyrighted it as well. --Motorola has documented > $16 Billion in savings as a result of Six Sigma. --Thousands of companies globally have adopted Six Sigma. (This is a direct result of many of America's leaders openly praising the benefits of Six Sigma) -Six Sigma became famous when Jack Welch made it central to his successful business strategy at General Electric in 1995 --Reported $200MM in savings in the first year of implementation (1996) alone.
Co-sourcing:
-The sharing of a process or function between internal staff and an external provider. -Using dedicated staff at an external provider that works exclusively under your control and direction
Understand "Value"
-Value is defined as the inherent worth of a product as judged by the customer and reflected in its selling price and market demand. -It is any activity that increases the market, form, or function of the product/service.
In today's competitive business climate, supply chain management professionals are constantly seeking out creative ways to:
-reduce costs -improve the quality of the final product -achieve a faster time to market.
ETO involves _______ _____ _____ ____ _____ _____. There may be components that are common from one product to another, but the _____ _____ _____ ____ ____ _____
-building a unique product every time -finished product is different each time.
Advantages of Centralization
-concentrated volume -avoid duplication -specialization -lower transportation costs -no competition within units -common supply base
The VOC can be captured in a variety of ways:
-customer interviews -market surveys -focus groups -customer specifications -observation -warranty data -field reports -complaint logs
Pull Approach:
-each stage in the supply chain requests quantities needed from the previous stage -no excess inventory generated -reduced inventory exposes problems
Reasons for a Single Supplier
-establish relationships -less quality variability -lower cost -transportation costs -proprietary issues -volume too small to split
The Role of Suppliers
-lean emphasizes building long term supplier relationships -with a long term relationship, a supplier can act as a service provider rather than a one time seller
Starting in the 1910's, Henry Ford's ____ ______ ______ was a first breakthrough by using _____ _____ ______ that made parts find their way into finished products
-mass production line -continuous assembly systems
Reasons for Multiple Suppliers
-need capacity -spread risk of supply interruption -create competition -information -special type of business
General Sourcing Categories
-non-critical -bottleneck -leverage -strategic
Qualitative Reasons for Buying or Outsourcing
-non-strategic -insufficient capacity -temporary capacity constraints -lack of expertise -quality -multi-sourcing strategy -brand strategy
The four elements of cost are:
-quality, service, delivery, price (QSDP) -TCO is the sum of the cost elements
line-flow production: process, variety, volume, strategy, lead time
-repetitive -limited -high -ATO, MTS -Short
continous flow production: process, variety, volume, strategy, lead time
-repetitive -very-limited -very-high -MTS -Very-Short
There are 10 keys to developing successful strategic partnerships:
1. Building Trust 2. Having a Shared Vision and Objectives 3. Developing Personal Relationships 4. Establishing Mutual Benefits and Needs 5. Gaining Commitment from Top Management 6. Managing Change 7. Information Sharing and Lines of Communication 8. Understanding and Influencing Capabilities 9. Continuous Improvement 10. Measuring Performance
The Seven Tools of Quality Control are used by workers to identify and correct quality problems.
1. Check Sheets 2. Histograms 3. Pareto Analysis 4. Cause & Effect Diagrams 5. Flow Diagram 6. Control Charts 7. Scatter Diagrams
Non-Value Added- Pure Waste (FOCUS HERE FOR IMPROVEMENT)
1. Consumes resources but creates no value for the customer 2. Could be stopped and it would be invisible to the customer
W. Edwards Deming- 14 point guide
1. Create constancy of purpose to improve product and service 2. Adopt the new philosophy 3. Cease dependence on inspection to improve quality 4. End the practice of awarding business on the basis of price 5. Constantly improve the production and service system 6. Institute training on the job 7. Institute leadership 8. Drive out fear 9. Break down barriers between departments 10. Eliminate slogans and exhortations 11. Eliminate quotas 12. Remove barriers to pride of workmanship 13. Institute program of self-improvement 14. Put everyone to work to accomplish the transformation
(8) quality management principles on which the ISO 9000 series quality management system standards are based
1. Customer focus - understand current and future customer needs 2. Leadership - establish unity of purpose and direction of the organization 3. Involvement of people - people are the essence of an organization 4. Process approach - a desired result is achieved through a managed process 5. Systems approach to management - managing interrelated processes 6. Continual improvement - performance improvement is a permanent objective 7. Factual approach to decision making - decision are based on facts and data 8. Mutually beneficial supplier relationship - interdependent benefits create value for both an organization and its suppliers.
internal failure costs include the costs of:
1. Defective product or material that cannot be used, sold, or repaired, and the costs associated with correction of these defects. 2. Unnecessary work or inventory resulting from errors. 3. Activities required to establish the root causes of product or service failures.
Spend Analysis Steps:
1. Defining the scope (e.g., expenditures over a specific time period). 2. Identify all of the data sources. 3. Gathering and consolidating all of the data into one database. 4. Cleansing the data (finding and correcting errors) and standardizing it for easy review. 5. Categorizing the data (e.g., commodity and sub-commodities). 6. Analyzing the data for: · the best deals per supplier · to ensure that all purchases are from preferred suppliers · to reduce the number of suppliers per category. 7. Repeating the process on a regular schedule.
· Uniform Plant Loading (i.e., level-loading the plan) Problem:
1. Demand exceeds capacity at points in the planning horizon. 2. Matching the production plan to follow demand exactly can contribute to inefficiency and waste, including excess inventory or shortages of inventory.
Quality Control:
1. Establish standards of performance. 2. Measure performance, interpret the difference, take action.
Prevention costs include the costs of:
1. Establishment of specifications for incoming materials, processes, products, and services 2. Creation of quality plans 3. Development, preparation, and maintenance of quality training 4. Creation and maintenance of the quality system
Control Charts
1. Firms: · Gather process performance data · Create control charts to monitor process variability · Then collect sample measurements of the process over time and plot on charts. 2. Allows firms to: · Visually monitor process performance · Compare the performance to desired levels or standards · Take corrective action as necessary
External failure costs include the costs of:
1. Handling and responding to customer complaints. 2. Failed products that must be replaced or services that are repeated. 3. Repair of returned products and products still in the field. 4. Handling and investigation of rejected or recalled products, including return transportation costs.
Supplier Development: Process Steps
1. Identify critical products and services 2. Identify critical suppliers of those products and services 3. Form a cross-functional team internally to work with the supplier 4. Meet with the top management at the supplier to get their support and involvement 5. Identify key development needs and projects 6. Define details of the agreement and the action plan 7. Monitor the status of the projects / action plan and modify strategies as necessary
Quality Improvement: show the need for improvement
1. Identify projects for improvement. 2. Implement remedies 3. Provide control to maintain improvement.
Strategic Sourcing process:
1. Identify the targeted spend area 2. Create the sourcing team 3. Develop a team strategy and communication plan 4. Gather market information 5. Develop a supplier portfolio 6. Develop a future state 7. Select suppliers and negotiate 8. Implement Supplier Relationship Management (SRM)
Objectives of strategic sourcing involve the reduction of cost while maintaining or improving quality:
1. Improve the value‐to‐price relationship (i.e. achieve cost reductions while maintaining or improving quality/service) 2. Understand the category buying and management process, to identify improvement opportunities 3. Examine supplier relationships across the entire organization. Share best practices across the organization 4. Develop and implement multi‐year contracts with standardized terms and conditions across the organization 5. Leverage the entire organization's spend
Firms develop lean supply chain relationships with key customers and key suppliers:
1. In an ideal LEAN supply chain relationship, both customers and suppliers get connected in ways that allow them to easily exchange information, demand data, and the visibility of status. 2. Mutual dependency and benefits occur among these partners. 3. Suppliers and customers work to remove waste, reduce cost, and improve quality and customer service
Production in small batches creates a smooth workload as production can be synchronized with customer demand, facilitating a pull system:
1. It increases flexibility allowing the company to respond to changes in customer demands more quickly. 2. Throughput times in manufacturing go down, and Work-in-Process inventory goes down, reducing costs and eliminating or minimizing waste in the system.
International Purchasing - Potential Challenges
1. Knowledge of international trade policies and procedures 2. Awareness and cost of required tariffs and duties 3. Difficulties in communicating with suppliers due to language barriers, varying time zones, working weeks, holidays. 4. Locating, evaluating, sourcing and expediting in global markets 5. Payments and currency management 6. Longer time span for negotiations 7. The potential for cultural, political, and labor problems 8. Potentially longer transportation lead times necessitating additional inventory 9. Specific and varying documentation requirements 10. Handling legal matters and the process for settling disputes
TCM includes:
1. Manufacturing and Procurement activities 2. Inventory and Warehousing activities 3. Transportation activities
Benefits of Supplier Recognition Programs
1. Motivate Suppliers to Perform Better 2. Improve Supplier Loyalty and Commitment 3. Encourage Suppliers to Adapt to the Company's Culture 4. Helps to Create Entry Barriers for Competitors 5. Encourages Supplier Participation in Product Innovation
Non-Value Added- Incidental Waste (FOCUS HERE FOR IMPROVEMENT)
1. No value created but · required by current thinking · required by process limitations · required by current technology · required by current regulations
Example Assessment Criteria:
1. Optimizing the supply base 2. Utilizing e-procurement 3. Furthering supplier integration 4. Initiating supplier cost reduction programs 5. Creation of strategic alliances 6. Participating in value engineering efforts 7. Creating ESI initiatives 8. Contributing to new product development 9. Improving time to market 10. Participating in, and leading, multifunctional teams
Quantitative Reasons for Making
1. Overall Lower Cost 2. Control of Transportation and warehousing costs
Uniform Plant Loading (i.e., level-loading the plan)
1. Planning up to capacity in earlier time periods to meet demand in later time periods. 2. Also called "front-loading" the plan or "leveling" the plan. 3. Production schedule is frozen in the up-front time period (i.e., month) 4. Helps suppliers better plan production.
(lean layout) Manufacturing cells
1. Process similar parts or components saving duplication of equipment and labor 2. Are often U-shaped to facilitate easier operator and material movements
Role of Workers
1. Provide an atmosphere of cooperation. 2. Empower workers to take action based on their ideas. 3. Develop incentive systems to recognize and reward LEAN behaviors.
Foundation of Six Sigma
1. Quality is defined by the customer 2. Use of technical tools 3. People involvement
Key aspects of quality for the customer include:
1. Reliable - acceptable level of breakdowns or failure 2. Good functionality - it does the job well 3. Durable - lasts as long as it should 4. Good design - looks and style 5. Good after sales service 6. Value for money 7. Consistency
Skill set requirements of purchasing professionals have been changing. Purchasing personnel must today exhibit world-class skills such as:
1. nterpersonal communication 2. Ability to make decisions 3. Ability to work in teams 4. Analytical skills 5. Negotiation skills 6. Customer focus 7. Ability to manage change 8. Influencing and persuasion skills 9. Strategic skills 10. Understanding business conditions
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.
Request for Information (RFI)
A standard business process whose purpose is to collect written information about the capabilities of various suppliers.
Preferred Suppliers
A supplier who best meets your company's overall purchasing requirements
Contracting
A term often used for the acquisition of services
Root Cause Analysis
An analytical technique used to determine the basic underlying reason that causes a variance or a defect or a risk. A root cause may underlie more than one variance or defect or risk.
Understanding Capabilities
Key suppliers must have the right technologies and capabilities to meet cost, quality, and delivery requirements in a timely manner (currently and in the future).
supply base rationalization and optimization
Reduction in the supply base to the lowest number of suppliers possible without significantly increasing risk
Forward Vertical Integration
Refers to a company acquiring (i.e., buying) one or more of their customers.
Supplier Relationship Management (SRM)
The discipline of strategically planning for, and managing, all interactions with the third party organizations that supply goods or services to an organization, in order to maximize the value of those interactions.
International Purchasing - Reasons for Global Sourcing
The opportunity to improve quality, cost, and delivery performance
Sourcing
The process of identifying a company that provides a needed good or service.
Procurement
The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods and services.
closed competitive bidding
The sealed bids are opened in presence only of authorized personnel.
No competent supplier
There may not be an existing supplier in the market and you may not want to spend the time or effort to develop one.
Sustainability
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.
Procurement is concerned with ______ all of the ______, _______ and work that is vital to an organization.
acquiring, goods, services
speede service system
applied the principles of a LEAN Layout to fast food preparation, and formed the foundation of what Ray Kroc would later leverage into the world's largest food outlet chain, "McDonalds".
The term has more recently become synonymous with the concept of _____ an item from an external source of supply regardless of whether the item had been previously produced using a company's internal resources.
buying
Developing solid relationships can help sourcing professionals become: (list) while allowing suppliers to more efficiently tailor and deliver materials to precise purchaser specifications.
better at meeting cost, speed-to-market, and quality goals
Although there are differences between companies, many manufacturing processes have certain:
characteristics in common.
Innovative Products
characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition i.e. technology products such as the iPhone
Quantity Discounts
discounts offered to encourage customers to buy in larger amounts
5- S's focus:
effective workplace organization and standardization. It allows us to easily spot variation from standard operating conditions.
Some inventory may be necessary, but:
excess inventory is a waste
(Make-to-Stock (MTS))- Since accurate forecasts will prevent creating ______ _______ and avoid ______, the critical issue is how to forecast demands accurately.
excess inventory, stockouts
Utilitarianism
idea that the goal of society should be to bring about the greatest happiness for the greatest number of people
Economic Factors
include the impact of outsourcing on capital expenditures, return on invested capital, and return on assets, as well as the possible savings achieved through outsourcing.
Business Strategy
includes the strategic importance to the company of the product or service that is being considered for outsourcing, as well as the process, technologies, or skills required to make the product or deliver the service.
Decentralized Purchasing
individual departments or separate locations handle their own purchasing requirements
W. Edwards Deming
is widely considered the father of TQM. He is the creator of the Plan-Do-Check-Act model.
In ________ procurement organizations, every step will be completed, although many of the steps will be completed via an ________ ________ using pre-defined rules for aspects such as low-dollar value purchase, non-strategic purchases, etc.
leading, automated system,
When identifying alternative suppliers, it is important to keep track of any considerations that may make one supplier _____ __________ at certain times of the year or under certain external conditions.
more beneficial
Alignment between parties regarding: (list):, and the management of the alliance are essential.
motivation, contribution, financial benefit
LEAN Manufacturing is a ______ ____ ____ ____ ____ ____ ___ ____ ____as all of the LEAN goals and objectives help to facilitate an efficient and effective supply chain.
natural fit within the discipline of Supply Chain Management
(Purchase Requisition) Does ______ constitute a contractual relationship with an external party.
not
Analysis and ability to make adjustments based on:
price, evaluation of supplier performance, and the overall needs of the organization.
Business Ethics
principles and standards that determine acceptable conduct in business
Reverse auctions are used by:
private companies, public sector agencies, and non-profit organizations.
Purchasing is the ______ of how goods and services are ordered from an external third party.
process
Government sector purchasing and non-profit sector purchasing is somewhat different from private industrial purchasing as the public requires openness, visibility and accountability since it is the ______ _________ that is being spent.
public's money
Procurement professionals recognize that although the_______ ________ of an item remains very important, it is only one part of the total cost of ownership.
purchase price,
Government purchasing
purchases are expenditures made in the private sector by all levels of government.
non-profit purchasing
purchases are expenditures made in the private sector by all types of non-profit organizations.
(Purchase Order (PO)) It is used to control the _________ of products and services from external suppliers.
purchasing
Centralized Purchasing
purchasing department located at the firm's corporate office makes all the purchasing decisions
Supplier Selection Criteria
quality reliability risk capability financial desirable qualities sustainability
(Respect for People)- The goal is NOT to:
reduce the number of people in an organization, it is to use people resources more wisely.
Backward Vertical Integration
refers to acquiring sources of supply
Inventory turnover represents the number of times the company=
sold through inventory in a given time period.
(Single-Source) This is in contrast to a situation where there is only one supplier for an item, i.e., ____ _____. Sole source is not truly a strategy as there really isn't a choice, and there is very little opportunity for a company to negotiate price or service.
sole sourced
Rights and Duties
some actions are just right in and of themselves, regardless of the consequences
Brand Strategy
take advantage of a supplier's brand image, reputation, popularity, etc.
Excess inventory ____ _____ _____, and costs money to hold, maintain, protect, secure, and insure.
takes up space
Procurement professionals and managers interested in maximizing strategic sourcing skills can expand their knowledge by:
taking online courses taught by industry leaders
Purchasing can usually be described as the ________ function of procurement for goods or services.
transactional
Collaborative Negotiations are a Competitive:
win/win -congruence of goals exists between parties -parties work together to create new business opportunities and to share risk, rewards, and resources -parties work jointly to identify creative solutions to problems
Collaborative Negotiations are a Cooperative:
win/win -parties work together and share information -closer relationships are a result of mutual goals and trust -supplier and buyer involvement increases
Cost of Good Quality (divided)
· Appraisal Costs · Prevention Costs
Cost of Poor Quality (divided)
· Internal Failure Costs · External Failure Costs
