Supply Chain test 2

Three Types of Purchasing Activity

1 capital goods 2 rebuy (standard/modified) 3 maintenance, repair, operations (MRO)

Key Groups of Production Metrics

1. Customer experience and responsiveness 2. Quality 3. Efficiency 4. Inventory 5. Compliance 6. Maintenance 7. Flexibility and innovation8. Cost and profitability

Preparation Techniques

1. Familiarize your team with the supplier's company 2. Discover the supplier's agenda 3. Profile the supplier's negotiating team personnel 4. Review the supplier's performance history 5. Select & prepare your negotiation team 6. Rehearse non-verbal signals 7. Develop & complete a strategy worksheet

Evaluating Tradeoffs

1. Volume vs. Variety 2. Responsiveness vs. Efficiency 3. Make vs. Buy 4. Production cost vs. Supply Chain cost

Pros and Cons of Electronic Procurement

Concerns • Cyber-security• Lack of face-to-face contact between the buyer and seller • Technology-related concerns (lack of standard protocols, system reliability, time & money investment) Advantages • Lower operating costs (reduce paperwork & sourcing time, improve control over inventory & spending) • Improve procurement and sourcing efficiency (find new supply sources, improve communications, improve personnel use, lower cycle times) • Reduce procurement prices • Improve communications • Easier access to more suppliers

KPIs/Metrics

Critical production KPIs address total cost, total cycle time, delivery performance, quality, and safety. Pursue Goals • Align metrics with corporate objectives • Limit the number of metrics used to 5 or 6 per function • Measure performance of individual activities Avoid Mistakes • Using KPIs that are too narrow. • Encouraging wrong outcomes. • Focusing on issues that are not key priorities.

1. Volume vs Variety in Production Process Decisions

Economies of Scale • Higher-volume production with lower cost per unit of output• Suitable in situations where production processes have high fixed costs and equipment. Economies of Scope • Low-volume production with flexible capabilities of producing a wide variety of products • Important in markets characterized by changing customer demand.

3. Make vs Buy

In-house production (Make) • Internal production processes are more directly visible. • Internal processes are easier to control from a quality standpoint. Outsource (Buy) • Lower product costs• Free-up resources for other, more strategic needs BUT • More difficult to maintain visibility and synchronize activities. • More difficult to control over quality, intellectual property rights, and customer relationships.

The Importance of Packaging

Well-designed packaging can: (1) Facilitate efficient handling and shipping of the finished goods; (2) Improve labor and facility efficiency (space & equipment utilization); and (3) Provide another level of product differentiation sought by the customer. • Ease of handling • Protection of goods • Equipment compatibility • Improve efficiencies • Provide information• Sustainability

The Importance of Supply Chain Network Design

• Adjust network to fit supply chain. • Today's decisions shape future results. • Understand dynamic business environments. • Adapt resources to changing conditions. • Existing supply chains may not keep pace with change. • Reassess aging networks for upgrades.

Importance of Pricing

• Align with positioning for target customers • Align with Marketing • Target what customers are willing & able to pay (what the Market will bear) • Supports organizational goals • Enables adequate income to cover costs and make a profit

What is BATNA?

• Best Alternative to a Negotiated Agreement • What is your Plan B? • Term coined by Fisher and Ury in "Getting toYes"

Creating a BATNA

• Brainstorm a list of all available alternatives that might be considered should the negotiation fail to render a favorable agreement • Choose the most promising alternatives and expand them into practical and attainable alternatives • Identify the best of the alternatives and keep it in reserve as a fall-back during the negotiation

Strategic Sourcing

• Broader processes than procurement• Align with organizational and supply chain goals and objectives • Cross-disciplinary collaboration

Major Drivers for Updating a Network Design

• Changes to Global Trade Patterns - Bad infrastructure, lack of trade balance, etc • Changing Customer Expectations - Omni channel impacts • Shifting customer or supply locations •Change in corporate ownership - Corporate merger, too many DCs •Cost Pressures Chasing cheap labor, avoiding tariffs, etc • Competitive Capabilities -Does your DC location create value or detract value?

Negotiation Strategy Types

• Competing (transactional) - Enjoy negotiating, like to "win," not relationally focused • Collaborating (strategic) -Enjoy solving tough problems in creative ways, committed to the best solution for all involved • Compromising - Seek to close the deal by "closing the gap," like to achieve closure as quickly aspossible • Avoiding - Defer and dodge confrontation • Accommodating - Derive satisfaction from solving other peoples' problems, may weigh a relationship more heavily than what they want out of a negotiation

What Makes Strategic Sourcing Unique?

• Consolidate and leverage purchasing power • Emphasis on value (effectiveness) • Deeper, more meaningful supplier relationships • Attention directed to process improvement • Enhanced teamwork and professionalism

Customer Fulfillment Models

• Integrated Fulfillment • Store Fulfillment • Flow-Through Fulfillment • Direct Store Delivery(DSD) • Pool Distribution • Dedicated Fulfillment

Purchasing

• Largely transactional activity • Managing a firm's acquisition procedures and standards • Facilitated by the placement & processing of a PO • Often follows formal sourcing process

Why is Negotiating Important?

• Negotiating is an essential skill for personal growth & professional success • It's a skill that begins with identifying & acting on one's wants &needs • Many individuals lack the confidence, motivation or training to ask for what they want in certain situations • Others are reluctant to initiate requests in general • Effective negotiation skills & techniques can positively impact &optimize yourself & your company

Store Fulfillment Model

• Online order is sent to the nearest store for customer pick-up ordelivery(could be parcel or local courier, etc) • Conflicts between store and online inventory. Requires real time inventory visibility at the store. Requires space at the store. Can be a stop gap to standup proper online fulfillment network.

Price Lists

• Published prices generally used for standardized products like gasoline or office supplies • Buyers might receive a purchase discount from the list price such as a discount based on purchasing more product (volume discount)

Procurement

• Range of processes related to an organization's need to procure (buy) goods &services • Examples of activities - supplier selection, price negotiation, contract management, supplier performance management

Commodity Markets

• Raw materials like grain, oil, sugar, cotton, coal, lumber • Supply and demand forces dictate the price that suppliers charge • Less supply or increased demand usually increase prices & vice versa

Integrated Fulfillment Model

• Retailer has both "bricks and mortar" and online sales • They fulfill both sales channels from same network • Easy start-up, can have product size/quantity availability issues,can compete for same inventory.

Dedicated Fulfillment Mode

• Retailer operates two separate networks for "bricks and mortar"and online sales. • Solves integrated model issues, but creates more inventory andmore DCs. Allows ability to offer much more in online DCs

Direct Store Delivery Model

• Retailer requires supplier/vendor to deliver product from their DCsto the retail stores directly. • This eliminates inventory and allows the supplier/vendor to "mix"product and have control over stock outs.

Pool Distribution Model

• Retailers that don't have the density to create daily full truck loads for stores will "pool" several stores, typically at a 3PL to do deliver several stores each day with LTL size deliveries...aka "milk runs (stores in strip malls)

Flow Through Fulfillment Model

• Similar to store fulfillment, but the online orders are picked/packed at the DC and sent to the store on normal delivery truck for pick-up or delivery for customer. • Major drawback is longer processing time/time to get to customer.

Prep is REALLY Important!

• Supplier negotiators are often better prepared than buying negotiators • Edison: "A genius is just a talented person who does his homework." • 75% of total negotiation process time should be spent in preparation • Solicitation & evaluation of supplier proposals • Develop negotiation strategy• Buy-in of senior management

Major Decision Factors for DC Locations

• Transportation Infrastructure • How close are you to your customers? • Quality of life • Tax and Industrial Development Incentives • Supplier network proximity • Land and Utility costs • Availability of IT infrastructure • Executive preferences

Price Quotations

• Used for both standard and specialty items • Promotes competition among suppliers • Usually follows a request for quote (RFQ)

Negotiations

• Used when other methods don't apply or have failed• Effective when the buyer is interested in a strategic alliance or long-term relationship • Can be time consuming but offer significant benefits in terms of price and quality • Becoming increasingly common for logistics managers

Identifying Strategic Sourcing Partners

• View from an organizational perspective• Develop individual strategies • Evaluate supply options (funnel) - Start broad and then narrow -Market analysis -> RFI -> RFP/RFQ -> Site visits ->Final selection• Determine selection criteria. - Cost, quality, reliability, risk, capability, financial, locations, lead time, sustainability, innovation, exclusivity

Strategic Sourcing Core Principles

1.Assess total value. Emphasis beyond acquisition cost, evaluating total costof ownership and the value of the supplier relationship. 2.Develop individual sourcing strategies. Individual spend categories need customized sourcing strategies. 3.Evaluate internal requirements. Requirements and specifications thoroughly assessed and rationalized as part of the sourcing process. 4.Focus on supplier economics. Suppliers' economics understood before identifying buying tactics (e.g. volume leveraging, price unbundling, price adjustment mechanisms). 5.Drive continuous improvement. Strategic sourcing initiatives as subset of continuous improvement process for procurement and sourcing organizations.

2. Responsiveness vs Efficiency in Production FacilityDecisions

Centralized vs. Regional • Centralized production facilities provide operating cost and inventory efficiencies. • Regional production facilities allow companies to be closer to customers and more responsive. Large vs. Small • Larger facilities with excess capacity provide the flexibility to respond to demand spikes. • Smaller facilities that are better utilized are more cost efficient.