MKT 423 Final Exam
supplier development definition
"Any activity undertaken by a buyer to improve a supplier's performance or capabilities to meet the buyer's short- and long-term supply needs"
Ingredion example/comparison
*picture on desktop Interactions: service agreement between operations and business service scope: ensure supply and operations performance global operations--business service scope: sales forecasting and ability to provide clear visibility into demand objective: establishing management routine from factory to BOD -it is essential that meetings occur consistently and objectively, with all participants attendance and at a frequency determine, in order to generate the expected outputs and fulfill their function routine: links strategy to tactics in the context of key metrics
Qualitative Service Factors
- Problem Resolution - Technical Ability - Ongoing Progress Reporting - Corrective Action Response - Supplier Cost Reduction Ideas - Supplier New Product Support - Buyer/Supplier Compatibility
typical contract schedules
- Product/ process/service specifications, statement of work, or scope of work - Prices & price adjustment mechanisms - Health, safety, & environmental guidelines & requirements - Packaging materials - Approved method of manufacture, delivery, or service deployment - Delivery targets & lead times - Supplier's hours of operation - Storage & inventory control - Quality assurance manual - Loss allowance calculations & throughput allowances
Contract reality
- it is IMPOSSIBLE to predict every single possibility at beginning of a contractual relationship - importance of moving beyond legal contractual guidelines - once the contract has been signed, the real work begins
Uses of Measurement Data
-Identify poor and high performing suppliers -Support supply base optimization and rationalization efforts -Determine future purchase volume allocations -Identify performance improvement opportunities -Make sourcing decisions
supplier development activities
-Sharing technology -Providing performance incentives -Promoting competition among suppliers -Providing necessary capital -Directly involving buyer personnel --Training --Process improvement
CAMBELL'S SOUP ARTICLE How can this strategy be compared to the "Third Way" sourcing arrangement discussed in the VF Brands case?
-Third way- Easier to make adjustments in an integrated system- flexibility -Integrated systems, working with the suppliers, investing in suppliers and having strong relation - instead of just a traditional supplier relationship -The upfront and maintenance cost of the facilities and plants to keep so much control
goals of a contract
-memorializes terms and conditions by which the parties agree to conduct business -defines type of relationship -provides way for parties to obtain mutual benefits -captures the understanding of parties
e-sourcing suites - general
-transmission of product specifications -submission of a bid -acceptance of contract -inspection and receiving documents -accounting audits -submission of payment
sell-side systems
-typically free registration to users -supplier guarantees site security advantages: -no investment by buyer -ease of access to many suppliers drawbacks: -inability to track expenditures or to control spending -offer varying degrees of security involves selling products such as books and CD's online, as well as using internet technologies to market services using a range of techniques (amazon, Yahoo, etc.)
measurement system design
-what data to analyze -when to collect the data -what metrics to use -what performance categories to include -how to weight different categories -how often to generate performance reports -how to use performance data
strategic sourcing process
1) Conduct Opportunity Assessment 2) Profile Commodity (what to buy?) 3) Conduct Supplier Market Analysis (from who?) 4) Develop Strategy (how to buy it?) 5) Issue RFx and Negotiate 6) Implement and Manage Performance (how is it working?)
Supplier performance management
1. How does buyer know how well any given supplier is performing? 2. Consists of methods and systems to collect and provide information to measure, rate, or rank ongoing supplier performance 3. Acts as supplier "report card"
Steps to Supplier Development
1. Identify critical commodities for development 2. Identify critical suppliers for development 3. Form cross-functional development team 4. Meet with supplier's top management team 5. Identify opportunities and probability for improvement 6. Define key metrics and cost-sharing mechanisms 7. Reach agreement on key projects and joint resource requirements 8. Monitor status of projects and modify strategies as appropriate
CAMBELL'S SOUP ARTICLE Why do you think Campbell's continues to control its tomato supply so aggressively?
By processing directly and working with farmers for long stretches, Campbell's has taken control of the texture of the tomato products into their soups and sauces. -Genetics of tomatoes play a large part -Work with scientists and breeders to get perfect genetics for soups etc -The genetics, along with processing techniques, differentiate -Campbell's tomato products - impossible to just switch -If things go bad they have better relations
HBS: INTRODUCTION TO ACTIVITY-BASED COSTING (ABC) What is the risk/consequence of using traditional cost systems regarding thetrue "cost" for specialty and high volume, standard products
traditional cost systems, even those with hundreds or thousands of production cost centers, will systematically and grossly under estimate the cost of resources required for specialty, low-volume products and will over estimate the resource cost of high volume, standard products
Cost element
used in accounting and explain WHERE a company spends money
Key supplier evaluation criteria
Primary criteria - cost or price, quality, and delivery Management capability Employee capabilities Cost structure Total quality performance, systems, and philosophy Process and technological capability Sustainability and environmental compliance Financial stability Scheduling and control systems E-commerce capability Supplier's sourcing strategies, policies, and techniques Longer-term relationship potential **frequently these are organization specific
buy-side example
Prior to the development of an e-commerce application, there was a danger that Shell's customers might run out of an essential chemical and eventually revenues would be lost. Hence, this application helped them to manage their customer's inventory based on data shared by its customers about their usage and forecast demand for chemicals. Advantages of using this application include: • Reduces the need for excess inventory storage • Quick availability of product when required • Transaction costs like invoices and data entry is reduced. • Order processing overhead is reduce
measurement and reporting frequency
Reporting frequency to buyer -Day-to-day performance for troubleshooting and expediting Reporting frequency to supplier -Routinely summarized monthly or quarterly -Annual face-to-face meeting Never delay reporting supplier's poor performance
CASE: SUPPLIER SELECTION AT CASTURN SYSTEMS Casturn profitability
Revenues • High margins - Driven by technologic innovation, Casturn sells high-performance transmissions • Customer focus - Casturn's automotive OEM customers have aggressive timelines - A delay may compromise the business • Expanding business - expanding through acquisition all over the world, including high-cost regions such as Europe and NA Costs • Significant source of costs - Purchased materials represent 65% of finished product costs • Traditional supplier selection - Based more on speed not price (Figure 2) • Acquisitions - Resulted in regional concentration of suppliers
Negotiation fundamentals
Preparing to negotiate -Parties and interests -BATNAs, walk-aways and the ZOPA Getting started at the table -Work the relationship -Framing the negotiation Opening offers
3Q22 top five emerging risks
1. macroeconomic downturn 2. key material shortages 3. energy price inflation 4. critical infrastructure failure 5. escalation of conflict in europe
six strategies for supply chain resilience
1. multisourcing 2. nearshoring 3. platform, product or plant harmonization 4. ecosystem partnerships 5. inventory and capacity buffers 6. manufacturing network diversification
GETTING TO YES List the three big problems in communication and the ways these issues can be reduced or mitigated
1. perception 2. emotion 3. communication
HBS: INTRODUCTION TO ACTIVITY-BASED COSTING (ABC) What are the four questions ABC provides answers to? Be prepared tounderstand the components of each.
1. why is the organization spending money on indirect and support resources? -why is the organization spending money in the first place 2. how much is the organization spending on each of its activities -ABC system maps, from resource expenses to activities, using resource cost drivers 3. Why is the organization performing activities -ABC project team identifies all the organization's products, services, and customers 4. How much of each activity is required for the organization's products, services, and customers
CASE: WHIRLPOOL CORPORATE GLOBAL PROCUREMENT Key Takeaways
Accounting cost elements categorizes, but cost drivers explain "why" Understanding the key types of drivers...design, facility, geography, and operations provides some structure in thinking about reducing costs Cost models are fundamental in setting a sourcing strategy and can be powerful in price negotiations. When modeling, start simple and add complexity as needed
Supplier-Specific Barriers
Barrier Lack of commitment on part of supplier's management Solution implement after commitment -joint development of goals and objectives -determination of potential costs and benefits to each party and how they will be shared Barrier Supplier's management agrees to improvements but fails to implement proposals Solution Supplier champions -Key supplier employee -Training in tools and techniques Barrier Supplier lacks engineering resources to implement solutions Solution Direct on-site support from buyer personnel Barrier Supplier is not convinced development will provide benefits Solution Let suppliers know where they stand
Perceptions of ZOPA
Buyers walk-away Sellers walk-away Fundamental tasks: 1. Learn about the ZOPA 2. Influence perceptions of theZOPA 3. Shape deal aspirations in theZOPA 4. Make favorable commitments in the ZOPA 5. Suggest principles to allocate value
advantages
Buying from world-class suppliers Use of full-service suppliers Reduction of supply base risk Lower supply base administrative costs Lower total product cost Ability to pursue complex supply management strategies
Buyer-Specific Barriers
Barrier Lack of executive support in buyer organization for supplier development Solution Prove benefits Document and publicize Barrier supplier is reluctant to share information on costs or processes Solution create ombudsman to deal with non-contractual issues Barrier Confidentiality inhibits information sharing Solution Establish confidentiality agreements -non-disclosure agreements -exclusivity agreements engage in ethical behavior Barrier Supplier does not trust buyer Solution Spell it out with properly executed written agreement
Developing a supplier evaluation survey: survey goals
Be comprehensive and include important performance categories Be as objective as possible Include reliable items and measurement scales Be flexible Be mathematically straightforward and simple to understand **Surveys should be organization-centric
GETTING TO YES Determine how to apply "prevention" to the negotiation process
Build relation beforehand Preparation - anything that can reduce Agenda together- understanding of what's covered so there's no surprises
Good supplier characteristics
Builds quality into the product, aiming for zero-defects Makes delivery performance a priority Demonstrates responsiveness to buyer's needs Works to reduce lead times Provides buyer with information regarding capability and workload Reinvests part of its profits into R&D and takes a long-term view Meets stringent financial stability criteria
CASE: SUPPLIER SELECTION AT CASTURN SYSTEMS Wrap-up
Buyers can view actions as a "magic bullet" Preparation including adequate training is the true point of differentiation Creating a market is the most difficult part which requires motivating bidders Keys to successfully using post-auction qualification screening are 1) disclosure, and 2) the supplier's belief that their business stands a good chance of being rewarded the business
Critical Assesments
BATNA (best alternative to a negotiated agreement - what you will do if you do not reach agreement Reservation Price - the value (maximum or minimum)at which you would be indifferent between entering into or not entering into an agreement, a.k.a. your walk-away value ZOPA Zone of Possible Agreement - the range, if one exists, between the parties' reservations prices.
CAMBELL'S SOUP ARTICLE
Campbell's Soup Company practices vertical integration in its tomato supply chain. Directly purchases tomatoes from about 50 growers, 80% of whom have been suppliers for 25+ years. Owns and operates two processing plants in California, producing 90% of tomato products. Vertical integration allows control over product quality and texture, challenging to switch suppliers. Campbell's has invested in tomato genetics, working with scientists since the 1920s. Long-term relationships with growers turn agricultural risks into benefits during adverse weather. Integrated model provides flexibility, enabling real-time adjustments to ingredient portfolio. Challenges include upfront and maintenance costs, but Campbell's emphasizes specific needs and high-quality standards. Despite occasional considerations to sell assets, the company sees itself as its own lowest-cost, highest-quality supplier.
BUILDING DEEP SUPPLIER RELATIONSHIPS Understand and articulate the six steps in the supplier-partnering hierarchy
Can be somewhat prescriptive in nature Conduct joint improvement activities share info selectively but intensively... Develop suppliers technical capabilities Supervise your suppliers Turn supplier rivalry into opportunity Understand how your suppliers work Co locate at supplier location
Long-term potential
Can supplier commit necessary resources? Does supplier have requisite technical expertise? Can supplier participate in joint problem solving and improvement? Will there be free and open information sharing? Will supplier engage in and share future planning? Can supplier maintain buyer's need for confidentiality? Is corporate culture similar to buyer's?
MANAGING SUPPLIERS UP TO SPEED Explain the difference between "cheapest" and the "least expensive"component. What are some of the costs that differentiate the two words?
Cheap but actually costs you more because of the quality / dependability issues
CASE: WHIRLPOOL CORPORATE GLOBAL PROCUREMENT WalMart and Home Depot
Group: -raw materials Applicable products: -lumber: home depot -Meat: walmart Modeling approach: -macro-economic/trend analysis Group: -simple transformation process/components Applicable products: -fasteners: home depot -apparel: walmart Modeling approach: -bottoms-up part number cost model Group: -engineered subsystems Applicable products: -power tools: home depot -vacuum cleansers: walmart Modeling approach: -parametric comparison **parametric statistics is a branch of stats which assumes that sample data come from a population that can be adequately modeled by a probability distribution that has a fixed set of parameters
CASE: WHIRLPOOL CORPORATE GLOBAL PROCUREMENT Material component
How would you calculate the amount of resin needed per part per supplier candidate? Please calculate the material component weight for SKU 823-6516 for each of the suppliers What could be the driver(s) of the 4-20% variation
NEGOTIATION SIMULATION: COFFEE CONTRACT bargaining zone: strong seller
sells for over their reservation price
MANAGING SUPPLIERS UP TO SPEED Understand Xerox's problem and how procurement was an active participant in solving the problem
Cost driver- design Xerox design all of their parts but then sent those parts to a bunch of diff suppliers Xerox supply chain was too complicated- too many parts, pieces, The cost exceeding japanese competition by almost 30% and designing new product was a lot longer Needed to simplify the design and the number of components and suppliers that go into the product itself Finding supply partners that can work with designers or give more amounts of skus
Supplier employee analysis (2)
Degree of commitment to quality and continuous improvement Overall workforce skills and abilities Employee-management relations Frequency of work stoppages Worker flexibility Employee morale Workforce turnover Willingness of employees to contribute to improved operations
Quality systems and philosophy
Degree of management commitment Use of SPC techniques Level of defects Safety, training, and facilities Equipment maintenance Use of MBNQA and ISO 9000:2008 criteria
CASE: WHIRLPOOL CORPORATE GLOBAL PROCUREMENT cost driver framework
Design: Costs attributable to product design tradeoffs • Material specifications • Product line complexity Facility: Costs related to the size of the facility, equipment, and process technology employed • Facility scale • Degree of vertical integration • Use of automation Geography: Costs associated with the location of the facility relative to the customer • Location-related wage rate difference • Transportation cost to customer • Duties and import/export taxes Operations Costs that differential a well-run facility from a poorly run facility • Labor productivity • Facility utilization • Rejection rates
rationalization and development
Determining optimal number and quality of suppliers in supply base Rationalization -Analysis of how many and which suppliers tomaintain Optimization -Analysis to ensure that only most capable suppliers are kept Should be a continuous process Requires effective supplier evaluation and measurement system Usually results in net reduction of suppliers However, may result in adding new suppliers in some spend categories Key is to determine the "right" number of suppliers, not just arbitrarily reduce the number
specific activities
Development of supplier evaluation and measurement systems Elimination of marginal and small volume suppliers Replacement of "good" suppliers with"better" ones Initiation of supplier development activities to improve performance Global search for world-class suppliers
overcoming barriers to development
Direct-involvement activities (hands' on) -Shared personnel in joint projects Incentives and awards (the "carrot") -Increase future order volumes -Annual award ceremonies Warnings and penalties (the "stick") -Pull back current business -Withhold future business
scheduling and control systems
Does supplier use MRP or MRP II? Does supplier track material, product, orservice cycle times? Can supplier support buyer's delivery requirements? What are supplier's real lead times? What is supplier's on-time delivery performance?
GETTING TO YES Develop ways to handle the "people problem" in negotiations.Consider the significance of perception, emotion, and communication
Don't just use substantive pieces of evidences - instead you should ask what can you do differently- leading with that instead of just disproving their perception / emotional standing
ONLINE AUCTIONS: A PRIMER Understand and be able to describe the different types of auctions; i.e. English, the Dutch, the sealed-bid, double auction
English: auctioneer begins with a reserve price and either increases the price in regular increments or lets bidders increase the price with whatever increments they want. The ascending price process stops when bidders no longer wish to increase the price. (most common) adv: good for rare items that aren't easily priced dis: not bounded in time (slow) Dutch: starts at a relatively high price set by the auctioneer, a level at which the good or service is very expensive and unlikely to be sold. The price then drops until a buyer signals that he or she will take the goods at the current price. The budder must choose how high to bid without knowing the other bidders' valuation's or interests in the goods adv: good for perishable goods and inventory (fast, and transaction-cost efficient for pricing large quantities that must be sold quickly), Dutch method generates higher prices for sellers First-price and second-price sealed-bid auctions: each bidder is allowed a single written bid which they send in to the auctioneer by a fixed time. The highest bidder (first price) wins the auction and gets the product (also called tender). A bidder must choose how high to bid without knowing any bids by competitors. The second price sealed-bid is the highest bidder, but he or she will only pay the second highest price (seldom used). Ideal for contracts, government projects/bonds Double auction: buyers and sellers each submit combined price-quantitty bids to an auctioneer. The auctioneer matches the sellers' offers (starting with the lowest price, and then going up) to the buyers' offer (starting with the highest price, and then going down) until all the quantities offered for sale are sold to the buyers. Only works for items of known quality regularly traded in large quantities (securities or graded agricultural products).
MANAGING SUPPLIERS UP TO SPEED In both articles, how do buyers interact with their suppliers? Be able to discuss specific actions and activities which forward thinking suppliers participate in.
Interacting, supervise, set goals, share information 2nd- ford requires close integration of buyer supplier production systems Performance specification Have to develop quality plans Suppliers as designers Increasing the reliance on suppliers to be much more involved in the strategic goals (capability and intellectuals)
GETTING TO YES Be able to explain what is meant by the statement, "for a wise solution, reconcile interests, not positions". What is the difference between an interest and a position?
Interest is the broader goals- values etc Position- goal for the negotiation
Contract structure
Introduction -identifies parties clauses -describe different sets of conditions that parties agree to follow schedules and appendices -provides specific details behind clauses
CASE: WHIRLPOOL CORPORATE GLOBAL PROCUREMENT identification of cost/value drivers
Please list the drivers of compressor cost to Whirlpool Corporation• Please link individual cost elements to cost drivers for plastic parts
Financial stability
Often used as screening process in initial selection phase Risks of financially weak supplier -Supplier will go out of business -Insufficient resources to invest in improved plant, equipment, and research -Supplier may become too financially dependent on buyer -May be indicator of other problems
parties and interest
Often, there are more parties to the negotiation than those at the table -Strive to understand whose consent is necessary Interests are key to an agreement -Knowing the parties is the first step -Strive to understand what the other side wants; ex., the story of the orange
sustainability philosophy
Ongoing sustainability practices and top management support; e.g. Corporate Responsibility Report Evidence of measuring or requiring sustainable practices in supply base Formal hazardous and toxic waste reduction program sexist Purchasing recycled materials Encouraging recycling and reuse internally Disclosure of environmental infractions
E-Sourcing Models
Sell-side systems -contain products/services from one or more suppliers -use of "punchouts" or protocols (the buyer leaves "punches out" from) their company's system and goes to the supplier's web-based catalog to locate and order products Buy-side systems -are controlled by buyers and tied into their intranets and extranets Third-party marketplaces -facilitates electronic purchasing process
PFIZER'S 12-TIPS Appreciate the significance of human intervention in the process to drive success
Senior leadership sponsorship, strategic selection of personnel, personal responsibility, internal promotion, supplier preparation, selective supplier invitation, real-time monitoring, leadership involvement, and data tracking all highlight the significance of human factors in driving successful procurement outcomes alongside technological tools. while technology is a tool in the reverse auction process, the success of the strategy at Pfizer, is significantly attributed to the "people issues" and human interventions at various stages of the procurement process. Human decision-making, communication, collaboration, and leadership play crucial roles in driving success alongside the technological tools employed.
Cost model strategy
Should be used to define the optimal sourcing strategy Can be an aid to further discussions with the supplier to understand which drivers can be changed Focus should be to learn from the best practices in each region
Supplier management analysis
What is top management's vision, strategy, and plan? Has management committed to TQM and continuous improvement? How high is management turnover? What are professional experience and educational background of key managers? Is management customer focused? What is history of labor-management relations? Is organization making necessary capital investments? Is organization8 Does management put priority of supply chain management?
CASE: SUPPLIER SELECTION AT CASTURN SYSTEMS Auction issues
What were the results of the auctions mentioned in the case commenting on potential root causes What changes would you recommend to the re-sourcing process? What should be Casturn's next steps?
ONLINE AUCTIONS: A PRIMER What are the opportunities provided to both the buyer and seller by online auctions?
The ability to select and manage different risks and participate in new opportunities with new "risk-reward" trade-offs better suited to the true needs of suppliers and buyers. Greater market efficiency, as both suppliers' and buyers' needs are aggregated and processed efficiently through online access mechanisms Lower transactions costs than traditional auctions andother alternatives. Cheap access to the Internet allowsgreater global access to auctions with lower transactionscosts. This in turn improves market efficiencies
Example: A prospective buyer and seller look to negotiate the saleprice of a widget
The buyer could buy a satisfactory widget from another seller for$10 but thinks the present seller's is higher quality. The seller knows another buyer who would pay $8 and anotherwho would pay $7
PFIZER'S 12-TIPS Understand the significance of each of Pfizer's 12 suggestions for reverse auctions
Tip 1: Select and prepare the right people Tip 2: Take ownership Tip 3: Get the right tool for the job Tip 4: Have a backup Tip 5: Sell it internally Tip 6: Explain the rules and process Tip 7: Prepare the supply base Tip 8: Invite only the right ones Tip 9: Get the RSVPs Tip 10: Watch the auction, check the system Tip 11: Talk it up Tip 12: Track the data
HBS: INTRODUCTION TO ACTIVITY-BASED COSTING (ABC) List and define the classifications of manufacturing activities
Unit-level activities: activities performed for every unit of product or services produced Batch-level activities: those performed for each batch or setup of work performed Product-sustaining activities: performed to enable the production of individual products (or services) to occur
BUILDING DEEP SUPPLIER RELATIONSHIPS How does Toyota and Honda conduct joint improvement activities? Be able to discuss specific aspects.
Very involved Page 5- toyota and honda believe they can create the foundation for partnership only if they know as much about their vendors as the vendors know about themselves Exchange best practices, eliminate waste, supplier study groups, Info sharing, overall learnings Coming in kind of as trusted 3rd party advisor
E-commerce
Web-based B2B vs. EDI systems Does supplier have CAD capability? Does supplier use bar coding or RFID? Can supplier provide ASNs or accept EFT transfers? Does supplier communicate via e-mail Does supplier use social media for business purposes?
specifications in contract
What is being bought and cost How purchased item is to be shipped and delivered How items are to be installed (if appropriate) How and when buyer will accept products Appropriate warranties Remedies: • Including liquidated damages • Clauses specifying consequences for late performance Boilerplate - Standard terms and conditions Dispute resolution mechanisms
CASE: WHIRLPOOL CORPORATE GLOBAL PROCUREMENT Case insights
What is the link between number of parts per mold and labor productivity? How would you amortize mold costs Are there any high-level observations on cost drivers for the compressors and plastic parts? What would you recommend
PFIZER'S 12-TIPS Link procured product quality with the implementation of reverse auctions
While reverse auctions can lead to significant cost savings, there is a potential concern regarding their impact on product quality. -The focus on cost can lead to suppliers cutting corners on quality. -Less qualified suppliers may participate in the auction if the pre-qualification process is not rigorous. -Technical issues during the auction can lead to inaccurate bids and ultimately poor quality.
CASE: WHIRLPOOL CORPORATE GLOBAL PROCUREMENT Context
Why should Whirlpool Corporation be interested in cost modeling? How can they use supplier cost models in procurement What is the significance of Exhibit 2? Can this framework be used in other industries or retail; e.g.Home Depot or WalMart What is the difference between a cost element and a cost driver?
NEGOTIATION SIMULATION: COFFEE CONTRACT bargaining zone: weak seller
sells for under their reservation price
HBS: INTRODUCTION TO ACTIVITY-BASED COSTING (ABC) Understand the significance of Exhibit 3 and how it links expenses to activities performed by the organization. Why is this important?
shows activity (ex. run machines) and activity cost driver (ex. number of machine hours) shows the overall structure of an activity based cost model, linking one resource - indirect labor - to the activities performed and then, via activity cost-drivers, to cost objects, such as products
sample contract elements
signatures appendices force majure diff beteen force majure and allocation dont consider these absolutes hedjing risk correct language
GETTING TO YES Understand the two kinds of interests involved in every negotiation
substance: what is the negotiation for relationship: supplier/buyer relationship
GETTING TO YES How do you identify interests? What are the most powerful interests?
the most powerful interests are basic human needs perception, communication, etc. Ask yourself why the other side has this position How did they get to the position
BUILDING DEEP SUPPLIER RELATIONSHIPS What is meant by "tough love" in relation to this article?
they help them, invest in them, but they also have high expectations of suppliers' parts & expectations
BUILDING DEEP SUPPLIER RELATIONSHIPS Identify some of the ways businesses are "increasing relying on their suppliers"
You may have a problem you don't even know how to solve, this is what the end result should look like what do i need to do to get there Product design, thought leadership, etc. marketplace sophistication you know someone else needs to help do it Evolution of relations, not just getting something from them, have suppliers be thought leaders, surveillance individuals, etc.
CASE: SUPPLIER SELECTION AT CASTURN SYSTEMS What are the benefits and disadvantages of the re-sourcing process in Figure 1? Are there any improvements that should be made to the current re-sourcing practices within Global Supply Management? In answering this question, you can consider both traditional negotiations and reverse auctions as possibilities in step 3 of Figure 1.
advantages: -help confirm market price -persuade incumbent to reduce price -reveal new suppliers -sourcing board had cross functional representation Disadvantages: -excess customer or potential customer RFP requests -technical reviews limited the number of eligible suppliers -sourcing board members each have veto power which could cause gridlock
NEGOTIATION SIMULATION: COFFEE CONTRACT simulation goals
bargaining zone - area of overlap between parties' reservation prices reservation price - worst deal acceptable -is a limit on the price of a good or service. On the demand side, it is the highest price that a buyer is willing to pay; on the supply side, it is the lowest price at which a seller is willing to sell a good or service. BATNA - best alternative to a negotiated agreement -It is defined as the most advantageous alternative that anegotiating party can take if negotiations fail and anagreement cannot be made. In other words, a party's BATNA is what a party's alternative is if negotiations are unsuccessful bargaining zone: the range or area in which an agreement is satisfactory to both negotiating parties (overlap) target: goal
Buy-side systems
controlled by buyers -may be self-designed or acquired through 3rd party e-sourcing suite suppliers allow supply manager to manage sourcing cycle, track spend, and exert secure control of contract management requires initial investment and periodic updates Buy side e- commerce refers to transactions to procure resources needed by anorganization from its suppliers. This is done by using communications technologyto support the upstream supply chain from procurement to inbound logistics andinvolve e-commerce transactions between a purchasing organization and itsuppliers, possibly through intermediaries.
Supplier Measurement Decisions
corporate and business unit goals, objectives, and strategies must drive supply management's corresponding goals, objectives, and strategies supply management must develop appropriate supplier evaluation strategies to support the business unit not all suppliers need to be evaluated in the same way Supplier segmentation must consider • Supply base risk levels • Category spend amounts • Switching costs Must understand -types of information required -how information will be deployed -methods needed to obtain information in a timely and cost-effective manner -what resources will be required to collect the information what to measure: -quantitative variables --delivery performance --quality performance --cost reduction --qualitative variables -compare to standards and goals -measurement and reporting frequency -uses of measurement data
MANAGING SUPPLIERS UP TO SPEED What is the composition of the selection team as described by the author?
cross functional
Cost drivers
focus on WHY the money was spent
CASE: SUPPLIER SELECTION AT CASTURN SYSTEMS Casturn strategy
focus on technology and revenues helped grow business by winning contracts and acquiring companies -improving sourcing can lead to dramatic savings ($18/yr. spend) -market-test current contracts resulting in re-sourcing or achieving price concessions from incumbent
third-party marketplaces
independent firms that neither buy nor sell goods and services -bring buyers and seller together in cyberspace vertical portals -narrow range of commodities horizontal portals -broad range goods or services
NEGOTIATION SIMULATION: COFFEE CONTRACT bargaining zone
it is the range or area in which an agreement is satisfactory to both negotiating parties. The bargaining zone is essentially the overlap area between walk away positions in a negotiation What besides Reservation Prices affected price?Comment on targets or goals on the asks of the negotiations
MANAGING SUPPLIERS UP TO SPEED What is a consequence of creating today's technology intensive products?
its hard! involves a lot of collaboration and innovation as products become more sophisticated, difficult if not impossible to be excellent at everything The hosting org realizes they cant do everything anymore
e-sourcing suites - SRM
modules that interact with elements of purchasing database, ERP, and data from EDI and/or web-based sources interactive systems to assist decisions in... -supplier selection -contract management -contract compliance
everybody negotiates
negotiation is part and parcel of human nature negotiation is people pursuing their interests through mutual consent negotiation is a game - and its good to think of it that way -a game of economic strategy -a game of psychology
contract negotiation
often modified from earlier agreements without material changes -minimizes administrative effort -assumes that previous contracts are appropriate for current agreement -start with general form and/or sample contracts get advice from corporate counsel
ONLINE AUCTIONS: A PRIMER Be able to list the benefits to the seller and buyer of a Yankee auction such as Priceline.com
yankee auction: one or more identical items are offered for sale at the same time. When the auction closes, the highest bidders win the available merchandise at their bid price. Bids are ranked in order of price, then quantity sought, and then time of the initial bid. Benefits to the Seller: Brand and Price Shield: Maintains brand integrity and established prices. Anonymity: Sellers remain anonymous, protecting their brand. Real Demand: Irrevocable, credit card-backed offers ensure reliable demand. Incremental Sales: Taps into latent demand for additional sales. Benefits to the Buyer: Negotiation Power: Aggregated buyer power for better deals in real time. Flexible Pricing: Options to specify "risk-reward" preferences in auctions. Variety of Transaction Forms: Tailors transactions to specific needs. Opportunity for Savings: Potential for lower prices, especially for flexible plans. Risk-Adjusted Preferences: Allows buyers to match preferences with different auction forms.
areas of risk
• Signing contracts without reading and understanding them • Making risky assumptions • Making or accepting unreasonable demands • Assuming terms in one market are same as in another • Not recognizing cultural or legal landmines • Failing to utilize sufficient resources in contract negotiations • Ongoing commitment and relationship often supersede written contracts
