Supply Chain Chapter 10

Benefits and risks of global sourcing?

- Benefits: Cheaper labor, NAFTA agreement, no labor laws - Risks: Theft of intellectual property, high transportation costs, tariffs, less onshore jobs

Benefits and risks of local sourcing?

- Benefits: Easier to communicate, collaborate, quality, safety, sustainability and keep delivery costs low - Risks: Risk of price fluctuation, smaller market, more expensive labor

advantages of outsourcing

- buyer avoids having to invest capital into production assets - supplier has economies of scale and lower labor and facilities costs - higher quality/ increased flexibility

example of supply risk?

- delays/distributions: strikes - disasters: earthquake, tsunami - theft of intellectual property - price increases - product safety problems - harm to the firm's reputation

a sourcing strategy must consider? (3)

- number of suppliers to use - capabilities and location of suppliers - type of relationship and contract length

a sourcing strategy is developed using information from what two things?

- spend analysis - market analysis

What are the 8 steps to the make or buy decision ( making an insource/outsource decision) ?

1. Assess fit with the firm's core competencies 2. Evaluate suitability for outsourcing 3. Evaluate reason for outsourcing 4. Assess all relevant quantitative costs 5. Assess all qualitative factors 6. Review the capabilities of suppliers 7. Make and implement the decision 8. monitor decision and revise it as necessary

What is the purpose of a supplier score card?

Allows the customer to show the supplier what they feel is important and how well the supplier is meeting those needs/performing

What is the sourcing strategy? What are the tactics? - purchases are high risk and low spend - are not core to the firm's performance but lack of availability can cause delays

Bottleneck: Use two or more suppliers to assure supply (if one fails, at least you have another supplier); develop new suppliers, and explore using different materials

what is Profit Leverage Effect

Decrease in spending (COGS) is more beneficial than an equivalent increase in revenue (Sales) - will have a better return if you decrease spending vs trying to increase sales (more costs associated with it)

What does an SRM help a firm identify about its suppliers?

Helps identify critical suppliers and improve how the firm works with them on activities like reducing costs, introducing new products, and generating more profit

What is the sourcing strategy? What are the tactics? - purchases are low risk but represent high spending level - typically involve standard goods/services where many possible suppliers are available

Leverage: standardize and consolidate purchases and use competition to minimize amount of suppliers because the product is low risk

What is the sourcing strategy? What are the tactics? - purchases are a low percentage of overall spend and have little impact on performance

Noncritical: Increase efficiencies and lower transaction costs by cutting out pointless steps by using corporate credit cards, electronic catalogs, and vendor managed inventory

What is the purpose of a supplier certification?

Reduces needs for incoming quality inspections because certification assures that supplier operates, maintains, improves and documents effective procedures related to the buyer's requirement

an important part of supply management?

Sourcing

What is the sourcing strategy? What are the tactics? - purchases represent high spend level and high risk - these purchases are usually unique and core to the firm's performance

Strategic: Use one or two suppliers and build relationships because firm wants to have partnerships with these suppliers

When is make/buy analysis used?

To decide whether to use insourcing, switch suppliers or keep the current supplier

What is the goal of an SRM?

To streamline processes and interactions that exist between the firm and its various suppliers so they are more efficient and transparent

a collaborative relationship that lacks the commitment of a full partnership - collaborative oriented - Largest percentage of relationships nowadays, firm and supplier will work together and have a great relationship for a win-win situation

acceptance of mutual goals

bringing it to customers location

acquisition cost

relationships characterized by distrust and limited communication - transaction oriented - Very price driven, firm does not care to know supplier and only has self-interest in the firm

adversarial relationships

relationships limited to simple purchasing transactions - transaction oriented - Firms wants and needs supplier but does not want to let the supplier in on the business secrets

arms length relationships

real like example of how total cost of ownership (TCO)

buying a car at the lowest price possible may end up costing you more. it may need more repairs, be less, reliable, have lower fuel economy, and may not last as long

the selection process in which suppliers submit bids to win a buyer's business, used to source mature and standard products, used in adversarial or arms length -price is most important factor

competitive bidding

the structured secure electronic transmission of data between organizations

electronic data interchange

purchase orders (POs) are typically communicated electronically using _____?

electronic data interchange (EDI)

disposal, clean up, obsolescence

end of life cost

costs incurred at the start of production or the beginning of a new contract

fixed costs per contract

costs incurred each time an order is placed, regardless of the size of the order

fixed costs per order

relationships that have close working relations, trust, mutual respect, and highly integrated operations - collaborative oriented - Contractually obligated to each other and share financial risks and reward

full partnership

acquiring inputs from operational processes within the firm

insourcing

outsourcing vs insourcing

insourcing: resources and activities that should be provided by the firm--> chose core competencies outsourcing: resources and activities that should be done by suppliers --> choose supplier for noncore activities that are better fit for it

first step in competitive bidding is for the supply manager to _____

issue a request for proposal/ quote

the choice between making a product internally or purchasing it from a supplier

make or buy decision alt def: Choosing between insourcing and outsourcing

involves purchasing a specific material or service from one or more supplier

multiple sourcing

a bargaining process involving a buyer and seller seeking to each reach a mutual agreement

negotiation

competitive bidding systems that allow suppliers to submit multiple bids within a fixed time

online reverse auctions

acquiring inputs from operational processes done by suppliers

outsourcing

legally binding document that signals to the supplier that goods or services are needed

purchase order (PO)

amount paid to the supplier

purchase price

a document that communicates needs between the user and the supply management

purchase requisition

documents that describe the purchase requirements as specifically as possible -supplier responds with cost and other requirements for consideration

request for proposal or quote

the deliberate choice to use a single supplier for a specific purchase

single sourcing

the identification evaluation, and selection of suppliers

sourcing

a process that identifies what purchases at what price from which suppliers are being made in an organization

spend analysis

an assessment that verifies effective procedures related to the buyers requirements

supplier certification -alt def: Assessment of a supplier's ability to meet the buyer's needs

a comprehensive system, facilitated by software, that works on managing the firm's interactions with its supply base

supplier relationship management

used to report a supplier's performance on key performance indicators

supplier scorecard

the determination of the number of suppliers to use

supply base optimization -too few increases shortage and price risks, innovation limited -too many increases complexity and makes supply mgmt difficult

the identification, acquisition, and management of inputs and supplier relationships

supply management -also called purchasing or procurement

the probability of an unplanned event that negatively affects a firms ability to serve its customers

supply risk

business practices designed to positively affect people, society, the plant, as well as profits

sustainability

a product's quality depends in large part upon what?

the quality of all its inputs

what is procure-to-pay process (P2P)

the set of activities required to first identify a need, assign a supplier to meet that need, approve the specification or scope, acknowledge receipt, and submit payment to the supplier

all of the costs incurred before, during, and after a purchase

total cost of ownership (TCO)

warranty, training, downtime, maintenance

usage cost

online reverse auctions do what?

use bidding to drive prices lower; price focused

costs that change in proportion to the quantity of units produced or services delivered

variable costs

establishes performance categories that are weighted according to importance -for assessing and selecting suppliers

weighted point model

tool for analyzing and comparing suppliers ?

weighted point model

x

x

5 steps in a typical strategic sourcing process

1. Analysis Spend and Markets 2. Develop Sourcing Strategy 3. Identify potential suppliers 4. Assess and select suppliers 5. Manage relationship

example/ negative effect of outsourcing

-apple doesn't want to make the actual phone, they want to focus on the innovation and creative side of the company -risk: knock offs and employees releasing info -company liable for things supplier does - suppliers may not perform well on quality and delivery so total costs may increase

capabilities and location for sourcings

-proximity impacts ease of communication, transportation costs and community perceptions -consider trade barriers and incentives -global presence may impact access to market

costs that are included in total cost of ownership (TCO)

-purchase price -acquisition cost -usage cost -end of life cost

What are the 4 types of supplier relationships?

1. Adversarial 2. Arm's Length 3. Acceptance of Mutual Goods 4. Full Partnership`

What are the 3 relevant quantitative costs?

1. Fixed costs per contract 2. Fixed costs per order 3. Variable costs

What are the 2 factors that are used to identify which sourcing strategy to use with the 4-square box?

1. Value of spend to firm 2. Level of supply Risk

5 goals of supply management *

1. ensure timely availability of resources 2. reduces total costs 3. enhance quality 4. access technology and innovation 5. foster sustainability