Chapter 6 Supply Chain

A supplier of choice (3)

-Achieved a specific and exceptional level of performance over time as measured by a set of criteria agreed upon by both buyer and supplier. -Typically a trusted partners who know the buyers organization, processes, procedures, and requirements. -Provides a higher value than their competitors and are characterized as reliable, responsive, flexible, and cost effective.

Business Ethics (2 main ethical approaches)

1. Utilitarianism: an ethical act is that which creates the greatest good for the greatest number of people, and should be the guiding principle of conduct. 2. Rights and Duties: some actions are just right in and of themselves, regardless of the consequences. Do the right thing!

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.

Spend Analysis

Collecting, cleansing, classifying, and analyzing expenditure data for the purpose of decreasing costs, improving efficiency, and monitoring compliance.

Non-Critical

Routine items that involve a low percentage of the firms' total spend and involve very little supply risk. - Low supply risk, low value to the company

T/F: Successful sourcing strategies are almost always different for functional products versus innovative products.

True

Bottleneck

Unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers. - High supply risk, low value to the company

Potential strategies for innovative products

- Innovative, high-tech, cutting edge, market leading supplier. - SINGLE-SOURCED

Potential strategies for functional products

- Reliable, low cost suppliers. - MULTI-SOURCED

Sourcing Categories (4)

1. Non-Critical 2. Bottleneck 3. Leverage 4. Strategic

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. - RISKY!

Evolution of Supply Chain Management Responsibilities

1950's-1970's: Procurement Manufacturing Logistics 1970's-1980's: Process and Resources 1980's-1990's: Risk and Security 2000's -beyond: Ethics and Sustainability

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.

Additional Sourcing Concepts - Supplier Co-location

A representative of the supplier is actually embedded in the buyers purchasing group to forecast demand, monitor inventory, and place orders. - Employee is on the payroll of the supplier, but works for the buyer.

Supplier Certification - Verification

A supplier operates, maintains, improves, and documents effective procedures that relate to the buyer's requirements - Used to differentiate strategic supplier alliance candidates from others.

Pain and Gain Share Agreements / Provisions

Agreements could be negotiated to spell out in detail the gains (reward) and pains (penalty) that the supplier will realize for either exceptional or poor performance. - Pain: using a penalty or punishment as a negative outcome for poor performance, cost overruns, quality problems. - Gain: using a reward as a positive outcome from exceptional performance.

Co-Managed Inventory (CMI)

An arrangement where a specific quantity of an item is stored at the buyer's location. - Difference from VMI is that the supplier is simply making a recommendation.

Ethical Sourcing

Attempts to take into account the public consequences of organizational buying, or to bring about positive social change through organizational buying behavior.

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.

Leverage

Commodity items where many alternatives of supply exist and supply risk is low. Spend is high and there are potential procurement savings. - Low supply risk, high value to the company

Supplier selection is typically conducted by a ___?

Cross functional team

Negotiations are about?

Establishing a relationship that works well for both parties.

Strategic Alliances

Increases a key or strategic supplier's capabilities.

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.

Supply Base Rationalization/ Supply Base Reduction, Supply Base Optimization

Reduction in the supply base to the lowest number of suppliers possible without significantly increasing risk.

Distributive Negotiations

Refers to a process that leads to self-interested, one-sided outcome.

Sole Sourced

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.

Strategic

Strategic items and services that involve a high level of expenditure and are vital to the firm's success. - High supply risk, high value to the company

Rewarding Supplier Performance

Strategic or preferred supplier status.

Intangible Assets

Such as social and environmental responsibility, increasing consumer awareness of sustainable sourcing and sustainability - Sustainable sourcing programs should try to build such intangible assets.

Vendor Managed Inventory (VMI)

Suppliers directly manage buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer.

Sustainability

The 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.

Supplier Base

The group of suppliers from which a company acquires goods and services.

Sourcing

The process of identifying a company that provides a needed good or service.