MGT 295: Chapter 13

What is a request for proposal (RFP)?

commonly used for purchasing items that are more complex or expensive and where there may be a number of potential vendors.

What is strategic sourcing?

the development and management of supplier relationships to to acquire goods and services in a way that aids in achieving the immediate needs of a business. - In the past, sourcing was just another name for purchasing - As a result globalization, sourcing implies a more complex process suitable for products that are strategically important

How do you calculate weeks of supply?

(average aggregate inventory value/COGS) * 52 weeks

Post-ownership costs?

- Disposal - Environmental costs - Warranty costs - Product Liability costs - Customer dissatisfaction costs

What are some lean improvements to supply management?

- E-Procurement - Vendor Managed Inventories - Blanket purchase orders

What are some examples of ownership costs?

- Energy costs - Maintenance and repair - Financing - Supply chain/supply - network costs

What are the specific financially driven reasons a company may choose to outsource?

- Improve ROA by reducing inventory and selling unnecessary assets. - Generate cash by selling low-return entities. - Gain access to new markets, particularly in developing countries. - Reduce costs through a lower cost structure - Turn fixed costs into variable costs

What are the specific organizationally driven reasons a company may choose to outsource?

- Improve effectiveness by focusing on what the firm does best - Increase flexibility to meet changing demand for products/services - Increase product/service value by improving response to customer needs

What are the specific Improvement driven reasons a company may choose to outsource?

- Improve quality and productivity - Shorten cycle time - Obtain expertise, skills, and technologies that are not otherwise available - Improve risk management - Improve credibility and image by associating with superior providers

How have logistic providers shifted from simply moving products from one point to another?

- Tracking of shipments - Customer notification - Risk and variability reduction

What are some examples of acquisition costs?

- taxes - quality costs - purchase planning costs - financing costs - purchase price

What goes into the total cost of ownership?1

1. Acquisition costs 2. Ownership costs 3. Post-ownership costs

What is the green sourcing process?

1. Assess the opportunity - Evaluate and prioritize costs 2. Engage sourcing agents - Cross-functional ownership of the process 3. Assess the supply base - Engage vendors in the process 4. Develop the sourcing strategy - Develop quantitative criteria 5. Implement sourcing strategy - Select vendors and products based on criteria 6. Institutionalize the sourcing strategy - Metrics and audits to monitor performance

What are some reasons to NOT outsource?

1. Coordination - Difficult interfaces with suppliers - Knowledge transfer is difficult or impossible to transfer because of poor documentation or processes - Processes and work components are unique and non-standard 2. Strategic control - Collocation of specialized facilities - Investment in brand equity - Large proprietary learning curves - Long-term investments in specialized R&D programs 3. Intellectual property - Unclear or weak intellectual property protection - Easy-to-imitate technology - Difficult interfaces that limit the ability to transition from one supplier to another

What are some purchasing performance measures?

1. Cost reduction 2. Cost avoidance

What are the four types of supply chain strategies?

1. Efficient supply chains 2. Risk-hedging supply chains 3. Responsive supply chains 4. Agile supply chains

Why would a company choose to outsource?

1. Financial Reasons 2. Improvement driven reasons 3. Organizationally driven reasons

What is a stable supply chain process?

A process where the underlying technology is stable and the supply base is well established.

What is continuous replenishment?

A program for automatically supplying groups of items to a customer on a regular basis. Inventory is replaced frequently, as part of an ongoing process to reduce variability

What are logistics?

A term that refers to the management functions that support the complete cycle of material flow; from the purchase and internal control of production materials; to the planning and control of work-in process; to the purchasing, shipping, and distribution of the finished product.

What is total cost of ownership (TCO)?

An estimate of the cost of an item that includes all the costs related to the procurements and use of an item, including any related costs in disposing of the item. - Can be applied to internal costs or more broadly to costs throughout the supply chain

What is green sourcing?

Being environmentally responsible has become a business imperative ("triple bottom line") - Many firms are looking to their supply chains to deliver "green" results - Financial results can be often be improved through working with suppliers to go green - A comprehensive green sourcing effort should assess how a company uses items that are purchased internally - It is also important to reduce waste

How do you calculate inventory turnover? What does it mean?

COGS/Average aggregate inventory value - A measure of supply chain efficiency

What is cost avoidance?

Cannot be measured year to year Rather the cost avoidance minimizes or avoids entirely the negative impact of a price increase or initial offering price Cost avoidance is more open-ended and is more difficult to quantify In some cases, cost avoidance may not hit the P&L directly and does not result in a tangible budget savings that can be pulled out or re-invested

What are some of the consequences of the bullwhip effect?

Causes firms to have excess: - Manufacturing capacity - Transportation capacity - Labor for shipping/receiving - Inventory

Describe the demand uncertainty and supply uncertainty conceptually

Functional products have a low demand uncertainty and innovative products have high demand uncertainty. Stables processes have low supply uncertainty and high supply uncertainty have an evolving process

What is outsourcing?

Moving some of the firm's internal activities and decision responsibility to outside providers. - Allows a company to create a competitive advantage while reducing cost - An entire function may be outsources, or some elements of an activity may be outsourced, with the rest kept in-house. - Retain "core competency", consider moving other activities

Tell me more about cost reductions?

Often referred to as "hard savings" that are easily measured - Generally speaking, cost reduction are understood as tangible bottom line reductions resulting in saved money that could be removed from budgets or re-invested back into the business. - Cost savings are measurable from the prior year or baseline for the purchased product or service so that these savings could be measured against the prior time period's spend.

What are innovative products?

Products such as fashionable clothes and high-end personal computers that typically have a life cycle of just a few months. - Newness of the innovative products makes demand for them unpredictable. - Typically have a life cycle of just a few months - imitators quickly erode the competitive advantage that innovative products enjoy - Companies are forced to introduce a steady stream of new innovations creating high variety - Together, the short life cycles and the great variety typical of these products further increase unpredictability

What is specificity?

Refers to how common the item is and, in a relative sense, how many substitutes might be available - Commonly available products can be purchased using a relatively simple process

What are functional products?

Staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations. - Product life cycle of more than two years - Demand is stable so low forecast error (10%) - Contribution margin of 5 to 20 percent - Few product variations

What are agile supply chains?

Supply chains that utilize strategies aimed at being responsive and flexible to customer needs, while the risks of supply shortages or disruptions are hedged by pooling inventory and other capacity resources. - Evolving supply, innovative demand

What are responsive supply chains?

Supply chains that utilize strategies aimed at being responsive and flexible to the changing and diverse needs of the customer. - Stable supply, innovative demand

What are efficient supply chains?

Supply chains that utilize strategies aimed at creating the highest levels of cost efficiency. - Stable supply/functional demand

What are risk-hedging supply chains?

Supply chains that utilize strategies aimed at pooling and sharing resources in a supply chain so that the risks in supply disruptions can be shared. - Evolving supply/functional demand

What is the bullwhip effect?

The variability in demand is magnified as we move from the customer to the producer in the supply chain. - A slight change in consumer sales ripples backward as magnified oscillations upstream, like the result of a flick of a bullwhip handle. - in the bullwhip effect, the size of the orders increases as you move up the supply chain. - This distorts what the "True" end-customer demand really is.

What is the lean "pull" production process?

Using Kanban and JIT solutions reduce the opportunity for a bullwhip effect to transpire

What are some lean improvements to purchasing/procurement/sourcing?

Usually tied into the overall function called procure-to-pay - sourcing - procurement/contracting process - Receiving process - Invoice process - Payment and reconciliation process

Vendor management inventory?

When a customer actually allows the supplier to manage the inventory policy of an item or group of items for them.

What is forward buying?

When retailers respond to the price cut by stocking up, in some cases buying a year's supply. - this makes the variability even worse

What is an evolving supply chain?

Where the manufacturing process and the underlying technology is still under early development and are rapidly changing.