SCM Chapter 6

leverage

- commodity items where many alternatives of supply exist and supply risk is low. Spend is high and there are potential procurement savings. HIGH VALUE LOW RISK

Supply base

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

Sourcing Categories

-non-critical -bottleneck -leverage -strategic

noncritical

1.routine items that involve a low percentage of the firms' total spend and involve very little supply risk. LOW RISK LOW VALUE

Spend Analysis

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

_insourcing________:

Producing goods or services using a company's own internal resources

Vendor Managed Inventory (VMI)

Suppliers directly _manage buyer inventories_to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer

outsourcing

The traditional definition involves purchasing an item or service externally, which had been produced using a company's own internal resources previously

gain

Using a __reward as a positive outcome__ from exceptional performance:

pain_____:

Using a _penalty/punishment__as a negative outcome for poor performance, cost overruns, quality problems

Supplier Certification

that a supplier operates, maintains, improves, and documents effective procedures that relate to the buyer's requirements

Sustainable Sourcing

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.

Strategic Alliance

A strategic alliance in sourcing, is an agreement between a buyer and a supplier to pursue some agreed upon objectives, while remaining independent organizations.

Functional Products

MRO items and other commonly low profit margin items with relatively stable demands and high levels of competition ex: office supplies, food stables Potential Strategy: Reliable, low cost suppliers. Multi-sourced

T or F Successful sourcing strategies are almost always different for _functional_ products versus _innovative products

T

Objectives of Strategic Sourcing

1. Improve the value-to-price relationship 2. Understand the category buying and management process 3. Examine supplier relationships across the entire organization. 4. Develop and implement multi-year contracts 5. Leverage the entire organization's spend

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.

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.

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.

Preferred Suppliers

A supplier who best meets your company's overall purchasing requirements.

Strategic Alliance Development

An extension of supplier development which refers to increasing a key or strategic supplier's _capabilities__________.

Sourcing Strategies

Analysis and ability to make adjustments based on price, evaluation of supplier performance, and the overall needs of the organization.

T or F supplier rewards and recognition program could also be reflected as part of the formal supply agreement in the form of pain and gain share provisions.

True

strategic

strategic items and services that involve a high level of expenditure and are vital to the firm's success. HIGH VALUE HIGH RISK

Framework for Sourcing Strategy Development

1.Classify the company's products and suppliers as belonging to either the functional or innovative category. 2.Develop strategic sourcing goals and strategies for each category 3.Create the sourcing team (typically a cross-functional team led by Procurement) 4.Develop a team strategy and communication plan 5.Identify the targeted spend area(s) and conduct a spend analysis. 6.Gather information on supplier capabilities. Use Request for Information (RFI) 7.Develop a supplier portfolio (i.e., a profile of each supplier in each category) 8.Develop a future state (i.e., vision of what the company wants the future to look like) 9.Conduct supplier selection and negotiation Implement Supplier Relationship Management (SRM)

basic steps for conducting a spend analysis include:

1.Defining the scope. 2.Identify all of the data sources. 3.Gathering and consolidating all of the data into one database. 4.Cleansing the data (finding and correcting errors) and standardizing it for easy review. 5.Categorizing the data. 6.Analyzing the data for: -the best deals per supplier -to ensure that all purchases are from preferred suppliers -to reduce the number of suppliers per category. -etc. Repeating the process on a regular schedule

Key areas of a typical spend analysis are:

1.Total historic expenditures and volumes 2.Future demand projections or budgets 3.Expenditures categorized by commodity and sub-commodity 4.Expenditures by division, department, or user 5.Expenditures by supplier

Supply base rationalization

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

T or F Supplier certification programs are used to differentiate strategic supplier alliance candidates from others.

T

Co-Managed Inventory (CMI)

an arrangement where a specific quantity of an item is stored at the buyer's location

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.

Artificial Intelligence (AI)

can improve supplier selection and increase the effectiveness of supplier relationship management §Supplier-related risks are a major consideration for supply chain professionals §Just one mistake on the part of a supplier, and a company's reputation can be damaged significantly. §AI can quickly and thoroughly analyze supplier-related data such as on-time in-full delivery performance, audits, evaluations, and credit scoring and provide information to use for future decisions regarding certain suppliers. §As the result, a company can make better supplier decisions and improve its customer service.

commonly used criteria for supplier selection:

cost quality service

reasons for multiple suppliers

─Need more capacity ─Spread risk of supply disruption ─Create competition ─More sources of information ─Dealing with special kinds of business

Supplier Selection

typically conducted by a cross functional team. The process of selecting suppliers is complex and should be based on _multiple criteria_using evaluation forms or scorecards.

bottleneck

unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers. HIGH RISK LOW VALUE

_reasons for a single supplier_

─To establish a good relationship ─Less quality variability ─Lower cost [100% of volume] ─Transportation economies ─Proprietary product or process ─Volume too small to split

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.

Innovative Products

§characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition i.e. technology products such as the iPhone Potential Strategy: Innovative, high-tech, cutting edge, market leading supplier. Long term partnership. Single-sourced.