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