Professional Documents
Culture Documents
13-1
Outline
The Role of Sourcing in a Supply Chain Supplier Scoring and Assessment Supplier Selection and Contracts Design Collaboration The Procurement Process Sourcing Planning and Analysis Making Sourcing Decisions in Practice Summary of Learning Objectives
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Some Definitions
Sourcing:
Finding sources of supply, guaranteeing continuity in supply, ensuring alternative sources of supply and gathering knowledge of procurable resources.
Procurement:
All activities that are required in order to get the product and services from the supplier to its final destination
Purchasing:
All activities for which the company receives an invoice from outside parties Outsourcing: in-house performed activities are transferred to a third party
2007 Pearson Education 13-3
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Buy/ Outsourcing
VS.
4. 5. 6.
7.
Improve company focus Gain access to world class capabilities Get access to resources that are not available internally Accelerate reengineering benefits Improve customer satisfaction Increase flexibility Sharing risks Reduce control costs and operating costs Free up internal resources Receive an important cash infusion Improve performance Ability to manage functions that are out of control
1. 2. 3. 4. 5.
All these reasons underlie one overall objective: to improve the overall performance of the outsourcing firm
2007 Pearson Education
In-house / invest
Competencies are strategic and world-class; focus on investments in technology and people; maximize scale and stay on leading edge Collaborate / maintain control Competencies are strategic but insufficient to compete effectively; explore alternatives such as partnership, alliance, joint-venture, licensing, etc.
High (core)
Low (non-core)
Savelkoul, 2008
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Information aggregation
Receivables aggregation Relationship aggregation Low costs and higher quality
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Cost of coordination
Reduction of customer/supplier contact Loss of internal capability and growth in third-party power Leakage of sensitive data and information
Ineffective contracts
2007 Pearson Education 13-12
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Sources of Information
Current suppliers Trade journals
Preferred suppliers
Sales representatives Information databases Experience
Trade directories
Trade shows Second-party or indirect information Internal sources
Internet searches
2007 Pearson Education
gement, 4e
14
13-15
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Quality
Responsiveness Delivery Cost Environmental Business
90
95 90 80 90 90 Total Score
0.25
0.15 0.15 0.15 0.05 0.15 1.00
22.50
14.25 13.50 12.00 4.50 13.50 88.25
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Supply Contract
Supply Contract can include the following: Pricing and volume discounts. Minimum and maximum purchase quantities. Delivery lead times. Product or material quality. Product return policies.
Suppliers activities:
reacting to the order placed by the buyer. Make-To-Order (MTO) policy
2007 Pearson Education
Swimsuit Example
2 Stages:
a retailer who faces customer demand a manufacturer who produces and sells swimsuits to the retailer.
Retailer Information:
Summer season sale price of a swimsuit is $125 per unit. Wholesale price paid by retailer to manufacturer is $80 per unit. Salvage value after the summer season is $20 per unit
Manufacturer information:
Fixed production cost is $100,000 Variable production cost is $35 per unit
2007 Pearson Education
Risk Sharing
In the sequential supply chain:
Buyer assumes all of the risk of having more inventory than sales Buyer limits his order quantity because of the huge financial risk. Supplier takes no risk. Supplier would like the buyer to order as much as possible Since the buyer limits his order quantity, there is a significant increase in the likelihood of out of stock.
Buy-Back Contract
Seller agrees to buy back unsold goods from the buyer for some agreed-upon price. Buyer has incentive to order more Suppliers risk clearly increases. Increase in buyers order quantity
Decreases the likelihood of out of stock Compensates the supplier for the higher risk
Buyer transfers a portion of the revenue from each unit sold back to the supplier
Supply chain marginal profit, 90 = 125 - 35 Supply chain marginal loss, 15 = 35 20 Supply chain will produce more than average demand. Optimal production quantity = 16,000 units Expected supply chain profit = $1,014,500.
Carefully designed supply contracts can achieve as much as global optimization Global optimization does not provide a mechanism to allocate supply chain profit between the partners.
Supply contracts allocate this profit among supply chain members.
Effective supply contracts allocate profit to each partner in a way that no partner can improve his profit by deciding to deviate from the optimal set of decisions.
Manufacturer assumes all the risk limiting its production quantity Distributor takes no risk
2007 Pearson Education
Pay-Back Contract
Buyer agrees to pay some agreed-upon price for any unit produced by the manufacturer but not purchased. Manufacturer incentive to produce more units Buyers risk clearly increases. Increase in production quantities has to compensate the distributor for the increase in risk.
Cost-Sharing Contract
Buyer shares some of the production cost with the manufacturer, in return for a discount on the wholesale price. Reduces effective production cost for the manufacturer
Incentive to produce more units
Implementation Issues
Cost-sharing contract requires manufacturer to share production cost information with distributor Agreement between the two parties:
Distributor purchases one or more components that the manufacturer needs. Components remain on the distributor books but are shipped to the manufacturer facility for the production of the finished good.
Global Optimization
Relevant data:
Selling price, $125 Salvage value, $20 Variable production costs, $55 Fixed production cost.
Cost that the distributor pays the manufacturer is meaningless Supply chain marginal profit, 70 = 125 55 Supply chain marginal loss, 35 = 55 20
Supply chain will produce more than average demand.
Optimal production quantity = 14,000 units Expected supply chain profit = $705,700 Same profit as under pay-back and cost sharing contracts
Global Optimization
Long-Term Contracts
Also called forward or fixed commitment contracts Contracts specify a fixed amount of supply to be delivered at some point in the future Supplier and buyer agree on both price and quantity Buyer bears no financial risk Buyer takes huge inventory risks due to:
uncertainty in demand inability to adjust order quantities.
Flexibility contracts
Related strategy to share risks between suppliers and buyers A fixed amount of supply is determined when the contract is signed Amount to be delivered (and paid for) can differ by no more than a given percentage determined upon signing the contract.
Spot Purchase
Buyers look for additional supply in the open market. May use independent e-markets or private e-markets to select suppliers. Focus:
Using the marketplace to find new suppliers Forcing competition to reduce product price.
Portfolio Contracts
Portfolio approach to supply contracts Buyer signs multiple contracts at the same time
optimize expected profit reduce risk.
Contracts
differ in price and level of flexibility hedge against inventory, shortage and spot price risk. Meaningful for commodity products
a large pool of suppliers each with a different type of contract.
Buyer can select a trade-off level between price risk, shortage risk, and inventory risk by carefully selecting the level of longterm commitment and the option level.
For the same option level, the higher the initial contract commitment, the smaller the price risk but the higher the inventory risk taken by the buyer. The smaller the level of the base commitment, the higher the price and shortage risks due to the likelihood of using the spot market. For the same level of base commitment, the higher the option level, the higher the risk assumed by the supplier since the buyer may exercise only a small fraction of the option level.
2007 Pearson Education
Option level
High
N/A*
Low
*For a given situation, either the option level or the base commitment level may be high, but not both.
Design Collaboration
50-70 percent of spending at a manufacturer is through procurement 80 percent of the cost of a purchased part is fixed in the design phase Design collaboration with suppliers can result in reduced cost, improved quality, and decreased time to market Important to employ design for logistics, design for manufacturability Manufacturers must become effective design coordinators throughout the supply chain
2007 Pearson Education 13-67
Concurrent Engineering Computer-Aided Design (CAD) Recycling Remanufacturing Design for Disassembly Component Communality
Concurrent Engineering
To achieve a smoother transition from product design to production, and to decrease product development time, many companies are Using simultaneous development, or concurrent engineering. In its narrowest sense, it brings design and manufacturing engineering people together early in the design phase to simultaneously develop the product and the processes for creating the product. May mean to include include manufacturing personnel (e.g., materials specialists) and marketing and purchasing personnel in loosely integrated, cross-functional teams.
Recycling
Recovering materials for future use.
Cost savings., Environment concerns.
Environmental regulations
An interesting note: Companies that want to do business in the European Economic Com munity must show that a specified proportion of their products are recyclable.
Remanufacturing
Remanufacturing refers to refurbishing used products by replacing worn-out or defective components, and reselling the products.
This can be done by the original manufacturer, or another company.
Among the products that have remanufactured components are automobiles, printers, copiers, cameras, computers, and telephones.
Focus for direct materials should be on improving coordination and visibility with supplier Focus for indirect materials should be on decreasing the transaction cost for each order Procurement for both should consolidate orders where possible to take advantage of economies of scale and quantity discounts
2007 Pearson Education 13-76
User/Requisition
Yes
MR
Purchase
PO
No
RFQ/ RFP & SO
DO
Storage/ Warehouse
MR
PO
Accounting
Invoice & PO
Invoice
PR = Purchase Requisition
PO = Purchase Order DO = Delivery Order
e-Procurement
Material User Material Requisition into IT system Purchasing Department/Buyer Extracts & Assigns merges suppliers to material requisition requisition on B2B data into system for Internet bidding based B2B and Bids system specific evaluation Supplier closing date and selection & Issue PO other conditions Supplier
Purchase Order
Criticality
General Items
Low
Low
Value/Cost
2007 Pearson Education 13-79
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