Effective supply management improves performance
Chapter 10
Sourcing and Supply Management
Copyright © 2017 McGraw-Hill Education. All Rights Reserved.
Copyright © 2017 McGraw-Hill Education. All Rights Reserved.
Learning Objectives
LO10-1 Define supply management and understand its impact on a firm’s performance.
LO10-2 Define and describe each of the six supply management goals.
LO10-3 Analyze costs and make insourcing/outsourcing decisions.
LO10-4 Explain the steps in a strategic sourcing process.
LO10-5 Describe the components in a sourcing strategy.
LO10-6 Assess and select suppliers.
LO10-7 Understand ways to manage ongoing supplier relationships.
10–2
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2
Chipotle®: Sourcing and Supply Management
10–3
LO10-1
© Stephen Brashear/AP Images
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3
Supply Management
Supply Management: identification, acquisition, positioning, and management of inputs and supplier relationships
Also called purchasing or procurement
10–4
LO10-1
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4
Effective Supply Management
10–5
A firm’s strategic objectives are better met when effective supply management:
Ensures timely availability of resources
Identifies, assess, and mitigate supply chain risk
Reduces total cost (not just purchase price)
Enhances quality
Enables access to technology and innovations
Fosters social responsibility
LO10-2
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5
Effective Supply Management
10–6
Supply Risk: probability of an unplanned event that negatively affects a firm
Delays and disruptions
Thefts of intellectual property
Price increases
Product safety problems
LO10-2
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6
Total Cost of Ownership
10-7
LO10-2
When the Cost Occur
Type of Costs
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7
Before the transaction
Time spent and costs of searching for, visiting, evaluating, and certifying suppliers.
Purchase price and costs of ordering, transporting, expediting, receiving, inspecting, and following up.
After the transaction
During the transaction
Costs of inventory, supply risk, production downtime, defects in finished goods, warranties, safety recalls, replacements, repairs, lost sales, liability, and damaged reputation.
Activity
Think of some of the total costs of ownership for the following items:
Car or bicycle
iPod or other music device
Textbook
10–8
LO10-2
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8
Goals Addressed by Sustainability
LO10-2
10–9
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9
Results from Sustainability
LO10-2
10–10
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Effects of
Sustainability
Improves financial performance
Increases quality
Instills customer loyalty
Enhances a firm’s reputation
Lower total costs
Effective Supply Management
Quality: A product’s quality is tied to the quality of its inputs.
Technology and Innovation: Suppliers are potential sources of innovation and new technology.
10–11
LO10-2
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11
Effective Supply Management
10–12
Social Responsibility: behaviors that benefit related communities
Add value to communities
Increase social diversity
Environmental responsibility
Ethical behavior
Financial responsibility
Respect human rights
Safe working environment
Others?
LO10-2
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12
Insourcing/Outsourcing
10–13
Insourcing: inputs from within the firm
Outsourcing: inputs from outside the firm
Make or Buy Decision: choosing between insourcing or outsourcing
LO10-3
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13
Outsourcing Advantages and Disadvantages
10–14
LO10-3
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Insourcing/Outsourcing
10–15
LO10-3
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Insource or Outsource? Steps 1-4 in Decision
10–16
LO10-4
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- Assess Fit with Firm’s Competencies
What is the product’s or process’s relationship to the firm’s current or future core competencies?
What are savings from outsourcing compared to losing core competencies or intellectual property?
- Evaluate the Suitability for Outsourcing
Characteristics that favor outsourcing: (1) Mature products with standard processes, (2) known technology where many capable suppliers and intellectual property risk is low.
- Evaluate the Reasons for Outsourcing
When product or process seems appropriate for outsourcing, compare the benefits of outsourcing versus insourcing.
- Assess All Relevant Quantitative Costs.
If previous steps indicate that outsourcing makes sense, compare the cost of making the product internally versus the cost of purchasing it.
Insource or Outsource? Steps 5-8 in Decision
10–17
LO10-4
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- Assess All Qualitative Factors
Important qualitative factors may include: loss of control; risk of dealing with a supplier; location, quality of supplier’s management team, compatibility of organizational cultures and values; supplier’s flexibility, labor-management climate, warranty and support systems; and proprietary information and degree of secrecy required.
- Review the Capability of Suppliers
This includes a review of the technical, financial, manufacturing, and quality-related capabilities of suppliers.
- Make and Implement a Decision
If you decide to outsource, select a supplier and document the anticipated benefits of outsourcing. If you decide to insource, document the reasons for this decision.
- Monitor the Decision and Revise It as Necessary.
Compare the actual results of the decision against estimates and identify potential problems.
Student Activity
10–18
LO10-4
Many universities are outsoucing services that were traditionally insourced. Make a list of the major services that your university offers. Which are opportunities for outsourcing and which should be insourced? Why?
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Strategic Sourcing Process
10–19
LO10-4
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19
Sourcing Strategies
10–20
Leverage
Consolidate
purchases
Strategic
Build
Relationships
Bottleneck
Use
Multiple
sources
Noncritical
Increase
efficiencies
Low High
Level of Supply Risk
High
Value
of
Spend
to Firm
Low
LO10-5
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20
Sourcing Strategies
10–21
Supply Base Optimization: number of suppliers to use
Too few increases shortage and price risks, innovation may be limited
Too many increases complexity and makes supply management difficult
LO10-5
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21
Sourcing Strategies
10–22
Capabilities and location are important:
Proximity impacts ease of communication, transportation costs and community perceptions
Consideration of trade barriers and incentives
Global presence may impact access to markets
LO10-5
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22
Supplier Relationships
10–23
LO10-6
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Assess and Select Suppliers
10–24
Competitive bidding: price is most important factor, specifications are clear, high value, several equally qualified sources
Request for Proposal (RFP) or Quote (RFQ): describes what customer wants; supplier responds with cost and other data for consideration
LO10-6
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Assess and Select Suppliers
10–25
Weighted Point Model: establishes performance categories that are weighted by importance
Table 10-2
LO10-6
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Activity
Assume you need a new place to live or are considering several job offers. Use a weighted point model to assist in the decision making process.
What criteria are important to you?
How important is each criteria?
How will you break a tie score?
10–26
LO10-6
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26
Assess and Select Suppliers
10–27
Online Reverse Auctions: suppliers bid in real time for buyer’s business
Supplier can make multiple bids
Usually price focused
Negotiation: bargaining process of planning, reviewing, analyzing, compromising to reach agreement
LO10-6
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27
Managing Supplier Relationships
10–28
Information sharing: buyers and suppliers need to share timely data about demand, supply and delivery
Electronic Data Interchange (EDI): structured, secure mode of transmitting data
LO10-7
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28
Managing Supplier Relationships
10–29
Supplier Scorecard: track and report supplier performance in key areas
Supplier Certification: assessment of supplier’s ability to meet buyer’s needs
Supplier Relationship Management (SRM): technology enabled data gathering about suppliers to manage strategic relationships
LO10-7
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Supplier Management Summary
Effective supply management improves performance
In/Outsourcing requires both quantitative and qualitative analysis
Strategic sourcing finds and manages suppliers that meet the firm’s strategic objectives
Relationships with suppliers vary based on cost and risk
Suppliers are selected using online auctions, competitive bidding, or negotiation
Supplier relationship management involves communication and coordination
10–30
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Category WeightRatingScoreRatingScoreRatingScore
Quality 40%31.252.031.2
Delivery 40%20.831.241.6
Price 20%51.030.620.4
Weighted Score 100% 3.0
3.8
3.2
Supplier A Supplier B Supplier C
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