Flashcards
Supply Management: Purchasing, Sourcing and Supplier Strategy
Cards in this deck (25)
- 1Briefly describe direct and indirect materials.Direct: material for creating the product, 2/3 of total purchasing expenses.
Indirect: material needed for administrative purposes, few parts, many suppliers.
→ High cost savings potential, but standardization is needed. - 2What are the 3 Objectives of supply management.1. Cost out: lower TCO, identify cost saving potentials.
2. Value in: source innovations, use innovative potential of suppliers, try to integrate state-of-the-art suppliers into your supply chain.
3. Manage risk: most important factor. - 3What are the steps of a supplier lifecycle?1. Selection: TCO dominant fact
2. Monitoring: standardized control, evaluation distribution
3. development: implement measures based on evaluations. - 4How would you segment products you buy?ABC Analysis
A items are most valuable and essential to production, highest costs, but only few parts belong to them.
C items are neglectable, many parts with low profit impact.
Attention: absence of one of these small parts could cause supply disruption.
Pay attention for bottle necks and innovation potential.
Identify cost savings potential by changing suppliers or seeking alternatives. - 5Kraljic Portfolio. and what drives risk?Profit impact set against supply risk.
Leverage products: use competition to reduce prices.
Routine products: pay no attention, supply is secured.
Bottleneck products: unnecessary risk, eliminate them.
Strategic products: essential to production, hard to procure, insource, build up safety stock, increase R&D efforts.
Risk is driven by number of suppliers in market, complexity of supply chain and substitutability of products. - 6Describe the Organization of the purchasing department.Activity divisions: based on tasks, employees becoming experts in these areas.
Category divisions: based on what to buy, specialization, experts for markets and suppliers.
Customer divisions: based on (internal) customers & business units, offer solutions.
Geography divisions: based on geography, ensures independence. - 7What is the Optimal degree of centralization.Global markets: centralized sourcing, economies of scale, higher bargaining power.
Fragmented, local markets: decentralized sourcing, flexibility, speed, specialization.
Hybrid forms.
Supporting: Recommendations form above, but no formal authority, autonomous sourcing decisions.
Mandated: Coordinated from above, responsible for compliance with corporate standards.
Center-led: Infrastructure provided from above, contribution to company-wide spend management. - 8Lead buyer approach(decentralized → more centralized).
Each plant sources from its own, find optimal amount of purchasing experts and let them pool demand and take over purchasing activities of other plants.
Normally one lead buyer for one special part, but can be further distinguished by, e.g., regions.
→ Allow the lead buyer to become a specialist and other plants to focus on operations.
(1) Lead buyers convey demand information to local purchasing teams to aggregate it.
(2) LPTs send RFQs to qualified suppliers.
(3) Corporate Sourcing Committee CSC decides which suppliers to chose. - 9Ellram-Tate-Framework.Direct involvement: No commitment of employees for this traditional procurement activities, supply management coordinates all activities, facility management and security.
Guidance: small budget purchases, only few people involved, but those will lead negotiations and coordination, specialized consultants, supply management only supports e.g., by contract templates.
Consultation: sacred cows in each company, products with strategic importance, provide with advice, market research and supplier selection.
Oversight: used by multiple functions, high financial impact, services like call centers, development of a common process. - 10What is important about contracting?Determine details to ensure the flow of capital, goods and information.
Prevent frequent supplier contract modification by including the category “amount of supplier modification” into the SES as negative criteria.
Don't involve the legal department, takes too long.
Invest some time upfront to make yourself clear what you want and need, make everything clear.
Especially expected behavior, penalties, incentives and rewards. - 11Spend cubeSpend cube: 3 dimensions (what to buy, for whom to buy, from whom to buy).
Used to increase transparency over corporate purchasing behavior.
Used to optimize procurement by pooling demand and jointly seeking for changes.
--> leverage competition - 12Explain the advantages and disadvantages of single, dual, and multiple sourcing.single: solely purchase from one supplier.
Advantages: close relationship, least effort required.
Disadvantages: high dependence, not always ensures the highest performance.
Dual sourcing: purchase from two suppliers.
Advantages: higher bargaining power, reduce danger and impact of bottlenecks.
Disadvantages: less loyalty of each supplier.
Multiple sourcing: purchase from as much suppliers as possible.
Advantages: always ensure the lowest prices, no (unsystematic) supply risk.
Disadvantages: high coordination effort, time-consuming evaluation process. - 13Supplier selection funnel. normal(1) Seek for suitable suppliers, e.g., at fairs.
(2) Reveal technological feasibility via RFQs and technical quotations.
(3) eBidding events to filter out too expensive suppliers.
(4) Negotiate with the cheapest three or five suppliers and award the most suitable one. - 14Explain the three auctions types and their differences.English reverse auction.
Suppliers have multiple, visible bids.
Benefits: leverage competition among the suppliers.
Risk: supplier collusion or presence of bird watchers.
Dutch reverse auction.
Low price is incrementally increasing until the first supplier takes it.
Benefits: Anticipated pressure leads to higher competition.
Risk: Supplier collusion.
Japanese reverse auction.
High price is incrementally decreasing until the last supplier drops out.
Advantage: Identify the lowest price possible, last supplier competes against himself.
Risk: Neglecting the benefits of direct competition. - 15explain why global sourcing and what is selection funnel?Increase pressure on suppliers via global sourcing.
(1) Gather information about own needs and potential suppliers.
(2) Request information regarding capacities, capabilities, references, etc.
(3) Request for quotation.
(4) Supplier pre-qualification based on technological capability. - 16purchasing chessboard. die ersten beidensupplier power stated against demand power.
I. Leverage competition among suppliers by (i) tendering, (ii) leveraging global supplier markets, (iii) reviewing suppliers' prices, and (iv) enforce target prices.
Cost regression analysis to determine the target price reached by (hard) negotiations.
II. Seek joint advantage with suppliers if supplier and buyer have equal market power.
Not possible to increase competition among suppliers to lower prices.
Try to (i) build joint cost or (ii) value partnerships, (iii) implement an integrated and transparent operations planning process, or (iv) implement value chain management.
Together, support to reduce costs, improve quality or quantity, etc. and share benefits. - 17purchasing chessboard. die letzten zwei.III. Change the nature of demand in (quasi-) monopolistic supplier markets.
Search for alternatives by (i) data mining, (ii) re-specifications, (iii) risk management, or (iv) innovation breakthrough.
Successful in patent-protected markets where special component suppliers dictate their prices.
IV. Manage spend for less important goods like office supplies by (i) volume bundling, (ii) commercial data mining, (iii) co-sourcing, or (iv) demand management.
Transparency of spending behavior is one concrete approach to reduce costs and increase value. - 18Changing demand.Standardization: reduce differentiation to increase economies of scale.
Benefits: less complexity, benefit from leaning curve, cheaper, higher bargaining power. Dis.: lack of differentiation, dependency
Modularization: deconstruct a complex system in completely independent subsystems which need each other to ensure the functioning of the initial system.
Benefits: Less suppliers, better relationship with them (joint value creation, co-creation, supplier development or innovation sourcing), less coordination efforts.
Disadvantages: dependency, effort-lasting to set up detailed contracts, requires transparency within the supply chain.
Substitution: seek for cheaper or more feasible alternatives.
Benefits: Increase bargaining power, independence. Disadavantage: feasibility and customer preferences - 19Supplier developmentJoint value creation with high-potential suppliers.
Newcomer: Already being a price challenger and/or a small innovator.
Provide with long-term contracts in order to secure growth.
Volume supplier: Already cost leader or technology star.
Help them from performance focus to cost leadership (or vice versa).
Degenerated supplier: Already over-priced and out-dated.
As long as still feasible, re-vitalize the supplier by efficiency improvements, investments or innovations; leverage the existing knowledge. - 20What are potential pitfalls in supplier development?Internal resistance to change (especially in case of lay-offs).
Not capable for the intended changes.
Risk of delivering the competitors.
Risk of forward integration turning the supplier into a direct competitor. - 21How to make supplier development more efficient?Requirements to make supplier development more efficient.
Target all departments, every part within the company.
Central coordination to ensure consistency, focus on what matters first.
Individual alignment, incentives and penalties.
Track key milestones and accountability constantly. - 22innovation sourcingBenefit from the innovation potential of the suppliers, focus on own competencies, limit downside risk, reduce costs and ensure specialization.
Risks: dependency, more complex coordination, unclear accountability, risk of delivering the competition, higher risk for waste or expensive adjustments.
When to consider: not enough people, resources, capabilities, if outsourcing is cheaper, reputational concerns, speed to market, limit downside risk, choice.
Risks: Risk of failure (wrong supplier), losing competitive advantage, dependency.
How to implement: R&D project, develop joint ventures, buy the supplier (M&A). - 23Ways to include supplier developmentpure purchasing: find capable suppliers and buy
job order production: own R&D development, then go to suppliers and let him manufacture (Apple)
Competition concept: Define the requirements and let several suppliers work on this problem, pick the one with the best solution approach and co-create together.
prototype competition: same as concept but suppliers are chosen after they developed prototype, not many will do this due to high cost '/ risk
two staged contract: one co create develops one manufactures - 24supply risk and price riskSupply risk: physically impossible to get the things needed.
Price risk: able to find the things needed but too expensive for using it in the planned way.
Mitigation strategies: seek for and develop substitutes, insourcing, physical (safety stock) and financial risk (options, futures), spread out supply, longer-term contracting.
Dangers of hedging: shield yourself from positive contingencies, ineffective, expensive.
Reasons for raw material price fluctuations: climate change, war & terrorism, supplier consolidation, government strategic purchases, increased demand from NIC. - 25risk mitigation / supply shortages:Company: Direct methods: exploit existing strategies of the company, exploit processes and capacities.
Strategic projects: Inhousing, creation of new suppliers, development for alternatives.
Dyadic: Exploiting existing contracts: optimize or enlarge them.
Joint value creation: supplier development, supplier innovation, standardization, (de-)modularization.
Network: Leverage personal networks: influence politics, leverage existing know-how.
Open innovation: provide with platforms to foster external innovation, outsource innovations.
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- Flashcards on Untitled, created by Alexander Bark on 22/10/2017.
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