Supply Management Pt.1

Supply Management Pt.1

1. Sourcing or Purchasing has always been important (Bozarth and Handfield, 2013)

2. Why Supply Management?

   • Companies who compete globally should source globally
   • For most manufacturing companies 50% of product value is from raw materials

3. Sourcing Strategy

   • 1. Assess Opportunities
   • 2. Profile internally & externally
   • 3. Develop the Sourcing Strategy
   • 4. Screen Suppliers & Create Selection Criteria
   • 5. Conduct Supplier Selection
   • 6. Negotiate & Implement Agreements
   • iterative process

4. Outsourcing

   • a management strategy by which major non-core functions are transferred to specialist, efficient, external providers (Lyssons and Farrington, 2010)
   • Make or Buy is central to Outsourcing

5. Make or Buy

   • Strategic
   • Tactical
   • Component

6. Examples

   • Intel
     • 1980's being forced out by competitors
     • focus on developing more complex IC's so moved to processors
     • today maintain approx. 90% of market
     • Jacobs 2013

7. Reasons for Making

   • Core Competencies
   • Low Production Costs
   • Unsuitable Suppliers
   • Assure Adequate Supply
   • Utilise Labour Surplus

8. Reasons for Buying

   • Inadequate Capacity
   • Frees up Managements Time
   • Preserve Supplier Commitment

9. Boundaries of Firm

   • aggregation of reasons for buying or selling defines firms boundaries
   • Boundaries are internal rather than performed by suppliers.
   • Boundaries help form the responsibilities of the suppliers and the firm
   • Cousins et al. 2008
   • Scenarios
     • Scenario 1: Firm completes only Manufacturing
     • Scenario 2: Firm completes manufacture and refines raw materials.
     • Scenario 3: manufacturing and assembly performed inhouse
     • Scenario 4: Firms decides to perform all stages i.e Vertical Integration

10. TCE Transaction Cost Economics

    • Willamson 1991
      • transaction is basic unit of analysis
        • These are costs of planning, coordinating and safeguarding exchanges between parties
          • example costs
            • bargaining costs
            • selection costs
            • contractual costs
          • contracts for suppliers are complex and constly
            • Difficult to determine opportunistic supplier from cooperative supplier
      • According to TCE firms exist because of transaction costs
        • Transaction & behavioural characteristics inform transaction costs
          • cousins et al 2008
          • transaction characteristics
            • uncertainty
              • Behavioural Uncertainty and environmental uncertainty
            • asset specificity
              • transferability of asset to buyer-supplier relationship
              • Intel cannot pass off their knowledge of Microprocessor too many years of experience
          • Behavioural Characteristics
            • opportunism
              • people driven by self interest
            • bounded uncertainty
              • argues that managers do not maximise profits
          • firms make relationship specific investments
      • Costs are absorbed within each unit of the product
    • vertical integration can occur yet can lead to bureaucracy costs
    • Low levels of asset specificity and uncertainty means buy is more favourable
    • High levels of asset specificity and uncertainty means make is more favourable
    • TCE limitations
      • focuses on cost minimisation and NOT value maximisation
      • Does not address limitations of firm

11. Resource Based View

    • Focus on Value Maximisation
    • Firms as bundles of resources
      • resources are limited in supply
      • superior resources allow firms to produce at lower cost and satisfy demand
    • Primary Concern
      • argue that organizations should look inside the company to find the sources of competitive advantage
      • Sustaining competitive advantage through these resources include;
        • Imperfect imitability
          • firms cannot obtain a resources
        • imperfect sustainability
          • resources should be difficult to substitute
        • imperfect mobility
          • resources should not be mobile between firms
            • cannot be traded
      • aims to examine the boundaries of a firm independent of opportunism
      • emphasis on obtaining external resources that add value
      • Make or Buy Decision
        • Costly to develop resources
          • historical context
          • social complexity
      • limitations
        • does not concern transaction costs

12. Neoclassical View

    • Views that firms exist to maximise profits
    • firms are homogenous
    • their is 'no cost' involved in the economic exchange
    • Firms increase output until the last unit does not add profit

13. Kraljic Matrix

    • Leverage, Strategic, Non-critical, Bottleneck
      • Non-critical (routine) - raw materials - generally low profit impact and low complexity
      • Leverage - low complexity of supply yet high business impact
      • Bottleneck - high complexity of supply yet low business impact
      • Critical - high impact, high complexity i.e. sourcing engine for car
    • impact on business
    • Complexity of Supply Market