Chapter 5 - Sourcing Flashcards
Order Fulfillment
- Purchasing, producing, and logistics are responsible.
Purchasing
Acquires the inputs used to support production and day-to-day business activities.
Production
Converts sourced inputs into a product or service that customers value.
Logistics
Transports and stores goods, assuring that inbound materials are available for operations and that outbound finished products are available when and where the customer wants to buy them.
SCOR Model (Supply-Chain Operations Reference)
- Creates a common vision for managing and coordinating five SC processes.
1. Plan
2. Source
3. Make
4. Deliver
5. Return
Plan
- Balance demand and supply
- Develop a course of action to meet needs.
- Aligns SC plan with financial plan.
Source
- Processes that purchase goods and services to meet planned or actual demand.
- Selecting suppliers
- Establish policies
- Schedule deliveries
- Assess performance
Make
Process that transforms product to a finished product.
- Scheduling production
- Measuring performance
- Managing inventory
- Configuring the network
Deliver
Providing the finished goods and services to customers.
- Order management
- Warehouse management
- Transportation management
Return
Processes associated with the return of products for any reason.
- Includes post delivery customer support.
- Reverse logistics
- Long term customer support
Purchasing as a Strategic Function
- Purchased inputs became a primary operating cost.
- Just in time manufacturing place greater emphasis on long time supplier relationships.
- New technologies made it possible to store and track info.
- Better trained and more competent managers began to enter the supply arena.
Cost of Sourcing
- .55 of each dollar spent on purchased goods and services.
- 60-80% of operating expenses
- The single largest cost category.
The Sourcing Process
- Need is Identified and Communicated
- Supplier is selected
- An order is placed and transaction is managed.
- Performance is measured and relationships are developed.
Recognition and Description of a Need
- Begins the sourcing process
- Use of a purchasing policy or procedure handbook, guidelines in place.
- Purchase Requisition
Purchase Requisition
- Clearly describe and communicates needs to sourcing.
- Item description
- Requisitioning Department
- Authorizing Signature
- Purchase quantity
- Delivery date
- Location
Supplier Selection
- Identification
- Evaluation
- Approval
- Monitoring
* Most important step
- High quality, low cost
- Identification
Make a list of all potential suppliers.
- Evaluation
- Identification of supplier selection criteria
- Gather performance info.
- Assess and compare suppliers
- Approval
- Identifies the suppliers eligible to receive an order if price is competitive.
- Number of suppliers on list depends on item being purchased.
- Commodity type = multiple suppliers
- Unique items = sole-sourcing.
- Monitoring
- Assures high level of performance
- Scorecards are used to give ratings.
Transaction Management
- Price Determination
- Purchase Order
- Follow-Up and Expediting
- Receipt and Inspection
- Supplier Payment
- Price Determination
- Best Price = buying at list price, competitive bidding, negotiation.
Buying at list price
- Lower-volume or lower-valued items.
Competitive bidding
- Relies on the market forces to get suppliers to offer a low price.
- Real-time, on-line bidding, revers auctions = 10-30% reductions in price.
- Dollar value of purchase is high enough to justify work.
Negotiation
- Used when the dollar value of purchase is large
- High uncertainty exists
- Long-term relationships desired.
- Price agreement that is mutually beneficial.
- Preparation of the purchase order
- Specifies the terms and conditions of the purchase agreement and initiates supplier action.
- Blanket order, web catalogs (place order with click of a mouse), corporate procurement cards (small dollar purchases).
Blanket Order
- Overall terms of agreement for a given time period.
- 1 to 2 yrs.
- Covers entire quantity to be purchased.
- Buying organization submits a materials release to trigger a new shipment.
- Follow-Up and Expediting
- Assures that suppliers comply with the purchasing agreement.
When problems occur…
- Increase frequency of follow-up efforts
- Send personnel to work with the supplier
- Use higher-cost emergency transportation
- Arrange for delivery from an alternative supplier
- Alter the buying organization’s production schedule.
Expediting
The efforts to speed up the delivery of an order.
Penalty Clauses
Built to avoid delivery problems.
- late fees
- incentives
- Receipt and Inspection
- Order arrives at buying company
- Passes through receiving process
- Invoice matched to contents (physical count and quality inspection)
Reasons for failure in receipt
- Count is off
2. Quality is inferior.
Supplier Certification
- Simplifies the receiving process
- Improve supplier’s abilities to eliminate inspections.
- dock to dock suppliers
- better quality and reduced cycle times are benefits.
- Invoice Clearance and Supplier Payment
- Timely payments help build good relationships.
- 2% discount if payment made in 10 days with full pmt. due in 30 days.
Relationship Management
- Performance Monitoring and Improving
Information that should be tracked
- Current status of POs
- Performance on selected evaluation criteria for all suppliers
- Info. on each part type
- Info. regarding all contracts and relationships.
Purchasing Skills
- Knowledge Management
- Relationship Management
- Process Management
- Technology Management
Knowledge Management
- Commodity expertise
- Understanding of suppliers capacities
- Clear idea of upstream processes
- Increase global awareness and skill set
Relationship Management
- Building right relationships with suppliers.
- Build new and maintain fair relationships.
Process Management
- Constantly improve the sourcing process
- Manage collaborative processes (NPD, supplier certification, cycle-time reduction)
- Help suppliers improve their own processes.
Technology Management
- Web catalogs, web scorecards, EFT, online bidding, real-time info. exchange.
- ERP and CRM software are expensive - purchasers can help make decisions with these.
