Chapter 9 Supplier Development

Question 1

Rationalization and optimatimization: creating a manageable supply base

Answer 1

Determining optimal number and quality of suppliers in supply base and it’s a continuous process

Rationalization- process of identifying or analysis of how many and which suppliers to maintain

Optimization -analyze of the supply base to ensure that only most capable suppliers and high test performing suppliers are kept

Should be a continuous process eliminating if both marginal and small-purchase volume suppliers

Requires effective supplier evaluation ms measurement system

Usually result in net reduction

Question 2

Rationalization and optimization activities (GRIDE)

Answer 2

Development of supplier evaluation and measurement system to identify best performing suppliers and develop stronger business relationship with the suppliers

Elimination of marginal and small-volume suppliers

Replacement of “good” suppliers with better ones

Initiation of suppliers of supplier development activities to improve performance

Global search for world class suppliers

Question 3

Advantages of rationalization and optimization

Answer 3

Buying from world class- suppliers
Use of full-service suppliers
Reduction of supply base risk
Lower supply base administration cost lower total product cost
Ability to pursue complex supply management strategies

Question 4

Formal approaches to supply base rationalization

Answer 4

Formal approaches to supply base rationalization

Twenty-eighty rule (20/80) - based on Pareto principle 20% of suppliers contribute to 80% purchase spend

Improve or else approach - providing suppliers a chance to improve performance based on quality, delivery and cost reduction.

Triage approach - categorization of existing suppliers e.g. marginal performances, suppliers that have not consistently met the buyer’s requirements

Compentency staircase approach - series of performance milestones, suppliers must meet quality standards in advance.

Question 5

Supplier development activities

Answer 5

Sharing technology
Providing performance among suppliers
Providing necessary capital
Directly involving buyer perseoneel

Question 6

Supplier Development

Answer 6

Any activity taken by a buyer to improve supplier performance

Question 7

Supplier development activities

Answer 7

Sharing technology
Providing performance incentives
Providing necessary capital
Directly involving buyer personnel
Promoting completion among suppliers

Question 8

Supplier development process
(IIFMIDRM)

Answer 8

Step 1: identify critical commodity
Does the buyer plan to treat supplier as partner

Step 2: identify critical supplier
Routinely evaluate suppliers and rank them from best to worst

Step 3: form cross functional team
Develop an internal consensus and support

Step 4: Meet supplier’s top management
Foster two way communication

Step 5: identify Opportunities and probability for improvement
May be driven by final customer’s requirements and expectations

Step 6: Define key metrics and cost-sharing mechanisms
Determine if opportunities are realistic and achievable

Step 7: reach agreement on key projects and joint venture
Identify necessary resources

Step 8: Monitor status of project and modify strategies as appropriate
Routine monitoring

Question 9

Reduction of supply base risk defined

Answer 9

•supply base risk defined
Magnitude of exposure to financial loss or operational disruption and stem from uncertainty

•need for carefully selected and qualified suppliers
-result in reduced variability and Moore consistent quality

Question 10

Possible Risks of Maintaining
Fewer Suppliers

Answer 10

●Supplier dependency
●Absence of competition
●Supply disruption
●Overaggressive supply reduction