Exam 3 Flashcards
How do you determine your sourcing method for each item?
Use the portfolio approach
Portfolio approach step one
Assess each items supply risk and profit impact
Supply risk
The extent to which an item is difficult to source
Causes of supply risks
Lack of qualified sources, raw material scarcity, lack of substitutes, complex high logisitical costs, existence of a monopoly or oligpoly
Profit impact of step one
A result of the sheet volume of spend or the items unique added value
Portfoilo approach step two
Plot each item on the portfolio model
Portfolio approach step three
Execute plan of action based on category
Routine items
Low value, small volume, individual transactios
Routine items action
Simplify and automate
Routine items example
Negotiate office supply rate oce and allow employees to make needed purchases using company cards
Leverage items
High spend, many qualified suppliers
Leverage items action
Max your position by volume discounts and promotong competitive bidding
Leverage items example
Heinz ketchup purchase of tomatoes using reverse action
Bottleneck items
Few alternate suppliers, complex or new specifications or tecnologies
Bottleneck items action
Ensure supply continutity while finding new suppliers
Bottleneck items example
Hospital supply manager working with internal customers to change cast colors
Critical iteams
High spend, quaility and design of upmost importance. Few qualified suppliers
Critical items action
Form and alliance with suppliers and create a contingency plan if supply should fail
Critical iteam example
McD creates in depth relationshops with critical suppliers
Lowering prices
A simplistic attempt at finding a lower cost for an item
Strategic cost management
Focuses on the total cost structures of a product
Strategic cost management attempts
To understand causes of costs for an item
Strategic cost management allows managers
To focus on reducing spend, price, cost, and total cost of ownership
4 tools of strategic cost management
Spend analysis, price analysis, cost analysis, total cost of ownership analysis
Spend analysis
What did we spend our money on and who did we spend it with?
Three caregories of spend
Direct spend, indirect spend, capital spend
A good spend analysis helps understand
Whether we recieved the correct amount for what we paid, who our biggest suppliers are and if their pricing is consistsent across divisions, opportunities available to combine our spending
Price analysis
The process of comparing suppliers prices against each other or an external benchmark
Price analysis critical
Make sure you are comparing items with the same specifications quaility levels lead times and warranties
Cost analysis
Analyzing each individual cost element that makes up the final price.
Cost analysis necessary when
Price analysis cannot be done due to low number of suppliers
Total cost of ownership analysis
Combination of all cost involved in a product not just the purchase price
Three types of costs
Acquisition costs, ownership costs, post ownership costs
Fundamental logistics trade offs
Every decision about one aspect of logistics affects the others
Three fundamental logistic trade offs
Cost to cost, modalities, cost to service
Cost to cost
Trading off speed of delivery with saving fuel
Modal trade offs
Trade off between and within the various modes of transporation
Cost to service trade off
Cost of improving service and service levels. Relationship is non linear
Landed costs
Integrated all trade offs in a landed cost analysis
5 modes of transportation
Maritime shipping, rail, trucks and cargo vans, air, pipelines
Maritime shipping
Used globally for large shipping
Rail
Limited where it can go, in us carries the most weight in tons
Trucks and cargo vans
Commonly used to ship door to door
Air
Most expensive way to ship, usually carries lightweight small expensive items
Pipelines
Used for petroleum or water, most cost effective mode of transportation
Consolidation
Taking small shipments and combining them into more econlarger shipments
Cross docking
A warehouse approach whereby large shipments come in and are broken into smaller shipments to several locations
Break bulk
Break bulk facilites are needed when large shipments need to be split apart
Hub and spoke
A method used to reduce the number or trucks or other carries needed for shipping when networks of cities are involved in delivery
