L1.1 Compare the concepts of procurement and supply chain management Flashcards
Define procurement
- Procurement involves something which may be TANGIBLE (i.e. goods) or INTANGIBLE (i.e. services)
- it is a STRATEGIC FUNCTION of a business and involves high levels of skill - Purchasing and supply are FUNCTIONS within the procurement process
- Purchasing is the act of physically ordering and buying something
- Supply is the INFRASTRUCTURE which ensures that products or services get from the supplier to the customer - incl. elements such as
- added value
- cost
- inventory
- logistics
- purchasing
- quality
- supply
- waste mgmt
Define supply chain
+ 3 main industry sectors
*some biz are linked solely to one sector, others may be linked to all 3
*every sector has a shared end goal: to produce/supply sth to a CONSUMER
A channel of goods DISTRIBUTION…
- starting with producers (of RAW MATERIALS), then suppliers, manufacturers, distributors, retailers, and end users (consumers)
Sectors
1. PRIMARY sector - extracts raw materials, eg. mining for coal/metals, drilling for oil, agriculture, forestry, fishing
2. SECONDARY sector - manufactures things & construction industries, eg. refining oil into diesel/petrol, assembling raw materials to build houses
3. TERTIARY sector - provides services, eg. insurance, education, healthcare
2 stages of supply chains
- UPSTREAM
- the supply flow of raw materials from PRODUCERS to SUPPLIERS, who send the materials to the MANUFACTURER for production - DOWNSTREAM
- the supply flow of the product from the MANUFACTURER to DISTRIBUTORS, who delivers them to the END USER/CONSUMER
Define supply chain management
+ 3 aims
= mgmt of the FLOW of goods, services and suppliers from raw materials to the consumption by the consumer, requiring a NETWORK of SUPPLIERS that LINK the supply chain together
- ensuring that all aspects of the supply chain are performing correctly + managing customer relationships
VALUE in the supply chain comes from the EFFECTIVE MGMT of:
1. price
2. delivery
3. storage
4. ethics
5. environment
6. sustainability
7. communication
8. quality
“please deliver small elephants, especially sour cherry quinoa”
*value is to give the supplying org. a competitive advantage over competitors
Aims
1. to reduce costs
2. to improve value
3. to reduce risk
+ also involves managing CUSTOMER RELATIONSHIPS
Supply chain management -
Chocolate industry supply chain: ethical concerns case study (2018 report)
If consumer discovers that part of the supply chain involves unethical behaviour, the org. could suffer REPUTATIONAL DAMAGE
eg. use of child labour, deforestation (impact of cocoa farming on environment)
*root cause of child labour is poverty
Define supply chain network
+ designed around which 5 areas?
An EVOLUTION of the basic supply chain…
- involving a higher level of INTERDEPENDENCE between org.s in the entire supply process and…
- MANAGING FLOWS of goods and information to successfully meet customer demands between more org.s both upstream and downstream
!! In a supply chain network, goods flow one way vs information flows two ways.
Designed around:
1. EXTERNAL SUPPLIERS
- who is going to provide materials to make the goods/services?
2. MANUFACTURERS
- who is going to produce the end product?
3. DISTRIBUTION/WHOLESALE CENTRES
- who is going to manage the storage and transportation of the products?
4. LOGISTICS
- who is going to ensure that everything is where it should be at the required time?
5. CONSUMER DEMAND
- do the intended individuals have a need/desire for the end product?
Compare the role & function of supply chain management with procurement
Similarities
1. Supply chain management and procurement are not the same thing, although they are INTER-RELATED
Differences
1. The process of procurement is complete when the product/service the buyer has been tasked to source and buy has been DELIVERED, CHECKED, AND PAID FOR.
- vs The process of SCM continues until the end product REACHES THE CONSUMER.
2. Procurement is PART OF supply chain management {along with manufacturing & sales}
Definition and function of supply chain tiering
+ 2 drivers of supplier tiering
+ advantage
+ disadvantage
The structured ordering and organisation of suppliers so that org.s downstream work with fewer suppliers upstream
- an important feature of COMPLEX SUPPLY CHAINS
!! The lower the tier number, the closer to the buyer the supplier is.
eg. tier 1 supplier supplies buyer directly, tier 2 supplier supplies a tier 1 supplier
2 drivers of SC tiering
- many org.s are now buying in services/components previously produced in-house
1. Globalisation
2. Localisation
Advantages
1. Allows for concentrated development of fewer suppliers
- which enables the buying org. at each tier to LEVERAGE IMPROVED SUPPLIER RELATIONSHIPS
- fewer suppliers to manage means MORE TIME & RESOURCES can be allocated to supplier relationship mgmt
Disadvantages
1. Buyers are more susceptible to risk factors eg. compliance, ethics, compliance from suppliers outside tier 1
- due to LESS VISIBILITY & CONTROL OVER SUPPLY CHAIN
-> buyers must look beyond tier 1 suppliers when reviewing and MAPPING their supply chains to mitigate these risks
Definitions and issues related to complex supply chains
- *rmb that supply chain tiering is an important feature of COMPLEX SUPPLY CHAINS
-
original equipment manufacturer (OEM)
- producer of OWN-BRANDED parts/equipment which are sold to other manufacturers for production and retail, eg. car manufacturer
- sit at the TOP of SUPPLIER TIER
Issue
- OEM’s RESPONSIBILITY to ensure each tier of its supply chain conforms to the same ethical & sustainable organisational STANDARDS and external REGULATIONS
» the OEM will conduct supplier audits on the entire SC network, but may also rely on tier 1 suppliers to ensure that lower part of the chain is well managed
» HOWEVER, most org.s only conduct due diligence on tier 1 suppliers, so the potential for illegal practices in diff. tiers exists
How to mitigate this risk?
- it is best practice to do SUPPLY CHAIN MAPPING to easily understand the SC activities, locations, resources and suppliers in a clear format
- mapping also helps org.s to COMBAT MODERN SLAVERY and other unethical practices
Define logistics
+ internal and external logistics
- The control of the FLOW of goods/services between 2 points. It is about making sure that ppl/things are where they need to be at the correct time.
- w/o efficient logistics, the supply chain would fail. Logistics is involved in EVERY STAGE of the supply chain.
INTERNAL logistics
- includes the processes that relate to turning the RAW MATERIAL into the desired END PRODUCT
1. extraction/production
2. manufacturing
3. warehousing/storage
EXTERNAL logistics (processes include…)
1. distribution
2. transport
3. retail
5 areas of Logistics that need to be managed in order to keep the entire process running effectively {elaborate}
1. Demand planning
2. Fleet management
+ Amazon Seller Flex case study (2017)
- Inventory management
- Warehousing and storage
- Order fulfilment
+ KFC cost-cutting logistical failure case study (Feb 2018)
- DEMAND PLANNING
- about knowing what is required and when
- achieved by working closely with other org.s in the SC and ensuring good and accurate communication - FLEET MANAGEMENT
- solutions to physically transport goods from one place to another
- many org.s OUTSOURCE their transport needs to REDUCE COSTS, but disadvantage is a LOSS OF CONTROL
Amazon Seller Flex, raising the standard on delivery
- Amazon itself will collect packages from sellers and deliver to customers, reducing its reliance on third-party delivery partners, UPS & FedEx
- to offer a more consistent shipping experience for customers & greater flexibility for Amazon itself
- INVENTORY MGMT, WAREHOUSING & ORDER FULFILMENT
- knowing how much inventory/stock is available
- products should be stored in the correct way within warehouses, eg. temperature, away from bright lights
- good warehouse designs allow quick and easy product selection, eg. clear labelling, barcoding on racks
- if products cannot be found / not in right quantity, distribution element of logistics cannot happen & orders can be left unfulfilled
KFC’s logistical failure
- In 2018, KFC ran out of chicken. All across Europe, hundreds of KFC stores had to close down due to a lack of essential ingredients and items like ketchup, salt, and of course, chicken
- KFC switched distribution from multiple warehouses across the country to a SINGLE WAREHOUSE as part of huge cost-cutting exercise
- its delivery partner DHL did not have the CAPACITY to serve outlets from a single site -> the supply chain was not built for flexibility
- increasing trend towards DISTRIBUTED WAREHOUSING in the supply chain, to better serve customers -> essential to be able to reduce delivery times
» any one failure at a warehouse is limited to that one warehouse rather than affecting the whole biz operations
» barriers to distributed warehousing: COST & FLEXIBILITY, as typically tied to long-term leases & may high high costs of re-agreeing or changing existing leases
eg. Stowga’s Warehousing as a service {on-demand warehousing}
Define materials management
Materials management covers the planning, handling, storage, inspection and issuing of raw materials, components and finished goods.
- individuals are responsible for PLANNING and ensuring the goods are PROCURED, IDENTIFYING them upon receipt, and putting them into the CORRECT STORES LOCATION
- goods received by an org. need to be VERIFIED to ensure they meet the SPECIFICATION on the purchase order; the QUALITY & QUANTITY must be checked
- PERIODIC STOCK TAKES of the inventory are undertaken to check against the amounts shown on the system
- MM dept is also responsible to ensure that the correct equipment is available to LOAD, UNLOAD & STORE MATERIAL SAFELY, w/o damaging it or endangering anyone
!! Materials management is a CORE part of a supply chain.
Define waste management
*waste encompasses most unwanted materials
- WM encompasses the STRATEGIES org.s use to DISPOSE of waste + to REDUCE, RECYCLE, and PREVENT it from occurring in the first place
- a prominent feature at the end-of-life stages of asset mgmt - org.s have a DUTY OF CARE to incorporate responsible waste mgmt under the UK Environmental Protection Act (failure to comply is a criminal offence)
- org.s that act irresponsibly around waste disposal could suffer REPUTATIONAL DAMAGE; stakeholders & customers may BOYCOTT the org.
- the laws around WM are designed to PROTECT & PRESERVE
- human health and wellbeing
- environment, wildlife, buildings, scarce raw materials
The waste management hierarchy
+ 4 benefits of effective WM
Moving down the hierarchy, the amount of waste DECREASES at each stage
1. reduce amount produced (top)
2. reuse waste
3. recover waste (recycling, composting, and waste to energy)
4. send to landfill (bottom)
Benefits
1. COMPLIANCE with REGULATIONS -> less risk of fines/penalties or REPUTATIONAL DAMAGE
2. +ve impact on ppl, the planet and its resources
3. enhanced brand REPUTATION -> org.s, stakeholders, suppliers want to work with you + customers want to buy from you
4. COST SAVINGS associated with the elimination of unnecessary waste from the supply chain
Define closed-loop recycling
+ comparison with open-loop recycling
+ 4 benefits
*one of the best ways to reduce waste is through closed-loop recycling
- products can be converted into new products W/O losing their properties during the recycling process & do not require other materials to be added in order to create new products
- ie. products have a CIRCULAR nature, CONTINUOUS LIFE-CYCLE through recycling and reuse
eg. aluminium, glass, some types of plastic
vs OPEN-LOOP recycling where products are recycled but need to be mixed w/ new materials to become a new product -> with lower functionality and quality than the original, cannot be recycled again -> downcycling
Benefits
1. preserves NATURAL RESOURCES
2. FREES UP SPACE in landfill for items that absolutely cannot be recycled
3. minimises effect on ENVIRONMENT & WILDLIFE
4. contributes towards SUPPLY CHAIN SUSTAINABILITY
