L4M6 Chapter 1 Flashcards

Question

XYZ Ltd is a medium-sized engineering company that manufactures a range of equipment used in the civil engineering industry. Over the last five years, XYZ has noticed a decline in sales as a result of competitive activity, mainly from companies based in developing countries. These competitors have access to lower labour and raw materials costs and can undercut XYZ’s prices significantly in most of the markets in which it operates. In response to this strategic threat, XYZ has proposed the following action plan: (i) Maintain its market share by innovation, and by providing a first class technical service to its many UK and international customers (ii) Rigorously cut waste from its supply chain (ii) Encourage innovation from its suppliers (iv) Aim at cost parity or proximity relative to its competitors Its source of competitive advantage is based on which recognised approach?

Answer 1

Cost Leadership A company who selects cost leadership strategy will implement the following: • The company competes as the lowest-cost producer by exploiting the sources of cost advantage • The company typically sells standard or budget products Competition in the market will be fierce if there are many adopting this strategy of cost leadership. Differentiation. In a differentiation strategy, a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. XYZ encourage innovation and provide first class technical service Focus XYZ serves a broad range of customers, including UK and international customers. Firms that are successful in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow geographic market segment, or to a particular buyer group or segment. The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.

Answer 2

Review whether any current inputs could be submitted by non-branded alternatives. In the scenario, since the revenue is still rising but margin is falling, the focus should be put on managing cost of inputs. In managing the cost of inputs, one of the first jobs of procurement is to work with the user department and other key internal stakeholders on the specification of the requirements. In this scenario, the main cost driver is the use of branded technical equipments. Procurement can reduce the cost of inputs by reviewing whether any current inputs could be substituted by non-branded alternatives. There are other elements to consider: - Ensuring that the user department has not over-specified the requirement - Making sure that the specification is clear and unambiguous, that prices are not being over-inflated due to uncertainty - Ensuring that all spend with a supplier is captured under the contract and in line with agreed rates - Involving the supplier early on in the process.

Answer 3

Managing quality of input Selecting appropriate suppliers and managing their costs Value for money Sustainability The primary objective of procurement department is to obtain the 'inputs' required for the operation of a company, these inputs vary according to the type of the organisation. The main objective of a procurement function is to provide (inputs of the ‘right quality’; delivered in the ‘right quantity’ to the ‘right place’ at the ‘right time’ for the ‘right price’. These are called procurement 5 rights. These are often called the 'five rights of procurement'. Meanwhile, we can identify other general objectives of procurement operations or other primary task of procurement. They are Internal customer service, Risk management, Cost control and reduction and Relationship and reputation management and sustainability, Ideally, we might aim to achieve both of these objectives (improved output at reduced cost). by means such as the following. 1. Efficient management of procurement activities to reduce transaction cost that will enable cost reduction 2. Effective inventory management, to minimise acquiring and holding costs this also will help in cost reduction 3. Effective contracts negotiation and management in order to reduce the cost of inputs 4. Effective communication with user departments to enhance specifications, so that business needs are fulfilled more efficiently and at lower cost 5. Selecting and managing suppliers, in order to improve the quality of inputs, with consequent improvement in the quality of outputs 6. Working with key supply chain partners to eliminate wastes (non-value adding activities) wherever they are found in the supply process: an approach sometimes referred to as 'lean' supply.

Answer 4

Partnership relationship. An open book costing is nothing more than an agreement to view data and financial information relating to costs incurred in any one part of the supply chain. Benefits To Open Book Costing Supplier is helped to retain the customer’s business, Supplier is kept stable and will also be able to meet the customer’s needs. Open and transparent negotiations which enables the customer to buy from suppliers that they trust and who offers the best overall value. Customer can even help the supplier by suggesting ways that they may be able to source some raw materials from companies that offer better value for money, thereby reducing the costs of the end product further.

Answer 5

External supplier is the supplier that is independent of the organisation and provides products or services to it. When an external supplier is selected, particularly for complex contracts, the decision is made based on several factors. These factors include but may not be limited to: purchase price, delivery lead time, quality of product or service and the previous experience of the supplier. There are a number of advantages and disadvantages to using external supplier as below: Advantages * An external supplier is usually an expert in its core business * Having relevant competencies and technology and coupled with the need to compete in the market, suppliers are likely to be able to provide better value for money * Cost effective due to economy of scale * Enabling buying organisation to focus on its core business Disadvantages * Dependency of suppliers, especially in a non-competitive market * Supplier’s business behaviour may have negative impact to the reputation of the buying organisation * The risk of relational issues * Cost and risk of transportation

Answer 6

No because the Kralijic model does not tell the buyer about the supplier's perspecive. Supplier preferencing model provides the buyer with information that it was unaware of and the supplier's view. Therefore, once both Kraljic and supplier preferencing have been undertaken, the buyer will have fuller picture of the best strategy to help it move to the desired relationship. If buyer just uses Kraljic matrix to build-up the strategy, this may lead to potential risk for the buyer because sometimes the buyer and the supplier may not always have the same view of the relationship, especially, if the supplier views the buyer as nuisance or exploitable.

Answer 7

Both parties aim at joint issue resolution Both parties communicate more open and more frequently

Answer 8

Impact Probability A risk assessment is a thorough look at your workplace to identify those things, situations, processes, etc. that may cause harm, particularly to people. How is a risk assessment done? 1. Identify hazards. 2. Determine the likelihood of harm, such as an injury or illness occurring, and its severity. 3. Identify actions necessary to eliminate the hazard, or control the risk using the hierarchy of risk control methods. 4. Evaluate to confirm if the hazard has been eliminated or if the risk is appropriately controlled. 5. Monitor to make sure the control continues to be effective. 6. Keep any documents or records that may be necessary. Documentation may include detailing the process used to assess the risk, outlining any evaluations, or detailing how conclusions were made.

Answer 9

Total Quality Management Value Analysis Total Quality Management guides organisations through the management approach that focus on customer satisfaction. 8 principles of total quality management are: - Customer-focused, - Total employee involvement - Process-centered - Integrated system - Strategic and systematic approach - Continual improvement - Fact-based decision making - Communications Value analysis Value analysis is a process that can add value for businesses. This involves a review of the current product or service including the specification, its component parts and the processes used for manufacturing in order to create the optimum product or service at the lowest total cost. This process is linked to early supplier involvement.

Answer 10

Differentiation. | False, the business broadens the competitive scope and differentiates its products.

Answer 11

Porter's Five Forces Porter's Five Force is a tool for analysing the profitability and attractiveness of an industry. The five forces determine industry profitability because they influence the prices, costs, and required investment of firms in an industry— the elements of return on investment. Threat of substitution Competitive rivalry - The intensity of rivalry influences prices as well as the costs of competing in areas such as plant, product development, advertising, and sales force. Buyer power influences the prices that firms can charge. The power of buyers can also influence cost and investment, because powerful buyers demand costly service. The bargaining power of suppliers determines the costs of raw materials and other inputs. The threat of entry places a limit on prices, and shapes the investment required to deter entrants.

Answer 12

Supplier relationships will pass through a relationship cycle. Supplier relationships will evolve and change over time. The relationship life cycle involves the following stages: - On-boarding - Qualification - Segmentation and risk management - Performance management - Development and innovation - Phase out (if required) In the segmentation and risk management phase the products that a supplier provides will be segmented and classified (using Kraljic portfolio matrix) to ensure that the correct relationship type is developed with each supplier

Answer 13

Differentiation

Answer 14

Porter's Value Chain

Answer 15

Supplier preferencing Model The combination between supply positioning and supplier preferencing is called market management matrix.

Answer 16

Relationships with suppliers of these items should be adversarial, arm's-length or transactional. Suitable strategies for procuring these items are: - Use tactics to leverage savings and reduce costs, e.g., reverse e-auctions/use of procurement cards - Optimise ordering process and stock holding - Use online catalogues to improve efficiency. These catalogues are standardised with detailed technical information. - Standardise product as much as possible to increase volumes - Construct framework agreement/call-off contracts to reduce burdens of tendering

Answer 17

Yes, this practice would help the company save costs by achieving economies of scale.

Answer 18

Just-In-Time Continuous Replenishment Programme also known as Vendor managed inventory (VMI). Just-In-Time (JIT) is a concept popularised by the productivity of Japanese industry. It described a manufacturing system that enables the achievement of cost reduction and workflow improvement by scheduling materials to arrive at a work station or facility ‘just in time’ to be used. Vendor managed inventory (VMI), also known as continuous replenishment programme (CRP), derives from JIT. It assists manufacturers and distributors in removing the need for customers to reorder which reducing or excluding inventory and obviating stock. These approaches can reduce carrying the cost of inventories and inventory requirements and maximising the use of space.

Answer 19

RORI (Return on Relationship Investment) is the financial for a buyer of establishing, developing and maintaining buyer-supplier relationship. ROCE (Return on Capital Employed) is a financial ratio that measures a company's profitability and the efficiency with which its capital is used. Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity. Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.

Answer 20

Strategic Alliance Relationship

Answer 21

Perfect competition There are several types of market: - Monopoly - Oligopoly - Imperfect competition - Monopolistic competition - Perfect competition