L6M8 Flashcards
Van Weele et al. evolution of strategic procurement department
Six-stage purchasing model
- Transaction orientation: serve the factory
- Commercial orientation: lowest price
- Co-ordinated purchasing
- Internal intergration: cross functional purchasing
- External intergration: supply chain management
- Value orientation
- Transaction orientation: serve the factory
*Function is reactive & finds appropriate suppliers for raw materials & components.
*Lacks explicit purchasing strategy & goals are primitive.
- Commercial orientation: lowest price
*Function focused on proactive negotiation to achieve lower prices and has some independence from other functions.
*Specialist buyers concentrate on securing good deals, monitor savings and measure performance based on price variance.
- Co-ordinated purchasing
*Centralised function: uniform policies, clear purchasing processes & systems, focused on cross-unit co-ordination & compliance with negotiated agreements.
*This includes purchasing non-production items & efforts to develop purchasing power.
- Internal intergration: cross functional purchasing
*Focused on cross-functional problem solving to cost reduction across the system. Joint problem solving with key suppliers & streamline procurement processes for needs of internal customers.
*Integrated information systems supports cross-functional purchasing. Benchmarking and customer satisfaction surveys are used for evaluation purposes.
- External intergration: supply chain management
*Outsourcing strategies are developed in co-operation with supply chain partners, including product development and pre-production planning.
*Systems simplified using technological capabilities, enhanced by inter-divisional and interorganisational cross-functional teams, leading to the delivery of integrated supply chain management.
- Value orientation
*Procurement & supply strategy focused on delivering value to end customer.
*Suppliers challenged to support & participate in product development to design an effective and efficient value chain.
*Procurement & supply function vital in supporting an entrepreneurial culture throughout the supply chain.
Cross-functional teams
Enables the procurement and supply function to
Respond appropriately to the shifting business environment
Access specialised knowledge
Advance Lean processes
Co-ordinate with suppliers
Manage risk
Cultivate international supplier partnerships
Develop a robust cost analysis
Cross-functional teams
Factors compelling organisation to consider developing cross-functional teams:
Strategic decision-making
Work flow requirements
Utilising technology developments
Responsiveness and information sharing
Integrated processes
Performance
Cross-functional teams
Delivering creativity and innovation:
oInvolving variety of different perspectives helps deliver a level of creativity and innovation
oAbility for creativity to be released depends on a structure that enables a heterogenous dynamic to harness different ideas
oBreaking a tendency to think unilaterally needs the diversity that cross-functionality provides
oCross-functionality also brings flexibility and agility to respond rapidly to changes in demand
Cross-functional teams
Lacking necessary team-working behaviours, interpersonal skills & communication capability can result in:
o Goals not being clarified
o Resources and information not being shared
o Lack of active engagement from individuals within the team
Cross-functional teams
Importance of
o Breaking down cultural silos
o Managing different personalities
o Proactivity of resolving any conflicts
o Avoiding groupthink
Over-the-wall engineering
*Approaches development from assembly line perspective
*Relies on sequential series of tasks
Simultaneous engineering
*Helps team members solve problems through a process
*Possibilities for proactive and JIT feedback loops
*Where possible tasks can be worked on simultaneously
*Reduces development time with fewer design changes
*Creates environment for talent potential to be utilised
*Protects against project failure if team member absent
Principles implementing Simultaneous engineering
*Mapping the design space
*Integrating by intersection
*Establishing feasibility before commitment
Simultaneous engineering
Benefits
*Improves competitive advantage.
*Make organisation more focused on external factors.
*Increases responsiveness to customer needs.
*Increases cross-functional accountability and organisational learning.
*Can lead to cost reductions due to shorter development periods and fewer design changes at later stages due to early collaboration
Simultaneous engineering
Elements required to be successful are as follows:
- Effective teaming
- Support of senior management * Provision of resources
- Flexibility
- Open communication channels * Critical thinking among the team members
Benefits involving procurement & supply in product design
*Significantly increases the ability of procurement and supply to positively influence the validity and viability of product design.
*Ensures that procurement and supply processes can deliver the requirements of the product efficiently and effectively in the early stages of product development
Model of product design
- New product definition
- Development of conceptual solutions
- Selection of components
- Design and build of prototypes
- Feedback to suppliers
- Confirmed concept
- Manufacturing planning
- Procurement of components
Kraljic Portfolio Matrix
*Provides the procurement process with the ability to match goods and services provided by suppliers with organisation needs.
*Helps identify areas of the procurement process where there is a weakness in process design
Techniques to promote development of innovation in procurement & supply
*Collaboration with suppliers and customers to promote improvements in innovation
*Early supplier involvement
*Role of innovation councils
*Supplier forums and association
*Use technology transfer
*Use of data analytics to assist planning, forecasting, control and decision making
*Use integration tools in systems technology
Early supplier involvement (ESI)
*Can occur at beginning of project or @ product conceptualisation stage (NPD).
*Supply partners developing specifications ahead of decision to procure. Avoid risks during development.
*Help procurement make decisions about process of awarding contract.
*Suppliers determine if willing to invest in relationship organisation through cost–benefit analysis.
*Role of suppliers & requirements of NPD projects assessed for level of involvement & priority ESI.
*Consideration manageable & economical each project
Early supplier involvement
(Wynstra and Pierick)
Arms Length
Strategic
Critical
Routine
Arms Length
Low development risk - High degree of supplier responsibility
Strategic
High development risk - High degree of supplier responsibility
Critical
High development risk – Low level of supplier responsibility
Routine
Low development risk - Low level of supplier responsibility
Procure-to-pay systems
o Forms of e-procurement
o E-catalogues
o E-sourcing
o E-auctions
o P2P (purchase to pay) systems
o Data integrity & integration between organisations in SC
o Developments in technology
Types of e-payment and invoice applications:
Electronic funds transfer (EFT).
Electronic payment initiation. (Debit orders)
XML (extensible mark-up language) invoice - structured Internet-based web form
Electronic invoice presentment - Sending electronically
PC banking - access account information and perform bank transfers via their personal computer
Types of e-payment and invoice applications:
Internet banking - Electronic banking via Internet
T&E card - Credit card assigned to employee for business related expenses
Purchasing card - payment card issued to cardholders with responsibility making purchases on behalf of employer
E-mail invoices - sending via e-mail
Types of e-payment and invoice applications:
Electronic data interchanges (EDI) - Exchanging invoice documents with purchaser via EDI
Self-billing - commercial arrangement where customer prepare invoice for supplier’s goods & services, which they then forward with payment
Magnetic media/CD-ROM invoices - orders & invoices copied onto external storage media
Electronic file transfer of invoices - e-invoice transmitted electronically
Benefits of e-procurement
End to maverick buying
Increased efficiency
More strategic approach to procurement and supply
Focus on managing by exception
Automate mundane processes
Eliminate large portions of paperwork
Focus on outcomes that organisation trying to achieve
Traditional vs e-catalogues
o Cost
o Ability to edit & modify catalogue
o Quicker response times to fix mistakes and flex to changes in availability
o Monitoring of buyer activity
Types of e-catalogues (Lysons & Farrington)
Sell-side
Buy-side
Third-party
E-catalogues
E-catalogues support buyers to quickly and effectively find what they are looking for
Can support global trade through the use of technology, through different
*Language
*Currency
*Tax regimes
*Shipping requirements
Can used in all forms of e-procurement
E-sourcing
*Application enabled by Internet to facilitate buyer and supplier interactions, inc online & reverse auctions
*Automating supplier selection & approvals process through pre-programmed e-sourcing software solutions
*Provides framework whereby procurement guidelines can be adhered to while enabling users to make choices to source required products and services independently
E-sourcing – gaining support
oHelpful to work alongside other functions to understand purchasing needs
oSegmentation of user profiles
oSet targets & incentives for organisational members to engage with e-sourcing process
oEase of access to e-sourcing platform & relevant training
oMore accessible to smaller organisations which may not be able to benefit from EDI’s (less resource-intensive)
When are eAuctions most effective?
*High Competition environment
*Low Spend Complexity
Can I apply a Kraljic’s box?
Best conditions by type of spend:
1.Leverage: Low complexity with high buying power make it an idea option
2.Strategic: Auctions should be preferred only when supplier has high buying power
3.Non-critical: low spend should employ auctions for time saving
4.Bottleneck: High risk here makes using Auctions challenging and should be avoided
E-auctions - Forms
(Lysons and Farrington, 2016)
o English bid process
o Dutch bid process
o Sealed-bids
o Reverse-bid auctions (Japanese)
E-auctions
Used to get suppliers to bid for contracts
Create competitive open & transparent process
Removes opportunity for favouritism towards a particular bidder
E-auctions - Forms
English
Dutch
Japanese
Relationship-influencing KPI
1.Trust - Belief that supply relationship will not be exploited opportunistically & promises kept
2.Power - Level of dependency & power of partners
3.Transparency - Level of information sharing & openness
4.Communication - Essential component managing relationships, aid performance improvements & should underpin by deliberate strategic communication plan
5.Commitment - Willingness to invest in relationship & go extra mile to manage short-term problems to deliver long-term goals
6.Co-operation - Interdependent actions that inter-organisational supply partners take to achieve mutual objectives and goals
Relationship interaction matrix
Nice - Relationship that places a low level of demand on each partner,
with a low level of conflict and a high level of co-operation.
Creative - Although this relationship is characterised by high levels of conflict,
high level of co-operation indicates that the conflict is an important component of the working relationship, which will result in innovation if managed effectively
Marginal - Relationship is considered to be of little importance to both supply partner and organisation, and is characterised by low levels of cooperation and conflict. In many ways, this relationship is transactional and
incidental.
Hostile - Relationship that has low levels of co-operation and high levels of conflict. Not expected to last in long term unless procurement professional believes that supply partner offers something of significant value to organisation
Balanced scorecard approach
Achieves:
*Management tool that describes, communicates & implements strategic supplier development.
*Strikes balance between long-term & short-term organisational objectives.
*Links performance metrics used in procurement & supply function with organisational strategy & ensures that activities & evaluation of supply chain are focused and aligned with what really matters to organisation.
4 perspectives of Balanced Score card
*Financial - Focuses on financial health of organisation & considers key financial objectives that are the focus of organisation and procurement and supply function.
*Customer - Focuses on performance objectives relating to customer and market that need to be delivered in order to hit the financial objectives.
*Internal business process - Focuses on internal operational goals & objectives and key processes that need to be developed in order to deliver customer and financial objectives.
*Learning & growth - Examines intangible drivers of performance, including human capital, information and knowledge capital, & organisational capital.
Basis for good practice in procurement and supply
to help:
*Influence behaviour of key strategic supply partners
*Develop approaches to supply chain management
*Create an environment in which market challenges and opportunities can be tackled proactively
