Supply Topic 6 (Sourcing & Make-or-Buy)

Question 1

make

Answer 1

company make in house, produce products by themselves

Question 2

sourcing

Answer 2

• all activities related to obtaining and managing the supply an organisation needs for its daily operations
• through selected approach to sourcing a company can directly affect sustainability performance in part of supply chain
• outcome usually achieved through purchasing or procurement functions, responsible for providing the input and therefore constitute vital link between operations and suppliers
• purchasing of procurement activities

Question 3

Sourcing strategy

Answer 3

Kraljic’s purchasing portfolio model
- aim to developing differentiated purchasing and supplier strategies
- Kraljic 1983 - introduced first comprehensive portfolio approach for purchasing and supply management/supplier segmentation

Question 4

Kraljic’s Purchasing Portfolio Model

Answer 4

Question 5

Profit impact of Kraljic’s model

Answer 5

• volume purchased
• % of total cost
• impact of product quality or business growth
• operational cost lower = profit higher

Question 5

supply risk of Kraljic’s model

Answer 5

• availability
• number of suppliers
• competitive demand
• make or buy opportunities
• storage risks
• substitution opportunities
• few number of suppliers = high supply risk = single company cant deliver = disrupts supply
• high availability = lower risk

Question 6

bottleneck

Answer 6

• complex specifications = complex manufacturing or service process
• few alternative products/sources of supply
• significant impact on operations/maintenance
• new tech or untested processes
• cause problems to be handled by volume insurance, vendor control, security of inventories and backup plans
• cause problems that can be handled by increasing the volume, purchase a lot and keep a lot of inventory/stock, volume/inventory back up plan is imporant

Question 7

non critical

Answer 7

• many alternative products and services
• many sources of supply
• low value small individual transactions
• everyday use, unspecified items
• anyone could buy it
• requires efficient processing, product standardisation, order volume and inventory optimalisation
• supply risk is low, try to reduce the cost of producing more efficient processing

Question 8

leverage

Answer 8

• large expenditures, commodity items
• large marketplace capacity, ample inventories
• many alternative products and services
• many qualified sources of supply
• market/price sensitive
• exploit buying company’s full purchasing power through tendering , target pricing and product substitution
• exploit buying or purchasing power as select the best supplie

Question 9

strategic

Answer 9

• critical to profitability and operations
• few qualified sources of supply
• large expenditures
• design and quality critical
• complex and or rigid specification
• maintain long term relationship with mutual trust/commitment and open exchange of info, accept locked in partnership due to monopoly position or high switching costs
• maintain long term relationships between purchasing company and suppliers, open exchange of info
  ○ Maintain long term relationship
  Monopoly type of product = purchasing company have no choice and just have 1 sort, not lots of alternatives

Question 10

strategic directions

Answer 10

1. sourcing strategies to hold the same positions in the matrix
2. sourcing strategies to pursue other positions in the matrix

Question 11

make or buy decisions

Answer 11

• companies have finite resources and cant always afford to have all manufacturing tech in house
• proposed a framework to address make or buy decisions of individual parts or families of parts
• framework discussed why make or buy decisions are made and which dimensions to be studied in approaching make or buy decisions

Question 12

Framework for make or buy decisions:

Answer 12

Question 13

relevant factors for making or buying

Answer 13

• tech and manufacturing process
• cost -> production cost and acquisition and supply chain management logistics
• supply chain related specifics

Question 14

performance measures links to triggers

Answer 14

• triggers can be cost reduction, encounter external comp in markets, cost reduction needs to be evaluated for the performance as performance to be measured
• factors that trigger the make up decision = also measured
• performance measures we have cost saving time to market
• capacity quality and flexibility
• performance measures feed into external elements = loop = next round of triggers for new make or buy

Question 15

problems/critiques of Kraljic’s model

Answer 15

• measurement of variables
• disregard for supplier side
• selection of strategies based on 2 dimensions
• limited and deterministic character of strategic recommendations
• absence of explicit movements within the matrix

Question 16

reasons for undertaking make or buy decisions

Answer 16

1. price competition
2. lack of capacity
3. skills shortage
4. need to increase responsiveness
5. need to increase quality
6. need to reduce time to market

Question 17

factors to consider for make or buy:

Answer 17

1. total acquisition cost
2. complexity
3. technologies
4. skills