session ix, x supply chain procurement
TRANSCRIPT
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Procurement Strategies Procurement as CA; Who are your
vendors? What to outsource?
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Supply Chain Network
1. Procurement- suppliers, outsourcing
- 2. Transformation- -Postponement- -Inventory decisions
- 3. Distribution- -types of supply chains- - channels
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Purchase StrategiesProduct Portfolio
1. Strategic products2. Buyer dominated
3. Supplier dominated4. Balanced5. Leveraged
6. Bottleneck7. Routine
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Strategic Products:
1. High volume2. Customer specifications3. High share of cost in the end product4. Cannot be changed in the short term5. Knowledge orientation- high technology6. Skills orientation- experience7.
Need development time for alternates8. Sensitive to the performance of the product(Examples: chips in electronic products, lubricants,stampings, forgings, cryogenics)
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Buyer dominated
1. Buyer dictates terms to suppliers2. Suppliers have got to meet the requirements of
quantity, quality, delivery as demanded by the buyer3. The relationship is one sided4. Suppliers business is sustained only as long as buyer
stays5. Suppliers expertise gets constrained by the buyer
Example: parts, components as demanded by car, fan,OEM manufacturers( appliances, white goods, soaps,detergents)
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Supplier dominated
1. Technology and expertise is with the supplier2. Supplier is a larger party3. Supplier insists on supply of both products and
services related to the product4. Supplier locks the buyer and buyer is left with no
choice5. Relationship of dependency between supplier and
customer is in hands of supplierExample: Computer manufacturers, battery forinverters, bearing manufacturers ,high qualityproducts, branded products Coke/Pepsi
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Balanced segment
1. No one dominates2. Each has its own strengths of technology or
specialization3. Both have mutual interest to keep relations4. Both benefit in business
Example: paint manufacturers, transporters, tyremanufacturers
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Procurement StrategiesBalanced segment
Periodic contracts 1. Spread out
2. Alliances on equal terms3. Open cost system4. Risk sharing
5. Benefit sharing6. VMI
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Bottleneck Products
1. Limited value in terms of money, but vulnerable inregard to supply or acceptable quality
2. Limited suppliers, often only one3. Supplier dominates in relationship4. Patented products5. Top quality that cannot be replicatedExamples: Greases, certain alloy steels, spares
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Procurement Strategies:Bottleneck products
Continuity (of supplies) Relationship1. Agreement to keep stock at supplier or at your
own even at additional cost2. Continuous search for alternate products or
designs3.
Contingency plans in case failure occurs4. Risk Management (in event of failure)5. Create safety stocks
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Routine Products
1. Few technical problems2. Low value few commercial problems3. Many alternate suppliers; brand not a necessity4. Small value5. More time is lost in administrative jobs to procure6. Do not require great attention or necessity to develop
relationship with a supplierExamples: Hardware, consumables, stationary, standard parts
available off the shelf in the market from many suppliers.
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Procurement Strategies:Routine products
Systems Contract Buying Relationship1. Enter into arrangement with a specialized purchasing office or
a trading house for entire purchase2. Draw up a buying contract settling all rates and demand
supplies when needed.3. Senior executives do not have to waste time once a contract is
arrived at4. Delegate responsibility to lower levels
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Bottleneck Items(Ensure supply, safetystocks)
Strategic Items(Form partnerships)
and alliances
Non Critical Items( Simplify and automate)
Leverage Items( Exploit purchasingpower and minimizecost)
Low High
Low
High
Profit Impact
SupplyRisk
Kraljics Supply Matrix
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Outsourcing Difference with purchase; Why, when and what to outsource?
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What is outsourcing?
Outsourcing is the entire set of businessprocesses required to purchase goods andservices.It includes selection of suppliers, design ofsupplier contracts, product designcollaboration, procurement of materials,and evaluation of supplier performanceOutsourcing organization divests itself ofits assets, infrastructure, people andcompetencies that it previously used
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A Comparison
Attribute Purchasing Outsourcing Term Short LongBase Multiple Single
Basis Price/Quality CapabilityOrders By purchase Over telephones ,
orders e-mails
Design Own Collaboration Tech. help as drawings as Information
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Risks in Outsourcing
Loss of competitive knowledge :Competitors come to know of your strengthsDependence on supplier :
Loss of motivation to innovate and to carry out valueanalysis and innovationsConflicting objectives :Supplier is interested to match his supply and demand(cost). Buyer on other side is interested in maximizinghis flexibility and service.
Wrong notions of cost and value addition are oftendeceptive and can lead to losses
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Strausmann refers reasons as:
LossesFaulty planning
Poor management controls in resource usePoor quality Wrong calculations of costs
Wrong choice of technologyLack of knowledgeHigh uncertainty of demand
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Performance Objectives andOutsourcing
Performance ObjectivesQuality
SpeedDependabilityFlexibility
Cost
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Impact on PO of Quality
In house manufacturing Outsourcing
Easy to trace source of poorquality
Quality can be poor
Longer time to trace thesources
Quality can be betterImmediate response to marketcomplaint
Less of motivation to marketcomplaint
Immediate steps onimprovement can be planned Needs talks and negotiations
Easy communication to in-house employees
Problems in communicatingpoor quality in face ofresistance
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Impact on PO of Speed
In house manufacturing OutsourcingFaster response tocustomer needs
Significant delays occur, assupplier tries to wait for
economic batch sizeFaster changes as controlsare within
Limited influence
Internal customers receivelow priority
external customerspredominate.
Throughput cycle,productivity are better
longer cycle to executebecause of higher batches
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Impact on PO of Dependability
In house manufacturing Outsourcing
Easier internal communicationhelps
Organizational barriers anddistance inhibit communication
Own controls help create aculture
Dependability based on cultureat supplier
Internal customers can suffer atexpense of external customers
Usually internal customers arelimited
Customers can influence for abetter performance
Customers do not know thealliance partner
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Impact on PO of FlexibilityIn house manufacturing OutsourcingQuick response to customers asthey are in contact
Customers are not in touch
Fast communication to in-houseemployees to implement achange
Communication takes time
Response is limited by scale and
scope of internal operations
Larger capacity at outsourcing
helps in larger flexibilityCustomers prefer direct contactand assurance
There can be problems ofconflicting needs of differentcustomers.
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Strategy on Outsourcing Toyota Mfg, System)
A company decides to outsource in twosituations:
1. Dependency on Capacity : A firm hasknowledge and skills, yet decides to go foroutsourcing for capacity reasons
2. Dependency on Knowledge : A firm does nothave people, skills and knowledge andtherefore out- sources.
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IV
( Option for
Outsourcing)
III( Very risky to
outsource)
I
(Go internal)
II
( Outsource)
Low High
Low
High
Knowl edge
Capacity
Dependency on Capacity & Knowledge