October 15, 2024

Digital technologies are rapidly changing sourcing and supply management. What are the potential benefits and drawbacks to the adoption of digital

Digital technologies are rapidly changing sourcing and supply management. What are the potential benefits and drawbacks to the adoption of digital technologies in supply management? (150 – 200 words)

No Ai

Source to use – PPTX attached

Swink_MOAS_4e_Ch10_PPT.pdf

prior written consent of McGraw-Hill Education.

Chapter 10

Sourcing and Supply Management

prior written consent of McGraw-Hill Education.10-2

Learning Objectives

10-1 Define supply management and understand its impact on a firm’s performance.

10-2 Define and describe each of the six supply management goals.

10-3 Analyze costs and make insourcing/outsourcing decisions.

10-4 Describe the steps in supply category management.

10-5 Explain the steps in the sourcing process.

10-6 Describe how to assess and select suppliers.

10-7 Understand ways to manage ongoing supplier relationships.

prior written consent of McGraw-Hill Education.10-3

Learning Objective 10-1

Chipotle Mexican Grill: Sourcing and Supply Management

• Source fresh ingredients from organic farms • Exposure to supply chain risk • Higher costs, potential for supply disruptions,

potential problems with food safety

prior written consent of McGraw-Hill Education.10-4

Learning Objective 10-1

Supply Management

• Supply Management: identification, acquisition, and management of inputs and supplier relationships

• Also called purchasing or procurement

• Sourcing: process used to acquire goods and services from suppliers

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Effective Supply Management

A firm’s strategic objectives are better met when effective supply management:

• Ensures timely availability of resources.

• Identifies, assesses, and mitigates supply chain risk.

• Reduces total cost (not just purchase price).

• Enhances quality.

• Enables access to technology and innovation.

• Fosters sustainability.

Learning Objective 10-2

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Learning Objective 10-2

Supply Chain Risk

Supply Chain Risk: probability of an unplanned event that negatively affects a firm

• Supplier technical, operations, or quality problems

• Supplier financial problems

• Labor disputes

• Increases/decreases in demand

• Lack of transparency in SC

• Inadequate security

• Natural disasters

• Changes in government regulations

• Concentration of suppliers within the same geographical region

prior written consent of McGraw-Hill Education.10-7

Total Cost of Ownership

When the Costs Occur Type of Costs

Before the transaction Time spent and costs of searching for, visiting, evaluating, and certifying suppliers.

During the transaction Purchase price and costs of ordering, transporting, expediting, receiving, inspecting, and following up.

After the transaction

Costs of inventory, supply risk, production downtime, defects in finished goods, warranties, safety recalls, replacements, repairs, lost sales, liability, and damaged reputation.

Table 10-1 Total Cost of Ownership

Learning Objective 10-2

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Learning Objective 10-2

Quality, Technology, and Innovation

• Quality: A product’s quality is tied to the quality of its inputs.

• Technology and Innovation: Suppliers are potential sources of innovation and new technology.

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Learning Objective 10-2

Fosters Social Responsibility

Sustainability: the ability of the firm and SC to

maintain or sustain itself by improving performance

related to managing planet, people, and profit

• Add value to communities

• Increase social diversity

• Encourage environmental responsibility

• Display ethical behavior

• Practice and promote financial responsibility

• Respect human rights

• Ensure a safe working environment

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Learning Objective 10-2

Goals Addressed by Sustainability

Goals Supply Management Example

Support and provide value to the community Provide jobs in the supplier's community

Increase social diversity Use minority, women, and veteran-owned

suppliers

Encourage environmental responsibility Require environmental compliance from

suppliers

Display ethical behavior Engage in fair contract negotiations

Practice and promote financial responsibility Accurately report financial dealings with

suppliers

Respect human rights Use suppliers who conform to child labor laws

Ensure a safe working environment Use suppliers who conform to safety standards

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Results from Sustainability

• Effects of Sustainability

– Improves financial performance

– Increases quality

– Instills customer loyalty

– Enhances a firm’s reputation

– Can lower total costs

Learning Objective 10-2

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Student Activity (1 of 3)

Review the most recent list of the 100 Best Corporate Citizens as ranked by Corporate Responsibility Officer (www.thecro.com). Select a company from the list, visit its Web site, and search for “supplier code of conduct.” If you were a supplier, how would this code affect the way you do business? Why?

Learning Objective 10-2

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Learning Objective 10-3

Insourcing/Outsourcing (1 of 2)

• Insourcing: inputs from within the firm

• Outsourcing: inputs from outside the firm

• Make or Buy Decision: choosing between

insourcing or outsourcing

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Learning Objective 10-3

Outsourcing Advantages and Disadvantages

Internal Factors

Outsourcing Advantages Outsourcing Disadvantages

Capital is not needed for equipment and

facilities

Can be difficult to communicate what is

needed to suppliers, especially for services

Easier to add or remove capacity if demand

changes

Supplier may have quality or delivery

problems

Supplier may increase costs

Lower costs because suppliers gain

economies of scale and suppliers often pay

lower wages

Must have sourcing and supply

management capabilities

Increased flexibility to change technology

or suppliers

May be difficult to integrate information

and materials flows with supplier

Better access to supply market information Loss of intellectual property

Table 10-2 Outsourcing Advantages and Disadvantages

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Learning Objective 10-3

Insourcing/Outsourcing (2 of 2)

Figure 10-1 Insourcing/Outsourcing Decision Process

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Learning Objective 10-3

Insource or Outsource? (1 of 4)

1. Assess Fit with Firm’s Core Competencies

– What is the product’s or process’s relationship to the firm’s current or future core competencies?

– What are savings from outsourcing compared to losing core competencies or intellectual property?

2. Evaluate the Suitability for Outsourcing

– Characteristics that favor outsourcing: (1) Mature products with standard processes; (2) Known technology with many capable suppliers and intellectual property risk is low.

prior written consent of McGraw-Hill Education.10-17

Learning Objective 10-3

Insource or Outsource? (2 of 4)

3. Evaluate the Reasons for Outsourcing

– When product or process seems appropriate for outsourcing, compare the benefits of outsourcing versus insourcing.

4. Assess All Relevant Quantitative Costs.

– If previous steps indicate that outsourcing makes sense, compare the cost of making the product internally versus the cost of purchasing it.

– Classify costs as either fixed or variable (Fixed costs per contract, Fixed costs per order, Variable costs).

prior written consent of McGraw-Hill Education.10-18

Learning Objective 10-3

Insource or Outsource? (3 of 4)

5. Assess All Qualitative Factors

– Important qualitative factors may include:

▪ loss of control

▪ risk of dealing with a supplier

▪ location, quality of supplier’s management team

▪ compatibility of organizational cultures and values

▪ supplier’s flexibility, labor-management climate, warranty, and support systems

▪ proprietary information and degree of secrecy required

prior written consent of McGraw-Hill Education.10-19

Learning Objective 10-3

Insource or Outsource? (4 of 4)

6. Review the Capability of Suppliers

– This includes a review of the technical, financial, manufacturing, and quality-related capabilities of suppliers.

7. Make and Implement a Decision

– If you decide to outsource, select a supplier and document the anticipated benefits of outsourcing. If you decide to insource, document the reasons for this decision.

8. Monitor the Decision and Revise It as Necessary

– Compare the actual results of the decision against estimates and identify potential problems.

prior written consent of McGraw-Hill Education.10-20

Learning Objective 10-3

Student Activity (2 of 3)

Many universities outsource services that were traditionally insourced. Make a list of the major services that your university offers. Which are opportunities for outsourcing and which should be insourced? Why?

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Supply Category Management

Supply Category Management: identifying and

developing supply management strategies for

groups of related purchases

Spend Analysis: shows what is being purchased,

at what prices, and from which suppliers

Learning Objective 10-4

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Learning Objective 10-4

Sourcing Strategies (1 of 3)

Figure 10-2 Portfolio Analysis for Supply Management Strategies

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Sourcing Strategies (2 of 3)

Supply Base Optimization: determination of number of suppliers to use

• Too many increases complexity and makes supply management difficult.

• Too few increases shortage and price risks, and innovation may be limited.

Learning Objective 10-4

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Sourcing Strategies (3 of 3)

Capabilities and location are important:

• Proximity affects ease of communication,

transportation costs, and community perceptions

• Consideration of trade barriers and incentives

• Global presence may affect access to markets

Learning Objective 10-4

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Learning Objective 10-4

Spectrum of Supplier Relationships

Figure 10-3 Spectrum of Supplier Relationships

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Learning Objective 10-5

Strategic Sourcing Process

Figure 10-4 Sourcing Process

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Learning Objective 10-5

Identify Need and Develop Specifications

• Purchase requisition: a document that communicates needs between user and supply management

• Purchase specifications: a description of the technical requirements of a purchase that is communicated with suppliers

After purchase specifications are developed, identify potential suppliers that are capable and willing.

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Learning Objective 10-6

Assess and Select Suppliers (1 of 3)

• Competitive Bidding: price is most important factor, specifications are clear, high value, several equally qualified sources

• Request for Proposal (RFP) or Quotation (RFQ): describes what customer wants; supplier responds with cost and other data for consideration

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Assess and Select Suppliers (2 of 3)

• Online Reverse Auctions: suppliers bid in real time for buyer’s business

– Supplier can make multiple bids

– Usually price focused

• Negotiation: bargaining process of planning, reviewing, analyzing, compromising to reach agreement

Learning Objective 10-6

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Learning Objective 10-6

Assess and Select Suppliers (3 of 3)

Weighted-Point Model: establishes performance categories that are weighted by importance

Supplier A Supplier B Supplier C

Category Weight Rating Score Rating Score Rating Score

Quality systems

40% 3 1.2 5 1.2 3 1.2

Delivery capability

40% 2 0.8 3 0.8 4 1.6

Price 20% 5 1.0 3 1.0 2 0.4

Weighted Score

100% 3.0 3.0 3.2

Table 10-3 Weighted-Point Model for Supplier Selection

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Student Activity (3 of 3)

Assume that you will be selecting a new apartment. Develop a weighted-point model to assist in your decision-making process.

Learning Objective 10-6

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Learning Objective 10-7

Managing Supplier Relationships

• Information Sharing: buyers and suppliers

need to share timely data about demand, supply,

and delivery

• Supplier Scorecard: track and report supplier

performance in key areas

• Supplier Certification: assessment of supplier’s

ability to meet buyer’s needs

• Supplier Relationship Management (SRM):

technology-enabled data gathering about

suppliers to manage strategic relationships

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Supplier Management Summary

1. Effective supply management improves performance.

2. In- and outsourcing requires both quantitative and qualitative analysis.

3. Supply category management is used to ensure consistency.

4. A portfolio analysis classifies purchase categories (noncritical, leverage, bottleneck, strategic).

5. Category strategies address number of suppliers, locations, and types of buyer-supplier relationships.

6. Sourcing is a process to acquire goods and services.

7. Suppliers are selected using online auctions, competitive bidding, or negotiation.

8. Supplier relationship management is a systematic approach to managing supply management.

9. Supplier relationship management involves communication and coordination.

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Digital technologies are rapidly changing sourcing and supply management. What are the potential benefits and drawbacks to the adoption of digital

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