Supply Chain Management - MGMT614

Download as pdf or txt
Download as pdf or txt
You are on page 1of 4

Supply Chain Management –MGMT614 VU

SUPPLEMENT TO LECTURE 4
ETHICAL AND SUSTAINABLE PURCHASING INITIATIVES
Ethical and Sustainable Framework of purchasing includes numerous initiatives like Supply Base
Rationalization Program and Supplier Certification Programs.
Supply base rationalization Also Known As (AKA) supply base reduction or supply base
optimization is often the initial supply chain management effort.
Buyer-supplier partnerships are easier with a rationalized supply base & result in –
1. Reduced purchase prices
2. Fewer supplier management problems
3. Closer & more frequent interaction between buyer & supplier
4. Greater levels of quality & delivery reliability
Supplier certification programs are used to identify strategic supplier alliance candidates
Enterprises use in-house formal certification programs, & most require ISO 9000/ 14000 or similar
certifications as part of the certification process
Buyers can monitor quality assurance methods & specify the type of acceptance sampling & statistical
process control methods used
Outsourcing Products and Services
Virtual University Students are already aware of the benefits of outsourcing for the sake of easy reference
we list the benefits or advantages. Outsourcing allows an enterprise to –
1. Concentrate on core capabilities
2. Reduce staffing levels
3. Accelerate reengineering efforts
4. Reduce management problems
5. Improve manufacturing flexibility.
Outsourcing Products and Services decision carries inherent risk. Risks associated with outsourcing, include:
a. Loss of control both with respect to production decisions & intellectual property
b. Increased undue reliance on suppliers
c. Increased need for supplier management
The two common types of Outsourcing of Products and Services include In-sourcing and Co-sourcing.
1. In-sourcing (back sourcing): Reverting to in-house production when quality, delivery, and
services do not meet expectations
2. Co-sourcing (selective sourcing): The sharing of a process or function between internal staff and
an external provider & provides flexibility to decide what areas to outsource, when, and for how
long.
Early Supplier Involvement, Value Engineering & Vendor Managed Inventories
Early supplier involvement (ESI) is one of the highly effective supply chain integrative techniques. Key
suppliers become more involved in the internal operations of the enterprise, particularly with respect to
new product & process design, concurrent engineering design for manufacturability techniques.
Value Engineering activities help the enterprise to reduce cost, improve quality & reduce new
product development time
Vendor Managed Inventory (VMI): Suppliers manage buyer inventories to reduce inventory carrying
costs & avoid stock-outs for buyer
Selecting quality and capable suppliers
Selecting supplier is not an easy process. Many different formulas and techniques can be used. One effective
method assigns suppliers to four basic categories based upon their level of performance in key areas, such as

© Copyright Virtual University of Pakistan ix


Supply Chain Management –MGMT614 VU
delivery, quality and responsiveness. This should ideally address the common problems of stock out and
bull whip effect.
From the buyer-enterprise’s perspective –
1. Supplier tracks inventories
2. Determines delivery schedules and order quantities
3. Buyer can take ownership at stocking location
From the supplier’s perspective –
1. Avoids ill-advised customer orders
2. Supplier decides inventory set up & shipments
3. Opportunity for supplier to educate customers about other products
Electronic data interchange (EDI)
1. Allows a supplier to profile demand & determine accurate forecasts
2. EDI also provides reorder point data to permit timely deliveries
Supplier co-location or JIT II
Supplier’s employee is embedded in buyer’s purchasing department to forecast demand, monitor inventory
& place orders with access to sensitive files & records
Early Supplier Involvement and Early Buyers Involvement
1. Reduce costs and product development collaboration: For a lot of enterprises, the cost of
purchased materials accounts for more than half of their expenses, so it’s a good place to try to
reduce costs. As well as increased use of suppliers, the future promises the earlier involvement of
the supplier in the product development process.
2. Product Development Process as set of Parallel Activities: Previously, suppliers weren’t
involved early in the process. The activities of the product development process were carried out in
series, and suppliers were only involved near the end of the process. A typical product would go
through many activities – it might start life in the marketing function, and then go through
conceptual design, engineering design and analysis, testing, detailed design, manufacturing
engineering, process planning, tooling, production planning, purchasing, machining, assembly,
testing, packaging, installation and maintenance.
3. Barriers to Optimal Supplier Base: In some cases, suppliers were only brought into the process
to compete against each other on pricing. As a result the company finished up working with a large
number of suppliers, and even with different suppliers on similar products. It was impossible to
build up the stable, long-term quality-generating relationships that lead to client satisfaction. The
product development process needs to be re-organized in order to:-
1. respond to the need to get products to market faster,
2. reduce the cost of developing products
3. make sure the product provides customer satisfaction
In team-oriented matrix based enterprises, employees from different functions will work together on the
upstream activities, effectively taking the major decisions about the entire product development process in
the initial design phase. The team will need to know in detail at an early stage about the different parts of
the product, and the way the parts fit together. The team will want to make the best possible use of
suppliers with the aim of getting a customer-satisfying product to market as quickly as possible. This will
probably mean involving the supplier right at the beginning of the process, when the major modules of the
product are being defined. The supplier will then be given the job of designing and manufacturing a
complete sub-assembly.
In the re-organized process, suppliers will be expected to respond quickly, to be responsible and to be
reliable. They will be expected to have excellent skills, knowledge and experience concerning particular parts
or activities. The company will want to have long-term relationships with a small group of highly
competent, knowledgeable and trusted suppliers. (Please refer to Modules in Lecture 5)

© Copyright Virtual University of Pakistan x


Supply Chain Management –MGMT614 VU
In enterprises that don’t have early supplier involvement, improvement initiatives in the Engineering
Department will be limited to expected improvements in the performance of the product development
process; engineering productivity whereas the quality features due to lack of involvement of the supplier
may be compromised.
Early Buyers Involvement
Ideally sellers want a qualified buyer to pay very close to maximum value for their business. In addition to
high range value, sellers consistently prefer to deal with a buyer whom they like and can trust with the future
of their business and its employees. What attitude attracts and retains a qualified buyer through the closing?
At the same time buyers hope to find a bargain, but expect to pay a fair price. In addition to a fair price,
buyers always prefer to deal with a willing and cooperative seller, whom they like and can trust. What
attitude encourages open dialog and bonding?
Proactive and cooperative sellers set the tone for fair value negotiations. Proactive buyers always respond
favorably to a seller’s cooperative tone. When a seller’s cooperation is sincere, a buyer generally tries harder
to meet a seller’s needs. In the best transactions a special rapport builds, which results in an extra effort by
the seller to help the buyer succeed.
The most successful buyers actively communicate with the seller and follow-up with a fax or letter.
Successful buyers have conversations with the seller about post-acquisition issues. Personal involvement is
critical. Most sellers want to sell to a buyer who both shares the seller’s vision and will preserve the existing
corporate culture. The price paid is very important, but the winning buyers are those who establish rapport,
a shared vision, and a personal bonding with the seller.
Remember, intermediaries bring buyers, advice, and assist. Sellers must actively sell their business. The term
“Buyer” is reserved for those who have pulled the trigger and closed. Others are just “Prospective Buyers”.
Successful closings, a high commitment for direct personal involvement is required between the seller and
the buyer.
Supplier Management Team: Supplier management team is a discipline of working collaboratively with
those suppliers that are vital to the success of your organization, to maximize the potential value of those
relationships.
Strategic Alliance Development
Alliance development, an extension of supplier development refers to increasing a key or strategic
supplier’s capabilities.
Supplier alliances result in better market penetration access to new technologies & knowledge, & higher
return on investment
Alliance development eventually extends to an enterprise’s second-tier suppliers, as the enterprise’s key
suppliers begin to form their own alliances.
Rewarding Supplier Performance
Rewarding suppliers provides an incentive to surpass performance goals
Punishment is a negative reward, may be to reduce future business; or a bill-back amount equal to the
incremental costs resulting from a late delivery or poor quality
Strategic supplier agreements can reward suppliers by allowing –
1. A share of the cost reductions
2. More business and/or longer contracts
3. Access to in-house training seminars & other resources
4. Company & public recognition
Benchmarking Successful Sourcing Practices
Benchmarking measures what other businesses do best and matching their performance is an effective
approach to improving supply chain performance. Benchmarking data regarding sourcing practices
can be obtained in any number of ways, both formal & informal.

© Copyright Virtual University of Pakistan xi


Supply Chain Management –MGMT614 VU
Resources for learning about & implementing sourcing practices:-
1. The Center for Advanced Purchasing Studies.
2. Supply-Chain Council.
Using Third-Party Supply Chain Management Services
Third-party logistics (3PL): A growing industry that involves managing an enterprise’s sourcing or
materials &/or product distribution responsibilities
3PL providers charge a fee for services for an estimated savings of 10 to 20% of total logistics costs;
benefits include improved service, quality, & profits for their clients.
1. Vendor-managed inventory (VMI) services – One of the more popular roles of 3PL.
2. Lead logistics provider (LLP), aka 4PL – A primary 3PL provider; one that oversees other
3PL’s

© Copyright Virtual University of Pakistan xii

You might also like