SCMN 77007706 Demand Fulfillment

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SCMN 7700/7706Demand Fulfillment Segment
18 Supply Management
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Vital Statistics

• Organizations spend huge amounts of money on
  purchased goods services
• Food industry
• Materials 64 of sales
• Paper industry
• Materials 54 of sales
• Oil industry
• Materials 83 of sales

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Supply Management Defined

• The identification, acquisition, access,
  positioning, and management of resources that an
  organization needs in the attainment of its
  strategic objectives.
• Institute of Supply Mgt.

Supply Mgt.
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Evolution to Supply Management
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Supply Management Functions

• Facilitate early purchasing/supplier involvement
• Conduct purchasing and procurement
• Create cross functional teams
• Supplier qualification
• Supplier selection
• Develop linkages
• Partnering arrangements
• Strategic alliances
• Continual risk assessment in supply environment
• Strategic, long-range acquisition plans
• Quality control monitoring within supply chain
• Participation in corporate strategic process

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Goals of Supply Management

• Provide an uninterrupted flow of materials,
  supplies, and service to operate the organization
• Keep inventory investment and loss to a minimum
• Maintain adequate quality standards
• Find or develop competent vendors
• Standardize items bought where possible
• Improve the organizations competitive position
• Build relationships with other departments and
  organizations
• Keep administrative costs down
• Purchase required items and services at the
  lowest ULTIMATE price

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Supply Selection Sourcing

• Choose the best mix of suppliers - balancing
  price, performance, and risk to achieve the best
  total cost of ownership
• Create, collaborate, publish, negotiate and
  analyze

Supply Mgt.
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The Procurement Process
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Supplier SelectionIssues and Activities

• Make or buy analysis
• In-house vs. outsourcing
• Must consider total ownership costs, goals, core
  competencies, quality, source availability
• Total acquisition cost analysis
• Compare all potential sources of supply
• Unit cost plus logistics costs
• Global sourcing
• Supply base rationalization and consolidation
• Sole sourcing vs. primary/secondary sourcing
• Contingency planning

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Supplier Selection Framework
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Supplier Selection and Evaluation Criteria
Price Variable
Delivery Variable
Service Variable
Quality Variable
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Outcomes of Effective Strategic Supplier Selection
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Strong supplier relationships are critical to
effective supply management
Partnering Relationship
Being a good partner has become a key corporate
asset In the global economy, a well-developed
ability to create and sustain fruitful
collaborations gives companies a significant leg
up. Kanter, Harvard Business Review,
July-August, 1994
Personal Relationship
Transactional Relationship
New Relationship
No Relationship
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Supply Execution

• Optimize streamline purchasing processes to
  improve supplier collaboration
• Ensure compliance with negotiated contracts
• Reduce manual effort of purchasing frequently
  needed items

Supply Mgt.
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Supply Execution Process
Determine Sourcing
Purchase Goods And Services
Remit Payment
Receive Goods And Services
CompleteRequisitionSpecification
Goods Services Requirements
Supplier Payment
Approved Requisition Specifications
Verified Receipt
Shipped Goods/ Supplied Services Supplier Invoice
Qualified Sources
Plan and Produce Products and Services
Goods/Services
Purchase Requirements
Create and Improve Assets
Goods/Services
Purchase Requirements
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Supply Execution Methods are Often Category Driven
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Supply Goals

• Quality - Sampling by variables (e.g., averages)
  or attributes (e.g., of defects)
• Cost - Total cost analysis
• Time - Reduced design to market time, less
  delivery time, and less mfg. time
• Technology - Balance sufficient technology with
  core competencies
• Continuity of supply - Monitor industry trends,
  create alliances, minimize risk

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Supply Strategy

• Identify focus of the supply mgt. organization
• Investigate how processes can be made more
  efficient
• Align supply strategy with corporate goals
• Capture and leverage best practices in supply
  mgt.

Supply Mgt.
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7 Principles of SCM

• Principle 5 Manage sources of supply
  strategically to reduce the total cost of owning
  materials and services.

Supply Mgt.
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Developing Successful Sourcing Strategies

• Supply Chain Sourcing Strategy Framework

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World Class Supply Strategy
TCO
Consulting teams
Supplier certification
Early supplier involvement
Performance improvement
Implementation sequence
Cross-functional teams
Formal supplier evaluation
Longer-term relationships
Long-term contracting
Worldwide Sourcing
Supply Base Optimization
Relative proportion of firms using strategy
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Portfolio Analysis a Tool for Developing Supply
Strategy
Strategic
Leverage
High
Collaborate, cost analysis Combination
purchases
Value to Buyer
Acquisition
Multiple
Automate, standardize Short-term, price
focus
Low
Few
Many
Number of Capable Suppliers
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Supply Base Reduction Programs

• Supply base reduction -- most often the initial
  supply chain management effort.
• Buyer-supplier partnerships are easier with a
  smaller supply base.
• Supply base reduction results in
• -- More business for the suppliers
  remaining
• Reduced purchase prices
• Fewer supplier management problems
• Closer and more frequent interaction between
  buyer and supplier
• Greater levels of trust, quality, and delivery
  reliability.

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Early Supplier Involvement

• Early supplier involvement (ESI) is perhaps one
  of the most effective supply chain integrative
  (??) techniques.
• Key suppliers become more involved in the
  internal operations of the firm
• --new product and process design
• --concurrent engineering
• --design for manufacturability techniques.
•  
• Value engineering activities help the firm to
  reduce cost, improve quality, and reduce new
  product development time.

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Supply Strategy Maximize Value of Your Spend

• Five questions to address
• What do we buy?
• How much are we buying and what is it costing us?
  
• Who are we buying it from?
• Are we buying from the correct supplier at the
  correct price?
• How can we reduce the total cost of purchased
  materials services?

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The ongoing challenge for the supply management
organization

• Balancing the needs of competing interest groups
  in the organization

Manufacturing Logistics High fill rates Reduce
cycle times
Finance Low unit costs
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Additional strategic issues to be addressed by
supply mgrs.

• Sarbanes-Oxley requirements
• Managing global supply chains
• Ethical, environmentally friendly suppliers
• Security related issues govt. regulations
• Changing supply market
• Rapidly becoming a sellers market
• Expanded Areas of Sourcing
• Goods and services
• Systems vs. components