Supply Chain Management: Building the Supply Base 11

Building the Supply Base

• Supplier development involves integrating the supplier into the system, including quality requirements, product specifications, schedules and delivery, procurement policies, training, and information transfer procedures.

Negotiation

• Negotiation is a significant element in purchasing, requiring highly valued skills.
• Cost-based price models involve suppliers opening their books, while market-based price models are based on published, auction, or indexed prices.
• Competitive bidding is a common policy for many purchases, but does not generally foster long-term relationships.

Contracting

• Contracting involves sharing risks and benefits, and creating incentives.
• Centralized purchasing allows for leverage of volume, development of specialized staff, and maintenance of professional control.
• It also reduces duplication of tasks and promotes standardization.

Logistics Management

• The objective of logistics management is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities.
• Logistics management is a frequent candidate for outsourcing and can provide a competitive advantage through reduced costs and improved customer service.

Managing the Integrated Supply Chain

• Opportunities in managing the integrated supply chain include:
  • Accurate "pull" data and shared information
  • Lot size reduction, shipping discounts, and reduced ordering costs
  • Single stage control of replenishment
  • Vendor managed inventory (VMI)
  • Collaborative planning, forecasting, and replenishment throughout the supply chain
  • Blanket orders against which actual orders are released
  • Standardization
  • Postponement
  • Electronic ordering and funds transfer
  • Drop shipping and special packaging
  • Blockchain aids tracking and verification

Supplier Evaluation

• Supplier evaluation involves finding potential suppliers, determining their likelihood of becoming good suppliers, and certification through qualification, education, and certification.

Supply-Chain Management

• The objective of supply chain management is to structure the supply chain to maximize its competitive advantage and benefits to the ultimate consumer.

The Supply Chain's Strategic Importance

• The supply chain includes suppliers, manufacturers and/or service providers, distributors, wholesalers, retailers, and final customers.
• A large portion of sales dollars is spent on purchases, and supplier relationships are increasingly integrated and long-term.
• Managing supplier relationships has added emphasis, and can improve innovation, speed design, and reduce costs.

Sourcing Issues

• Make-or-buy decisions involve choosing between obtaining products and services externally or producing them internally.
• Outsourcing involves transferring traditional internal activities and resources to outside vendors, allowing for efficiency in specialization and focus on core competencies.

Sourcing Strategies

• Six sourcing strategies include using many suppliers, few suppliers, vertical integration, joint ventures, keiretsu networks, and virtual companies.

Many Suppliers

• Used for commodity products
• Purchasing is based on price
• Suppliers compete with each other
• Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery

Few Suppliers

• Buyer forms long-term relationships with fewer suppliers
• Creates value through economies of scale and learning curve improvements
• Suppliers are more willing to participate in JIT programs and contribute design and technological expertise
• Cost of changing suppliers is high
• Trade secrets and other alliances may be at risk

Vertical Integration

• Developing the ability to produce goods or services previously purchased
• Integration can be forward (towards the customer) or backward (towards suppliers)
• Improves cost, quality, delivery, and inventory
• Requires capital, managerial skills, and demand
• Risky in industries with rapid technological change

Joint Ventures

• Formal collaboration to enhance skills, secure supply, and reduce costs
• The challenge is to cooperate without diluting brand or conceding competitive advantage

Keiretsu Networks

• A middle ground between few suppliers and vertical integration
• Supplier becomes part of the company coalition
• Often provides financial support for suppliers through ownership or loans
• Members expect long-term relationships and provide technical expertise and stable deliveries
• May extend through several levels of the supply chain

Virtual Companies

• Rely on a variety of supplier relationships to provide services on demand
• Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands
• Relationships may be short- or long-term
• Exceptionally lean performance, low capital investment, flexibility, and speed

Security and JIT

• Shipments can get misrouted, stolen, damaged, or excessively delayed
• Technological innovations are improving security and inventory management
• Location, motion sensors, broken seals, temperature, and radioactivity tracking can help expedite shipments

Managing the Integrated Supply Chain

• Opportunities:
  • Accurate "pull" data, shared information
  • Lot size reduction, shipping, discounts, reduced ordering costs
  • Single stage control of replenishment
  • Vendor managed inventory (VMI)
  • Collaborative planning, forecasting, and replenishment (CPFR) throughout the supply chain
  • Blanket orders against which actual orders are released
  • Standardization
  • Postponement withholds modification as long as possible
  • Electronic ordering and funds transfer speed transactions and reduce paperwork
  • Drop shipping and special packaging bypasses the seller and reduces costs
  • Blockchain aids tracking and verification

Building the Supply Base

• Supplier evaluation:
  • Finding potential suppliers
  • Determining likelihood of their becoming good suppliers
  • Supplier certification:
    • Qualification
    • Education
    • Certification