Supply Chain Management Elements 5 and 6

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Questions and Answers

What happens to SOWs in outsourcing relationships?

They are only used for internal departmental purposes

They become flexible and adaptive to new requirements

They dictate conventional and less-than optimal ways of performing tasks (correct)

They prioritize innovation and continuous improvement

Why do internal departments create requirements that only the incumbent supplier can provide in an RFP process?

To favour the incumbent supplier and prevent change (correct)

To ensure a level playing field for all bidders

To reduce the cost of the procurement process

To encourage innovative solutions from new suppliers

What is the 'Honeymoon Effect' in outsourcing relationships?

The stage where both parties go through a period of excitement and high expectations (correct)

The point of contract termination and renewal

The phase of contract negotiation and agreement

The initial period of high performance and innovation

What prevents partners from raising service levels beyond what's contained in the Service Level Agreements?

The lack of incentive to improve performance Signup and view all the answers

What opportunity is frequently dismissed in outsourcing relationships?

The opportunity to bring innovations to the table Signup and view all the answers

What is 'Sandbagging' in contract manufacturing or logistics?

The practice of withholding innovations until the contract end date Signup and view all the answers

Why do suppliers bring innovations to the table towards the end of the contract?

To secure a new agreement and maintain the relationship Signup and view all the answers

What is the outcome of not managing outsourcing relationships effectively?

Rigid and conventional ways of performing tasks Signup and view all the answers

What is the primary purpose of determining metrics and reports in supplier management?

To manage the business and determine the frequency of reports Signup and view all the answers

What is an example of a fully integrated reporting process for sharing sales data?

Walmart's Retail Link Signup and view all the answers

What should be included in a well-structured contract?

A balanced risk versus shifting risk to a supplier Signup and view all the answers

Why is it important to regularly review pricing models and risk assignment?

To ensure the supplier is compensated appropriately Signup and view all the answers

What is the benefit of a longer-term contract?

Encourages suppliers to make long-term investments Signup and view all the answers

What should be considered when determining the contract length?

The payback period for suppliers' investments Signup and view all the answers

What is the purpose of developing a thoughtful plan to introduce improvements?

To reduce total program risk Signup and view all the answers

What may happen as the supplier gains more experience?

The contract type evolves into a more strategic form Signup and view all the answers

What is a typical characteristic of strategic contracts?

Contract terms in excess of five years Signup and view all the answers

What is the purpose of including incentives in a pricing model?

To promote behaviors and outcomes that benefit both parties Signup and view all the answers

What is a key component of a good contract, as mentioned in the Element 7 Relationship Management Framework?

Clear outlines of all six relationship management components Signup and view all the answers

What is the primary purpose of transformation management in a supplier contract?

To ensure the supplier meets necessary milestones Signup and view all the answers

What is an example of a change that may impact key elements of a supplier agreement?

Change in the bill of materials for a component supplier Signup and view all the answers

What is a provision that may be included in more strategic supplier relationships?

A provision for the parties to develop a continuous improvement process Signup and view all the answers

What is a key aspect of a formal change management process in a supplier agreement?

The process outlines how changes will be handled by both parties Signup and view all the answers

Why is it important to have a clear outline of the relationship management framework in a supplier contract?

To clearly define the relationship management components Signup and view all the answers

Study Notes

Element 5 Performance Management

Trading partners should determine metrics reports and frequency to manage the business
Performance reporting can be as simple as an Excel spreadsheet or fully automated and integrated, like Walmart's Retail Link
Partners can access sales data via an Internet portal, tracking product performance in near real time

Element 6 Pricing Model

Contracts should outline pricing or the pricing model to compensate suppliers
Pricing models should consider balancing risk and include a plan to introduce improvements that reduce total program risk
Partners should regularly review pricing models and risk assignments over the contract's life
Contracts can evolve from transaction-based to outcome-based pricing models as the supplier gains experience
Contract length should be commensurate with the payback period for suppliers' investments
Incentives should be included in the pricing model, promoting behaviors and outcomes that benefit both parties

Element 7 Relationship Management Framework

Contracts should clearly outline the relationship management framework
A good contract will outline all six relationship management components

Element 8 Transformation Management

Contracts should outline transition expectations, including project milestones, reviews, and escalation paths
A formal change management process should be outlined, including how to handle changes impacting the agreement
More strategic relationships may include provisions for continuous improvement processes

The Honeymoon Effect

Both parties go through a honeymoon stage at the beginning of a relationship
The level of excitement wanes after the initial ramp-up, and performance levels may not improve beyond the contract's expectations
There is an opportunity to use lessons learned to develop innovative new ways to deliver desired outcomes, but it's often dismissed due to lack of incentives

Sandbagging

Suppliers may bring innovations to the table near the end of the contract to secure a new agreement

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Description

Learn about elements 5 and 6 of supply chain management, including performance management and pricing models. Understand how to determine metrics, access sales data and compensate suppliers.