Podcast
Questions and Answers
Operational management processes relate to the management of individual development projects.
Operational management processes relate to the management of individual development projects.
True
Collaboration processes are aimed at managing individual development projects.
Collaboration processes are aimed at managing individual development projects.
False
Purchasing and new product development involves generating as few new product ideas as possible.
Purchasing and new product development involves generating as few new product ideas as possible.
False
The concept study stage involves translating the new product idea into a technical design.
The concept study stage involves translating the new product idea into a technical design.
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The product development stage involves translating the product design into a number of laboratory models.
The product development stage involves translating the product design into a number of laboratory models.
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Pilot production involves manufacturing a single pre-production series.
Pilot production involves manufacturing a single pre-production series.
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Quality is the degree in which customer requirements are exceeded.
Quality is the degree in which customer requirements are exceeded.
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Quality management involves demonstrating that customer requirements are not met.
Quality management involves demonstrating that customer requirements are not met.
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Operational management processes help to decide what suppliers to address for what type of technological questions.
Operational management processes help to decide what suppliers to address for what type of technological questions.
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Collaboration processes are responsible for managing individual development projects.
Collaboration processes are responsible for managing individual development projects.
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Negotiating skills are not an important skill for procurement staff.
Negotiating skills are not an important skill for procurement staff.
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Stage 3 of the procurement development model focuses on cross-functional team-based problem-solving.
Stage 3 of the procurement development model focuses on cross-functional team-based problem-solving.
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The emphasis of Stage 4 of the procurement development model lies on cross-unit coordination and compliance with nationally negotiated contracts.
The emphasis of Stage 4 of the procurement development model lies on cross-unit coordination and compliance with nationally negotiated contracts.
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Some companies and industries may not be suitable for all the stages of the procurement development model.
Some companies and industries may not be suitable for all the stages of the procurement development model.
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Creating a closed loop between different process elements is not essential for procurement activities.
Creating a closed loop between different process elements is not essential for procurement activities.
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Procurement digitalization has hindered procurement operatives' ability to work on procurement development.
Procurement digitalization has hindered procurement operatives' ability to work on procurement development.
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Procurement has become less integrated with other business domains, such as operations management and supply chain management.
Procurement has become less integrated with other business domains, such as operations management and supply chain management.
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The objectives and targets for procurement are always clearly defined and measurable.
The objectives and targets for procurement are always clearly defined and measurable.
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Procurement at Stage 6 focuses on delivering value to the internal stakeholders.
Procurement at Stage 6 focuses on delivering value to the internal stakeholders.
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Subcontractors do not seek support from their suppliers in the procurement development model.
Subcontractors do not seek support from their suppliers in the procurement development model.
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The price adjustment formula is based on internal factors such as employee salaries or company profits.
The price adjustment formula is based on internal factors such as employee salaries or company profits.
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The preferred method of payment is a one-time lump sum payment at the completion of the project.
The preferred method of payment is a one-time lump sum payment at the completion of the project.
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A bank guarantee is a type of performance bond issued by a lawyer.
A bank guarantee is a type of performance bond issued by a lawyer.
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Contract governance involves managing only two dimensions in parallel.
Contract governance involves managing only two dimensions in parallel.
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Lawyers and legal councils aim to minimize conflicts and disputes in contract management.
Lawyers and legal councils aim to minimize conflicts and disputes in contract management.
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Contract management involves managing the interests of only one party.
Contract management involves managing the interests of only one party.
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The payment terms include holding back a small percentage of the payment until the client is satisfied with the project.
The payment terms include holding back a small percentage of the payment until the client is satisfied with the project.
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The performance bond is used to guarantee the quality of the project.
The performance bond is used to guarantee the quality of the project.
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Milestone payments are made when the project is 50% completed.
Milestone payments are made when the project is 50% completed.
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Contract management is similar to a cooperative game where both parties work together.
Contract management is similar to a cooperative game where both parties work together.
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Study Notes
Market Structure and Supply Market Research
- Market structure refers to the total set of conditions in which a company sells its products, including the number of parties in the market and the nature of the product being traded.
- Factors that characterize market structure:
- Number of suppliers
- Number of buyers
- Degree of product differentiation
- Market structure can be classified into four types:
- Free competition (pure competition)
- Monopolistic competition
- Oligopoly
- Monopoly
- Supply market research is crucial to support sound decision-making, identify and analyze risks related to important procurement decisions, and make these risks more visible and transparent.
Types of Market Structure
- Free competition (pure competition):
- Large number of buyers and suppliers
- Homogenous product
- No single supplier or buyer can influence the price of the product
- Complete information is available
- Free entry and exit
- Monopolistic competition:
- Similar to many actual markets
- High degree of product differentiation
- No direct pressure on the price of one product from competitors' offers
- Oligopoly:
- Limited number of suppliers
- Limited product differentiation
- Difficult to enter the market
- Suppliers know each other's market behavior
- Monopoly:
- Only one supplier of the product in the market
- Substitutes are absent
- Monopolist can charge the price they'd like
Demand Side Market Structure
- Three types of market structure on the demand side:
- Free competition (pure competition)
- Oligopsony (oligopoly situation in reverse)
- Monopsony (only one buyer of the product)
Procurement Policy and Market Structure
- When developing a procurement policy, the procurement manager should consider:
- Types of market
- Number of suppliers
- Reaction of suppliers (that are not selected)
- Product differentiation
- Substitutes
- Company's market share in the supply market
- Competitors
- Short-run and long-run development in the supply market
Importance of Supply Market Research
- Supply market research is crucial to:
- Reduce supply chain and transaction costs
- Reduce supply risks
- Identify alternative supply sources
- Improve company focus
- Gain access to world-class supplier capabilities
- Improve customer satisfaction
- Increase flexibility
Outsourcing and Risk Management
- Definition of outsourcing:
- The decision and subsequent transfer process by which activities that constitute a function are contracted from external suppliers
- Major characteristics of outsourcing:
- Activities that were initially performed in-house are transferred to an external party
- Assets, knowledge, and people may be transferred to the external party
- There will be a long-term relationship between the parties involved
- Both parties are exposed to a new cost and risk profile
- Rationale for outsourcing:
- Tactical reasons (reduce costs, free up internal resources)
- Strategic reasons (improve company focus, gain access to world-class supplier capabilities)
Types of Outsourcing
- Offshoring:
- Outsourcing activities to a low-cost country
- Often concerned with outsourcing of services (e.g. IT)
- Nearshoring:
- Outsourcing activities to nearby low-cost countries
- Onshoring:
- Outsourcing activities to providers operating in the same country
- Turnkey outsourcing:
- Taking responsibility for the execution of the entire function lies with the external provider
- Partial outsourcing:
- Only a part of an integrated function is outsourced
- Coordination of the function and activities still lies with the client
Risk Assessment of Outsourcing
- Technical risk:
- How to maintain crucial knowledge in the company over time
- How to ensure that the supplier will apply leading-edge technology and solutions
- How to make sure that the supplier staff is capable and remains capable of doing their job
- Commercial risk:
- Uncertainty in terms of price and costs
- Can be reduced using incentives and penalties
- Contractual risk:
- Contracts are used to mitigate the risk
- Difficult to mention all terms and conditions in a contract
- Performance risk:
- Does the supplier have sufficient capacity and flexibility to meet our fluctuating requirements
- Do buyers have sufficient capacity and flexibility to trace and track the supplier's operational processes
Critical Success Factors of Outsourcing
- Understanding company goals and objectives
- A strategic vision and plan
- Selecting the right vendor
- A properly structured contract
- Open communication with the individual groups involved
- Ongoing management of the relationship
- Senior executives' support and involvement
- Careful attention to personnel issues
Procurement and Business Strategy
- The strategic role of procurement:
- Benefits gained from purchasing supplies externally
- Economies of scale
- Learning effects
- Lower costs
- The role of procurement in strategic management theory:
- Strategic planning and marketing theories
- After World War 2, there was a large demand for products
- The focus of companies was not on marketing
- Major concern was to secure supply for production
- Competitive strategy:
- Five forces that shape competition in an industry
- Threat of new entrants
- Bargaining power of suppliers
- Threat of substitute products, services, and solutions
- Bargaining power of buyers
- Competition among existing competitors
Innovation and Quality Management
- Suppliers as a source of innovation:
- Open innovation
- Recognize the value of external R&D
- Invest in internal R&D to maximize this value
- Win by finding the best research, regardless of whether it originated internally or externally
- Win by finding the best ideas, regardless of whether they originated internally or externally
- Purchasing and innovation:
- Early supplier involvement
- Suppliers can be a source of innovation
- In many industries, innovations are generated not so much by manufacturers as by their suppliers
- Quality management:
- Purchasing portfolio analysis
- Analyzing the purchasing turnover and supplier base
- Two variables: purchasing's impact on the bottom line and supply risk### Early Supplier Involvement in New Product Development
- Early supplier involvement results in shorter development lead-times, higher product quality, and shorter time to market
Benefits of Early Supplier Involvement
- Short-term benefits:
- Better product quality
- Lower product cost
- Shorter development time
- Lower development cost
- Long-term benefits:
- Joint research programmes on new technologies
- Aligning technology strategies and roadmaps
- Ability to work with suppliers on a gain and risk-sharing basis
- New product concepts emergence
Core Processes of New Product Development
Strategic Management Processes
- Focus on providing infrastructure for future technological collaboration with suppliers
- Aimed at:
- Answering make or buy decision at the strategic level
- Selecting potential future technology partners
- Standardizing product design
- Evaluating supplier development capabilities and performance
Operational Management Processes
- Relate to management of individual development projects
- Help decide:
- Which suppliers to address for what type of technological questions
- What suppliers to involve early and late in the project
- What contracts to use in relationship with suppliers
Collaboration Management Processes
- Aimed at fostering and implementing technological collaboration with external partners
- Include:
- How to work with suppliers in new product development
- How to communicate with them
- How to assess inter-system compatibility and operability
- How to evaluate product designs
- What contractual agreements to use in technological collaboration
New Product Development Process
Idea Generation
- Generate as many new product ideas as possible
Concept Study Stage
- Translate new product idea into a conceptual design
- Determine functionality to offer to target market
Definition Stage
- Translate conceptual design into a technical design
- Determine materials to use
Product Development
- Translate product design into laboratory models
Pre-Production Planning
- Take production requirements into account
Pilot Production
- Manufacture pre-production series
- Conduct thorough investigation and quality inspection
Start of Regular Production
- Actual production commences
Quality Management
Quality Definition
- Degree in which customer requirements are met
Quality Management Process
- Ensure requirements are met and can be demonstrated objectively
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