Supply Chain Management Past Paper PDF - Sem 1, 2024

**Portmore Community College** **Supply Chain Management** **The Role of Sourcing in a Supply Chain, what is sourcing?** Sourcing is the set of business processes required to purchase goods and services\ -Outsourcing\ -Offshoring **Outsourcing questions** 1.Will the third party increase the sup...

**Portmore Community College** **Supply Chain Management** **The Role of Sourcing in a Supply Chain, what is sourcing?** Sourcing is the set of business processes required to purchase goods and services\ -Outsourcing\ -Offshoring **Outsourcing questions** 1.Will the third party increase the supply chain surplus relative to performing the activity in-house?\ 2.How much of the increase in surplus does the firm get to keep?\ 3.To what extent do risks grow upon outsourcing? **Supplier Scoring and Assessment** \*Supplier performance should be compared on the basis of the supplier\'s impact on total cost\ \*There are several other factors besides purchase price that influence total cost **Supplier Selection** \*Identify one or more appropriate suppliers\ \*Contract should account for all factors that affect supply chain performance\ \*Should be designed to increase supply chain profits in a way that benefits both the supplier and the buyer **Design Collaboration** \*About 80% of the cost of a product is determined during design\ \*Suppliers should be actively involved at this stage **Procurement** \*A supplier sends product in response to orders placed by the buyer\ \*Orders placed and delivered on schedule at the lowest possible overall cost **Sourcing Planning and Analysis** \*Analyze spending across various suppliers and component categories\ \*Identify opportunities for decreasing the total cost **Cost of Goods Sold** \*Cost of goods sold (COGS) represents well over 50 percent of sales for most major manufacturers\ \*Purchased parts a much higher fraction than in the past\ \*Companies have reduced vertical integration and outsourced **Benefits of Effective\ Sourcing Decisions** \*Better economies of scale through aggregated\ \*More efficient procurement transactions\ \*Design collaboration can result in products that are easier to manufacture and distribute\ \*Good procurement processes can facilitate coordination with suppliers\ Appropriate supplier contracts can allow for the sharing of risk\ \*Firms can achieve a lower purchase price by increasing competition through the use of auctions **Factors Influencing Growth of Surplus by a Third Party** \*Scale\ Large scale it is unlikely that a third party can achieve further scale economies and increase the surplus\ \*Uncertainty\ If requirements are highly variable over time, third party can increase the surplus through aggregation\ \*Specificity of assets\ If assets required are specific to a firm, a third party is unlikely to increase the surplus **Risks of Using a Third Party** \*The process is broken\ \*Underestimation of the cost of coordination\ \*Reduced customer/supplier contact\ \*Loss of internal capability and growth in third-party power\ \*Leakage of sensitive data and information\ \*Ineffective contracts\ \*Loss of supply chain visibility\ \*Negative reputational impact **Third- and Fourth-Party\ Logistics Providers** \*Third-party logistics (3PL) providers performs one or more of the logistics activities relating to the flow of product, information, and funds that could be performed by the firm itself\ \*A 4PL (fourth-party logistics) designs, builds and runs the entire supply chain process **Supplier Selection -\ Auctions and Negotiations** \*Supplier selection can be performed through competitive bids, reverse auctions, and direct negotiations\ \*Supplier evaluation is based on total cost of using a supplier\ \*Auctions:\ -Sealed-bid first-price auctions\ -English auctions\ -Dutch auctions\ -Second-price (Vickery) auctions **Supplier Selection -\ Auctions and Negotiations, Factors influence the performance of an auction** -Is the supplier\'s cost structure private (not affected by factors that are common to other bidders)?\ -Are suppliers symmetric or asymmetric; that is, ex ante, are they expected to have similar cost structures?\ -Do suppliers have all the information they need to estimate their cost structure?\ -Does the buyer specify a maximum price it is willing to pay for the supply chain? **Supplier Selection -\ Auctions and Negotiations?** Collusion among bidders\ Second-price auctions are particularly vulnerable\ Can be avoided with any first-price auction **Basic Principles of Negotiation?** \*The difference between the values of the buyer and seller is the bargaining surplus\ \*The goal of each negotiating party is to capture as much of the bargaining surplus as possible\ -Have a clear idea of your own value and as good an estimate of the third party\'s value as possible\ -Look for a fair outcome based on equally or equitably dividing the bargaining surplus\ -A win-win outcome **Contracts, Risk Sharing, and\ Supply Chain Performance** 1.How will the contract affect the firm\'s profits and total supply chain profits?\ 2.Will the incentives in the contract introduce any information distortion?\ 3.How will the contract influence supplier performance along key performance measures? **Contracts for Product Availability and Supply Chain Profits** \*Independent actions taken by two parties in a supply chain often result in profits that are lower than those that could be achieved if the supply chain were to coordinate its actions\ \*Three contracts that increase overall profits by making the supplier share some of the buyer\'s demand uncertainty are\ Buyback or returns contracts\ Revenue-sharing contracts\ Quantity flexibility contracts **Buyback Contracts** \*Allows a retailer to return unsold inventory up to a specified amount at an agreed upon price\ \*The manufacturer specifies a wholesale price c and a buyback price b\ \*The manufacturer can salvage \$sM for any units that the retailer returns\ \*The manufacturer has a cost of v per unit produced and the retail price is p **Buyback Contracts - Holding-cost subsidies** Manufacturers pay retailers a certain amount for every unit held in inventory over a given period\ Encourage retailers to order more **Buyback Contracts, Price support** Manufacturers share the risk of product becoming obsolete\ Guarantee that in the event they drop prices they will lower prices for all current inventories **Revenue-Sharing Contracts** Manufacturer charges the retailer a low wholesale price c and shares a fraction f of the retailer\'s revenue\ -Allows both the manufacturer and retailer to increase their profits\ -Results in lower retailer effort\ -Requires an information infrastructure\ -Information distortion results in excess inventory in the supply chain and a greater mismatch of supply and demand **Quantity Flexibility Contracts** \*Allows the buyer to modify the order (within limits) after observing demand\ \*Better matching of supply and demand\ \*Increased overall supply chain profits if the supplier has flexible capacity\ \*Lower levels of information distortion than either buyback contracts or revenue sharing contracts **Contracts to Coordinate\ Supply Chain Costs** \*Differences in costs at the buyer and supplier can lead to decisions that increase total supply chain costs\ \*A quantity discount contract may encourage the buyer to purchase a larger quantity which would result in lower total supply chain costs\ \*Quantity discounts lead to information distortion because of order batching **Contracts to Increase Agent Effort** In many supply chains, agents act on behalf of a principal and the agents\' efforts affect the reward for the principal\ A two-part tariff offers the right incentives for the dealer to exert the appropriate amount of effort\ Threshold contracts increase information distortion\ Offer threshold incentives over a rolling horizon **Contracts to Induce\ Performance Improvement** \*A buyer may want performance improvement from a supplier who otherwise would have little incentive to do so\ \*A shared-savings contract provides the supplier with a fraction of the savings that result from performance improvement\ \*Effective in aligning supplier and buyer incentives when the supplier is required to improve performance and most of the benefits of improvement accrue to the buyer **Design Collaboration** \*50-70% of spending at a manufacturer comes from procurement\ \*80% of the cost of a purchased part is fixed in the design phase\ \*Design collaboration with suppliers can result in reduced cost, improved quality, and decreased time to market\ \*Design for logistics, design for manufacturability\ Modular, adjustable, dimensional customization **The Procurement Process** \*The process in which the supplier sends product in response to orders placed by the buyer\ \*Main categories of purchased goods\ \*Direct materials\ \*Indirect materials\ \*Procurement process for direct materials should be designed to ensure that components are available in the right place, in the right quantity, and at the right time\ \*Focus for indirect materials should be on reducing transaction cost **Designing a Sourcing Portfolio: Tailored Sourcing** \*Options with regard to whom and where to source from\ -Produce in-house or outsource to a third party\ -Will the source be cost efficient or responsive\ -Onshoring, near-shoring, and offshoring\ \*Tailor supplier portfolio based on a variety of product and market characteristics **Risk Management in Sourcing** Inability to meet demand on time\ An increase in procurement costs\ Loss of intellectual property **Making Sourcing\ Decisions in Practice** 1.Use multifunction teams\ 2.Ensure appropriate coordination across regions and business units\ 3.Always evaluate the total cost of ownership\ 4.Build long-term relationships with key suppliers What is Onshore Outsourcing off shoring: Definition and Benefits With so many functions to perform, businesses often find themselves working outside their areas of core competency. This is true of both small and large firms, and even the biggest businesses often find that they can realize cost savings through [[outsourcing]](https://tallyfy.com/what-is-outsourcing/). Offshore outsourcing has proved to be controversial, but that doesn't preclude outsourcing altogether. Onshore outsourcing provides an alternative. By definition, onshore outsourcing is when you contract other firms or individual freelancers based in the same country as you. Both onshore and offshore outsourcing have their own set of advantages and disadvantages, but onshore outsourcing overcomes many of the drawbacks of offshoring tasks. Reasons to Choose Onshore Outsourcing While [[offshore outsourcing]](https://tallyfy.com/offshore-outsourcing/) is significantly more popular than onshore, it doesn't come without several disadvantages. In some cases, onshore might actually end up better for your business -- in terms of both the price & what you get from it. Consider this list of onshore outsourcing advantages before making a final judgment call. Ease of Communication While language differences are among the most obvious obstacles to good communication when you deal with contractors from other countries, time zone differences should also be taken into account. When you outsource locally, you're benefiting from... - **Language Fluency** -- Any business function that requires the contractor to be fluent in the native language. Functions such as  Sales, customer support, or marketing can be done better by a native speaker. - **Local Connections** -- Some jobs require the company to be based locally. Think, PR agencies -- they tend to have connections with the media companies only in their respective countries. - **Time Zones** -- Working with an overseas company means that you'll have to keep the time zone difference in consideration at all times. So let's say there's an emergency that needs to be solved ASAP -- the offshore firm you're contracting might have a significantly slower response time. A Greater Level of Control, Responsiveness, and Reliability When you outsource locally, issues like [[quality control]](https://www.qualitydigest.com/inside/quality-insider-article/taking-control-supplier-quality.html) are easier to handle. And if you need to train or [[onboard your supplier]](https://tallyfy.com/supplier-onboarding/) or service provider to work in a certain way, you can extend an invitation that allows for personal meetings, physical demonstrations, and an improved understanding of what's required. Geographical distance poses other problems. For example, if semi-processed or processed materials are delivered from another country, you will have a long wait between dispatch and arrival times unless you use air freight options -- and air freight of bulk materials is a costly business. Finally, there might be issues with reliability that are not your outsourced suppliers' fault -- for example, a shipping company could let them down or infrastructure problems you don't have locally could affect efficiency. Fewer Cultural Differences [[Cultural differences]](https://www.chinaimportal.com/blog/5-tips-efficient-communication-chinese-suppliers/) can become greater obstacles than you expected. For example, onshore businesses will share the same holidays as you do, while offshore ones may be taking the day off just when you need their services most. There are also differences in the approach to work and business when you work with offshore contractors. As a case in point: Americans may be very direct in communicating any shortcomings, while in China, such directness would be considered rude. By the same token, some cultures may regard giving suggestions and ideas as being a breach of etiquette -- an implicit criticism of your business. If you are from a Western culture, however, you welcome feedback and ideas that can result in a better final product. Input form specialist companies can help you to get better results faster with fewer false-starts and less need to adjust specifications. Locally Appropriate Skill Sets When you outsource within your own country, you know that the people who will be helping you with tasks have a specific set of skills that is defined in accordance with local conditions. Let's say you're looking to outsource certain HR tasks: only professionals who work within your country will be as intimately acquainted with local labor laws as you would like them to be. In other fields, you might experience a similar situation. You can be fairly confident about understanding the standard of local qualifications, but what does it take to get a similar-sounding qualification elsewhere in the world? The required knowledge-base in another country may differ in content, standard, or both. They Know Your Market When you outsource things like [[customer service]](https://medium.com/business-process-management-software-comparisons/customer-experience-management-with-tallyfy-f69aab00335f) or marketing tasks, you need to work with firms that will understand your clients and their needs. Without this knowledge, well-intentioned efforts may fall flat. Since your outsourced market-faced communications will reflect your company's image, any resulting frustration reflects on your business. Respect for Intellectual Property Protecting your intellectual property and ensuring that your company has a reputation for honest dealings with regard to others' intellectual property will be a priority for you. Naturally, you don't want your unique ideas being freely disseminated elsewhere, and you certainly don't want lawsuits for copyright or patent infringements. Most local businesses you outsource to will be careful not to do this -- but companies or individuals from other countries may not be as scrupulous. Onshore Outsourcing Might End up Costing Less The lure of lower costs is one of the big reasons why companies choose offshore outsourcing. But is it really cheaper? Take into account all the drawbacks we've already discussed, and it might not prove to be that way in practice. What if you need to straighten out a problem in person? An onshore supplier or service provider is easy to meet with, but traveling halfway around the world will be expensive, both in travel costs and lost time. Political and Financial Stability No matter whether you choose to work locally or offshore, there'll be a supplier onboarding process and a learning curve in which your service provider gets to know how you'd like them to work. When you change suppliers, the whole process must be repeated. It is therefore in your interests to work with stable businesses. But when the political and economical environment in which it operates is unstable, you may find that you're left high and dry because your supplier can no longer operate as it did before or has to close its doors. Patriotism Gives You Marketing Advantages Being able to market yourself as 100% local is a selling point you shouldn't overlook. The garment industry provides an example. While businesses in the Far East may be able to manufacture clothing more cheaply, [[consumers are aware of labor injustices and unsafe working practices]](http://www.huffingtonpost.co.za/entry/ethical-clothing-brands-you-probably-didnt-know-about_us_59e61300e4b0a2324d1dfa71) that are common in countries like Bangladesh. If something like this comes to light, your company's reputation suffers untold damage and consumers may even boycott your products. In addition, there's the job-creation issue. Creating local jobs certainly earns you goodwill, and it's more than just a political issue. Some consumers will specifically seek out locally-made items and are willing to pay more for them. Tracking Outsourced Work Whether you choose onshore or offshore outsourcing, you'll need to figure out a way to effectively track contractor work. While this is easier with an onshore company (you can always call or drop by the office), it's not really that effective. Any contracting company might show or tell you one thing, and then do something completely different -- and you won't even know until it's too late. To have a clear idea of the work your contractors do, you can employ [[workflow management software]](https://tallyfy.com/). This allows you to communicate in real-time with the company, as well as track all of their tasks and processes. This way, whether you're doing onshore or offshore, you always know you're paying the contractor for. **Nearshore- outsourcing** Nearshore outsourcing is the practice of getting work done or services performed by people in neighbouring countries rather than in your own country. Many companies in the United States, for example, [[outsource]](https://searchcio.techtarget.com/definition/outsourcing) work to Canada and Mexico. Geographic proximity means that travel and communications are easier and less expensive, there are likely to be at least some commonalities between the cultures, and people are more likely to speak the same language.