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4alue#5dding Benefits
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4alue65dding Benefits
Strategic ocus
1-3
Supply Management
"he result=
s
s
e
t
s
'a&or
$(00,000
)aterials
$!,$00,000
*ver#ea+
$800,000
*
,
e
r
a
t
i
n
g
%
o
s
t
e
l
e
m
e
n
t
s
-$515,000.
-$$,/85,000. -$!,185,000.
-10.$%.
-1.!/.
-$$,0(5,000.
-$1,0(5,000.
-$4(5,000.
-1$.0%.
1#at if 2e
+e%rease
materials %ost
&3 5%4
-or $115,000.
Sales
$5,000,000
5et in%ome
$400,000
Divided by
6i7e+ assets
$!,000,000
"urrent assets
$1,100,000
Plus
*t#er %osts
$800,000
Sales
$5,000,000
"ost of
8oo+s Sol+
$$,800,000
Minu
s
Plus
Supply Management and $eturn on
In%estment
igure )#-
1-10
"he Impact on $>I of $educing Materials
Costs %s. Increasing Sales
therefore9..
Simultaneous acti%ities.
Management
BuyingGSupply Management
Clerical 5cti%ities
actors affecting organi7ational structure
Operational ctivities Strate!ic ctivities
"lacin! "urchase Orders Supplier #evelopment
Responsi$ilities
Mana!in! Contracts/Blan%et
Order Releases
Coordinatin! the
"rocurement System
E&peditin! In$ound Orders #evelopin! Lon!-'erm
Contracts
Continuity of Supply to
"roduction Lines
#evelopin! and Inte!ratin!
Supply Strate!y
Mana!in! Supplier
Relationships
Mana!in! Ris%s in Supply
Chain
'ransactionally Focused
ctivities
Strate!ically Focused
ctivities
>rgani7ational 5uthority
Centrali7ed 5uthority J decision ma!ing
responsi+ility in hands of one indi%idual or
one location.
Decentrali7ation of Purchasing 5uthority#
decision ma!ing responsi+ility delegated
to cross functional areas or di%isions.
Benefits of Centrali7ed 5uthority
$eduction of duplication of effort
Le%eraging of %olume purchases
Consolidation of re*uirements
"ransportation sa%ings
Indi%idual speciali7ation
$eduction of suppliers costs
Impro%ed in%entory control
Lo:er administration costs
Centrali7ed control
$eduction in costs of ser%ices
Benefits of Decentrali7ation
Specialty +uyers can e%ol%e
aster response time for multiple locations
Better understanding of locations
re*uirements.
More efficient +uying of lo: dollar, odd
+uys.
>rgani7ational Structures
"he Supply Chain Management Structure
Denia
>rgani7ing :ith Cross#unctional "eams
$e%ie: of 5ppendi&
Concluding $emar!s
5ppropriate organi7ational structure is
critical to effecti%e supply chain
management.
Key Concepts
5 "ransformation in $elationships
"ypes of Buyer#Supplier $elationships
"ransactional $elationships
Colla+orati%e and 5lliance $elationships
Colla+orati%e $elationships
Supply 5lliances
"he Supplier8s Perspecti%e
De%eloping and Managing Colla+orati%e and
5lliance $elationships
4-26
Key Concepts
5 Portfolio 5pproach
"ransactional
Colla+orati%e
5lliance
4-29
Continuum of Bu#er."eller (elations$ips
Continuum of Buyer#Seller $elationships
igure .#)
Communication
Competitive Adv.
Connectedness
Continuous Impr.
Contributions to NPD
Difficulty of Exit
Duration
Expediting
ocus
!evel of Integration
High pot. for problems Systematic approach
Low High
Independence Interdependence
Little A focus
Few Many ESI
Low ifficult high impact
Short Long
!eacti"e #roacti"e
#rice $otal cost
Little or none High or total
ctivity/ttri$ute 'ransactional Colla$orative lliance
4-30
Continuum of Bu#er."eller (elations$ips
Continuum of Buyer#Seller $elationships
Number of "uppliers
#pen $oo%s
&uality
'elations
'esources
"ervice
"(ared orecasts
"upply Disruptions
)ec(nology Inflo*s
)ype of Interaction
Many %ne or few
&o 'es
Incoming inspection esign (uality in system
Inward loo)ing *oncern w+well being
Few low s)ill le"el #rofessional
Minimal ,reatly impro"ed
&o 'es
#ossible -nli)ely
&o 'es
$actical Strategic synergy
ctivity/ttri$ute 'ransactional Colla$orative lliance
igure /#) Continued
4-31
"ransactional $elationships
Characteristics
5n a+sence of concern
Impro%ed *uality
Continuous impro%ement
5tmosphere of cooperation
5 li%ing system
4-39
5lliance 5ttri+utes Continued
3in#3in negotiations
Cash lo:
5%aila+ility
Professionalism
4-42
@uestions to +e 5ddressed Before
Proceeding
Sta+ility
Price 4olatility
Demand 4olatility
Iigh S:itching Li!elihood :ith Iigh S:itching Costs
Capa+ility
?o PartnershipG5lliance#Capa+le Supplier for the Item
?o PartnershipG5lliance#Capa+le Supplier in the Heographic 5rea
$apid "echnological Change
Mismatch of Cloc! Speed
4-45
Situations 3herein 5lliances may not +e
5ppropriate
Competition
?on#Competiti%e Mar!et
Benefits
Internal Buy#In
Supplier Information
iles
Supplier Catalogs
"rade $egisters O
Directories
"rade Sournals
Phone Directories
Sales Personnel
"rade Sho:s
Company Personnel
>ther Supply
Management
Departments
Professional
>rgani7ations
1%aluating Potential Suppliers
Supplier Sur%eys
inancial Condition 5nalysis
"hird Party 1%aluators
1%aluation Conference
acility 4isits
@uality Capa+ility 5nalysis
Capacity Capa+ility 5nalysis
Management Capa+ility 5nalysis
Ser%ice Capa+ility 5nalysis
le&i+ility Capa+ility 5nalysis
Information "echnology Capa+ility 5nalysis
Selecting Suppliers
$e%erse 5uctions
":o#Step BiddingG?egotiation
"he Solicitation
3eighted#actor 5nalysis
IB
$P
Item description
Info on *uantities
Deli%ery schedules
Steps to de%eloping
Manufacturer or Distri+utor
KHreenL Supply Management
$eciprocity
1arly Supplier In%ol%ement
Materials
Ser%ices
"echnology
Specifications and
"olerances
Standards
>rder @uantities
Lead "ime
Processes
Pac!aging
"ransportation
$edesigns
5ssem+ly Changes
In%entory $eductions
$easons for ;tili7ing 1SI
Maintain competition
Local source
irms head*uarters and all facilities are located in the city or region
:here the materials or ser%ices :ill +e used
?ational source
"he source is head*uartered :ithin the country and has facilities in
multiple regions throughout the country
International source
irm is head*uartered outside of the +uying firms country, +ut this
does not define the location of operations
Local Buying 5d%antages
1conomies of scale
1conomy of scale
$eduction of orders
$eduction of paper:or!
Special ser%ices
"echnical ad%ice
Credit
KHreenL Supply Management
$ecycled materials
1n%ironmental issues
Lia+ility issues
Minority# 5nd 3omen#>:ned Business
1nterprises
Conflicts of interest
Re+u%e un%ertaint3
)an3 sour%es
'o2 value
;ig#Ce7,en+iture area
'arge e7,en+itures
"om,le7 s,e%ifi%ations
Bottlenec%
./pe"$it)re level
Fail)re i#pa%t
Lo6
7i!h
7i!h Lo6
Levera!e
2se competitive
advanta!e to reduce total
costs
8olume used as
ne!otiation tool
Reduce 9 of suppliers :
simplify order process
On Shore
Strate!ic
Ensure lon!-term
availa$ility of supply-
potentially ;+ear Shore<
Focus on relationship-
$uildin! and process
inte!ration 6ith supplier
Bottlenec%
Reduce/eliminate
company=s ris% and
e&posure to price
increase/supply ris%
N)#0er of optio"*
1)yer leverage
2e%'"i%al %o#ple/ity
#rofile
*ategory
e"elop
e!F./
&egotiate
%!
Manage
emand
*ontract
0ith
Supplier1s 2
Manage
Suppliers
e"elop
Strategy
Analy3e
Spend
Impro"e
Supplier1s 2
Profile
Category
Develop
eRFQ /
Negotiate
R
!a"age
De#a"$
Co"tra%t
&it'
()pplier
!a"age
()pplier
Develop
(trategy
+"aly,e
(pe"$
-#prove
()pplier
eRF? path Mana!e #emand path
Business Interruption Ris%s
"onsi+eration s#oul+ &e given as to t#e %onse:uen%e of an3 &usiness
interru,tion 2#en sele%ting t#e num&er an+ lo%ation of su,,liers
)ission %riti%al items s#oul+ #ave a su,,l3 &a%<Cu, or ris< mitigation ,lan
Forei!n Currency E&posure
Sour%ing generall3 s#oul+ &e in t#e %urren%3 of t#e re%eiving %ountr3 &ut it
ma3 &e &enefi%ial to transfer t#at ris< to t#e &u3ing %om,an3 if t#e3 #ave
su,erior #e+ging %osts
'a& E&posure
ll sour%ing alternatives s#oul+ %onsi+er unre%overa&le ta7 %osts
ll strategies +evelo,e+ s#oul+ %om,re#en+ t#e afterCta7 ris<
#rofile
*ategory
e"elop
e!F./
&egotiate
%!
Manage
emand
*ontract
0ith
Supplier1s 2
Manage
Suppliers
e"elop
Strategy
Analy3e
Spend
Impro"e
Supplier1s 2
Profile
Category
Develop
eRFQ /
Negotiate
R
!a"age
De#a"$
Co"tra%t
&it'
()pplier
!a"age
()pplier
Develop
(trategy
+"aly,e
(pe"$
-#prove
()pplier
De%elop Strategy
Financial Ris%
In t#is ,ro%ess ste,, t#ere are t2o avenues t#at %oul+ &e
ta<en +e,en+ing on t#e sour%ing strateg3
Su&stitution of materials
*,timi>e life %3%le %osts
Hro:th
1fficiency
Capital Management
Board
Customers
Industry/Mar%et
Competition
Re!ulatory Environment
Employees
Financial Resources
and Constraints
Information Systems
Infrastructure
"9*
97e%utive
S,onsorFBu3er
#ocument ctions/
'imeta$le/ 2r!ency
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"ARR95T I5ITITIE9S
8lo&al sour%ing
llian%es
Su,,l3 &ase
stru%ture
*utsour%ing
S#are+ servi%es
Inventor3 management
Time to mar<et
Su,,lier innovation
Su,,l3 availa&ilit3
Le"ers of Mar)et 5alue
$iding the Hlo+ali7ation 3a%e
Presented +y
Lori Sis!, CPM
Ie:lett Pac!ard
Sponsored +y 3omen In Leadership Hroup
5genda
Introduction
>%er%ie:
1conomic actors
Internal Impacts
1na+lers
Conclusions
Introduction
Lori Sis!, C.P.M.
>%er ,< years of ConsultingGIndustry glo+al supply chain e&perience in automoti%e,
aerospace, and home +uilding industries
ocus on sa%ing companies money and increase efficiencies in +usiness processes
Career has +een +uilt from se%eral different companies2 Ma7da, "$3, 1rnst O Toung
Consulting 'Lucas 5erospace, leming oods, Co%isint(, Delphi, IP 'HM, 5merican
1&press(
MB5 and BSB5 from Bo:ling Hreen State ;ni%ersity
ISM former Metro Detroit President, 3omen In Leadership Chairperson
Spea!er for ISM, 5PICS, PanIellenic Logistics and Supply Chain Institute, S5PICS
North America: Primary - Mexico/South America
Secondary - Eastern Europe or Asia
Western Europe: Primary - Eastern Europe
Secondary - Asia or Mexico/South America
Pacific Rim: Primary - Asia
Secondary - Eastern Europe or Mexico/South America
+$ere "$ould +e
"ource0
Regionali>ation
$e%erse Hlo+ali7ation=
Changes that ha%e occurred o%er the past fe: years
Less dominant la+or costs
5s technology progresses and producti%ity impro%ements dri%e do:n la+or
hours re*uired in many processes
Increased infrastructure de%elopment
De%eloping countries in%esting more in education and infrastructure,
companies can no: source confidently in any hemisphere
ocus on supply chain ris!s
?atural disasters, %olatility of fuel prices, performance of supply chain
partners, and financial sta+ility of organi7ations seem to +e the +iggest ris!s
?eed for more fle&i+ility
"here needs to +e a %ery *uic! response to the changing economic conditions
and demand +y the supply chain
Ia%e created many companies to mo%e to:ards regional or hemispheric sourcing
1conomic actors
inancial
Language comple&ities
"a&es
Heopolitics
ocus on energy
Internal Impacts
Potential Pro+lems
Supply Channels
Direct Suppliers
1liminating Intermediaries
1&change $ates
Payments
Letters of Credit
Key Concepts
Countertrade
Creati%e Countertrade
1uropean ;nion
M1$C>S;$
Potential Pro+lems
Superior @uality
Better "imeliness
Cultural Issues
5dditional In%entories
Lo:er @uality
Iigh >pacity
@uestions Before Hoing Hlo+al
Import merchants
1asiest method
Commission houses
5gents or reps
Same as Commission Iouse
Import +ro!ers
"rading companies
Su+sidiaries
acilitate international sales
>n#site support
1liminating Intermediaries
$e*uires !no:ledge
inancial condition
Preparing for Direct $elations
Cultural preparation
Interpreters
"echnical and commercial analysis
Prepare and re%ie: specifications and dra:ings
Pac! samples or photos of re*uired materials if helpful
Clearly prepare the *uality re*uirements
Identify specific scheduling re*uirements
Determine :hat B of production can +e placed offshore
Determine re*uirements for special pac!aging
Identify li!ely lead times
De%elop a clear idea of the price o+Necti%e
Briefing on Tour irm for the Supplier
Customers
Mar!et share
5nnual reports
1&change $ates
Payments
Potential Situations in the 5+sence of i&ed 1&change $ates
Single currency
Central +an!
IS> M<<<2,<<<
Increased Competition
utures contracts
Hi%e a fi&ed cost for foreign currency
1ffecti%ely free7es the e&change rate
Currency options
5llo:s a +uyer to ta!e ad%antage of an increase in dollar %alue and protects
against decreases
Length of hedging
$is!s in hedging
Choosing a strategy
If dealing :ith a %olatile currency, then push for a price reduction
5dditional Slides
Common "erms in Hlo+al Supply
Management
Common "erms
ad %alorem rate
specific rate
compound rate
Statutory $ates
$ulings on imports
3ith respect to duties, these occur after entry documents ha%e +een filed
and the entry is li*uidated
5lso # there is no guarantee that su+se*uent shipments :ill recei%e the same tariff
Common "erms
Customs +ro!ers
Customs in%oice
Pac!ing list
Bill of lading
Inspection certificate
Certificate of origin
5c*uisition Costs
>:nerships Costs
Post#>:nership Costs
Ser%ice Pro%iders
$etail
Manufacturing
13-188
"hree Components of "otal Cost
5c*uisition Costs
>:nerships Costs
Post#>:nership Costs
13-189
"C> Components
5c*uisition costs
Purchase price
Planning costs
@uality costs
"a&es
inancing costs
>:nership costs
Do:ntime costs
$is! costs
Cycle time costs
Con%ersion costs
?on#%alue added costs
Supply chain costs
Post#o:nership costs
1n%ironmental costs
3arranty costs
Purchase Price
Planning Costs
@uality Costs
"a&es
Income#Base Shifting
inancing Costs
13-191
>:nership Costs
Do:ntime Costs
$is! Costs
Con%ersion Costs
"ransportation
In%entory
Manufacturing
Customer ser%ice
Supplier selectionGrelationships
Hlo+al sourcing
13-193
Post # >:nership Costs
1n%ironmental Costs
3arranty Costs
Ser%ice Pro%iders
$etail
Manufacturing
"C> analysis of the la+or +ase can reap lo:er per person costs,
greater +enefits, and impro%ed morale
"C> analysis of e*uipment purchases may help reduce the
e&penditures for maintenance and parts o%er the li%es of the
in%estments
13-197
Manufacturing
Direct materials
Manufacturing o%erhead
Infrastructure
>utsource decision
5nalysis of suppliers
+eyond tier one
Structure of foreign and
domestic
tariffsGdutiesGta&es
Costs of deli%ery
oreign regulations
oreign
politicalGeconomic
sta+ility
oreign e&change ris!
LanguageGcommunicatio
n re*uirements
4olatility of end#customer
demand
In%entory carrying costs
In%entory ris!
@uality costs
13-200
Concluding $emar!s