SCM 301 Final Exam Study Guide Module 8 Supply management identification acquisition and management of inputs and supplier relationships Ensures timely availability of resources Reduces total cost not just purchase price Enhances quality Enables access to technology and innovations Fosters social responsibility Effective supply management Supply risk probability of an unplanned event that negatively affects a firm 1 Delays and disruptions 2 Thefts of intellectual property Samsung vs apple 3 Price increased 4 Product safety problems Total cost of ownership TCO sum of costs incurred before during and after a purchase o Before costs of finding assessing and selecting a supplier o During costs of buying and receiving items o After costs and risks of storing and owning items including those incurred after sale to customers Example a car oil change product change service agreements not always about finding the cheapest product Pick the supplier with the best quality not always best price because if a product fails it could produce major set backs and delays and problems with delivery of service or goods from the company The sourcing decisions primary strategic decisions Sourcing decisions and purchasing activities serve to link a company with its supply chain partners Sourcing decisions high level often strategic decisions regarding which products or services will be provided internally and which will be provided by external supply chain partners Purchasing the actives associated with indentifying needs locating and selecting suppliers negotiating terms and following up to ensure supplier performance terms of contract product to payment Sourcing decisions are high level often strategic decisions the address o What will use resources within the firm o What will be provided by supply chain partners o What are things we want to maintain in house Make or buy decisions Key questions that help in making that choice 1 Pros cons of outsourcing 2 Are suppliers capable of meeting our needs 3 How many suppliers used to ensure supply continuity maintain comp achieve benefits of solid supply relationship Insourcing the use of resources within the firm to provide products or services Advantages 1 High degree of control 2 Ability to oversee the entire program 3 Economics of scale and or scope disadvantages 1 Required strategic flexibility 2 Required high investment 3 Loss of access to superior products and Services offered by potential suppliers outsourcing the use of supply chain partners to provide products or services pay to have something done for you lawn mowed In 80s and 90s a lot of decisions made to outsource things overseas Increased trend in outsourcing Makes products cheaper Easier to change supply chain partners than change internal process Advantages 1 High strategic flexibility 2 Low investment risk 3 Improved cash flow 4 State of the art products disadvantages 1 Possibility of choosing a bad supplier 2 Loss of control over the process and core technologies 3 Communication and coordination challenges 4 Hollowing out the company outsourcing so much what Does your company actually do Total cost analysis a process by which a firm seeks to identify and quantify all of the major costs associated with various sourcing options o Direct costs costs that are tied directly to the level of operations or supply chain activities transportation production o Indirect costs costs that are not tied directly to the level of operations or supply chain activity building lease payment staff salaries In sourcing and outsourcing costs In sourcing direct cost Direct material 1 Direct labor Freight costs Variable overhead In sourcing indirect costs 1 Supervision 2 Administrative support 3 Supplies 4 Maintenance costs 5 Equipment depreciation 6 Utilities 7 Building lease 8 Fixed overhead outsourcing direct costs 1 Price from invoice 2 Freight costs outsourcing indirect costs 1 Purchasing 2 Receiving 3 Quality control Portfolio analysis choose coursing strategy based on value potential and relative complexity risk Complexity how many suppliers can you choose from similar something is more suppliers BFFS with your supplier Leverage buyer has power Low complexity low value routine 1 Many alternative products 2 Low value small transaction 3 Strategy is to simply acquisition process 4 May sources of supply 5 Everyday use High complexity low value bottleneck 1 Unique complex 2 Strategy is to ensure supply continuity needs to have back up 3 Only met by a few suppliers High value low complexity leverage 1 High expenditures 2 Many alternative products 3 Market price sensitive 4 Large market place capacity 5 Many qualified sources of supply 6 Strategy is to maximizes commercial advantage High value high complexity critical 1 Complex 2 Few qualified source of supply 3 Critical design and quality 4 Critical to profit and pops 5 Large expenditures 6 Form partnerships with suppliers Sourcing strategies or service Advantage 1 Product consistency 2 Decrease quality variability 3 Build stronger relationships 4 Fewer shipments 5 Lower transaction costs Single sourcing the buying firm depends on a single company for all or nearly all of an item disadvantages 1 Suppliers increase price they have business 2 Increase risk if disaster 3 Might not have the best supplier 4 Supplier might have limited capacity Multiple sourcing the buying firm shares its business across multiple suppliers Advantage 1 Crease competition 2 Decrease risk if something goes wrong 2 Varying quality 3 Supplier don t become complaint 4 Keep inventory levels down disadvantage 1 Decrease supplier loyalty 3 Supply preferred if shortage occurs 4 Preferred slides if volume not high enough Cross sourcing using a single supplier for a certain part of service and another supplier with the sample capabilities for a similar part at any given time one supplier can replace another o Best of both worlds keep relationship to a minimum but if something goes wrong you have a backup Dual sourcing use 2 suppliers for the same purchased product service split 70 30 How to select the best supplier Process and design capacity Financial condition and cost structure management capacity longer term relationship potential Weighted point evaluation system current suppliers o Purpose evaluating potential suppliers tracking suppliers performance over time ranking o Process assign weights to performance dimensions rate the performance of each supplier with regard to each dimension