CHAPTER 2-PART 2 Lecture 2Lecture 6SCM 3301 1st EditionOutline of Last LectureCHAPTER 2-PART 2 Lecture 2 Supplier Selection Criteria- SSQDC- Safety: Internal, External- Sustainability: Green, Ethics- Quality: Consistency, Conformance, Service- Delivery: Reliability, Speed, Capacity- Cost: Total Cost of Ownership- Other Considerations:o Product and Process Technologieso Willingness to Share Technologies and Informationo Communication CapabilityTotal Cost of Ownership- Per Piece Price (Unit Price)- Quantity Requirements (or Discounts)- Payment Terms (Cash Location)- Transportation Costs (Location)- Ordering Costs- Cost of Quality (Maintenance Costs)- Delivery PerformanceHow Many Suppliers to Use-Supplier RationalizationSingle-Source- a risky proposition; Current trends favor fewer sources (tension between supply disruption risk and leveraged spend).Reasons Favoring a Single Supplier:o To establish a Good relationshipo Less quality variabilityo Lower costo Transportation economieso Proprietary product or processo Volume too small to splitReasons Favoring Multiple Suppliers:o Need capacity1SCM 3301 1st Editiono Spread risk of supply interruption (redundancy)o Create competitiono Informationo Dealing with special kinds of businessSourcing StrategyDemand Aggregation + Supplier Rationalization = Leveraged Spend- Demand Aggregationo Combining the material requirements across the enterprise into a single purchase.- Supplier Rationalizationo Assuring that approved suppliers possess the optimal characteristics- Accomplishing both of these gives a company maximum “leveraged spend”Purchasing-Centralized vs. DecentralizedAdvantages-Centralizationo Concentrated volumeo Leveraging purchase volumeo Avoid duplicationo Specializationo Lower transportation costs2SCM 3301 1st Editiono No competition within unitsAdvantages-Decentralizationo Closer knowledge of requirementso Local sourcingo Less bureaucracyA center led sourcing organizationA hybrid purchasing organizationLecture 6Current Lecture – September 11, 2014Reasons for Global Sourcing -QualityCostDelivery PerformancePotential Challenges –LogisticsCommunicationPolitical StabilityNote: >50% supply needs sourced globally!When you go from a domestic source to an international source, you save 20% on the price.Benefits of Establishing Supplier Relationships- Flexibility in delivery- Improved quality- Transparency in communication of information- Expedited material flow- Strategic advantage- Best practices sharingNote: Stronger supplier partnerships are the key to competitive advantage.Keys to Successful Partnerships- Building Trust- Shared Vision and Objectives- Personal Relationships- Mutual Benefits and Needs (“Win-Win”)3SCM 3301 1st Edition- Commitment and Top Management Support- Change Management- Information Sharing (formal and informal)- Commitment to Continuous Improvement- Performance Metrics“You can not manage, what you can not measure.”Supplier Development Programs Designed to Improve a Supplier- Local supplier development Moga, India; Nestle Creating Shared ValueSupplier Evaluation Measures- Safety: Internal, External- Sustainability: Green, Ethics- Quality: Consistency, Conformance, Service- Delivery: Reliability, Speed, Capacity- Cost: Total Cost of Ownership- Business MetricsMeasures weighted depending on importance to the organization.Weighted Criteria Evaluation System- Supplier Overall Rating (0-100)- Category Score (0-100), Weights (.05-.25)o Unacceptable (less than 50) Supplier not usedo Conditional (Between 50 and 70) Supplier performance needed- timeframeo Certified (Between 70 and 90) Routine supplier audits performedo Preferred (Greater than 90) Less frequent supplier audits
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