Supply management
Four stage model
Stage 1: Passive- no strategic direction, reacts to other functions
(o High proporton of tme spent on quick-fix routine operations.
o Purchasing function and individual performance based efficiency measures.
o Litle inter-functional communicaton due to purchasings low visibility in the organisaton.
o Supplier selection based on price and availability)
Stage 2: Independent- adopts the latest purchasing techniques and practices and its strategic direction is independent of the firms competitive strategy.
(-Performance based on cost reduction and efficiency measures
-Coordination links between technical and purchasing diciplines
-Top management recognizes profesional development
-Top management recognizes opportunities in purchasing and profitability)
Stage 3: Supportive- Supports the firms competitive strategy and strengthens the firms competitive position.
(-Sales teams has purchasers
-Suppliers are resources
-People are resiurces
-Markets products and suppliers are constantly monitored)
Stage 4: Intergrative- Fully integrated in the firms competitive strategy, formulate and implement a strate plan.
(-crossfunctional training of professionals
-Permanent lines of communication with other areas
-Professional development
-Purchasing persorfmance is focused on the firms success)
What are the empirical taxonomies of purchasing
Strategic purchasers: belong to the integrative group and they are heavily involved with the planning about strategic issues affecting the team
Celebrity purchasers: Outside of the current classification system. They have high levels of status but lower skill levels, involvement anf internal integratio. Consitrates on hard negotiation with many suppliers and is assed on the price savings achieved.
Undeveloped purchasers- They belong to the independent stage. They are a proffesional function. Characterized by high levels of purchasing skills and knowledge, reactive and responding to the needs of the organization. Low level of organizational status, less integration and little involvement.
Capable purchasers: They belong to the supportive phase. Contribution to strategy but not as integrated or valued as strategic purchasers
what is the make-buy decision?
Managers have to decide which products theyre are going to produce internally and which to buy externally from a supplier. It defines the areas which the organization will operate and which to leave to the others. It defines the boundaries of the firm. It is concerned with both the scale of production (how many to produce ) and the scope of production(which ones to produce)
What are the behavioural characteristices of TCE ?
Bounded rationality: In uncertain or complex environments it tends to cause a shift in hierarchy.
Opportunism: argued that not all actors will behave opportunistically but due to bounded rationality it is hard to distinguish who will and who wont
What are the characteristics of TCE?
Asset specificity: considers how specialized a particular asset is to a relationship. A relationship with high asset specificity is theorized to increase the possibility of opportunitism. Those firms may choose to integrate the process rather than risk and go to the open market.
Uncertainty: When uncertainty is high the firm should resort to hierarchy.
Make-buy decision in TCE
The higher the level of transaction costs the higher the chances that the firm will make and not buy. Level of transaction costs are dicated by behavioral and transaction characteristics.
What is the holdup problem
When you want to buy something you can never know for sure if the other person is going to keep their end of the deal. Hence when teh product you want isnt too specific or uncertain it is better to purchase it (buy it) since this way it is more efficient. If the product has high levels of uncertainty and specifity, theres a risk that the other end will not keep their promise or take advantage of the situatio. Hence the choice of making it yourself or buying it has the same levels of efficiency. The end decision has to do with what is more cost efficient and trustworthy.
What are the critisism of TCE ?
1.Static and limited view on the production capabilities of the firm
2.TCE is a theory of cost minimization, not value maximization
What is RBV and what are the 3 criteria?
RBV supports that resources are heterogenous(limited in supply) and endowed in different levels of efficiency. The three criteria are:
1. Imperfect imitability: firms that do not have the resources cannot obtain them
2.Imperfect substituality: resources that can be substituted cannot sustain competitive advantage over the long term.
3.Imperfect mobility: resources should not be mobile between firms. Assets such as reputation, loyalty etc, should not be traded freely but obtain on the long run
Make - buy decision on RBV
Look inside the firm and ask wether they have the existing capabilities required to produce the item. If the cost of developing are high the firm must look outside its boundaries and buy from an external supplier.
What is the base rationalization/reduction.
it involves working more closely with fewer suppliers (focusing resources). When a supply base is reduced, by
definiton, the nature of the inter-ifirm relatonship changes from being relatvely independent to becoming
relatvely dependent (when there are multple-i to when there are fewer sources of supply). Naturally this
requires diferent measurement and management systems to enable the relatonship to work efectvely. The
main motvaton for following this strategy is to atain cist reductin
What are the main types of costs?
1.Operational costs: the costs of running day to day purchases etc.
2.Managerial costs: The cost of managing, problem solving,quality workshops etc.
3.Strategic cost: Strategic risk, the ability of the supplier to act opportunistically.
Leverage strategy VS Supliers tiering strategy
Leverage strategy: Focuses on reducing suppliers by having a key dominant supplier.
Supliers tiering strategy: Involves restructuring the supply base into direct and indirect suppliers
Kraljic matrix
Leverage: BEST DEAL
-Unit cost management important beacause of volume usage
- substitution possible
-competitive supply market with several capable suppliers
Critical: COOPERATION
-Custom design or unique specification
-supply technology is important
-changing source or supply difficult or costly
-substitution difficult
Bottleneck: SUPPLY CONTINUITY
-unique specification
-suppliers tech important
-production based scarcity due to low demand and or few sources of supply
-usage flactuation
-potential storage risk
Routine: EFFICIENCY
-Standard specification
-substitute products readily available
-competitive supply market with many suppliers
Porters five forces that cause competition
1. Barriers to new entrants: Cost of entering the new market.
2.Power of buyers: High consentration of buyers, low suppliers, means low buyer power
3.Substitudes: replacement of goods
4.Power of suppliers:Vise versa of Power of buyers
5.Industrial rivalry: INternal competition. Where industry growth is low & exit barriers are high then the market is stable and has low complexity
what is the pareto analysis(ABC Analysis)
A items account for the 80% of cost and 20% volume, B is in the middle, C represents low cost high volume
Strategic directions based on the kraljic matrix
1. Routine: approach here is to follow a strategy based on efficiency
2.Bottleneck: can seriously affect the delivery of the buyers products or services. Low value and rare in the supply market
3.Leverage: Focus is to obtain the best deal possible. A dependency relationship may occur without the buyier knowing.
4.Critical: suppliers are high risk and can have impact on the buyers firm profitability. These suppliers tend to fall on the top end of the pareto analysis(20-80)
Sourcing structures.
1.Single sourcing: One source of supply for a particular good or service. Is likely to be prevalent in either the critical or bottleneck quadrants of the model.
ADV: easier to exchange ideas, clear understanding of
cost structures innovative
DIS:Buyer may be put in a position of weakness, high
dependency,low flexibility
2.Multiple sourcing: Multiple sources to supply the product. Falls under the routine startegy and applies to low level purchas. Focuses on price rather than total cost
3.Delegated sourcing:
responsible for the delivery
of an entre sub-iassembly as opposed to an individual part. Usually found in the leverage quadrant
miving ti critcal quadrant in the medium term due to high dependency and switching cists.
o Advantages: enables buyer to work closely with one supply source to reduce day-ito-iday
transacton costs, buyer becomes major player for the supplier increasing the suppliersn
dependency on the buyer whilst simultaneously giving the supplier more authority and control
over the delivery and producton of the sub-iassembly.
o Disadvantages: tends to create ‘megan suppliers that may evolve into a potental threat (price
increases usually
4.Parallel sourcing: allows the buying firm to work on a single or sole-isourced basis with each component
supplier within a product group while maintaining a multple-isourced relatonship across product groups.
While each supplier supplies into a separate supplier group (sole sourced), the buyer has alternatve
sources of supply if necessary (multple sourced). Furthermore, the buyer can compare the price, delivery
and quality of goods across diferent suppliers but for similar components.
What are the main stages of supplier selection?
Step 1- INITIAL SUPPLIER SELECTION :Identify suppliers who meet the product and process requirements and can support the buyer long term.
Step 2-AGREEMENT MEASURE CRITERIA: RELEVANT, APPROPRIATE, criteria need to be specific to the particular product purchase and that do not create unnecessary effort within a resource constrained organization. It has a TOTAL COST APPROACH(not only price, but storage etc.)
Step 3- OBTAIN RELEVANT INFORMATION: Obtain information used to compare suppliers accross criteria and it should be time accurate. Sources might be suppliers, supplier visits, supplier performance measures.
Step 4- MAKE A SELECTION: Taking into account the market complexities:products with few alternatve sources of supply, selecton should be
comprehensive because the possibility of substtuton is low.
For products with many alternatve sources of supply, selecton can be less comprehensive
and
the impact on business: Low value products ivolve little comparison of information within the responses to the RFQ AND RFP. High value products selection is more complex and it requires multicriteria decision making models.
what are the main types of requests for STEP 1 initial supplier qualification?
Request for quotation (RFQ): wishes to procure a product and makes the specifications available to other firms for competitive bids. | You issue an RFQ when the monetary value of the item is high and the firm has no existing supplier.
Request for Proposal (RFP): organization wishes to procure a product but requires complete or partial design input from the supplier.|RFP is issued when the contract requires negotiation.
Request for Information (RFI):Organization wishes to collect more information about a product/supplier.| RFI may be used when he buyer has insufficient knowledge relating to the a market or product.
Which categories do buyers assess for qualification?
Manufacturing capabilities: Low cost,quality,flexibility and delivery perf. are stock of strategic assets that the supplier has accumulated through the years.
Financial viability: long termfinancial health of the suppliers. This is especially important for strategic items where the development of long term relationships and investment in a relationship specific asset can make switching suppliers problematic.
What approach to we recommend for high value(strategic items)?
use of multicriteria decision making models, in particular ANALYTIC HIERARCHY PROCESS.
what is AHP?
uses pairwise comparisons to express the relative importance of one criterion versus another. Its usefull for supplier selection because it is designed to handle tangible as well as intagible criteria, especially those in which the subjective decisions of individuals are part of the decision making. The steps are:
1| Assign weights to criteria
2|Calculate criteria weights. Divide each of the values by the column total. The weights are the mean of the rows
3|evaluate individual suppliers
4|Calculate supplier weights. Each alternatve supplier the criteria weights are multplied by the
supplier weights for that criterion. The final weight is then the row sum of these values.
Criteria of total cost approach
Cost criteria: unit prices that are clearly specified on a suppliers response to RFQ. Affected by pricing terms, exchange rates(change depending the location)
Quality criteria: primary importance, quality system certification(buyer may visit the supplier to asses the attitude of management and work quality)
Delivery criteria: On time delivery, minimum lot size(minimum order amount that the buyer can place)
flexibility criteria: ability of the supplier to manage variaton
from the buyer firm without significant
trade-iofs with other compettve
priorites. Vilume flexibility refers to the
ability and willingness of the supplier firm
to change order volumes without significant penaltes. Mix flexibility refers to the ability and willingness of the supplier to change the mix of
ordered products without significant penaltes.
what is the process of supplier development ?
any effort of buying a firm with a supplier to increase its performance and meet the buying firms short/long term supply needs
limited and extensive methods
limited efforts include informal supplier evaluation and performance improvement request.
extensive efforts often include training suppliers personnel and investment in the suppliers operations.
what is the advantage of a supplier development program
the buyers pressure can act as a catalyst for process change withing suppliers. It can provide a fresh perspective and act as an external pressure point which legitimizes the need for change.
what are the main 2 goals of suppliers development efforts?
Improving the suppliers operational performance(along dimesions such as cost,quality,etc) and improving the suppliers capability to improve (usually greater overtime,learning by doing rather than observing )
what are the supplier development strategies?
Competitive pressure\adopting multiple sourcing strategies
Evaluation and certification system\feeding back the assessment
Incentives:providing a range of incentives for improvements
Direct involvement: Uses internalized strategy and may include, capital/equipment investments in suppliers, partial acquisition of the supplier firm, investments of human and org. resources.
firms may adopt one or a comb. Most effective strategy is one of direct involvement
What are the best practices in supplier development?
-buying from others to generate competition
-evaluation of sup perf
-raising perf expectation
-recognition of good sup
-promise to increae present and future business if sup perf good
-training and educating sup
-site visiting of sup bases by customers
-integrated teams to reduce sup waste abd solve sup problems
-integrated tech maps
-provide access to softwares
-financial assistance
Seven step process map
1]Identify critical commodities: use kraljic matrix which identifies a portofolio of commodities routine,leverage,bottleneck,critical
2]Identify critical suppliers: treat suppliers as strategic issue not as reactive, tactical. There are factors to select which sup to develop- expense, strategic components, length of relationship, improve weakest suppliers, type of manufacturing process they use
3]Form a cross functional team : ensures unified form and send the suppliers a steady request of what is expected of them
4]Meet with supplier top management: push aside political barriers, assign resources, provide motivation for change. If supplier commits, then implementation is easy. The meeting should set communication,report and structure and commitments from both sides.
5]Identify key projects: asess the highest priority operational performance.
6]define details of agreement:
7]monitor status and modify strategies:
what are the barries to supplier development?
1]supplier specific: lack of buyer topmanagement commitment, supplier not important enough to buyer, unrealistic expectations
2]buyer specific:lack of supplier commitment, insufficient supplier human resources and technical capabilities
3]buyer supplier interface: lack of mutual trust, ineffective communication,poor cultural alignment
what does the supply wheel show?
The wheel shows the interrelatonship between each of the
strategic elements of the organisaton. It also shows that
because the elements are linked, if you want to change one
element, you will need to change (or allow for change in) other
elements within the model.
Rationale of the supply wheel
Appropriateness
The ratonale behind the strategic supply wheel is one of making appropriate choices.
Strategic planning tool
The strategist can use the model as a template for understanding where the organisaton is (strategic
analysis) and where the organisaton wants to be (strategic chiice). Any gap can then be identfied,
various elements of the model can be aligned and the strategy can be put into place (strategic
implementatin).
Linkage with sourcing strategies and Kraleic’s positioning model
The variety or level of strategic atainment will be limited by the lowest common denominator within the
model. Therefore, any assessment of sourcing strategies and positoning should be considered in the light
of each element of the model. Of course, in the event that the firm has the capabilites to cover all
sourcing approaches, it then becomes a mater of deciding how it wants to focus its resources.
Overview of each elemen
Alignment of corporate and supply strategy
This element of the model is concerned with understanding the alignment of an organizatonns corporate and
supply policies and the subsequent formulaton of corporate and supply strategy. The ‘policiesn element of the
model is partcularly important here. It is essental that the policy of the firm be communicated through the
supply process.
Skills and competencies
Variety of skills and competencies needed depending on strategy and relatonships: the issue of skills and
competencies is ofen overlooked by firms when developing their supply strategies. It is the people that have to
make the strategy happen. If they are not able to implement the new approaches then the strategy will simply
not work. The other point is to make clear that there will always be a variety of skills and competencies needed
within a firm. Some of these will be more tactcal or basic, while others will be more strategic or sophistcated.
This will generally depend on the way the supply actvity is organized.
Organisational structure
Three basic types: centralized, decentralized and hybrid structures: the way in which supply is structured within
the firm can have a profound efect on how well and indeed what types of strategies will work.
Strategic performance measures
The importance of measures as the driving force of an organisaton – ‘the lubricant of the machinen: strategic
performance measures are essental for the delivery of strategy. They ensure that both the internal and external
elements of the organisaton are aligned. -i Cost-ibenefit analysis This secton of the model argues that companies
need to understand the costs of doing business.
Relationship portfolio
This segment of the model considers the types of relatonship that the organisaton operates. There is a wide
literature on relatonship management that tends to argue that the relatonships fall into a spectrum ranging from
adversarial (traditonal) types of relatonships, very much transacton based, towards highly collaboratve or
partnership arrangements, which are much more strategically focused. Relatonships must have a definable
output. If complex relatonship processes are required to achieve complex outputs then it is likely that these will
require highly skilled personnel. It is also likely that the measurement systems will have to reflect this output;
they will need to be focused on efectveness rather than efciency
what is strategy ?
y is a patern ir plan frim which an irganisatin can develip its majir gials and
ibjectves. Sometmes these strategies are writen down in documents (explicit) but they may also be merely
implied and understood by the organisaton (implicit). Three important point emerge from this definiton:
Strategy afects the scale and scope of an organisatons actvites over the long term.
Strategy is about being responsive to changes in the external environment.
Strategy is about aligning actvites with strategic resources and capabilites
what are the levels of strategy in an organization?
Cirpirate-level strategy asks ‘what business are we in?n. Essentally, corporate-ilevel strategy is a queston of organisatonal boundaries.
Business-level strategy asks ‘how do we
compete in our chosen markets?n. Each market is likely to difer. functoinal-level strategy asks ‘how can
our functon support our business and corporate-ilevel strategies?n.
what is strategic alignment ?
By strategic alignment we mean that functonal strategies should connect with business-i and corporate-ilevel
strategies. Strategic alignment asks ‘dies iur functinal level strategy suppirt business- ir cirpirate-level
strategies?n Alignment is important so that resource allocaton and actvites at the functonal level are consistent
with high-ilevel objectves.
aligning purchasing and corporate strategies
Strategic alignment between supply chain and corporate strategies is achieved where supply chain strategy
supports and facilitates corporate strategy. the gials if the supply functin are aligned with the
cimpettve priirites if the irganisatin. An organizatonns competitive priorities will generally emphasize one or
a mix of the following: cost, quality, flexibility, delivery and innovaton. an organisaton will usually develop a reputaton based on one or two of these priorites.
Because strategy should be dynamic, a previously aligned strategy will become misaligned if change is not
communicated across the organisaton.
alignment can also be seen at the product level. Innovatve
products (such as an MP3 player) require a thoroughly diferent supply
strategy from functonal products (such as a can of baked beans). Whereas
functonal products require a strategy that emphasizes efficiency and low
cost, an innovatve product requires quick response and inventory bufering
Developing a corporate strategy
There is need to consider both the current and future states of external markets and matching actvites with
distnctve resources and capabilites. Critcal to this process is the involvement of the supply functon in strategy
development. Supply involvement refers to the extent ti which supply strategists actvely partcipate in
cirpirate- and business-level strategic decisiin making.
Supply personnel need to be present at, and to have influence on, boardroom decisions related to business
strategy. strategy is ultmately the responsibility of senior-ilevel managers within the firm even though a range of
stakeholders (both shareholders within the firm and those with external linkages to the enterprise) is vitally
important to the strategy process. Excluding supply frim such tip level discussiins means that supply’s
capabilites and limitatins are ignired in strategic decisiins.
competitive priorities
Cost Supply, producton and distributon of products at low cost.
o Total cost, pricing terms, exchange rates.
Quality Supply, producton and distributon of products with high quality and performance standards.
o Product durability, performance reliability and conformance quality.
Delivery Supply and distributon of products on tme and/or at short lead-itme.
o Delivery speed, delivery reliability.
Flexibility Supply, producton and distributon of diferent mixes and volumes of product with litle or
no impact on cost.
o Volume flexibility, mix flexibility.
Innovaton Supply, producton and distributon of new products.
o Supplier technological capability, speed of NPD
Translating competitive priorities into supply function obeectives and Translating supply function obeectives into supply chain practices
1]More specifically, objectves should conform to SMART, which stands for: Specific, Measurable, Achievable,
Relevant and Time bound. The relevance of these objectves is determined by the weightng of compettve
priorites.
2]It is important that the practces (the major tools and techniques applied within the supply functon like supplier
ratonalizaton, supplier selecton, supplier development and performance measurement) are not applied in a
vacuum but with full consideraton of the compettve priorites and objectves of an organisaton. Ratonalizaton
can have considerable benefits but only when it is aligned to the compettve priorites and objectves of the
functon. It is therefire critcal that strategy, nit best practce, drives the implementatin if supply chain
practces
what is the fundamental objective of a purchasing and supply chain performance?
Aims in strategy implementation through a formal, systematic approach to monitoring and evaluatingfg purchasing activiies. Performance measures can act to preserve their attention by helping ensure supply related operations are in controland flagging up any variances from planned performance.
How do managers use performance measures ?
As a mean of signalling and influencing actions of people who are responsible for performing tasks. It must be carefully designed to fit the organizations needs to avoid resources being allocated in a suboptimal way. A well balanced and structured system supports and encourages performance in areas which are critical for the firms success. Poor systems encourage the wrong goals and reward the wrong achievements.
Cascading performance measurements and what is the aim?
effective p.ms should cascade the high level corporate strategy down to the lowest level of organization, signalling expectations and desired behaviours to employees. The aim is to create alignment between corporate strategy, supply strategy, goals and objectives, performance measures , and ultimetly the actions of ghe individuals responsible for carrying out the work.
what are the benefits of measurement?
1. Decision making
2.Communication: improved through the organization. other functions are aware of the contribution of purchasing.
3.Visibility:better identification of defects, waste, delays etc.
4.Motivation: when people see something succeed due to their contribution they want to do it again
what are the problems of measurement?
1.Conflict messages:
2.Collection of inapropriate info: measurement tools were originaly made to collect info from up to operate the down and not to measure.
3.Lack of goal congruence: The
performance measurement system must be derived directly from corporate strategy, synthesising an
analysis of the external environment with internal capabilites which reflect the purpose, technology
available, and the nature of the actvity
what is effectiveness, efficiency, performance?
effectiveness: extent ot which goals are met using the chosen course of action
efficiency:difference between planned and actual resource use
performance: extent to which purchasing achieved set goals, with the given resources.
why cost based measures might be disfunctional?
price performance indicators may be misleading in many ways. The real price may be affected by plenty thing like discounts, payment terms, credit, currency fluctuations.
why should saving be avoided?
. Savings which may result in an increased overall cost to the
customer organisaton should be avoided, such as volume discounts which lead to increased stockholding costs,
or quality failures: the danger if many price savings, in an efficiency-irientated envirinment, may simply result in
a cist being incurred elsewhere in the business. price savings should be considered in the light of those planned, predetermined actons
undertaken by Purchasing, or by Purchasing and other departments, which result in measurable cost/price
reductons, value improvements
price reductons by a supplier should not necessarily count as a measure of purchasing success.
Again, the atenton is drawn to the efectveness of such decisions in achieving a lowest total cost of acquisitons,
throughout the product life cycle
financial vs non financial measures
Simple workload statistics,
do not necessarily reflect the key areas if significance to the organisatin as a while. Financial acciuntng systems were never originally designed as a tool for business control. In consequence,
performance measurement systems in many of todayns companies focus on historic rather than future
performance, financial rather than operatonal indicators, internal rather than external data, and numeric rather
than qualitatve results. They di nit enable managers ti minitir the actvites and capabilites that enable them
ti perfirm a given pricess. . These measures can help shif atenton away from short-iterm financial goals towards
medium-i and long-term goals emphasising causality: ‘suitable nin-financial measures are the cause, and
successful financial perfirmance the effectn. While it is difficult to quantfy performance in such areas as supplier
development, interdepartmental relatonships and negotaton skills, they are ofen the very actvites which need to be monitored and stmulated, in order for purchasing to deliver the appropriate goods and services to internal
users efectvely.
how to identify stakeholders
identfying who the internal customers are, and gathering the informaton they
actually need to gauge performance, can be frustratng steps in the performance measurement exercise.
gaining buy in
A further important principle of performance measurement is that the measures designed at each irganisatinal
level shiuld include specific input if the teams which will be respinsible fir delivering the prigress against thise
gials. The measurement system will achieve a greater degree of credibility with employees, when they are
allowed to think about the most efectve ways in which they can achieve them, than if the measures are imposed
on them from the top down. Firms ofen impose measures on employees to enable senior management to pull
informaton up, so that they can manage downwards
what are the categories of performance measures?
Youre good when you assess the performance on all functions of the firm.
-Cost: help assess efficiency and effectiveness of the purchasing spent. specifically :
1)total distribution cost: efficient and cost effective distribution systems are critical.
2)total inventory cost: biggest hidden cost for many businesses, should be evaluated with the use of suitable performance measures. measure inventory on hand, obscolence and inventory transit. Forecasting techniques should be included as key determinant of inventory levels.
-Quality: assessed across levels.
1)Production quality: usually expressed as yield rates or good product
2)defects per supplier: monitor performance andtarget setting.
3)customer returns: trace causes of failure
-Time: in order to deliver goods on time to customers, they must be produced in time.
1)On time delieveries
2)customer response times
3)backorder/stockout
-Supplier performance: Typically, more subjectve, non-ifinancial measures are used to assess supplier
performance. These include the level and degree of informaton sharing, the number of buyer–vendor cost-isaving
initatves, and extent of mutual assistance in problem-isolving eforts. In additon to measuring the degree of
collaboraton, firms should also examine the characteristcs of the supply base. For example, the percentage of
suppliers who are certfied, or the number of suppliers per commodity purchased
-Customer satisfaction: Companies may measure not only their operatonal performance within the functon,
and across their supply base, but also the final impact on customers. . External
customers may also be assessed through measures such as customer query tme (for example, about stock
availability or delivery), and other post-itransacton measures of customer service.
Developing performance measurement system
1)determine goals to measure :A key pitfall for many firms at this stage is selectng goals which do not reflect the
corporate-i and business-ilevel strategy of the firm, or which have not been revisited as the firmns strategy
and operatons change.
2)Eshtablish performance measures:use SMART. . Firms face many challenges
in establishing the ‘rightn kind of performance measures.
o Performance measures can lack ‘powern to influence behaviour where they are not linked to
employee evaluaton or incentve plans.
o Organisatons may select too many measures, leading to a lack of focus
o Select too few measures which may lead to missing informaton.
o The measures may also have a short-iterm focus, or generate conflictng signals as to desired
behaviours.
3)Establish standards for comparison:
Analysis of historical datas
Planned performance
Competitive benchmarkings
4)Monitor progress
5)evaluate progress
6)implement improvement actions
what are the four perpsectives of the balanced score cards?
-Financial perspective: reflect underlying financial performance of the firm. Focus on profitability, cash flow, and shareholders
-Customer focus: understand how customers view business, translate their borad goals on customer service into measures that really matter to the customer.
-Internal business processes: internal processes that have greatest impact on customer satisfaction and therefore which affect cycle time,productivity, quality, and design.
-Inovation and learning: Purchasing and Supply departments must satsfy nit inly certain financial targets, such as
cist reductin and price perfirmance, but alsi ither impirtant areas.
zero based pricing vs cost of zero quality
ZBP: look at how much money purchasing has managed to save usually against a year on year target.
CZQ: a customers experiences the quality after it has been manufactured, branded, distributed and sold.
Price versus cost
Fixed cost
variable cost: the cost vary with each unit of production
profit: The level of mark-iup required to invest back into the business and/or to distribute to shareholders.
what is a price focused approach?
a price focus approach means that you as customer want to pay less than you did last time for the product. joint efforts for cost reduction and improvement by the buyer and supplier can help here. This leaves profit.
what strategies can a supplier use to when price reducting affect badly the profit?
1)stay in the market and attempt to survive
2)leave the market place and find another that is more lucrative
3)go out of business
what is total cost of ownership
TCO considers all the costs involved in the supply chain. takes a big pictures perspective cinsidering costs beyond simply price, including costs related to quality, delivery
services, irdering, receptin, inspectin and transpirtatins
what are the attributes of the horizontal part of the TCO matrix?
1-initial aquisition:activities prior receiving the product from the supplier. e.g the product price, cost related to negotiation
2-reception:cost of receiving goods, invoice payment etc
3-possession:cost between receiving and utalizing goods e.g internal transport, inventory holding costs
4-utilization: cost of use, e.g installayion,personnel training
5-elimination:recycling electronics costs and disposal of the purchased costs
what are the attributes of the vertical part of the TCO matrix ?
1-supplier level:cost when each supplier is used. e.g salary of the buyer responsible for managing the relationship
2-order level:cost of each purchase placed with a supplier e.g invoices, external transport
3-unit level:cost per unit bases, elimination and utilization bases. e.g production shutdown, carrying cost,recycling, pallet movement etc
what to do when costructing the TCO matrix
TCO matrix, all relevant actvites that generate costs must be identfied. Afer identfying the
actvites, the next step is to calculate the cost of each actvity by measuring its resiurce usage. At a supplier level, the cist if negitatng and managing each supplier could be calculated by dividing the Purchasing
manager’s annual salary by the average tital tme spent with the supplier. Constructon of such an analysis
enables the buyer to identfy the major cost elements in the purchasing process and to investgate possibilites for
cost reducton, along with the impacts (cash and non-icash) on total purchasing cost.
from which perspectives can relationship management be viewed?
-From the level of the firm, e.g relationship company A w company B
-From the level of a particular project or group within and between firms, e.g a major alliance between a manufacturer and key partner
-At the level of individual, e.g relationships managed by individuals and key account holders
what are the key diamensions of the relationship?
-At what level should the relationship be defined
-Should appreciate the views of both buyer and supplier
-we could define the relationship at a product level but that is missing a key component, the interpersonal relationships
-It is the interpersonal relationships that drive a firms processes or not. Although interpersonal relationships have an impact on the business operations, they are guided and focused by the firms strategy to achieve business success
How do we define a relationship?
We define relationships as processes. Processes have several important aspects.They require inputs in the shape of resources and outputs. They also need and outcome focus, e.g reduction cost or price, risk sharing etc. To make a process efficient the allocation of resources to expected outputs should be considered and that the firm has the required resources to manage the process.
what are inter-firm business relationships?
Inter firm relationships have to do with the different relationships between different companies that require resources from the buyer and supplier to achieve a set of complex outputs. These relationships are affected by the external environment and constrained by each parties strategy, goals and power mechanisms.
What are the benefits of the imnvolvement of purchasing in stratigic context?
it enhances the firms financial performance and improve sthe overall competitive positions.
How does rge management of relationships vary according to both strategy and product sourced?
if firms are:
-Cost focused: requires the supply activity to deliver a raneg of business and marketing benefits that will put the firm into a stronger cost management position. For supply to seem important in this firm it must deliver savings.
-Differentiation focused: have more enlightened and long term goals. They view supply as a strategy to the firm. The competitive advantage is gained from manipulating their competencies and capabilities and supply will be seen as a core capability.
what are depndencies and which are the 4 key dep.?
Dependencies are defined as mechanisms that create a reliance on either the buyer/supplier or both. The 4 key dep are:
-Historic; parties have colaborated before hence theres a build up of knowledge and shared experience.
-Economic: 'switching costs', the buyer and supplier become dependent of echother for the delivery of the product
-Technological: needing certain skills to use the technology
-Political:Goverment policy, internal politics
What types of dependency can the buyer/supplier create?
o The aim of either side would be at worse to create inter-idependence (mutual dependency). This is a
lise/lise situatin as neither party can gain substantal advantage over the other; they in efect sub-i
optmise.
o Also either the buyer or the supplier could create a ine-sided dependency. The dominant party for
example might use its dominant positon only in situatons when maximum advantage can be gained; this
would leave the other party toleratng the relatonship without being prepared to divest it.
what are the four levels of certainty?
-Contractual: how certain is each partie that the other partie will follow the contract regulations
-Competence:How certain are each one of them that the other has the required skills to perform to the contract?
-Goodwill: one or the other would go out of the contract duties if it is needed
-Political:what is the political risk or gain of dealing with the other partir from an internal or external view
what is oportunism, tactical colaboration and strategic colaboration?
Opportunism:either buyer or supplier is dependent on the other party.
Tactical collaboration: happens when mutual dependency increases and certainties as well
Strategic colab: happens where there are high levels of mutual dependency and high levels of certainty. These colabs focus on working the relationship for mutual gain
the choice of the relatonship approach or strategy
should be based on focusing the appropriate relatonship type to the outcomes required from the business
transacton.
what is the Partnership lifecycle effect?
The relationships are viewd as having a finite life and past perfomance tends to predict future attitudes.
The Partnership Expectations Effect
illustrates the expectatons efect of relatonship development. The model
suggests how relatonships appear to develop over the short (t1), medium (t2) and long term (t3) against given
returns (return in partnership – ROP). short term (t1) the buyer and supplier will set measurable benefits such as improvement in pricing. In medium term, buyer and supplier have to choose if they are going to rejuvenate the relationship and look to wider spheres or leave the relationship as it is. Long term levels of goodwill and competence trust have
again been built up, communicaton systems are well aligned and now the partners have to make a decision to
further develop the relatonship or leave it as it stands, the organisaton also has to make decisions about the types of sourcing strategies it
may use to generate collaboratve benefits.
The Partnership Desert Effect
depicts an iscillatin effect, with ‘desertsn (D1, D2 and D3) occurring at
various tme intervals. The partnership ‘desertn can be thought of as a barren and inhospitable place, where no
returns/benefits are received from the partnership approach. A desert occurs during the griwth stage of the
relatonship; communicaton systems and cross-ifunctonal teams are being put into place and all partes are
getng used to a new collaboratve way of working