Copyright © 2013 McGraw-Hill Ryerson Limited Slides by Sam Lampropoulos, George Brown College CHAPTER 13 Global Sourcing and Procurement Global Sourcing and Procurement

Copyright © 2013 McGraw-Hill Ryerson Limited Operations and SCM in Practice 12-1 CANADIAN TIRE’S SUPPLY CHAIN AND SUSTAINABILITY All of their 400+ retail stores are supplied from hub distribution centres (DC) in Calgary, two in Toronto, and Montreal, which are managed by Genco, a third party logistics provider. Canadian Tire has further improved their supply chain performance by deploying collaborative planning, forecasting, and replenishment (CPFR) with approximately 100 of their largest suppliers, based on Manugistics’ NetWorks Collaborate solution.

Learning Objectives Copyright © 2013 McGraw-Hill Ryerson Limited 1.Recognize how important sourcing decisions go beyond simple material purchasing decisions. 2. Demonstrate the bullwhip effect and know why it is important to synchronize the flow of material between supply chain partners. 3. Recognize how characteristics of supply and demand have an impact on structuring supply chains. 4. Identify the reasons that can justify outsourcing. 5. Illustrate what “green sourcing” is and understand the total cost of ownership. 6. Be able to measure supply chain performance. 7. Identify the basic building blocks for an effective mass customization program. 8. List the steps involved in conducting collaborative planning, forecasting, and replenishment (CPFR). 9.Recognize what a reverse supply chain is. 12-2

Supply Chain Management Supply chain management involves optimizing the entire supply chain operations for the product by taking a systems approach to managing the flow of information, materials, and services from raw materials suppliers through factories and warehouses to the end costumer. LO1 Copyright © 2013 McGraw-Hill Ryerson Limited 12-3

Supply Chain Management LO1 Copyright © 2013 McGraw-Hill Ryerson Limited 12-4

Strategic Sourcing Strategic Sourcing is the development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate needs of the business. LO1 Copyright © 2013 McGraw-Hill Ryerson Limited 12-5

Strategic Sourcing LO1 Copyright © 2013 McGraw-Hill Ryerson Limited 12-6

Bullwhip Effect Bullwhip effect refers to the variability in demand is magnified as we move from the customer to the product in the supply chain. LO2 Copyright © 2013 McGraw-Hill Ryerson Limited 12-7

Bullwhip Effect LO2 Copyright © 2013 McGraw-Hill Ryerson Limited 12-8

Functional and Innovative Products Functional products refers to staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations. Innovative products refers to products such as fashionable clothes and personal computers that typically have a life cycle of just a few months. LO3 Copyright © 2013 McGraw-Hill Ryerson Limited 12-9

Functional and Innovative Products LO3 Copyright © 2013 McGraw-Hill Ryerson Limited 12-10

Hau Lee’s Concepts of Supply Management LO3 Copyright © 2013 McGraw-Hill Ryerson Limited 12-11

Hau Lee’s approach to supply chain (SC) is one of aligning SC’s with the uncertainties revolving around the supply process side of the SC A stable supply process has mature technologies and an evolving supply process has rapidly changing technologies Types of SC’s – Efficient SC’s – Risk-Hedging SC’s – Responsive SC’s – Agile SC’s LO3 Copyright © 2013 McGraw-Hill Ryerson Limited Hau Lee’s Concepts of Supply Management 12-12

Logistics Logistics is a term that refers to the management functions that support the complete cycle of material flow: from the purchase and internal control of production materials; to the planning and control of work-in-process; to the purchasing, shipping, and distribution of the finished product. LO4 Copyright © 2013 McGraw-Hill Ryerson Limited 12-17

Vertical Integration and Outsourcing Vertical Integration refers to the proportion of the supply chain that the company owns. Outsourcing is defined as the act of moving a firm’s internal activities and decision responsibility to outside providers. Copyright © 2013 McGraw-Hill Ryerson Limited LO

Reasons for Outsourcing Copyright © 2013 McGraw-Hill Ryerson Limited LO

LO5 Copyright © 2013 McGraw-Hill Ryerson Limited Greensourcing Greensourcing Benefits: Many firms are looking to their supply chains to deliver “green” results. A significant area of focus relates to how a firm works with suppliers where the opportunity to save money and benefit the environment might not be a strict trade-off proposition. Financial results can often be improved through both cost reductions and boosting revenues

LO5 Copyright © 2013 McGraw-Hill Ryerson Limited Greensourcing 12-14

LO5 Copyright © 2013 McGraw-Hill Ryerson Limited Total Cost of Ownership (TCO) Total Cost of Ownership Components: Transportation Installation Inventory management Administration Order processing Training employees Data acquisition and evaluation Operating and maintenance Disposal

LO5 Copyright © 2013 McGraw-Hill Ryerson Limited Total Cost of Ownership (TCO) 12-16

Measuring Supply Chain Performance LO6 Copyright © 2013 McGraw-Hill Ryerson Limited 12-20

Inventory Turnover Calculation LO6 Copyright © 2013 McGraw-Hill Ryerson Limited 12-21

Mass Customization Mass customization refers to the ability of a company to deliver highly customized products and services to different customers around the world. LO7 Copyright © 2013 McGraw-Hill Ryerson Limited 12-22

Process Postponement The key to mass customization is effectively postponing the tasks of differentiating a product for a specific customer until the latest possible point in the supply-chain network Copyright © 2013 McGraw-Hill Ryerson Limited LO

Mass Customization Principle 1: A product should be designed so it consists of independent modules that can be assembled into different forms of the product easily and inexpensively. Copyright © 2013 McGraw-Hill Ryerson Limited LO

Mass Customization Principle 2: Manufacturing and service processes should be designed so that they consist of independent modules that can be moved or rearranged easily to support different distribution network designs. Copyright © 2013 McGraw-Hill Ryerson Limited LO

Mass Customization Principle 3: The supply network should be designed to provide two capabilities. – First, the supply network should supply the basic product to the facilities performing the customization in an cost-effective manner. – Second, the supply network must have the flexibility and the responsiveness to take individual customers’ orders and deliver the finished, customized good quickly. Copyright © 2013 McGraw-Hill Ryerson Limited LO

Collaborative Planning, Forecasting, and Replenishment (CPFR) Collaborative Planning, Forecasting, and Replenishment (CPFR) is a technique used to coordinate demand forecasting, production and purchase planning, and inventory replenishment between supply chain trading partners. Copyright © 2013 McGraw-Hill Ryerson Limited LO

Collaborative Planning, Forecasting, and Replenishment (CPFR) Copyright © 2013 McGraw-Hill Ryerson Limited LO8 Step 1. Creation of a front-end partnership agreement. Step 2. Joint business planning. Step 3. Development of demand forecasts. Step 4. Sharing forecasts. Step 5. Inventory replenishment

Collaborative Planning, Forecasting, and Replenishment (CPFR) Copyright © 2013 McGraw-Hill Ryerson Limited LO

Reverse Supply Chain Reverse supply chain refers to a series of activities required to retrieve a used product or return from a customer and either dispose of it or reuse it. LO9 Copyright © 2013 McGraw-Hill Ryerson Limited 12-30

Reverse Supply Chain Five Components: – Product acquisition – Reverse logistics – Inspection and disposition – Reconditioning – Distribution and sales Copyright © 2013 McGraw-Hill Ryerson Limited LO

Reverse Supply Chain Copyright © 2013 McGraw-Hill Ryerson Limited LO

The Successful Supply Chain Supply chains should be customized. Partnerships are important. Information should be shared. Holistic internal supply chain management. Copyright © 2013 McGraw-Hill Ryerson Limited LO

Copyright © 2013 McGraw-Hill Ryerson Limited Learning Objectives Review 1.What are some important sourcing considerations beyond simple material purchasing? 2.What are some of the contributing factors that cause the bullwhip effect in supply chains? 3.How can supply and demand characteristics influence how supply chains should be structured? 4. What are some reasons that can justify outsourcing? 5.What is meant by “green sourcing” and what should be included in a total cost of ownership analysis? 6. What are some metrics to measure supply chain performance? 7.What are the basic building blocks required for an effective mass customization program? 8.What are the five steps involved in collaborative planning, forecasting, and replenishment (CPFR)? 9. What is a reverse supply chain? 12-35

Summary Copyright © 2013 McGraw-Hill Ryerson Limited Managing your supply chain effectively is a prerequisite for business success today. Supply chain design should include sourcing, inventory management, logistics, level of vertical integration, performance measurement, product design, and the design of the reverse supply chain. Outsourcing is an important way to reduce cost, while improving the strategic focus of the firm

End of Chapter 13 Copyright © 2013 McGraw-Hill Ryerson Limited 12-36