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Strategic Supply Chain Management
The Moravian MBA
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General information MBA Supply Chain Management Concentration Implemented 2004 Strategic Supply Chain Management Integrated Logistics Systems Supply Chain Management Technology Approximately 70 students enrolled to date Monczka, Robert M. (2011, 2009 Fifth Edition). Purchasing & Supply Chain Management. Mason, OH: South-Western Cengage Learning Moravian business program awarded “Accreditation Council for Business Schools and Programs (ACBSP)” May 2015 Grading - Strategic Supply Chain Management Class participation 20% Review questions/Principles 10% Take-home Exam 30% Group Paper 25% Paper Presentation 15% Total 100%
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Course Objectives Awareness of internal & external demands on supply chain managers Understand supply chain impact on competitive success and profitability Appreciate ethical, contractual, risk management, sustainability, legal issues Understand increasing strategic nature of supply chain management Influence on other major functions…IT, engineering, manufacturing, HR Crucial role of negotiations Internal & external integration - customers & suppliers Technology & innovation – e-commerce & e-systems (the future is now)
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Supply chain excellence
Why purchasing/sourcing is important – Builds relationships, drives innovation, improves quality, reduces time to market, generates economic impact, competitive advantage Supply Chain & Value Chain....what’s the difference?? Capable supply chain professionals - enabler Manage critical relationships Fact based decision making Appropriate organizational design - enabler Center led; centralized, decentralized teams Executive commitment & coordination Coordinated strategy with business units Executive council with suppliers Information & innovation technology - enabler ERP or legacy systems must interface with internal/external stakeholders e-commerce – many buyers to one portal to many suppliers; translation services Measurement & continuous improvement - enabler Established goals linked to corporate objectives RASCI (responsible, accountable, supportive, consulted, informed) Balanced scorecard for executive awareness & feedback Supply chain as a profit producer contributing to increased EPS
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Fundamentals Overall & tactical
Overall goals Supply continuity – right> price, source, specification, quantity, time, customer Efficiently manage sourcing process – staff, budget, training, P2P channels Develop supply base management - select, develop & maintain the right suppliers Align goals with internal stakeholders Develop integrated strategies that support organization goals Tactical Process requisitions Develop bidder lists Prepare & issue POs/contracts Invoice resolution Measure supplier performance
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Policies and procedures
Effective structure Action oriented Relevant Concise Unambiguous – well understood Timely & current Helpful in solving problems Key areas Define supply chain role in facilitating overall organization success Define supply chain personnel conduct with internal & external stakeholders Define social & minority business objectives including metrics Define buyer/supplier relationships Define operational issues & alternative solutions supporting the organization Procedures versus policies Provide guidelines on implementation of policies Detail functional duties and tasks Examples: sole/single sourcing, bidders list, contract formation/administration, Contract approvals & DOA
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Supply chain management organization
Centralized – single authority over all divisions/locations Decentralized – separate authority resides at divisions/locations Center-led Coordinates consistent policy/procedure/strategy Leverages purchase volumes Ensures goals attainment Trend is CPO reporting to executive management (CFO,CEO) Develop separate strategic & tactical sourcing teams with clear duties SC may include: sourcing, logistics, AP, operations, IR, administration Future organization trends Horizontal/process focus Team decisions helping all to succeed Co-location in business lines Virtual social networks
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Supplier evaluation and selection
Develop & use structured pre-qualification process consistently Manage qualified suppliers on an approved supplier list (ASL) database Anticipate & enable “churn” – out with the old….in with the new Avoid growth creep through ongoing rationalization & purging process Use spend analytics to manage supply base on reliable data Provide diverse suppliers with appropriate bid opportunities & awards Determine if supplier is sole source, single source or strategic Evaluate performance - continuous improvement; correction; elimination Measure risk of preferred & critical suppliers – initial & ongoing process Other factors – e-commerce, SRM, philosophy; goals alignment
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Supplier quality management
Why be concerned with supplier quality? Impacts costs, customer satisfaction, market share, public relations Suppliers represent about 55% of sales dollars & 50% of product problems Reliance on suppliers for critical components & services is steadily increasing 8 key principles of Total Quality Management (TQM) Define by customer requirements Pursue at source Stress objective vs. subjective analysis Prevention vs. detection of defects Deming’s 14 points – performance excellence for manufacturing & services 7 wastes – overproduction; waiting; delivery; process; inventory; motion; defects LeanSigma – define; measure; analyze; improve; control (DMAIC process) Criteria to assess supplier quality systems ISO 9000:2008 – process vs. product standards – worldwide acceptance ISO 14000:20004 – environmental pollution awareness & protection Malcolm Baldrige National Quality Award (MBNQA) – recognizes quality improvement Focus on process vs. output Strive for zero defects Sustain continuous improvement Everyone’s responsible
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Supplier management and development
What to measure & weigh; frequency & use Quantitative – delivery; quality; cost reduction Qualitative – problem resolution; technical ability; responsiveness; compatibility Reporting frequency – operations daily; goals quarterly Data use – detect performance issues; rationalize/optimize supply base Supplier measurement & evaluation systems Categorical – easy; minimal data; low cost Weighted-Point – flexible; combines quantitative & qualitative ; moderate cost Cost based – objective; specific; promotes improvement Rationalization & optimization – right sizing the supply base Advantages – fewer good suppliers = less risk; lower administrative costs Disadvantages – dependency; reduced competition; supply disruption Supplier development is a multi-step process that can take months or years Supply base risk management - political; market; sourcing; financial Supply base sustainability – environmental & social responsibility metrics
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Purchasing services Transportation/logistics management – plan, implement, control flow of goods Inbound– shipments between supplier & buyer facilities Intra-organizational – movement of materials between storage & production facilities Outbound– shipments between a company & its customers Recovery & re-cycling – obsolete, reusable, repairable item shipments Supply chain transportation support 3rd party logistics (3PL) – logistics & transportation management specialist Less than load (LTL) – freight broker to consolidate routine shipments Contract hauler – specialty carrier for overweight, oversize, permitted shipments Transportation modes – motor, rail, air, water, pipeline, intermodal Performance based logistics (PBL) – non- traditional focus on preferred results Mutual commitment to collaboration & alignment of interests; win-win environment Goals aligned sourcing strategy; effective checks & balances; metrics; reporting Indirect spend – good or service not in delivered result to customer - significant Maverick spend – unauthorized & outside of established supply chain practices Services contracting challenges Unclear specifications exacerbate inherent variability Performance monitoring, verification, measurement & scope creep Appropriate compensation methodology & effective cost control
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Negotiation and conflict management
What is negotiation????? Face-to-face or electronic communication process to seek mutual agreement BATNA – Best Alternative to a Negotiated Agreement = reservation position Position – opening offer….optimistic or ideal demand on the table Interest – unspoken motivation underlying the “position”….focus on this Needs – must have outcomes vs. wants – desired outcomes used as concessions Triangle talk – know yours & their wants….propose action they can accept Negotiation framework in supply management Identify or anticipate requirement Determine negotiation vs. competitive bidding Plan, prepare, analyze, conduct, execute & follow-up on agreement Sources of power in negotiation Information; reward; coercion; legitimacy; experts; referent (honesty, respect) Concessions – fundamental…give little for more…avoids deadlock Negotiation tactics Low ball; high ball; honesty; caucus; BAFO; silence; trial balloon; venue Reciprocity; consistency; authority; take offer off table; win-win (collaborative) Electronic media enables analysis, but is impersonal & can take longer
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cost management Managing life cycle costs – concept generation; design/development; pilot launch; ongoing production; product end of life Cost management framework Commodities – high value; many suppliers Critical products – high value; few suppliers Generics – low value; many suppliers Unique products – low value; few suppliers Price analysis – market structure; economic conditions; supplier strategy; pricing models; hedging; cash discounts; Producer Price Index (PPI) Cost analysis techniques Cost-based models – cost markup; margin; rate of return Standard vs. custom specifications impact cost Reverse price analysis – deduce cost using published data sources Break-Even analysis – point where revenue = cost Total cost of ownership (TCO) – present value of all costs over expected life Collaborative approaches – target pricing; cost-savings sharing pricing
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Contract management Types of contracts
Firm, fixed price – should have well defined scope Fixed price with escalation, re-determination, incentives, liquidated damages Cost plus incentive fee, fixed fee, productivity results sharing Not-to-exceed price - unit pricing with calculated usage Time & materials – greatest buyer exposure to cost….no cost control incentive Long-term contracts Advantages – supply assurance; volume leverage; lower cost/price; technology Disadvantages – supplier lock; lost opportunity; price/cost creep Non-traditional contracting IT systems – access to costly networks, software, cloud, high service levels MWBE – Executive Orders; niche segments (MRO); community development Consultants – objectivity; non-core resource; need well-defined/controlled scope Construction – scope; cost control; safety exposure; claims resolution/arbitration Other contract types Purchasing agreements – annual; national; blankets; VMI e-Catalogs; trading partner agreements (TPA) Strategic alliances – collaborative; operations integral; productivity improvements
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Purchasing law & ethics
Legal authority & personal liability Agent – binding authority to act on behalf of Principal Actual (documented); apparent (perceived); implied (validated) authority – all binding Personal liability – exists if actual and/or apparent authority is exceeded Essential contract elements - offer; acceptance; consideration; competent parties; legal subject matter Boilerplate terms & conditions – battle of forms; oral vs. written Cancellation – default (breach & cure); convenience; mutual consent Damages & remedies Damages – restitution; reliance; expectancy; consequential; liquidated Damages can not be punitive or speculative Uniform Commercial Code (UCC) – Article 2: written offer; confirmed verbal contracts valid; battle of forms (conduct); implied warranties; title; infringement Uniform Electronic Transactions Act (UETA) Electronic records & signature = written records & signature Facilitates interstate & global commerce
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Purchasing law & ethics
Warranties of goods Express – seller promise that goods shall conform to specified quality or standard Implied – merchantability & fitness for purpose unless expressly disclaimed Title – supplier has it, not stolen or liens; Infringement – not illegally violating patent Transportation terms & risk of loss Bill of lading = details; freight bill = invoice (prepaid or collect) Risk of loss remains with seller until title passes to buyer….FOB point Intellectual property – patents, copyrights; trade secrets…..usually indemnified Antitrust & unfair trade practice laws Sherman Antitrust – prohibits actions restrain or monopolize trade Clayton & Robinson-Patman – prohibits price discrimination & “tying” agreements Unethical behavior – reciprocity; favors; sharp practices; conflict of interest ISM Professional Code of Ethics Principles = loyalty to company; justice in dealings; faith in profession Ten standards derived from principles – e.g. denounce bribery; avoid sharp practice Corporate social responsibility Environment & sustainability - EUISSCA Green Alliance (decrease greenhouse gases) ISM principles – community initiatives; business conduct; health & safety;
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Strategic Overall & Strategic
Overall goals Supply continuity – right> price, source, specification, quantity, time, customer Efficiently manage sourcing process – staff, budget, training, P2P channels Develop supply base management - select, develop & maintain the right suppliers Align goals with internal stakeholders Develop integrated strategies that support organization goals Strategic Spend analysis – foundation of strategic sourcing Demand management & specifications or Statements of Work (SOW) Commodity & category management Contract & cost management – Price volatility management (PVM) Procure to pay cycle – requisition, source, bid, award, administer, receive, pay Supplier Relationship Management (SRM) – collaborative improved productivity Supply management strategy – defined, repeatable, aligned, communicated
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Scm tools and techniques
Project phases & characteristics Concept – initiate broad discussion Definition – scope; plan; timing; resources Planning – develop details; create management organization Preliminary studies – validate data & assumptions Performance – execute plan; implement controls Post completion – confirm results; reassign personnel; restore; document Value analysis Fulfill intended lowest total cost Value = function/cost Process = gather information; speculate; analyze; recommend; summarize Quantity discount (price break) analysis Examine incremental cost changes between quantities Price breaks at specific quantities or ranges in quantities Process or value stream mapping (LeanSigma tool) Reduce process to component parts; identify & eliminate non-value added waste Determine current state, desired future state & gap analysis (projects)
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Commodity/category strategy development
Align SCM & enterprise objectives – increase revenues/decrease costs Integrative strategy development cascades corporate>SCM>category plans Commodity vs. Category management Pole line hardware (commodity); power distribution equipment (category) Category SCM leads cross-functional stakeholder team as CEO leads business Spend analysis Foundation for strategic sourcing What, with whom, & how much…..Pareto….aggregation…taxonomy Instills confidence that SC is spending precious business dollars wisely Facilitates internal stakeholder budget maximization….enabling more with less! Strategic sourcing process Develop team, scope of work (SOW) & plan Research & understand supply market (suppliers/contractors) Identify bidder(s) & develop sourcing approach Conduct solicitation & negotiate/award win-win PO/contract SRM – continuously improve collaborative relationships & performance
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Commodity/category strategy development
Porter’s Five Forces – describes competitive forces in market economy Higher levels of competition create more buyer & supplier options Threat of new entrants Threat of substitute products & services Power of buyers Power of suppliers SWOT analysis – strengths, weaknesses, opportunities, threats Quadrants for category strategy management - all strategic Critical - high risk/complexity; high value/spend; few qualified suppliers Bottleneck – high risk/complexity; low value/spend; few qualified suppliers Leverage – low risk/complexity; high value/spend; many qualified suppliers Routine – low risk/complexity; low value/spend; many qualified suppliers Supplier evaluation – relevant scorecard; stakeholders; corrective actions Supplier risk management Capacity; agility; solvency; pending litigation Ability to disrupt supply chain Develop realistic mitigation strategy
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Worldwide sourcing Cost & price benefits Lower labor rates Barriers
Increased production levels Supplier willingness for lower profit margin Barriers Letters of credit; multiple bills of lading; import licenses; inspection certificates Resistance to change; lack of skills; currency fluctuations; long lead times Logistics; Incoterms; differing legal systems; increased supplier risk Types of intermediaries Trading companies – bundled full service > potential lower costs Foreign trade consultants – located in US major cities….eager for business Culture & language issues Culture – language; religion; values; customs; social institutions; education Language differences impact communication; use interpreter; document decisions Countertrade – barter; counterpurchase; offset; buy-back; switch trading Future trends – increased integration; part of overall sourcing strategy Exchange rate advantages Lower material costs Government subsidies
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SC integration for competitive advantage
Internal integration communication flows & linkages Engineering Legal/environmental/safety Marketing Accounting/finance/risk management Operations/business lines External integration Suppliers/contractors Local government & communities e-Marketplace Supplier Relationship Management (SRM) Collaborative environment Continuous productivity improvement Cross-functional sourcing teams Innovation & talent synergies Joint decision development/ownership
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Lean supply chain management
LeanSigma - passionate pursuit of operational excellence (mindset & toolset) Lean (eliminate waste)+Sigma (reduce variability) = continuous productivity improvement Principles – Maximize people; simplify processes; use technology; CPI; minimize waste Three-V model of inventory management Volume – how much & what types?; forecasting; VMI Value - what is unit cost & total value of different inventory types? Velocity – how fast is inventory moved to production & customer? Leverage company-wide volumes – delegate standardization to suppliers Use suppliers for inventory management – ASN & VMI maximize supplier engagement Reduce supplier-buyer cycle times Expand electronic capability Facilitate supplier development Track order cycle times…..if you don’t measure it , you can’t manage it!! Focus on second & third tier suppliers to expand availability Requirements planning systems Materials Requirements Planning (MRP) – master production schedule supports order output Distribution Resource Planning (DRP) - integrate with MRP to maximize finished inventory Supply Chain inventory logistics planner coordinates supply, production & distribution Automated inventory tracking systems provide computerized integrated process tracking
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Lean supply chain management
Types of inventory Raw material & semi-finished – from suppliers or internal to support production Work in process – incomplete & must be transformed into finished goods Finished – complete & available to fulfill current or future customer orders Maintenance, Repair, Operating (MRO) – items supporting production & operations Inventory related costs Unit - most basic & easily calculated cost of purchased items & finished goods Ordering – material release; acquisition; transportation; internal machine setup Carrying – capital, storage; obsolescence; deterioration; lost opportunity Inventory investment……asset or liability? Max turns = max ROI How many inventory turns are optimal? It depends on inventory complexity Right reasons for inventory Avoid disruptions; sustain operations; support customer service Hedge marketplace uncertainty; negotiate quantity discounts Wrong reasons for inventory Offset poor quality & delivery; demand uncertainty Custom vs. standard; extended pipelines; process inefficiencies; 5S – Sort, Set, Shine, Standardize, Sustain
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Information systems & E-sourcing
e-Commerce/systems evolution (disillusionment to enlightenment)– MRP/DRP; EDI; ERP; SRM/CRM; consortiums; e-marketplaces; cloud computing; RFID New systems drivers – strategic integration; globalization; data information management; processes; legacy systems; strategic cost management Implementing ERP systems – define current process; determine best in class; develop system; debug; implement; monitor; control Purchasing database – integrated collection of files; data warehouse or datamart– consolidated information enabling derivative reporting e-order process – integrated vs. web-based; e-marketplace translation services E-sourcing models – sell side; buy side; 3rd party marketplaces (many to many) Supplier Relationship Management (SRM) systems Spend analytics – basis for strategic sourcing Sourcing – eRFx; reverse auctions; order/revisions; e-invoices; EFT Contract management/compliance Supplier performance measurement & control (scorecard) Cost reporting & forecasting; Price Volatility Management (PVM) Internal & external system integration – future of e-sourcing Social networking software in SCM – collaboration; communication; negotiation
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Performance measurement & evaluation
Why measure performance? Support better decision making Support better communication across supply chain & to executive management Provide performance feedback to all stakeholders Motivate & direct behavior toward desired results Beware of too much data, lack of detail, wrong metrics, measuring behavior Performance categories – price, cost, quality, delivery, innovation, safety, integration, efficiency, customer satisfaction, supplier performance Performance measurement system development – determine categories; develop measures; establish objectives; finalize details; implement; review; control Performance benchmarking – continuous comparison to best practices Strategic – policies, practices, roadmap, philosophy, corporate goal alignment Operational – focus on functional activity critical to success & provide greatest value Support activity – method to determine effectiveness of internal overhead control Balanced scorecard – periodic communication of performance to all stakeholders Customer satisfaction – SLA; order cycle time; service; perception Operational excellence – LeanSigma; SRM; strategic sourcing plans; metrics Innovation – e-systems; VMI; datamart reporting Financial – cost; budget; PVM; savings; maverick spend
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Purchasing & supply strategy trends
Expanded mission, goals & performance expectations – continued increase More broad & complex category strategies Suppliers managed as true extension of organization Multiple supply networks designed & operated to meet customer needs Leveraged Technology enablers take additional focus Internal & external collaboration grow in strategic importance Attracting, developing & retaining management talent as key to success Managing & enabling future supply management organization & measurement systems High impact sourcing & supply chain strategies into the foreseeable future Continuous outsourcing vs. insourcing evaluations of risk with key suppliers Enhanced collaboration, information sharing & integration with key suppliers Increased integration with other functions such as accounts payable & IR Enhanced quality & number of category strategies Requiring suppliers to take greater cost management role Providing common customer focused metrics across supply chain
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