2018 .11.29 - Coyle Chapter 5 - Sourcing Materials & Services PDF

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Production & Logistics Coyle Chapter 5 – Sourcing Materials & Services – 29.11.2018 – Procurement In this lesson Coyle chapter 5 Sourcing materials Review aspects of purchasing Suitable organization structure for the Companies:     

Lufttansa Apple Walmart HBRS BMW

We focus on aspects of Purchasing only, and not on Strategics Importance in the exam Question 4: Coyle chapter 5. Sourcing Materials and Services ( 5 points )

Three types of Purchasing Activity 1)    2)   3)   

Capital Goods any good deployed to help increase future production longer term investment for organization might require much financial planning Rebuy: Standard & Modified Standard - item purchased is identical to historical purchases Modified - some various tradeoff Maintenance, Repair, Operations (MRO) (consumer goods) goods used by consumers, have no future productive use You have to buy items for your daily business Needed for continuing operation of the company and its supply chain activities

The Quadrant Technique : Types of Importance of Items and Services Purchased Not all items purchased are of equal importance Risk Some products you buy are more important than others To determine a procured item’s relative Importance: The Quadrant Technique Shows a procured items relative importance on the basis of value and risk The Purchase turnover & supplier base is analyzed based on two variables: - 1. Profit Potential (Value) - 2. Supply risk  Procurement Strategies differ based on the Value & Risk of the good

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Criticals Distinctvies High Risk risk / low value - high - Engineered Items

Generics - low risk/low value - Office Supplies Low Risk - MRO items

Low Value/ Low Profit Potential

- high risk/ high value - Unique Items - Items critical to fincal product

Commodies - low risk/ high value - Basic production items

- Basic packaging - Logistics services

High Value / High Profit Potential

Generics  low-risk & low-value items  Do not enter the final product,  Procurement Strategies: Streamline the procurement process to reduce the cost associated with purchasing generics  Example: office supplies, repair, operating items

Commodities    

Enhance profitability of the company but pose a low risk Fundamental to the company’s finished product : High Risk = High Value Not unique items and many sources of supply -> low risk Procurement Strategies: Volume Purchasing to reduce price (Economies of scale) & just-intime Systems to lower inventory costs

Distinctives    

Limited number of suppliers and long lead time Customers unaware or don’t care about uniqueness of distinctives = low value Pose a threat to continued operation and high procurement costs = high risk Procurement Strategies: Standardization Program to eliminate or reduce the uniqueness of distinctives = changing items to generics

Critical  Determine the customers ultimate cost of using finished product = high value  Gives final product competitive advantage = high risk  Procurement Strategies: strengthen value through use of new technologies, simplification, close supplier relations & value added alterations (innovation to provide greater market value

Strategic Sourcing Process 5 Key drivers to achieve the desire levels of value 1) 2) 3) 4)  5)

Asses the total value Develop individual sourcing strategies Evaluate internal requirements Focus on supplier economics Suppliers economics must be understood before identifying buying tactics Drive continuous improvement

Developing A Sourcing Strategy Issues that should be addressed:  Single vs. multiple sourcing  Global vs. Lobal Sourcing  Partnership vs. competitive Relationship

Depending on the Sourcing strategy, a Contract Strategy has to be developed  Buying on contract vs. Buying on spot basis  Price Agreement vs. Performance Agreement

Managing Procurement Processes 1) 2) 3) 4)

Determine the type of Purchase Determine the necessary levels of investment Perform procurement Process Evaluate the effectiveness of the strategic sourcing process - Were the customers’ needs satisfied? - Was the investment necessary?

Supplier Evaluation and Relationships important factor in achieving efficiency: development of a successful supplier relationships  creates a sustain & competitive advantage

Evaluation of suppliers Should be done regularly 3 Questions 1) Did the supplier succeed in meeting the customer’s need? 2) What elements of the relationship, both strategic & tactical/operational may benefit from modification & improvement? 3) Did the investments by both, customer and supplier produce measurable benefits that justified the time and effort of the relationship?

2. To which extent does the customer-supplier relationship contribute to the competitive advantage?

Total Landed Costs (TLC)            

purchase is only the tip of the iceberg sum of all costs involved in making & delivering products to the point where they are needed helpful for the supplier selection highlighted are life cycle costs inventory costs strategic sourcing costs transaction costs quality costs technology costs management costs that’s why you have to understand the total costs of purchasing

Sourcing & e-procurement Advantages  Lower operating costs  improve procurement and sourcing efficiency  reduce procurement prices

Concerns  Cybersecurity  Lack of face to face contact between the buyer & seller  Technology-related concerns

What we did in that lesson How should/could the single organization of a single company organize their procurement? (link to 2nd chapter)? BMW, H-BRS, Apple, Walmart, Lufthansa / Summary of last session Lufthansa        

Industry: Aviation Features: airport services Business model: B2B and B2C, market segmentation Buying function: planes, catering, merchandise Make sure that the purchased goods fit to their guidelines HYBRID Decentralized approach: MRO(Maintenance, repairing, overall), running the day to day business Centralized: purchasing Departments

Apple   

Industry: Additional suppliers (different locations)-> diversify supply chain risks, greater flexibility, react faster to supply chain disruptions Ramp up production capacity-> large user base in China & India

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Increase market share by reducing prices -> market pressure e.g. because of Samsung Reduce costs Pegatron (supplier) strives to improve operational efficiencies

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Centralized: no differentiation of product (same product in every country) 100% outsourcing Transformation area: China, Foxconn; responsible for price, quality AND quantity -responsible for organizing the contact to the outside world: purchasing Significant lack of products

Walmart           

Industry: retailer / retailing Features: Business model: sell for higher price than they buy it; Purchasing x, selling x+ - input: finished products -transf.: service, put in the shelves -area: giving information to the customer Sales channels: offline & online / off-on-line Buying function: Turnover 2017: US $ 485.9 bn Profit: US $ 124.6 bn (before tax) Worldwide number one retailer

-purchase cost/spend -key player in retailing -link between purchasing &scm: delivery to their outlets, to their customers -is about material, millions of items physically flowing to the US -organize the flow of material on a daily basis how should they organize    

Hybrid -centr.: standard products, e.g. food; offered in nearly every store -decentr.: regional, local products (winter clothing on the east side) -> consequence for organizational set up of purch. team: split up in local teams-> higher costs, smaller quantities which are purchased

H-BRS 

Industry:

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Centralized: small team of 6 people, midsize company (10,000 people)

BMW 

Industry:

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Centralized: produce the same products, with the same quality in every region Combine standardization of product with individualized product Does not play a role for purchasing section -> individualizing options are limited

Which elements did van weele mention at the end of chapter1?

1. 2. 3. 4. 5. 6.

Global sourcing Leveraged purchasing and supply strategies Corporate social responsibility Resource Scarcity Supplier Integration Early supplier involvement

Task of purchasing: close relationship with the supplier, should be able to perform in terms of price, quality and … Task of Purchasing: Percentage of added value in automotive industry: 70% -70 pieces out of 100 are standing out of a supplier -supplier is able to take the role of an inventor automotive industry= purchasing very high costs = 70% purchasing = good connection between our company and our supplier = in Germany it makes sense to do it in an organized (centralized) way, in US maybe not Models chapter 2 purchasing   

Centralized Decentralized Hybrid (mixed)

Link chapter 1 and 2 -if purchasing is important for an org. It can be seen in the way of organizing charts(?) Please fill in the relevant terms in the boxes

Task for next lesson Question 4 Maximizing the effectiveness of the procurement process is a major goal of an organization. What steps can be taken to help ensure that the process is maximal? Question 5 A key part of the procurement process is the selection of suppliers. What criteria are commonly used in this selection? Which criteria should be given the highest priority? Why? Question 7 Discuss the advantages & Disadvantages of using e-commerce in the procurement process Question 8 Describe the different types of e-commerce business model available for procurement and point out their respective benefits and disadvantages...