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8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
1/21
Sup
plyChainManagemen
t
(3rd
Edition
)
2
007PearsonEducation
13-1
Ch
apter14
SourcingDecisi
onsinaSupplyChain
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
2/21
Outline
TheRoleofSourcinginaSupplyChain
SupplierScoring
andAssessm
ent
SupplierSelectio
nandContracts
2
007PearsonEducation
13-2
TheProcurementProcess
SourcingPlannin
gandAnalys
is
Ma
kingSourcingDecisionsin
Practice
SummaryofLea
rningObjectives
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
3/21
TheRole
ofSourc
ing
inaSupplyChain
Sourc
ingisthesetofbusinessprocessesrequired
topur
chasegoodsa
ndservices
Sourc
ingprocesses
include:
2
007PearsonEducation
13-3
Sup
plierselectiona
ndcontractnegotiation
Designcollaboratio
n
Pro
curement
Sou
rcingplanningandanalysis
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
4/21
Benefits
ofEffective
SourcingDecisio
ns
Better
economiesofscalecanbeac
hievediforder
s
areaggregated
Moreefficientprocurementtransactionscan
significantlyreducetheoverallcost
ofpurchasing
Designcollaboration
canresultinproductsthatare
2
007PearsonEducation
13-4
easer
omanuacurean
srue
,resu
ngn
lower
overallcosts
Goodprocurementprocessescanfa
cilitate
coordinationwithsuppliers
Appro
priatesupplier
contractscanallowforthe
sharingofrisk
Firms
canachievealowerpurchase
priceby
increasingcompetitionthroughtheuseofauctions
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
5/21
SupplierScorin
gandAs
sessmen
t
Supplierperformanc
eshouldbecomparedonth
e
basisofthesuppliersimpactontotalcost
Thereareseveraloth
erfactorsbes
idespurchase
price
thatinfluencetotalcost
2
007PearsonEducation
13-5
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
6/21
SupplierAssessmentFactors
Replen
ishmentLeadT
ime
On-TimePerformance
Supply
Flexibility
DeliveryFrequency/
PricingTerms
InformationCoordination
Capability
DesignCollaboration
2
007PearsonEducation
13-6
Minim
umLotSize
Supply
Quality
Inboun
dTransportationCost
apa
ty
ExchangeRates,Taxes,
Duties
Sup
plierViability
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
7/21
SupplierSelec
tion-Auctionsand
Negotiations
Supplierselectioncan
beperformedth
roughcompetitive
bids,reverseauctions,
anddirectnegotiations
Supplierevaluationisbasedontotalcostofusinga
supplier
2
007PearsonEducation
13-7
ucto
ns:
Sealed-bidfirst-priceauctions
Eng
lishauctions
Dutchauctions
Second-price(Vickery)auctions
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
8/21
Co
ntractsan
dSupply
Chain
Performance
ContractsforProdu
ctAvailabilityandSupply
Chain
Profits
BuybackContracts
Revenue-SharinC
ontracts
2
007PearsonEducation
13-8
QuantityFlexibility
Contracts
ContractstoCoordinateSupplyC
hainCosts
ContractstoIncreaseAgentEffort
ContractstoInduce
Performance
Improvement
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
9/21
ContractsforP
roductAvailability
an
dSupply
ChainP
rofits
Manyshortcomingsin
supplychainp
erformanceoc
cur
because
thebuyerand
supplierareseparateorganiza
tions
andeachtriestooptim
izeitsownpro
fit
Totalsu
pplychainprofitsmightthereforebelowerthanif
thesupp
lychaincoord
inatedactionstohaveacomm
on
2
007PearsonEducation
13-9
o
ecv
eomaxmzn
goasuppy
canpro
s
RecallC
hapter10:dou
blemarginaliz
ationresultsin
suboptimalorderquantity
Anappr
oachtodealingwiththisprob
lemistodesig
na
contractthatencouragesabuyertopurchasemoreand
increase
thelevelofpr
oductavailability
Thesup
pliermustshar
einsomeofth
ebuyersdemand
uncertainty,however
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
10/21
ContractsforProductAvailabilitya
nd
Supply
ChainPro
fits:Buyb
ackContr
acts
Allowsa
retailertoretu
rnunsoldinve
ntoryuptoa
specified
amountatanagreeduponprice
Increasestheoptimalorderquantityfortheretailer,
resulting
inhigherprod
uctavailability
andhigherprofits
forboth
theretailerand
thesupplier
2
007PearsonEducation
13-10
Mosteffectiveforprod
uctswithlowvariablecost,suchas
music,software,books,magazines,an
dnewspapers
Downsid
eisthatbuyba
ckcontractres
ultsinsurplus
inventorythatmustbedisposedof,w
hichincreasessupply
chaincosts
Canalso
increaseinformationdistortionthroughthe
supplychainbecauseth
esupplychain
reactstoretail
orders,n
otactualcustomerdemand
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
11/21
Contract
sforProdu
ctAvailabilityandSu
pply
ChainProfits:Rev
enueShar
ingContracts
Thebuyerpaysamin
imalamount
foreachunit
purchas
edfromthesupplierbutsharesafraction
of
therevenueforeachunitsold
Decreasesthecoste
runitchared
totheretaile
r
2
007PearsonEducation
13-11
whiche
ffectivelydec
reasesthecostofoverstock
ing
Canres
ultinsupplychaininformationdistortion
,
howeve
r,justasinth
ecaseofbuybackcontracts
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
12/21
ContractsforProdu
ctAvailab
ilityandSupply
ChainProfits:Qua
ntityFlexibilityContracts
Allows
thebuyertom
odifytheord
er(withinlim
its)
asdemandvisibilityincreasesclosertothepointof
sale
Betterm
atchin
ofsu
landdem
and
2
007PearsonEducation
13-12
Increasedoverallsup
plychainprofitsifthesupp
lier
hasflex
iblecapacity
Lowerlevelsofinfor
mationdistortionthaneithe
r
buybackcontractsor
revenuesharingcontracts
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
13/21
ContractstoCoordinate
Supply
ChainCosts
Differencesincostsatthebuyeran
dsuppliercanlead
todecis
ionsthatincreasetotalsupplychaincosts
Example:Replenishm
entordersizeplacedbyth
e
buyer.
ThebuyersE
OQdoesnot
takeintoacco
unt
2
007PearsonEducation
13-13
.
Aquantitydiscountc
ontractmaye
ncouragethe
buyer
topurchasealargerq
uantity(whichwouldbelo
wer
costsfo
rthesupplier),whichwouldresultinlow
er
totalsupplychaincosts
Quantitydiscountsle
adtoinformationdistortion
because
oforderbatc
hing
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
14/21
Contra
ctstoInc
reaseAg
entEffor
t
Therea
remanyinstancesinasupp
lychainwherean
agentactsonthebehalfofaprincipalandtheagents
actions
affecttherew
ardfortheprincipal
Exam
le:Acardealerwhosellsth
ecarsofa
2
007PearsonEducation
13-14
manufa
cturer,aswellasthoseofothermanufacturers
Examplesofcontractstoincreaseagenteffortinclude
two-parttariffsandthresholdcontracts
Thresholdcontractsi
ncreaseinformationdistortion,
howeve
r
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
15/21
Contra
ctstoInd
uce
P
erforman
ceImpro
vement
Abuyermaywantpe
rformanceim
provementfroma
supplierwhootherwisewouldhavelittleincentiveto
doso
Ashare
dsavinscon
tractrovides
thesu
lierwith
2
007PearsonEducation
13-15
afractionofthesavingsthatresult
fromthe
perform
anceimprove
ment
Particularlyeffective
wherethebenefitfrom
improvementaccrues
primarilytothebuyer,but
wheretheeffortfortheimproveme
ntcomesprim
arily
fromthesupplier
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
16/21
DesignC
ollaborat
ion
50-70p
ercentofspendingataman
ufactureris
through
procurement
80perc
entofthecostofapurchasedpartisfixedin
thedesignphase
2
007PearsonEducation
13-16
esgn
coaoraton
wtsupperscanresutn
reduced
cost,improvedquality,anddecreasedtimeto
market
Importanttoemploy
designforlog
istics,design
for
manufa
cturability
Manufa
cturersmustbecomeeffect
ivedesign
coordin
atorsthroughoutthesupply
chain
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
17/21
Th
eProcurementProcess
Theproc
essinwhichthesuppliersends
productinrespo
nseto
ordersplacedbythebuy
er
Goalistoenableorderstobeplacedand
deliveredonsc
hedule
atthelowestpossibleov
erallcost
Twomaincategoriesofpurchasedgoods:
2
007PearsonEducation
13-17
rectmateras:compon
entsuset
omae
nseg
oos
Indirectmaterials:goods
usedtosupportthe
operationsofafirm
Differencesbetweendirectandindirectmate
rialslistedinTable13.2
Focusfo
rdirectmaterialsshouldbeonimprovingcoord
ination
andvisib
ilitywithsupplier
Focusfo
rindirectmaterialsshouldbeon
decreasingthe
transactioncostforeach
order
Procurem
entforbothshouldconsolidate
orderswherepossible
totakeadvantageofeconomiesofscale
andquantitydis
counts
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
18/21
Produ
ctCategorization
byValue
andCriticality(Figure14.2
)
CriticalItem
s
StrategicItems
High
ality
2
007PearsonEducation
13-18
GeneralItem
s
Bulk
Purchase
Items
Low
Low
High
Value/Cost
Criti
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
19/21
Sourc
ingPlanningand
Analysis
Afirmshouldperiodicallyanalyze
itsprocurement
spendin
gandsupplierperformance
andusethis
analysisasaninputforfuturesourcingdecisions
Procure
mentspendin
gshouldbeanalyzedbypartand
2
007PearsonEducation
13-19
Supplie
rperformanceanalysisshouldbeusedto
build
aportfo
lioofsupplierswithcompl
ementarystrengths
Cheaperbutlowerpe
rformingsuppliersshouldbeus
edto
supplybasedemand
Higherperformingbutmoreexpensivesuppliersshouldbe
usedtobufferagainstvariationindemandandsupplyfrom
theothersource
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
20/21
Making
Sourcing
DecisionsinPractice
Usem
ultifunctionteams
Ensur
eappropriate
coordinationacrossregions
andbusinessunits
2
007PearsonEducation
13-20
Build
long-termrelationshipswithkeysuppliers
8/8/2019 Chopra3 Ppt Ch14 [Compatibility Mode]
21/21
Summ
aryofLe
arningO
bjectives
What
istheroleofsourcinginasupplychain?
What
dimensionsofsupplierperformanceaffect
totalc
ost?
2
007PearsonEducation
13-21
performanceandinformationdistortion?
What
aredifferentcategoriesofp
urchased
productsandservices?Whatisthedesiredfoc
us
forprocurementforeachofthese
categories?