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“Strategic Sourcing & Role of Long Term Business Agreements (LTBA) for the success of supply chain in Helicopter Division, HAL, Bangalore.” Summer Internship Project (April-June 2011) on By Subhrajyoti Parida, Roll No.124 , Sec. B, PGDIE 40 Under guidance of Prof.(Mrs.) Sadhana Ghosh, Mr. Lakshminarayana, Group Coordinator-Operations, Sr. Manager (Methods Engg.), NITIE, Mumbai

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Page 1: Final PPT for Interns

“Strategic Sourcing & Role of Long Term Business Agreements (LTBA) for the success of supply chain in Helicopter Division, HAL,

Bangalore.”

Summer Internship Project (April-June 2011) on

By Subhrajyoti Parida,

Roll No.124 , Sec. B, PGDIE 40

Under guidance of

Prof.(Mrs.) Sadhana Ghosh, Mr. Lakshminarayana,Group Coordinator-Operations, Sr. Manager (Methods Engg.),NITIE, Mumbai Helicopter Division, HAL, Bangalore

Page 2: Final PPT for Interns

Need for the Project & Objectives Objective : To strategize & optimize the existing Outsourcing Process in the

Division focusing primarily on Vendor Rating, Vendor Selection & Evaluation, and finalization of Long Term Business Agreements with vendors.

Need for the Project

Division’s production target going to climb in coming fiscal years.

Serious need of boosting profits & reducing in house overheads.

Increasing value of production through outsourcing to meet enhanced targets.

Streamlining and optimizing the outsourcing process to improve the vendor performance and develop a robust vendor base.

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MethodologyVendor Rating :

Strategic Vendor rating System with 7C criteria proposed.

Analytical Hierarchy Process (AHP) technique used for assigning weightages to the 7C rating criteria.

Vendor evaluation & Selection

Data Envelopment Analysis (DEA) technique proposed to replace the existing the Categorical Type vendor evaluation technique.

DEA proposed to use for vendor benchmarking and vendor development

DEA recommended for order apportionment.

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Overall Outsourcing Process :

Wen based e-Procurement System is proposed with dedicated modules for e-Tendering , e-Sourcing, tender evaluation, PO finalization, contract management, order monitoring and vendor rating etc.

Makes the process faster, efficient and transparent.

Long Term Business Agreement:

Survey was done through questionnaire distributed to executives across the top , middle and lower levels of management to record their attitude towards the spirit of LTBA and improvements were suggested to make the process more of collaboration than a transactional affair.

Methodology

Page 5: Final PPT for Interns

Literature Survey

Vendor rating : Defined as a continuous process of monitoring and evaluating the vendor performance on a periodic basis.

Types of vendor rating Based on rating method : Weighted Point Method & Cost Ratio Method. Based on nature of criteria : Conventional & Strategic Vendor Rating System.

Vendor evaluation : Vendor evaluation is a process of rating the performances of several vendors based on their responses against tender inquiries ,leading to selection of most competent vendor (or a group of vendors).

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Literature Survey

e-Procurement : e-Procurement (electronic procurement) is the business-to-business or business-to-consumer or Business-to-government purchase and sale of supplies, civil works and services through the Internet as well as other information and networking systems.

Long Term Business Agreement (LTBA) : It is a collaborative arrangement between two or more organizations that forms part of their overall business strategy, and contributes to achieving their long term goals and objectives (Kwok and Hampson, 1997). Hence, LTBA is also regarded as a “Strategic Alliance”.

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Analysis & Recommendation Vendor Rating :

7 C s criteria recommended for strategic vendor rating-Competency -Cash Resources

-Capacity-Physical & Intellectual - Cost

-Commitment- Delivery, Package -Consistency – Delivery and quality & Billing

-Control – Quality, Quality system and Information System

Analytical Hierarchy Process (AHP) technique employed to assign weightage (Annexure I)

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Analysis & Recommendation

Ratings used in AHP

Page 9: Final PPT for Interns

Web based e-procurement through ERP system

Planning and Decision making Module-BI tool for Make/Buy Decision, Capacity Estimate Vs. Production Target and TCE Vendor Assessment, Registration and Approval Module -Database of technical/technological and financial capabilities needed for different work package and

components-Assists in decision making for vendor registration-Categorizes and classifies the vendors based on multiple parameters e-Tendering Module – Preparation of RFQ, transmitting to vendors and controlling the bidding process. Supplier’s Quotations Module- Regulates and assists the quotation process from suppler side

Analysis & Recommendation

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Vendor evaluation and Selection Module-

DEA Algorithm for selection & performance analysis of vendorsEfficiency = (Sum of weighted output/Sum of weighted input) Max E0= Sum of weighted output , for fixed weighted input

Explanation as per Annexure II Clustering of most efficient vendors Order splitting among the efficient vendors or order placement on the most

efficient vendor Benchmarking of vendor efficiency by comparing the inefficient vendors

with efficient vendors ; assists in resource allocation for vendor support & development

Analysis & Recommendation

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Analysis & Recommendation Contract Management Module -Provides the technical, commercial & legal inputs for finalizing Long Term

Business Agreements with vendors

Purchase Order Release Module -PO drafting, finalizing technical & commercial T & C , authentication & online

release

Order monitoring Module -Treating every purchase order as a “Project”

- Monitors critical outsourcing processes (vendor development program, supplies from buyer side, production phases, first article inspection, delivery schedule, inspection, final acceptance and release of payment)

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Analysis & Recommendation

Vendor Rating Module

-Monitors the overall performance of the registered vendors and tracks the same. -Employs a pre-defined algorithm and set of 7 strategic criteria-Rating based on regular updated and historical data collected through periodic vendor audits-Categorizes the vendors into Cat. A, B or C. -Monitors the performance of Cat A/B/C vendors dynamically.

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Analysis & Recommendation

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To record the attitude of the O/S dept. towards the LTBA and understand the existing buyer-seller relationship, a questionnaire was used.(refer Appendix VI)

Responses taken on a scale of 1 (strongly disagree),2,4 & 5(strongly agree) w.r.t input attributes (Trust, Commitment, Interdependence, Communication, Cooperation ,Joint Problem Solving) & Output attributes (Order execution performance).

The items leading to poor item to total score co-relation values were removed

Analysis & Recommendation Understanding the spirit of Long Term Business Agreements (LTBA)

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Cronbach’s Coefficient Alpha was calculated to measure the consistency.

Spearman’s Rank Correlation was found between the input and output attributes of LTBA.

For detailed calculation & analysis , refer Annexure III

Analysis & Recommendation Understanding the spirit of Long Term Business Agreements (LTBA)

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Conclusions Vendor Rating System :

The Strategic Vendor Rating System proposed takes a comprehensive approach for rating the overall performance of the strategically significant vendors.

Vendor Evaluation & Selection :

DEA technique helps in detailed evaluation of the vendors performance and categorizes them on basis of their relative efficiencies.

Enables benchmarking of vendors and allocation of resources for vendor development.

Enables apportionment of order among the qualified vendors based on their efficiencies.

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e-Procurement System :

Enables faster , efficient and transparent procurement and outsourcing process through minimization of human error,lesser paper work and better security.

Long Term Business Agreements :

Should reflect more of cooperative/collaborative nature in buyer-seller relationship rather than transactional.

Terms and conditions for long term mutual benefits to either of the parties.

The proposed recommendations require phase wise implementations to obtain long term strategic benefits

Conclusions

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Limitations

The proposed recommendations involves initial investments in terms of training and installation of the new set up.

May require procedural makeover in the existing work set up. Hence the implementation should be phase wise and gradual.

May result to internal resistance towards the change.

The outcomes from the recommendations shall reflect in longer terms. Hence the solutions are not suitable for short term goals.

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