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MIM 524 Global Sourcing Class three. Which Comes First? Organization? Strategy? Does function dictate structure or does structure dictate functionality? Does strategy dictate organization or does organization influence strategy?. Chicken or Egg?. Structure. Organizational challenges

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MIM 524

Global Sourcing

Class three


Chicken or egg

Which Comes First?

Organization?

Strategy?

Does function dictate structure or does structure dictate functionality?

Does strategy dictate organization or does organization influence strategy?

Chicken or Egg?


Structure
Structure

  • Organizational challenges

  • Structure

  • Logistics

    • Inventory Optimization

    • Carrier Optimization


Organizational structure considerations
Organizational Structure Considerations

  • Centralized Vs Decentralized

  • International Purchasing Organization (IPO)

  • Functional Vs Geographical Proximity

    • Generalists Vs Specialists

  • Separate Vs Integrated (with end users)


Centralized vs decentralized
Centralized Vs Decentralized

  • Centralized has the following advantages

    • Standardized Process and Controls

    • Easier tracking of spends, trends, etc.

    • Allows for “pooling of purchase” to drive better overall deals and support

    • Uniform support across multiple locations

  • Disadvantages

    • Lack of local customization – small unique needs may not be supported

    • Logistical issues – Ex: Bulk spends

    • Less integration with end users (Ivory Tower Perceptions)


International purchasing organizations ipo
International Purchasing Organizations (IPO)

  • Blended strategies of specialists in specific geographical locations

    • They specialize in “how” to source in those specific geographies

  • Leveraged by many large MNC’s (multi-national companies)

    • Singapore, Taiwan and Hong Kong – high concentrations

  • IPO’s typically compliment and leverage centralized commodity teams

    • Provide input, trends and potential new emerging sources

    • Receive input from commodity specialists on overall engagement models, benchmarking and indicators.


Functional vs geographical
Functional Vs Geographical

  • Functional allows for

    • A deep investment in the understanding of specific commodities

    • Commodity expertise is very high and a competitive advantage

    • One stop shop globally for all support in that unique commodity area

  • Geographical proximity allows for

    • Better integration with all internal customers (large and small)

    • Better response times and flexibility for customers


Separate vs integrated
Separate Vs Integrated

  • Emergence of Business Ethics

    • SOX – Sarbanes Oxley

  • Anti-trust Issues

  • Fiduciary responsibility

    • How do we ensure we are wisely using company funds?

  • Separate Function/Organization Provides

    • Standard Training and Controls Monitoring

      • Confidentiality, Insider Trading, etc.

    • Checks and Balances on Decisions

      • Step away from the business operations

    • Monitoring of Conflict of Interest

  • When might integrated be a better option?


Strategic planning
Strategic Planning

  • Mission

  • Vision

  • Strategies

    • Long Term Action Plan

    • Commits Organizational Resources

    • Creates Competitive Advantage

  • Performance Measures


Supply Chain

Strategy

Business

Processes

People

Information

Technology

eBusiness

Three enabling strategies

Strategy #1:

Re-engineer and improve Supply Chain business processes

Strategy #2: Enhance our relationships through the Chain

Strategy #3: Create electronic capabilities to run competitive Supply Chains


Strategic planning the source function
Strategic Planning & The Source Function

  • Elements of a strategy

    • Long term vision

    • Broad reaching – competitive advantage

    • Sustainable and repeatable

    • Drives optimized results

    • Deliberate

    • Resource commitment

  • Emerging Trends

    • Outsourcing

    • Collaboration/Joint Development/Venture

    • Supplier Enabling

    • Low cost geographies

    • Methods of optimizing existing supply base

      • Consolidation

      • Expansion

      • Single, sole or Multi sourcing

      • Long term relationships VS transactional events

      • Fulfillment


Strategies at different levels
Strategies at different levels…

  • Corporate Strategies

  • Supply Strategies

  • Commodity Strategies

  • Individual Supplier Strategies


Corporate strategies
Corporate Strategies

  • Focuses on market position

    • How do we retain or take lead in market segment shares?

    • What competitive advantages do we utilize

    • Leader or Lager – Cost, Quality, etc.

  • Customer Profile

    • Size (OEM, ODM, Distribution, Channel, End Users – AKA Joe Customer)

    • Location (Geographies, Proximity to Metro Areas, other)

    • Demand Profile – What do they need now and in the future

  • What does the market expect?

    • Growth? What %

    • Investment/Innovation? R & D, Patents, etc.

  • Technology/Product Life Cycles

    • Emerging Technologies

    • Complimentary products/technologies

    • Time to Market or Lager?

  • Mission and Culture

    • How will the company utilize it’s resources to deliver results



Commodity strategies
Commodity Strategies

  • How many suppliers?

    • Opportunity to consolidate?

    • Expand to drive competition?

    • M & A Impact

    • Custom Vs Standard?

  • Location of suppliers?

    • Proximity to source of use?

    • Supply chain considerations

    • Low cost geo’s?

  • Performance of supply base

    • Cost Rabbit

    • Technology leaders

    • Quality levels and overall performance to current demand

      • Measured by Supplier Report Cards

  • Make Vs Buy

  • Global Sourcing Options

  • Enabling/Investment for competitive Advantage

    • Licensing Deals


Commodity strategic plans
Commodity Strategic Plans

  • Sourcing Research

    • Commodity Studies/Global Market analysis

    • Forecasting/Management of Change

    • Value analysis/Product Studies

    • Supplier Studies

    • Benchmarking/Market Analysis

  • Training and Education

  • Understand the environment, economy and related factors

    • Newspaper, professional publications, etc.


Supplier strategies
Supplier Strategies

  • Determine which Segment they support?

    • One time transaction

    • Supply agreements

    • Commodity – Stable

    • Commodity – Changing

    • Strategic

    • Make VS Buy

  • Leader or Lagger

    • Cost, Quality, etc.

  • Investing in the future

    • Enabling/Licensing

    • Training/BKM Sharing (Best Known Methods) - TQM

    • Away Teams

  • Performance – Financially?

  • Allocation Strategy

    • Single Source?

    • Multi Source?

    • % of total


Supply strategies
Supply Strategies

  • Volume buys – Pool of purchase

  • MOQ – Minimum Order Quantities

  • Inventory investments

    • JIT

    • ARM (auto replenishment model)

    • Consignment – Min Inventory, Min Turns

    • Third Party Logistics (3PL’s) – optimize TPT

    • Hub (owned) – optimize TPT (through put time)

    • In House Min/Max

  • Logistics method and INCO Terms

  • TPT Flexibility

    • Expedite

    • Upside/Downside

    • Cancellation Windows

  • How transaction is managed? (Req to Settle Flow)

    • PO – discrete

    • Blanket PO

    • Erelease/ereceipt –Rosetta net (EDI/Internet)

    • PCard

    • Catalog/Web orders

    • Barcode/RFID


Supplier strategies1
Supplier Strategies

  • Single Source – Collaboration Strategy

    • Share long term roadmaps

    • Commit to long term contracts and relationship

    • DFX (Design for Cost or Manufacturing or Supply Chain)

  • Multi Source – Competition Strategy

    • Market/competition driven pricing and performance

    • Allocation negotiation strategies (Possible Reverse Auction)

  • Transactional – Fulfillment Strategy

    • Focus on easy of procurement – typically automated

    • Supplier catalogs with wide selections

    • High Transactions Low cost


Inventory costs

LO 1

INVENTORY COSTS

  • Costs to acquire

    • Ordering costs

    • Setup costs

  • Carrying costs

  • Stockout costs


Cash-to-Cash Cycle Time

0ENLI009

Inventory days + Days sales outstanding – Average payment

of supply period for materials

0ENLI015

0ENLI003

0OPPLAN017

Faultless Invoices 0OPDEL023

Returns

0OPDEL067

Sales

0ENPR026

Inventory

0OPPLAN012

Number of Supply Sources

0OPSO012

Order Fulfillment Lead Time

0OPPLAN030

Perfect Order Fulfillment

0OPDEL061

Total Source Lead Time

0OPSO041

Fill Rates

0OPDEL025

Forecast Accuracy

0OPPLAN008

Scheduled Achievement

0OPMAKE022

Delivery Performance to Scheduled Commit Date

0OPDEL019

Production Lead Times

0OPMAKE017

Yield

0OPMAKE033

Scrap

0OPMAKE023

Machine wait time

0OPMAKE007


Supplier management strategies by segment size
Supplier Management Strategies by Segment/Size

IV

Strategic

Alliance/Collaborate

III

Outsource/Enable

Leverage

II

Supplier Management Strategy

Supplier Management Segment

Commodity

Simplify

I

Bottleneck

Acquire/Equity Investment or

Reduce

Small Supplier

Low Scalability

Mid Size Supplier

Marginal Scalability

Large Supplier

Scalability

Mega Supplier

High Scalability

Supplier Size and Scalability – Flexibility and Willingness to Invest


Purchasing strategies
Purchasing Strategies

  • Strategic Supplier Long Term Contracts

  • Purchase Orders

  • Technologies

    • Internet/EDI

    • Bar Coding, RFID Tags

    • ERP Capabilities

    • Reverse Auctions

    • Supplier Catalogs

    • Electronic PO’s Contracts and Signatures

  • PCards

  • Outsourcing the transaction process


Analysis and selection
Analysis and Selection

  • Supplier Certification

    • Qualification

    • Auditing

    • Testing and Sampling

    • Stat Process Control

    • QOM – Quality Operating Systems

    • TQRDCE – hp model

  • Comparative Performance

    • What are the competitors using?

    • What are other segments of the corporation using?

    • What are others outside the industry using?


Supplier analysis selection

Supplier Analysis & Selection

Technology

Quality

Resourcefulness

Service

Availability

Cost



Logistics1
Logistics

  • What is it..

    • Freight Carriers

      • Pro’s and Con’s of each type (Air, Water, Ground (truck or Rail)

    • Freight Forwarders

    • Customs Brokers

    • Third Party Logistics (3PL’s)

    • Agents

  • Who should be responsible for it

    • Who pays?

    • Who manages customs clearance?

    • Who pays duties?

    • When does Title transfer?

    • INCO Terms


Critical logistics issues
Critical Logistics Issues

  • Timely Service

    • On Time

    • Consistent

  • Technology Infrastructure

    • Information Availability

    • Information Accuracy

  • Efficient Use of Logistics Assets

    • Transportation Assets

    • Facilities

    • Inventories


Critical logistics issues1
Critical Logistics Issues

  • Cost Effective Services

    • Entire Logistics System

  • Integration

    • Of Organizational Activities

    • Of Supply Chains

    • Of Modes

  • Capacity Constraints

    • Containers and Ports

    • Airports

  • Risks

    • Damage (Moisture, Vibration, Contamination, Impact)

    • Pilferage/Theft/Replaced (countfeit)

    • Lost/Un-trackable


Logistics strategies
Logistics Strategies

  • Similarity to Products

  • Commodity Strategy

    • Standard Service Needs?

    • Custom Service Needs?

    • Which Modes Will Be Used?

    • How Many Carriers are Necessary?

      • What Characteristics?

      • Make/Buy Analysis


Key logistics system features
Key Logistics System Features

  • Cycle Time / Lead Time

  • Consistency of Cycles

  • Order Accuracy

  • Consolidation

  • Problem Notification/Resolution

  • Customer Satisfaction/Feedback

  • Flexibility / Responsiveness

  • Cost



Logistics strategies1
Logistics Strategies

  • Uninterrupted Supply of Inbound Material

    • Supplier Selection

    • Forecasting of Supply

    • Information Sharing

    • Inbound Transportation

  • Facility Numbers and Locations

    • Local Warehouses

    • Distribution Centers

  • Inventory Quantities and Locations

  • Timely Distribution of Necessary Materials

    • Forecasting of Demand

    • Outbound Transportation




Current in bound logistics flow
Current In Bound Logistics Flow

Raw Materials

ODM1 HK FF

ODM1

HK 3PL

ODM2 HK FF

ODM2

ODM3 HK FF

ODM3

ODM5 HK FF

ODM5

ODM6 HK FF

ODM6


Proposed flow
Proposed Flow

Raw Materials

HK Raw Material 3PL

ODM1

HK 3PL

ODM2

ODM3

ODM5

ODM6


Assigned reading

Assigned Reading

The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell by Joan Magretta




Next class
Next Class

  • Scott Case Submittal Due at Beginning of Class

  • Sourcing Strategies, Supplier Selection

  • Price/Cost Analysis

  • Scott Case Presentations

  • Current Events




Eoq definition

LO 1

EOQ: Definition

Is a model that calculates the best quantity to order or produce. (Economic Order Quantity)


Total cost is a function of

LO 1

TOTAL COST is a function of:

  • The total cost (TC) formula includes the following:

  • P = $25 per order [cost of placing & receiving order (setup & production)]

  • D = 10,000 [known demand]

  • Q = 1,000 [order size (or production lot size)]

  • C = $2 per unit [carrying cost of 1 unit for 1 year]


Formula total cost

LO 1

FORMULA: Total Cost

Total cost looks at all inventory costs.

P.214 of V.W.

Total cost (TC) equation:

= Ordering cost + Carrying cost

= PD/Q + CQ/2

PD/Q = [(10,000/1,000) x $25] = $ 250

CQ/2 = [(1,000/2) x $2] = $1,000

TC = $1,250


LO 1

How can the total cost be reduced?

The EOQ model will compute the cheapest batch order size.


Formula eoq

LO 1

FORMULA: EOQ

EOQ is a calculation intended to lower total inventory costs.

EOQ equation:

= √ 2 x Order costs ÷ Unit cost

= √ 2PD/C

= √ 2 x $25 x 10,000 / $2

= √ 250,000

= 500


LO 1

What do you do with the order quantity calculated by the EOQ model?

Enter the order quantity into the TC equation.


Formula eoq cost

LO 1

FORMULA: EOQ Cost

EOQ Total cost calculates TC using the EOQ batch size in units to cut total cost by $250.

Total cost (TC) equation:

= Ordering cost + Carrying cost

= PD/Q + CQ/2

PD/Q = [(10,000/500) x $25] = $ 500

CQ/2 = [(500/2) x $2] = $ 500

TC = $1,000


Formula reorder point rop

LO 1

FORMULA: Reorder Point (ROP)

ROP identifies the proper time to place an order to avoid stockout.

Reorder Point (ROP) equation:

= Rate of usage x Lead time

= 50 parts per day x 4 days

= 200 parts


Formula safety stock

LO 1

FORMULA: Safety Stock

Safety stock provides a buffer to reorder point.

Safety stock:

= Lead time x (maximum – average usage)

= 4 days x (60 – 50)

= 40 parts


Formula rop safety stock

LO 1

FORMULA: ROP + Safety Stock

Safety stock adds a buffer to reorder point.

Reorder Point (ROP) equation 14.4:

= Rate of usage x Lead time + Safety stock

= 50 parts per day x 4 days + 40

= 240 parts


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