CPSM EXAM 3

TASK 3-A-1: Represent the supply management organisation in decision related to the
organisation wide or project objective setting, budgeting, staffing and policies.
 Supply Management’s Mission
1. Supply management’s primary mission is to support organisational needs through
a. Identifying
b. Acquiring
c. Accessing
d. Positioning

 Supply Management’s New Environment

1. Forward looking, anticipatory approach
2. Planning, forecasting, collaboration
3. Strong focus on internal customer satisfaction
4. Assessment of internal competencies
5. Outsourcing many activities
a. Materials and Products
b. Information technology
c. Design activities

 Supply management processes – Typical:

1. Strategic sourcing and supply base management
2. Strategic supply management
3. Management of countertrade activities
4. Market intelligence management
5. Purchase of materials and components
6. Project management services
7. Services procurement and contracting
8. Inventory management and control
9. Investment recovery and recycling
10. Outsourcing and subcontracting
11. Forecasting and Planning
12. Supply management research
13. Value Analysis
14. Value Engineering

 Supply management capabilities

1. Selection, Development and maintenance of supply
a) Stay abreast of market conditions
b) Ensure supply competitiveness
c) Identify new suppliers
d) Develop value adding relationships
e) Improve supplier performance
2. Develop a value adding supplier base
3. Cross functional, cross organisational collaboration
4. Communicate/coordinate with internal customers and suppliers
5. Ensure that agreement terms are followed
TASK 3-A-2: Develop and implement business plan that will meet customer service,
corporate profit and return on equity goals.
 Corporate goals
1. Broad statement of ideal future conditions
2. Statement of anticipated or projected outcomes
3. Specific objectives relative to specific time periods
4. Objectives made specific in terms of time and degree
5. The object of plans
 Goals: Goals may be defined as the desired end results towards which efforts and resources are directed.
Goals should be,
1. Specific
2. Measurable
3. Attainable
4. Result oriented
5. Time bound

 Corporate goals
1. Strategic goals
a) Tend to be associated with corporate level goal.
2. Operational goals
a) More specific than strategic goal
b) Usually related to lower level organisational goal
c) Usually have shorter time frame
3. Quantitative Goal
a) Cab be objectively measure
b) Typically involve use of hard data
4. Qualitative Goals
a) Often referred to as soft dollar impact
b) Usually difficult to measure objectively

 Elements of Business Plan

1. Vision statement
2. Mission statement
3. Value statement
a) Hiring practice
b) Resource allocation
c) Performance measurement
d) Treatment of suppliers
e) Treatment of employees
4. Strategy
a) Allocation of scarce resources
b) Customer analysis
c) Competitor analysis
d) Market analysis
e) Government regulations

 Types of Strategies
1. Corporate strategies
a) Businesses in which the firms wishes to complete
b) Goals concerning allocation of resources
2. Business unit strategies
a) Business specific strategy
 b) How business strategy related to corporate strategy
c) Typically commodity specific
d) Must support corporate and business unit strategies
e) Supply management strategies

 The planning hierarchy

1. Vision
2. Mission
3. Strategy
4. Goals
5. Plans

 Business Planning: Business plans evolve from corporate goals and are simultaneously
1. Determination of organisation goals and objectives
2. Roadmaps to achieving goals
3. Formulation of specific courses of action
4. A systematic consideration of alternatives
5. Policies, programs and procedures that lead to achievement

 Key areas of Business Planning

1. Overview of the business
2. Marketing plan
3. Market strategy
4. Management and human capital
5. Operations capabilities
6. Financial Plan
7. Critical business risk

 Types of Plans
1. Strategic Plan
2. Tactical plan
3. Standing Plans
4. Single use plans

TASK 3-A-3: Develop, implement and monitor a strategic supply management plan and
operating plan based on marketing condition, business needs and available resources.
 Elements of strategic supply plan
1. A strategic supply plan establishes the supply architecture
2. Is based on organisational strategic and operating plans.
3. Ensure alignment with organisational plan
4. Elements of supply plan include
a) Annual review and supply strategies and structures
b) Prioritisation of resources
c) Annual supply improvement program
d) Appropriate project management methodologies
e) Cross functional team sponsored improvement initiative.
f) Forecast based budgeting that is responsive to market changes
g) Supply performance benchmarking against the marketplace
  Elements of strategic supply plan
1. Forecast
a) Deterministic
1) Strategic Plan
2) History
3) Industry
4) Geopolitical
b) Probabilistic
1) Magnitude
2) Confidence
2. Budget
3. Staffing Plan
a) Core elements of staffing includes
1) Identification of key roles and responsibilities
2) Full time and project related work
3) Potential retirement, turnover and other loss of staff
4) Possibility of Growth
b) International staffing plan may include
1) Language skills
2) Cultural skills
3) Country specific knowledge
4) Currency and its effect on position values
5) Time zone differences
6) Dispersed team management
4. Metrics
a) Price
b) Cost effectiveness
c) Revenue
d) Quality
e) Time/Delivery/Responsiveness
f) Technology or innovation
g) Physical environment and safety
h) Administration and efficiency
i) Asset and integrated supply chain management
j) Government and social
k) Internal customer satisfaction
l) Supplier performance
m) Supply performance
n) Strategic performance
o) Planning and research

TASK 3-A-4: Plan/Develop/Provide operating policies, guidelines and procedure.

 Management Control
1. Before the fact controls
a) Budget
b) Plans
c) Business Continuity
d) Forecast
e) Policies/Procedures, Manuals
2. During the fact controls
a) Quality Control
b) Statistical Quality Control
c) Scheduling
 3. After the fact controls
a) Audits
b) Customer Surveys
4. Active vs Passive control
5. Key Performance Indicators
6. Reports
7. Procedures reviews

 Types of Controls

Types of Controls Examples

Before the fact control 1) Budgets
2) Plans
3) Business Continuity
4) Forecast
5) Policy and procedures manuals
During the fact control 1) Quality control
2) Statistical quality control
3) Scheduling
4) Structured processes
5) Adherence to policy and procedure
6) Specifications
7) Industry Standard
After the fact control 1) Reports
2) Reviews
3) Audits
4) Customer surveys

 Audits
1) Audits are performed to
a) Prevent problems
b) Gauge system and process efficiency and effectiveness
c) Meet a regulatory requirement
2) Three types of basic audits
a) Internal Audit
b) External Audit
c) Self-Inspection
3) Steps outlining auditing process
a) Determine the scope of the audit
b) Determine how the results will be used
c) Determine the standards
d) Determine what type of audit is appropriate
e) Establish the format of the audit
f) Prepare and distribute the final audit report
g) Establish a corrective action plan

 Sustainability Process
1. Establish sustainability goals
2. Design initiative around goals
3. Select management practices backed by evidence
4. Implement and measure result
 Best Practices of management Control
1. Business Intelligence
2. Competitive Intelligence
3. Benchmarking
4. Re-engineering
a) Ordering cycle
b) Direct user releases
c) Inventory
d) Invoice payment
e) In-plant store
f) Other processes
TASK 3-A-5: Develop/implement changes to the organisation’s supply management
policies as needed.
 Oganisational Procedures and Policies
1. Advantages
a) Provides understanding organisational values and philosophies
b) Provide a framework to guide behaviour and decision making
c) Enhance before-the fact control
d) Establishes a code of conduct throughout the organisation
2. Disadvantages
a) Difficulty in communicating throughout the organisation
b) Difficulty in of actually enforcing the policies
c) Necessity to justify the cost to enforce certain policies

 Typical Policies
1. Ethics Policy
2. Social responsibility policy
3. Competitive bidding policy
4. Reciprocity policy
5. Procedures

 Steps for managing change

1. Collecting data
2. Evaluating the opportunities for change
3. Social responsibility policy
4. Design strategy
5. Implement change strategy
6. Review

 Reasons for failure of change

1. Inconsistency between management’s word and actions
2. Lack of system to evaluate change and what the changes is to accomplish
3. Lack of changes in compensation, performance appraisal, information or organisation
system
4. Unrealistic time lines for change
5. The assumption that training is all that is needed for change to take place
6. Lack of or late involvement of stakeholders in change process
TASK 3-A-6: Participate in company acquisitions, and/or mergers, and/or divestiture to
assure continuity of supply.
 Merger/Acquisition/Divestiture
1. Definition
a) Diversification
b) Horizontal Integration
c) Vertical Integration
d) Outsourcing
e) Divestiture
2. Pre-activities
3. Risk management
a) Strategic suppliers
b) Current contracts, terms, conditions and duration
c) Supplier management and measurement system
d) Supplier relationship management
e) Supplier sustainability
f) Supplier availability and volatility
4. Protection of supply capacity
 5. Valuation
6. Post-activities

 Methods of evaluating assets and corporate value.

1. Contractual issues.
a) Assignment consent
b) Confidentiality
c) Due diligence process
1) External environment for the supplier’s product
2) Internal environment in terms of product lines
3) Organisations financial strength and status
4) Competitive market
d) Current contractual obligations
e) Financial assessment
2. Management of redundancy and complexity
3. Liability exposure
4. Divestiture of assets
5. Global economic considerations
6. Organisational structure
7. Valuation

 Impact on the supply bases

 TASK 3-A-7: Represent the supply organisation in meetings with corporations,

government agencies, professional association and other organisations.

1. Meeting dynamics
a) Forming
b) Storming
c) Norming
d) Performing
e) Adjourning
2. Issues in the external role and perception in the supply management
3. Professionalism
4. Feedback to management
5. Confidentiality
6. Legal restrictions
a) Agency Law
b) Contract and commercial laws
c) Electronic commerce laws
d) Antitrust Laws
e) Trade agreements
 f) Trade regulations
g) Industry specific laws and regulations
h) Government procurement regulations
i) Patent, copyright, trade secret and trademark laws
j) Environmental laws
k) Employment laws and regulations
l) Worker health and safety laws
m) Transportation and Logistics laws and regulations
n) Financial laws and regulations
o) Additional law as appropriate

TASK 3-A-8: Lead or Participate in cross-functional or multifunctional teams.

 Purpose of Team
1. Role of supply management in team
2. Advantages/Disadvantages of Team
3. Phases of team building
4. Conflict resolution
5. Personality Profiles
6. Effectiveness measures

 Role of supply management in team

1. Support / Service / Information
2. Project management
3. Leadership
4. Facilitation
a) Providing appropriate support for the team
b) Assessing team requirements
c) Understanding team support roles
 d) Fostering mutual trust
e) Balancing diversity
f) Running team meetings

 Advantages of Team
1. Brings together the major function of organisation
2. Member’s talents and expertise are combined
3. Increased quality, reduced cost and optimised organisational objectives.
4. Ensures some degree of input equity
5. Reduced cross functional friction, shared ownership and stronger sense of unity.
6. Reduced time to task completion
7. Increased innovation
8. Joint ownership of decision
9. Better identification and resolution of problem

 Team
1. Consensus building
2. Time considerations
3. Ownership issue
4. Managing or introducing change
5. Groupthink
6. Synergy

 Phases of Team Building

1. Forming
2. Storming
3. Norming
4. Performing
5. Adjourning

 Conflict Resolution
1. Identify the cause of the conflict
2. Determine the criteria acceptable to the team for resolution of the conflict.
3. Generate solution options
 4. Determine possible solution
5. Determine the best solution
6. Achieve team consensus.

TASK 3-A-9: Disseminate information and promote training related to supply management
policies and procedures.
 Training to supply management policies and procedure
1. Knowledge assessment and situational analysis
2. Compliance metrics
3. The learning organisation concept
i) Peter Senge Five learning Disciplines (***)
a) System Thinking
b) Personal mastery
c) Mental models
d) Building shared visions
e) Team learning

ii) Learning Traits (***)

a) Shared vision
b) Using conflict constructively
c) Spirit of creativity and innovation
d) Commitment to education
e) Perceptive risk taking
f) Development of entrepreneurial talents internally

iii) Tools that facilitate learning (***)

a) Knowledge management system
b) Environmental knowledge scanning and intelligence
c) Internal data warehouse system
d) Personal decision dashboard

TASK 3-A-11: Evaluate supply management organisational structure and modify as

necessary to achieve the optimal structure.
 Functional impact of organisational structure
1. Centralised model
An organisational structure in which authority and responsibility for most supply related decision are assigned to
a central location.
2. Decentralised model
 An organisational structure in which authority and responsibility for most supply related decision are assigned to
individual site, functions or manager.
3. Hybrid model
An organisational structure in which authority and responsibility for most supply related decision are shared
between a central supply organisation and individual site or business unit.

 Key Influence on structure

1. Degree of similarity of purchases across business unit
2. Whether facilities are geographically dispersed or concentrated
3. Total organisational spend
4. Potential for cost savings by leveraging across business units.
5. Level of technology and resulting level of coordination across business unit
6. Management philosophy

 Advantages of Centralisation
1. Buying Leverage (Increased volume – related leverage)
2. Communication with Supplier (Effective)
3. E-Procurement Tools (Ease in use and implementation)
4. Communication with global supplier (Ease of coordination)
5. Greater knowledge (Increased buyer specialisation)
6. Job satisfaction
7. Lower operating cost
8. More time to manage

 Advantages of De-centralisation
1. Communication with Internal Customer (Easier)
2. Broader responsibilities
3. Decision making authority (Greater)
4. Better purchase timing

 Forms of Hybrid organisation

1. Lead divisional buying
2. Buying councils or commodity teams
3. Corporate steering committee
4. Shared services groups
5. Geographical or regional buying teams

 Organisation Types
1. Functional
a) Organised primarily by area of expert
b) Best suited for small organisations operating in stable environment
c) Advantages
1) Efficient use of specialised resources
2) Each manager is expert on narrow range of skills
d) Disadvantages
1) Response time may be slow if used in large organisations
2) Possibility of conflict over product priorities
e) Generally, as an organisation grows and spread geographically, it becomes less efficient.
2. Matrix
a) Typically involves dual reporting hierarchy
b) Promotes flexibility, cross functional collaboration and skills
c) But, it can divide employee loyalty
 d) Requires good communication and interpersonal skills
e) Project
a) Organised around specific project
b) Each project gets new supply support organisations
c) When project ends, the supply support organisation disbands
d) Advantage: Ability to focus on a particular project
e) Disadvantage: Reduce opportunity for leverage and synergy

 Category or Commodity Management

1. Organised around specific spend categories or commodities.
2. Usually a specialised team
3. Usually focussed on large volume, critical spends
4. Also focused on spends that offer significant economies of scale

 Key Issues
1. Spend management
2. Aggregation management
3. Service to end users
4. Straight versus tactical assignments

 Workload Distribution
1. Commodity or class
2. Department
3. Special project
4. Volume
5. In rotation
6. Types of contract
7. Staff expertise
8. Supplier

TASK 3-A-12: Hire, Develop, Retain, Promote and/or dismiss supply management
personnel.
 Task Outline
1. Organisation human resource policies and procedures
2. Organisation skill sets requirement
3. Position skill sets requirement
4. Issue in selection and recruitment
5. Issue in employee promotions
6. Issue in termination of employees
7. Issue in employee retention
8. Legal issues in employment and interviewing

 Organisation skills sets requirement

1. Organisations today recognise a need for specialised supply management skills
2. These skills changes with advances in technology and management methods
3. Supply must provide training required to keep skill sets current

 Position skills sets requirement

1. Assess skill sets based on current and future requirement
a) A change in business practices may require change in skill sets requirement
 b) Identify and seek special skills as needed
i) Hedging to contain commodity pricing
ii) Other key financial skills

 Issues in selection and requirement

1. Select employees with care
a) People leave jobs when there is a little challenge and recognition
b) Today’s applicants are tech savvy and want the organisation to be also.
c) Working for several organisation to further career is common
d) Employee turnover is common
2. Recruitment
a) Refers to where organisation will find qualified individuals
b) Challenge is to discern from “who will do better” to “who will apply”

 Knowledge, Skills and aptitude

1. A job analysis should determine
a) Job qualification
b) Skills
c) Background
d) Experience
e) Personal qualifications
2. The job analysis facilitates a job description and determination of required skills
a) Product or service knowledge
b) Principles of supply management
c) Analytical ability
d) Computer based skills
e) Relationship development and management
f) Management skills
g) Knowledge of international business
h) Negotiation skills
i) Interpersonal skills
j) A customer focus
k) Ability to deal with and manage change
3. Particular position may required international skills
a) Language
b) Dealing with various business cultures
c) Working in different business legal environments
d) Customs and international logistics
4. Management positions will require a strategic mindset and a proven track record
5. Many organisations utilise various tests
a) Burden is on the employer to ensure that the test is job oriented
b) If not there could be legal problems
6. Typical tests include
a) Skill test
b) Aptitude test
c) Personality / Intelligence test
d) Physical examination
e) International related skills test
f) Drug test
7. Types of Interviews
 a) Screening Interview
b) Final Interview
c) Structured Interview
i) Develop hiring criteria from the job description
ii) Identify the job related information
iv) Develop questions that are connected to hiring criteria
v) Identify potential answers
vi) Develop a scoring sheet
vii) Train interviewers in listening skills
viii) Train interviewers in legal obligations
d) Behaviour based interview

 Retention
1. Recognition / Value
2. Job satisfaction / engagement
a) Interest in work
b) Employee emotions
c) Employee behaviour
d) Business performance
3. Compensation / Benefit
4. Career progression
5. Work/life balance
6. Work environment
7. Social conscience and awareness

 Promotion
1. Standard / Certification
2. Career advancement
3. Promotion within organisation
4. Recruiting / hiring outside
5. Training needs
6. Succession planning
7. Objective attainment

 Termination
1. Consistent documentation evaluation
2. Adherence to established human resource policies/procedures/union requirement /due
process
3. Qualifying / Quantifying discussion to terminate employee
4. Outplacement
5. Exit interviews
6. Severance

 Legal Issues
1. Equal pay act of 1963
2. Federal civil right act of 1964
3. Executive order 11264 of 1965
4. Age discrimination of employment act of 1967
5. Equal employment opportunity act of 1972
6. National labour relations act
7. Occupational safety and health act
 8. Americans with Disability act 1990

TASK 3-A-13: Supervise and lead human resources to achieve initiative

 Issues in organisational management and administration
1. Delegation of Authority and responsibility
a) The assignment of task
b) The granting of authority
c) The presence of responsibility
d) Responsibility has both immediate and ultimate connotation
e) Parity of authority and responsibility
2. Chain of command
3. Span of influence / span of information dissemination
4. Theories of management
a) General Theories
b) Motivational theories
5. Diversity in the workplace
6. Reward and recognition program

 Leadership Principles
1. Leadership functions
2. Leadership styles
3. Contingency approaches
4. Group leadership

 Personal traits of leaders

1. Ambition
2. Tenacity
3. Self-confidence
4. Psychological openness
5. Realism
6. Appetite for learning

 Centre for creative leadership

1. Setting a direction
2. Aligning people
3. Motivating and inspiring

 Change management technique

1. Collecting data
2. Evaluating opportunities for change
3. Design strategy
4. Implement change strategy
5. Review

 Reasons for failure of Change management (***)

1. Inconsistencies between management’s word and actions
2. No system to evaluate the change and what it is to accomplish
3. No change in compensation, performance appraisal, information or organisational system
4. Unrealistic timelines for change
 5. The assumption that training is all that needed for change to take place
6. Lack of constant communication

TASK 3-A-14: Conduct / authorise job training for the professional development of the
staff.
 Determination of training and development needs
1. Needs and skills assessment
a)Value focused supply
b)Innovation
c)Extended global supply network
d)Green supply
e)Talent management
f)Risk management
g)Supply chain analytics
h)Metrics and measurement systems
i)Transformation and business strategy
2. Gap Analysis: “Gap analysis compares an individual’s skills and competencies with the essential tasks
to be performed.”
3. Designing and planning training programs
a) Assess environmental requirements
b) Identify skills required
c) Establish gaps and goals
d) Identify knowledge areas
e) Assess training mediums
f) Evaluate outsource providers, run pilot and contracts

 Types of job training

1. Orientation
2. On the job
3. The sponsor / mentor system
4. Classroom
5. Functional rotation
6. Web based
7. Self-development
8. Career path planning

TASK 3-A-15: Develop / manage / evaluate / measure relationships with internal

departments
 Task Outline
1. Role / perception of supply management within the organisation
2. Establishment of trust and credibility
3. Feedback techniques
4. Influence techniques
5. Leadership techniques
a) Provide clear expectation, know where you are going
b) Give your employees the tools for success
c) Recognise and compliment good work
d) Get interested in employees
e) Value their opinion
 f) Grow employees
g) Communicate the progress
h) Make partners of your employees
6. Internal business partners, roles, goals and objectives
7. Joint accountability

TASK 3-A-16: Develop/utilise, criteria for evaluating supply management department

performance
 Task Outline
1. Organisation expectation of supply management
2. Reasons for departmental performance appraisal
3. Steps in department level evaluation
4. Concept of a strategic supply management department
5. Evaluation of outsourced supply functions
6. Evaluation of feasibility and impact of outsourcing supply functions

 Organisational expectation of supply management

1. Congruence with organisational objectives
2. Congruence with supplier and customer objectives
3. Scorecard

 Common categories of performance measures

a) Customer service
b) Cycle times
c) Quality
d) Application of information technology
e) Financial performance
f) Organisational structure
g) Flexibility
h) Asset management
i) Supplier management
j) Workforce assessment
k) Impact on capital efficiency

 Reasons for departmental performance appraisal

1. Determine departmental effectiveness
2. Determine the effectiveness of department management
3. Measure improvement / deterioration
4. Provide incentive for improvement
5. Determine resources needed for improvement
6. Determine if value is added to the process

 Steps in department level evaluation

1. Identify department objectives
2. Identify success criteria
3. Identify appraisal factors
a) Contribution to profitability
b) Timeliness of actions
c) Materials and services costs
 d) Supplier reliability
e) Supplier development
f) Order quality and inventory investment
g) Customer satisfaction
h) Creativity
4. Internal audit / self-governance / self-assessment
5. Obtain supplier feedback
6. Process benchmarking
7. Best practice studies
8. Exercising management control in response to result

TASK 3-A-17: Conduct role design evaluation and potential job redesign requirements
 Organisational functional requirement
1. Common responsibilities include
a) Strategic sourcing
b) Inventory management
c) Warehousing
d) Service contracting
e) Logistics and transportation management
f) Recycling and investment recovery
g) Quality management

 Position functional requirement

1. Functional strategies lead to organisational requirement
2. Organisational requirement leads to position requirement
3. Job design specifies methods and content of the work
4. Job analysis refers to collecting and analysing job related information
a) Job description
1) Job title
2) Position summary statement
3) List of essential functions
4) Title of each functions
5) Priority of each functions
6) % of time the worker spends in each function
7) Specific behaviour of each function
8) Reporting relationships
9) Other working relationships
10) Size of budget or impact of job
11) Tools and technology
12) Normal working conditions
b) Job specification
1) Knowledge, Skills, Abilities (KSA)
2) Education requirement
3) Experience requirement
4) Certification or qualification

 Elements of job design

1. Job activities, describing the individual tasks
2. Work methods, specifying the method of performing the tasks
3. Job content, combining specific tasks into jobs for assignment to individuals
 Job enrichment – 5 core dimensions
1. Skill variety
 2. Task identify
3. Task significance
4. Autonomy
5. Feedback

 Staffing and talent management

1. Product knowledge
2. Principles of supply management
3. Analytical ability
4. Technology related skills
5. Negotiation skills
6. Interpersonal skills
7. Customer focus
8. Ability to deal with and manage change

 Span of Influence
1. Influence
- Is a subtle but complex concept
- May directly or indirectly cause behavioural change in another
- Is manifested through many channels working together
 Position
 Power
 Status
 Credibility
 Knowledge
 Celebrity
2. Span of influence is the extent to which people interact with and influence others outside
their span of control.
3. Matrix organisation encourage increased span of influence.

TASK 3-A-18: Create and manage a succession plan, allocating work assignments in such a
way as to provide career development and growth opportunities
 Cross Training
1. Refers to training employees on jobs other than their own
2. Multiple skill capabilities enhances departmental flexibility
3. Broaden skills sets which can lead to
a) Future promotion
b) Pay increase
c) A more challenging jobs
4. Could lead to broader responsibility
5. Is positively link to
a) Job enrichment
b) Job enlargement
6. Requires change based mentality

 Mentoring and Reverse mentoring

1. A formal employee development process in which an experience worker assist in training
and support
2. Also referred to as sponsor or buddy system
3. Initial job instruction comes from supervisor
4. But the bulk of training comes from a mentor
5. Mentor usually begins after formal orientation
6. Level of effectiveness depends on the mentor
7. Possible downsides
a) Restricts training to one individual
b) A mentor can only teach what he/she knows
c) May negatively impact performance in the mentors job

 Professional development
1. Increasing skills and knowledge of current and future jobs
2. Goal is to achieve future objectives
3. Types of professional development includes
a) Job rotation
b) On the job training
c) Classroom training
d) Self-training
4. If training for management, development should include
a) General leadership skills
b) Managerial skills
5. Other professional development activities
a) Continuous education programs
b) Site visit to suppliers
c) Audio-visual programs
d) Peer to peer interactions
e) Web or other technology-based programs
f) Competency based trainings

 Delegation of leadership opportunities

1. Over time supply management can depleted of managerial talent
a) Promotion
b) Retirements
c) Other opportunities
d) Cross functional transfer
2. We must continually develop future leaders
3. This requires delegation of key tasks
a) Provides experience
b) Allows the supply professional to assess performance
4. Should include cross cultural and other international experience

 Characteristics of Succession plan

1. Visible CEO and top management support
2. A level of ownership and support by management and staff
3. Simplicity
4. Flexibility and visibly linked to strategic plan
5. A thorough HR resources review process
6. Well developed competencies and objective assessment
7. Employee input
8. Association with broader management development efforts
 9. Plans for developmental job opportunities
10. Integration with other human resource system
11. An emphasis on accountability and follow-up

 Activities – Succession planning

1. Identification of possible successor
2. Periodically challenging and updating plan
3. Agreeing on individuals and positions
4. Developing individual specific plans
5. Prioritising to accelerate closing of skill and experience gaps
6. Continuous reviews monitoring and updating plan

 Benefits of succession planning

1. Better match of employee and job requirements
2. Ability to quickly fill vacant positions
3. Achieve deployment of a highly skilled talent pool
4. Developing a core group of employees with core skills and values
5. Increased morale among lower level employees

RISK AND COMPLIANCE

TASK 3-B-1: Develop, Implement and manage a risk profile and strategies in accordance
with existing contracts, applicable laws, regulations and organisational policy
 Risk management process
1. Identify the source of risk
2. Estimate the probability of occurrence
3. Estimate the likely impact
4. Develop a risk profile
5. Develop a risk management strategies
6. Allocate resources
7. Execute strategy
8. Review results
(Imp note: Risk mitigation action can be done on organisationwide basis but is often done on
a site basis, since the risk of disruption to production and distribution process needs to be
examined)
 Supply related risks – major categories
1. Brand or reputation risk
2. Business continuity risk
3. Financial risk
4. Operational risk
5. Legal risk
6. Technical risk

 Risk management Includes

1. Risk planning
2. Risk assessment
3. Risk mitigation
4. Risk monitoring and control
5. Compliance requirement

 5 steps approach to Risk management

1. Confirm scope and current state
2. Conduct impact assessment
3. Define alternatives
4. Develop plans
5. Implement readiness

 Risk Planning
1. Assessing risk can involve significant resources and cost, effectively targeting this efforts is
important
2. Assessing high impact risk first is an obvious priority
3. Risk assessment is greatly affected by the availability and quality of the supplier data
4. Time needed to gather this data for an average commodity category can vary from weeks to
months.
5. Assessment involves supplier and internal resources and stakeholders
6. Their availability can greatly affect the time line and should be a key factor in the risk
assessment plans
  Risk Assessment
1. Risk assessment framework consists of
a) Relationship factors (Influence, level of cooperation, power, alignment of interest etc.)
b) Past performance (Quality, on time delivery, shorts etc.)
c) Human resource factors (Unionisation, relationship with employees, level of pay)
d) History of supply chain disruptions
e) Environment (Geographic, political, shipping, distance and method)
f) Disaster history (hurricane, earthquake, tornado, flood etc.)
g) Financial factors (ownership, funding, payables, receivables)
2. Risk Profile
3. Probability estimation and avoidance
 Typical supply chain disruptions are
a) Misalignment of interest
b) Disasters
c) Union work stoppage
d) Regulatory shutdown
e) Transportation disruption
f) Sale of organisation

 Risk Mitigation
1. Risk mitigation entails specific steps undertaken my managers to reduce the impact of
factors that might lead to injury, loss, damage or failure and thus reduce the liability of the
organisation in its relation.
2. Risk mitigations actions are identified by reviewing the risk profile of the entity.
3. Common risk mitigation approaches include
a) Design dual sourcing or even multi sourcing strategies for key products
b) Focus on tier one supplier’s sub-tier suppliers
c) Conduct comprehensive facility reviews
d) Develop strong relationship with suppliers
e) Changing the risk profile of the supplier
f) Moving spend to less risky supplier
g) Buffering the organisation from the impact

 Risk Monitoring and control

1. Some areas should be monitored yearly since physical locations do not change that often
2. Other areas like delivery, quality performance should be monitored weekly
3. The key is efficient use of resources
4. Global event monitoring is becoming more important
5. The key to risk monitoring is that organisation must identify which factors must be
monitored for prompt detection and reaction to occur.

 Compliance requirement
1. Supplier must carry certain level of inventory
2. It must produce an item at more than one facility
3. It must exceed certain safety standard

TASK 3-B-2: Develop and Implement a risk management and/or claims management
program
 Supply related risks – major categories
1. Brand or reputation risk
2. Business continuity risk
3. Financial risk
4. Operational risk
5. Legal risk
6. Technical risk

 Financial Risk
1. Determine financial risk by
a) Identifying the events that are possible
b) Estimating the probability of these events occurring
c) Estimating the impact should they occur
2. Each industry has information on
a) Frequency of issues
b) Potential cost
3. Once range and impact of event is determined mitigations actions can be taken

 Operational risk
1. Risk of loss resulting from inadequate or failed internal processes, people and systems or
external events.
2. Sarbanes oxley has made operational risk a major focus
a) Many organisations use SOX audit to
1) Identify potential failure event
2) Develop mitigation plans
b) Has evolved as a best overall practice for operational risk assessment
c) Involves systematic examination of each business process and development of
mitigation plans for envisioned events

 Brand / Reputation Risk

1. Risk management in this area includes
a) Identifying the factors that sustain the brand reputation
b) Monitoring these factors for directional changes
2. Difficult to quantify the impact of degradation

 Legal Risk
1. Risk from uncertainty
a) Due to potential legal actions
b) In the applicability or interpretation of
 Contracts
 Law
 Regulations
2. Risk allocation clauses use in contracts includes
a) Limitation of liabilities
b) Indemnification
c) Warranties
d) Disclaimer
3. Legal risk is magnified when transacting business across borders due to uncertainty
regarding
a) Laws of multiple jurisdiction
 b) Which jurisdiction will have authority over any particular legal issue
4. Additional areas of legal risk includes
a) Employment
 Employment contracts limiting empoyer’s right to terminate
 Employee vs independent contractor
 Employee practices
b) Intellectual property
 Patents
 Trademarks / Servicemarks
 Copyrights
 Trade secrets

 Environmental Risk
1. Environmental risk
a) Losses from force majeure events
b) Liability from environmental impacts caused by an organisation
2. Manage environmental risks by
a) Identifying risk
b) Quantifying risk
c) Assigning responsibility
 Managing risk
 Risk mitigation actions
- Site protection
- Emergency response plans
- Insurance
- Audits

TASK 3-B-3: Implement supply management processes in consideration of legal issues.

 Legal aspect of various supply management processes
1. Law of agency
2. Definition of agent
3. Fiduciary Duty
4. Limits of authority
5. Actual vs apparent authority
6. Ratifications

 The Law of Agency

1. Agent
a) An agent is a person or organisation authorised to act for another person or organisation
(the principal) in prescribed dealing with third party.
b) The principal will bound by agent’s commitment
c) Types of agents
1) General agents : Involved in ongoing activities. Makes binding contracts on behalf of
principal. Principal liable for acts of a general agents.
 2) Special agents: Limited authority. Principal not liable for act outside of actual
authority.
d) Fiduciary duty of an agent
1) Loyalty
2) Accountability
3) Obedience
4) Diligence
e) Principal’s duty
1) Compensation
2) Reimbursement and indemnification
3) Maintenance of accounts
4) Providing an opportunity to serve
 Levels of Authority
1. Limits of Authority
2. Actual vs Apparent authority
3. Authority by ratification
4. Delegated authority

 Role of legal counsel

1. PO terms and conditions
2. Laws that affect PO T&C
3. Standard and customised RFQ/RFP terms
4. Specification application of laws
5. Warranty issues
6. Liability caps
7. Issues related to bonds
8. Supplier counter offers
9. Supplier alliance agreements
10. Anti-trust implications
11. Significant risk
12. Limitation of liabilities

 Types of Laws
1. Agency
2. Contract and commercial
3. Electronic commerce
4. Anti-trust
5. Trade agreements
6. Trade regulations
7. Industry specific laws and regulations
8. Government procurement regulations
9. Patent, copyright, trade secret and trademark
10. Environmental
11. Employment laws and regulations
12. Worker health and safety
13. Transportation and logistics laws and regulations
14. Financial laws and regulations
15. Other laws as applicable
  US Laws and regulations influencing supply management
1. Uniform commercial code
a) Covers contracts for goods. Not services
b) Not uniformly adopted by states
2. Antitrust and trade regulations
a) Sherman antitrust act (1890)
1) Reciprocal buying – Exclusive dealings, closing out competitors
2) Group boycotts – concerted refusal to deal, agreeing not to buy from a particular
vendor.
b) Clayton act (1914)
1) Lists specific practices that are unlawful if they restrict competition or tend to create
a monopoly in interstate commerce.
2) Outlaws “tying” arrangement or tied sale.
c) Robinson patman act
1) Outlaws discrimination in buying or selling that restricts competition
2) Exceptions
 Meeting competition in good faith
 Moving obsolete or distress merchandise
 Justified price decrease
d) Federal Trade commissioning act
1) Established FTC to address unfair competition
2) Outlawed unfair or deceptive acts or practices

 Regulations of US federal procurement and public projects

1. Federal Acquisition Regulations
2. False claims act
3. Davis beacon and related acts
4. Prompt payment act
5. Service contract act
6. Walsh Healey public contract act
7. Small business act
8. Buy American act
9. Freedom of information act

 Regulation of international commerce

1. Trade agreement act
2. Foreign corrupt practices act
3. North American Free Trade Agreement (NAFTA)

 International laws and regulation influencing supply management

1. General Agreement on Tariffs and Trades (GATT)
2. United nations convention on contracts for the international sale of goods (CISG)

TASK 3-B-4: Develop / Implement / Maintain a database / physical filing system of

relevant information
 Regulatory requirement of record management
1. Sarbanes-Oxley Act of 2002 (SOX): Requires that all spending with external third parties be
a) Documented
 b) Tracked
c) Verified into a consolidated financial statement
d) Filled with securities and exchange commission
2. US defence also have requirement of contracts & PO, payments
3. Includes legal and regulatory compliance with social responsibilities
a) Environmental
b) Health
c) Safety
d) Human rights
e) Diversity

 Organisation policy for records management / database management

1. A record retention program should
a) Specify records retention period must comply with all relevant legal requirements
b) Document the records retention program
c) Establish procedures to ensure consistent destruction of records
d) Establish procedures to place holds on records subject to tax audits or litigations
e) Establish organisation-wide policies and procedures to control all aspects of the records
retention policies

 Data management system requirements

1. Data management system a software system that creates, access and controls
a) A database
b) The interface between the program and users needing to access the data
c) A database as a collection of data in an organised accessible form
2. Many systems are available for data and records management
3. Considerations for establishing requirement for data management systems include
a) Legal and regulatory requirement
b) Internal requirement
c) Department/function requirement for retention of each record
d) Where and how long each record should be maintained
e) Form of each record
f) Internal use of each record
g) Frequency of use of each record
h) Costs of holding each record
i) Who should have access
j) In what form each record is initially generated

 Data Classification
1. Objectives
a) Define the generation, access, recovery and usage characteristics of an organisation’s
different set of data
b) Group the data into logical categories
c) Support
1) Data management
2) Ultimately business objectives
2. In other word, objective is to differentiate data according to their value as an assets for
organisation
3. Typical classification includes
a) Top secret
 b) Highly confidential
c) Proprietary
d) Internal use only
e) Public document

 Data Management capabilities

1. Refers to the capabilities of the types of system (normally electronic or information
technology) used to manage the organisations data and how it is used to manage the data
2. Data management includes
a) Collection
b) Generation
c) Receipt
d) Input
e) Processing
f) Transformation
g) Storing
h) Disposal
i) Access
3. Data warehouse: A collection of data received from various transaction system, which are
accessible to many people at varying levels within an organisation
4. Database: collection of data in an organised, accessible form
5. Supply management system
a) Required access to number of files regardless where they are stored
b) Must have capabilities to support strategic and operational requirement of supply
management

 Types of Data
1. Specifications
2. Suppliers
3. Supplier performance
4. Products / services
5. Spend
6. Tariffs
7. Routing guides
8. Technical assistance agreements
9. Other data
a) Historical usage
b) Open orders and past due orders
c) Bills of materials
d) Engineering requirements
e) Forecasted demand

TASK 3-B-5: Verify the existence, accuracy and completeness of relevant financial
transactions and commitment to third parties
 US Food and Drug Administration (FDA)
1. FDA regulates and oversee
a) Food safety
b) Tobacco products
 c) Dietary supplements
d) Vaccines
e) Biopharmaceuticals
f) Medications
g) Blood transfusion
h) Medical devises
i) Electromagnetic radiation emitting devices (ERED)
j) Veterinary products
2. FDA regulates products originate from more than 150 countries, 130,000 importers and
300,000 foreign facilities
3. 50% fresh fruits, 20% vegetables, 80% seafoods comes from abroad
4. 40% finished drug and 50% medical devices are imported

 Federal Energy Regulatory Commission (FERC)

1. An independent regulatory agency within US department of energy but responsible primarily
to congress
a) Regulate interstate transmission of electricity, natural gas and oil
b) Reviews proposal to bid LNG terminals and interstate natural gas pipelines
c) Licenses hydropower projects
2. Energy policy act 2005 expanded responsibility of FERC as follows.
a) Regulates the transmission and sale of natural gas for resale in interstate commerce
b) Regulates the transmission of oil by pipeline in interstate commerce
c) Regulates the transmission and wholesale sales of electricity in interstate commece
d) License and inspects private, municipal and state hydroelectric projects
e) Approves the siting and abandonment of interstate natural gas facilities including
pipeline, storage and liquified natural gas
f) Ensure the reliability of high voltage interstate transmission system
g) Monitors and investigate energy market
h) Uses civil penalties and other means against who violate FERC rules
i) Oversees environmental matters

 Sarbanes-Oxley Act 2002 (SOX)

1. Also known as the Public company accounting reform and investor protection act of 2002
2. A US federal law
a) Passed in response to major corporate and accounting scandals
b) Intent was to re-establish public trust in accounting and reporting practices
c) Establishes new/enhanced standard for all US public company boards, management and
public accounting firm
d) Contains 11 titles or sections ranging from additional corporate board responsibilities to
criminal penalties
e) Requires Security and Exchange Commission (SEC) to implement ruling on requirement
to comply with law
f) Section 401a, 404 and 409 specifically impact supply management
3. Section 401a
a) Requires listing of off-balance sheet transactions and obligations
b) SEC ruling also requires disclosure of “nature and business purpose of the off-balance
sheet arrangement, why and how they are needed in running business
c) Examples of off-balance sheet obligations include
  Long term purchase agreements
 Cancellation and restocking charges
 Lease agreements
4. Section 404
a) Calls for creation and maintenance of viable internal records
b) Controls must be documented and tested for adequacy
c) Examples includes
 Security and reliability of communications
 Visibility of purchase commitments
5. Section 409
a) Requires timely reporting of material events that impact financial reporting
b) Once the organisation declares material event, it must document a permeant corrective
action before it can claim to have adequate process control
c) Event that may meet reporting threshold includes later supplier delivery, poor inventory
accuracy

 Laws affecting global purchasing

1. Foreign corrupt practices act
2. Anti-boycott legislation
3. Export administration act
4. Customs law
5. Foreign laws
6. International laws

 Organisational financial reporting policies

1. A strong reporting policy structure includes the establishment of internal controls
2. Internal controls are
a) A process created by organisation’s board of director, management and other personnel
b) Designed to provide reasonable assurance regarding the achievement of objectives in
the following categories
 Effectiveness and efficiencies of operations
 Reliability of financial reporting
 Compliance with applicable laws and regulations
3. SOX changes the structure and role of audit committee
4. Audit committee’s mission
a) Monitors that appropriate accounting policies, internal controls and safeguards are used
and that the organisations financial reporting process is sound
b) Encourage frank dialogue among the board, management, internal and external auditors
5. SOX requires audit committee members independent and at least one member be financial
expert
6. Audit committee’s responsibility
a) Select and evaluate external auditor
b) Followup on issues arising from annual audit
c) Preapprove all audit and permissible non audit service
d) Engage outside counsel or other business advisers
e) Establish procedure for receipt, retention and treatment of complaints

TASK 3-B-6: Assess risk from end-of-life cycle issues in the marketplace and establish
proper risk mitigation contingency plans for all component in the product
 Product roadmap and specifications
1. A product roadmap details the high level plans that an organisation has for product
2. These includes
a) Technologies
b) Volumes
c) Product proliferation
d) Projected growth
e) Other issues related to product
3. This helps suppliers use their resources effectively
4. This reduces risk of supply interruption
5. There are 2 dimensions to end of life cycle issue
a) End of life cycle of purchase products or services used in product
(Mitigating risk of supplier announcing that product/services no longer available)
b) End of life cycle of organisation’s own product
(Mitigating risk of stocks or material or supply commitments)

 Product life cycle costing

1. Life cycle costing includes
a) Life cycle costing
b) Total cost of ownership
c) Landed cost
2. Refers to cost analysis tool that incorporates purchase and all other costs related to an item
over its whole life (Price, operation, maintenance, energy, disposal-less salvage value)
3. Life cycle costing is replacing purchase price in assessing large or capital projects
4. Total cost of ownership (TCO) is often use as interchangeability with life cycle costing.
5. Costs are typically grouped into
a) Pre-transaction cost
b) Transaction cost
c) Post-transaction cost
6. There are 2 total cost components
a) Purchase related cost (upstream cost)
 Unit price
 Freight, transportation and delivery handling cost
 Duty and taxation
 Currency exchange rate
 Delivery time impact
 Incoming quality
 Usage quantity
 Maintenance cost
 Spares
 Administration cost
 Installation, testing, commissioning and acceptance cost
 Tooling cost
 Training cost (Non recurring)
 Inventory
b) Cost related to manufacturing, maintenance, operations and customers (downstream
cost)
 Operating cost
 Yield impact
 Failure rate
  Repackaging
 Reliability
 Onward transportation
 Throughput data
 Inventory
 Repair cost
 Customer satisfaction
7. Landed cost refers to total accumulated cost of acquiring an imported item

 Product marketing strategy

1. Possible strategies in the decline phase of product life cycle
a) Reformulate, redesign or repackaging to extend product life
b) Reduce number of variations to reduce production/inventory cost
c) Outsource product to lower cost producer
d) Sourcing different or fewer units of components
2. All aimed at preserving profit during decreasing demand

 Market Intelligence
1. Refers to gathering and analysing information about the forces at work in trade and
commerce in specific service or commodity
2. Key tools involved in market intelligence includes
a) Supplier analysis
b) SWOT analysis
c) Value chain analysis
d) Risk analysis
e) Porter’s five forces

 Collaboration with Suppliers

1. Refers to building relationship capital that leads to trust and commitment…., from
stakeholders and suppliers.
2. Requires
a) Translating market data into compelling solutions
b) Communicating persuasively
3. 5 success factors for successful collaboration
a) Create a collaborative environment
b) Have high level commitment
c) Get supplier input at beginning
d) Risk identification and mitigation
e) Performance rewards and penalties.

 Risk Tolerance
1. Is made of both how much risk the organisation is willing to accept and how much risk it can
actually bear or absorb without its operations and viability being disrupted.
2. Some situation where supply risk is increased include
a) Sole source and Single source
b) All the suppliers are located in same geographical area
c) There is a limited supply
d) Specification has extremely tight tolerance
e) Lead time high and high variability in demand
f) Spoilage is high (perishable)
TASK 3-B-7: Manage and control the storage/disposal of hazardous/regulated material
and related documentation
 Laws
1. Resource conservative and Recovery Act (RCRA – 1976)
2. Comprehensive environment responsibility compensation and liability act (CERCLA)
3. Hazardous material transportation act (HMTA)
4. Hazardous communication standards (HCS)
a) MSDS are used to inform workers
b) Supply management professional should obtain MSDS

 Risk
1. Contractual
2. Insurance
3. Legal

 Audits
1. Organisations use audit to ensure compliance reduce risk when dealing with hazardous
material
2. Areas where audits occur include
a) Internal annual audit
b) Supply chain audit
c) Reporting
d) certification

TASK 3-B-8: Comply with programs that prevent and respond to discrimination or
harassment
 Federal/State/Local laws and regulations
1. Protected classes
a) Equity Pay Act of 1963
b) Federal Civil Right Act of 1964
c) Executive order 11264 of 1965
d) Age discrimination in Employment Act of 1967
e) Equal Employment Opportunity Act of 1972
f) National labour relations act
g) OSHA
h) ADA

 Organisation Policies and Procedures

1. Effective discrimination related organisation policies and procedures require senior
management support
2. Policies should reflect that an organisation will adhere to all applicable federal, state and
local laws related to fair and equal treatment at the workplace
 3. Internationally, organisational polices should exceed the laws of the country in which the
organisation is doing business.

 Diversity Training
1. As more organisations become multinational, awareness of other culture and practices are
essential.
2. Diversity and cultural sensitivity training is effective in creating awareness and improving
team interactions.
3. Training should focus on
a) Organisational and performance goal
b) Behaviours to increase organisation effectiveness

TASK 3-C-1: Establish and execute strategic sourcing plans, in congruence with
organisational objectives and sourcing strategies
 Sourcing Strategies
1. A strategy is a plan to accomplish a specific objective
2. Strategy should facilitate competitive advantage
3. Must support the business unit strategy
4. Must support organisational goals and strategy

 Internal organisation conditions related to SS

1. Operational strategies
2. Financial strategies
3. Marketing strategies
4. Supply strategies
5. Technology strategies

Operational  Supply management should have sufficient time to source but is not the only
influence on timings
 Must act together with operations and productions
 Ultimately end users determines timings and timings helps determining sourcing
 strategy
Financial  Internal financial strategies can dictate sourcing strategies
 Early capture of savings are more important than the amount of savings
Marketing  Sales forecast form basis for production schedule
 Sales and marketing forecast helps supply management
 Determine relevant categories for sourcing
 Size and importance of a sourcing category
Supply  Supply strategies requires organisational consensus
 Each spend category should have a specific strategy
 Component of a supply strategy includes
 Definition of the spend category
 Level of spend for the category
 Buying policy
 Sourcing policy
Technology  Determine how information technology will be used
 Determine how IT fits into overall business strategy
 Sourcing strategies are influenced by
 Importance of technology
 Internal IT resource capabilities
 Level of financial commitment for technology

 Risk Benefit Analysis

1. Benefits of strategic sourcing includes
a) Optimised supplier base
b) Improved service and quality
c) Enhanced innovation
d) Cost takeout
2. There is a risk associated with sourcing processes
3. Categories should be evaluated based on
a) Business impact
b) Supply market complexity
4. Spend categories can be classified as
a) Strategic
b) Leverage
c) Critical (Bottlenecks)
d) Tactical (Non critical)

Bottleneck Strategic
1. Unique Specification 1. Continuous availability is essential to the
2. Supplier Technology Important operations
3. Production based scarcity because of low 2. Custom design or unique specification
demand and/or few sources of supply 3. Supplier technology is important
4. Substitution is difficult 4. Few suppliers with adequate technical
5. Usage fluctuates and is not routinely capability or capacity
predictable 5. Changing source of supply is difficult
6. Potential storage risk 6. Substitution is difficult
1. Standard specifications or commodity 1. Standard specifications or commodity
types items types items
2. Substitute product readily available 2. Substitute is possible
3. Competitive supply market with may 3. Competitive supply market with may
suppliers suppliers
TASK 3-C-2: Establish and standardise strategic sourcing procedures and business process
improvements
 Strategic sourcing process
1. Strategic sourcing as the selection and management of suppliers with a focus on achieving
the long-term goals of business
2. Set of steps with starting and ending points in a specific sequence focused on selecting and
managing suppliers to achieve the long term goals of the business

 Strategic sourcing - Core Influences

1. Revenue generation and Innovation
2. Cost and Value management
3. Risk and compliance management
4. Sustainability and social responsibility
5. Supplier relationship management (SRM)
 Strategic Sourcing – Process Concept
1. Data management and analysis
2. Category strategy development
3. Cost analysis and management
4. Supplier selection and contract negotiation
5. Supplier development and performance management

 Strategic sourcing – Supporting foundation

1. Stakeholder alignment and engagement
2. Operations
3. Talent management and development
4. Change and project management
5. Forecasting, Inventory planning, IT, Logistics and Warehousing

 Strategic Sourcing – Policies and Procedures (P&P)

1. Senior leadership distributes a copy of the P&P to all stakeholders
2. Host meeting with key stakeholders to introduce strategic sourcing
3. Identify leaders who have spend under evaluation and engage them as a sponsor
4. These sponsors will help champion the strategic sourcing process for the categories under
them. Engage them one on one meeting
5. Dictate space on internal intranet or social media site to strategic sourcing
6. Post relevant documents and marketing material on site
7. Use office space to create awareness of strategic sourcing
8. Create cross functional teams

 Analytical skills
1. Develop thoughtful questions and hypotheses to determine what data is needed
2. Understand how to collect and compile data from disparate systems and resources
3. Use various qualitative and quantitative analytic tools to evaluate information
 4. Use data to formulate conclusions and reach decisions
5. Present data in a meaningful, compelling manner to support decision and negotiation
arguments.

TASK 3-C-3: Identify, evaluate, select and implement technologies that support supply
management functions throughout the organisation
 Business process design
1. Technology tools can
a) Improve availability of information for the sourcing process
b) Reduce cycle time
2. Technology tools can be used to
a) Collect baseline data
b) Distribute and collect request
c) Negotiate and collaborate with supplier
3. Ensures that users understand what process element each tool replaces/enhances and what
must be handled separately.

 Methodologies for selection, implementation and adoption of Technologies

1. Assessment of current system
a) An understanding of the ability to link system and availability of data needed to facilitate
the new solution
b) A perspective on what alternative solution may already exist in house
c) An understanding of the resources required to implement the system and train
resources
2. Market analysis
a) Solution coverage
b) Organisation need
c) Supplier types
3. E-business solutions
a) Functional
 e-RFP creation
 Supplier tracking
 Reporting
 Document management
 Proposal analysis
b) Technical
 Architecture
 Operating system
 Server requirement
 Interfaces
 Scalability
 Disaster recovery
c) General business
 Organisations reputation
 Experience
 Customer base
 Financial stability
 d) Pricing
 Development cost
 Licensing fees
 Implementation support
 Maintenance fees
 Training

 E-Sourcing tools
1. Purchase order system
2. e-RFx
3. Electronic Data Interchange (EDI)
4. Reverse Auction
5. E-Design
6. Contract creation / management / storage
7. E-sourcing
8. Collaborative optimisation

 Purchase order system

1. Intended to automate transaction process
2. Functionality should include
a) Automatic creation of purchase orders
b) Electronic requisition and approval
c) Invoice matching or evaluated receipt settlement
d) Automatic transfer of approved invoices into the accounts payable system
3. Some systems automatically transform quotes into POs
4. Data available from PO system are useful for creating category baseline for strategic
sourcing.

 e-RFx
1. Electronic request for information, proposal, quote etc.
2. Replaces paper or spread-sheet based request
3. e-RFx streamline processes by offering
a) Templates that leverage information from earlier sourcing efforts
b) Automated response compilation and analysis with user criteria
c) Messaging systems and communications board
d) Access to supplier login and response status
e) Ability to share completion responsibility over multiple resources

 Electronic Data Interchange (EDI)

1. The computer to computer exchange of business information
2. Documents are transmitted directly into receiver’s system
3. Or could be transmitted to third party for processing
4. Uses a standardise format (ANSI X12)
5. The inter-corporate transfer of common business form
6. Allows documents to be directly processed by receiver’s

 Reverse Auction
1. A fixed duration bidding event hosted by single buyer
2. Multiple pre-qualified or invited supplier participate
3. Potential suppliers
 a) Review requirement
b) Choose to bid
c) Enter the selling price
4. All bids are visible to competitors
5. This tends to drive price down
6. General criteria that supports reverse auction
a) Sufficient competition
b) Well defined, clear, easily communicated specifications
c) Switching supplier is realistic
d) Quotes will be technically and economically comparable
e) Market basket quotes can be used for large number of SKUs
7. Historically used for tangible goods
8. Could be use for services where SOW is clear
9. Benefits of reverse auction
a) Price transparency
b) Price validation
c) Increased productivity through reduced cycle time
d) Expand bidders/supplier participation
e) Real time supplier evaluation
f) Price compression

 E-Design
1. Enables electronic sharing of designs between parties
2. Technology facilitates a collaborative approach
3. Documents can be view, mark-up and easily share
4. Enables buyers to package various documents
5. Facilitates more accurate bidding

 Contract creation / management / storage

1. Increased visibility, consistency, controls and compliance related to contracts
2. Reduced total contract development and signoff cycle time
3. Reallocation of resources towards higher value add activities
4. Increased ability to monitor pricing, rebates and discounts to drive savings
5. Automated notices of contract expiration and other milestones

 Managing a On-Line Event

1. First complete traditional sourcing steps
a) Create a category profile
 Define the category
 Confirm user requirement
 Analyse the industry and supplier base
b) Generate supplier profile
 Identify potential, qualified supplier
 Determine value add capabilities of each supplier
 Determine which suppliers are most likely to be selected
c) Develop a sourcing strategy
 Assess buyers position strength
 Evaluate alternative strategies
 Select appropriate approaches and techniques
 d) Select the implementation path
 Select the most appropriate sourcing solutions and e-tools

 Procedure for reverse auction

1. Determine auction parameters and RFP/RFQ requirements
2. Develop the event on web-based tool
3. Capture stakeholder feedback and adjust accordingly
4. Invite pre-qualified suppliers to participate
5. Schedule and host training
6. Send suppliers confidential username and passwords
7. Conduct a practice auction and train further if needed
8. Open the live event
9. Actively manage communications with suppliers
10. Provide tech support from outside the sourcing team
11. Close the event
12. Analyse result

 Spend Analysis
1. Analysis of historical spend, usually by category
2. Provide information on what is purchased
3. Provide information on total spend by category
4. Provides a basis for strategic procurement planning
5. Consideration in selecting a spend analysis tool
a) Develop a category tree
b) Identify items by category and create linkage
c) Aggregate spend by category for optimal leverage
d) Refresh data regularly to keep it real time
e) Utilise information to optimise value form sourcing

TASK 3-C-4: Leverage spend through identification, prioritisation, development and

execution of strategies.
 Stakeholders
1. Identify stakeholder groups
2. Evaluate importance
3. Evaluate relationships
4. Evaluate level of alignment and involvement

 Stakeholders
1. Define outcome of stakeholders
2. Develop alignment strategies
3. Implement alignment strategies
4. Track results & design follow up actions
 Steering Committee
1. Purpose of the steering committee
a) develop effective executive partnership
b) Create two-way communications with key executives
c) Achieve clear commitment to project objectives and outcomes
d) Manage executive expectations of project result
2. Steps to establishing a steering committee
a) Understand what is required to achieve desired results
b) Identify needed team members
c) Make the project manager a member of steering committee
d) Ensure representation of each work stream
e) Make members feel they are champions of the project
f) Keep the committee to a manageable number of members
3. Role of the steering committee
a) Establish and review project direction and priorities
b) Empower the team to act
c) Remover barriers
d) Evaluate project cost and benefits
e) Make decisions and approve changes based on team results
f) Deal with resource needs
g) Help establish milestones
h) Facilitate communication, feedback and recognition channel

 Opportunity assessment
1. Spend analysis
2. Cost/price analysis
3. Risk analysis
a) Item characteristics
1) Availability of supply
2) Cost
3) Product application
b) Market characteristics
1) Global sourcing
2) Capacity constraints
3) Number of qualified suppliers
4) Economic conditions
5) Price uncertainty
c) Supplier characteristics
1) Capacity constraints
2) Inability to reduce cost
3) Incompatible information system
4) Quality problems
5) Unpredictable cycle time
6) Volume and mix requirement changes
7) Inventory management
8) Financial health
9) Disaster
10) Legal liabilities
4. Market analysis
 a) Market conditions
b) Supplier dynamics
c) Evolution of technology
d) Impact of changing industry dynamics
e) Buyers position
f) Competitiveness of the market
g) Threat of new entrants
5. Requirement analysis

 Leveraging strategies
1. Best price evaluation
2. Volume concentration
3. Global sourcing
4. Product specification improvement
5. Joint process improvement
6. Relationship restructuring

 Factors for prioritising decision making

1. Savings
2. Organisational capacity
3. Organisational culture
4. Constraints

TASK 3-C-5: Conduct analysis to determine insourcing or outsourcing strategy

 Procedure for conducting make or buy or outsourcing analysis
1. Feasibility
2. Needs identification
3. Methods / processes
a) Analysis of components
b) Break even analysis
c) Cost estimation process
d) Incremental cost analysis

 Factors influencing outsource/make-or-buy/offshoring

1. Strategic factors
 a) Long term supply implications
b) Core competencies and strategies
c) Supply risk
 Degree of control required
 Security of the process
d) Total cost of ownership results
e) Competitive issues
2. Reduction in assets
3. Flexibility to change
4. Public relations

 Labour and other organisational constraints

1. Quality considerations
2. Supplier current and future capability
3. Socioeconomic goals / objectives
4. Capital investment

 Offshoring
1. Low cost country sourcing
2. Country analysis
3. Nearshoring

Low cost country sourcing

Potential Benefit Potential Risk
 Low cost  Cost increases and complexities may erode the
 Minimum benefits and labour use laws may not savings
exist  Quality problems due to distance, lead time,
 Government may encourage foreign language barriers
investment via tax benefits  Security concern as laws and enforcement may
 Access to local innovation and technology be lacking
 Expansion of sales due to increased local  Political instability may result in loss of benefit,
presence assets and control
 Increased travel and communication expenses
 Increased transportation cost, lead time and
inventory impact

Key considerations for country analysis

Geography Does country provide needed transportation system?
What are required travel and shipping times?
What is the weather?
Local laws / Business environment Is there support for international business relationship?
Infrastructure Are utilities, transportation, data and financial networks sufficiently robust?
Is buying organisation willing to invest in local?
People and culture What are language, capabilities, values, culture?
Does local education level match requirements?
Will key holidays conflict with key demand period?
Political consideration Are there risk of repatriation or dissolution?

 Post audit evaluation of the decision

1. Keep outsourcing relations focused on results
2. Seek metrics that can be benchmarked against others
3. Continually evaluate the outsourcing decision
4. Key consideration for evaluation
a) Appoint a single contact for each organisation
 b) Schedule quarterly meetings
c) Have an annual meetings of organisation executives
d) Conduct regular site visits
e) Keep metrics current

TASK 3-C-6: Conduct analysis to determine insourcing or outsourcing strategy

Product and Technology Roadmap
Target market  Mass market or niche market?
 High price / high service market vs low price discount market?
 Decisions: make or buy, leverage supplier value, joint venture
Product features and  What is needed to support target market and product service
technology  Choice of technology level depends on joint R&D capabilities
Customer features and  One large customer or lots of small customer?
operational scale  Collaborate with supplier to ensure balanced supply chain
capacity and low cost
Customer service and  Usually higher service requires higher inventory and staffing
inventory / staffing  Should share planning information with supplier
alignment  Doing so tends to improve the quality of decisions

 The Roadmap
1. Roadmap is a plan that identifies the route to achieving a desired end result
a) A technology or product roadmap
 Focuses on a single technology or product
 Describes the way it is expected to develop
 May include project plans to support development
b) The roadmap focuses on
 Forecasting development / commercialisation of new product
 The organisations competitive position relative to the technology
 How the technology and competitive position will develop
c) The roadmap may be used to
 Influence resource allocation
 From subsection of complex product maps
 From development time frames and milestones
 Leverage R&D investment