2023 Module 3 slide
2023 Module 3 slide
SOURCING PRODUCTS
AND SERVICES
Section A Introduction
Section A Key Processes: Section A Topics:
Sourcing Process
Make-versus-Buy Analysis
▪ Is the activity a core competency?
▪ What are the consequences of losing skills or
knowledge?
▪ What is the landed cost or TCO?
Faster
Risk
development
cycle times Reduction
Contracting
out benefits
Increased
capital
Access to new
available for
technologies
investment
Clearer focus
Offshoring
Insource or locally
Offshore
outsource
Offshoring complexity
Market growth
(e.g., culture)
Less organizational maturity;
Additional sourcing options
less TQM emphasis
Advantages Risks
Section B Introduction
Corporate
Corporate
mission and Risk
strategy
culture assessment
alignment
alignment
Centralized
vs. Additional Planning for
autonomous optimization future growth
sourcing
Supplier Product/
factors service factors
Cost Strategic
importance
Quality
Complexity
Delivery Intensity of
Supply
reliability Number of chain collaboration
suppliers difficulties should account for
Precision
supplier and
Uncertainty product/service
Flexibility
requirements.
Portfolio Analysis
Transactional
Preferred
supplier
Strategic
relationships
Ownership
Relationship Types
Characteristics
Relation- Competitor
ship Proximity Visibility Communication Culture
Interaction
Arm’s Purchase Not an
Transactional Significant Computerized
length requirements issue
Preferred: Medium Designated
Some sharing Some Aware
Ongoing term contact points
Strategic: Longer Department Aware +
Full sharing Limited
Partnership term interaction adaptive
Strategic:
Sharing +
Collaboration/ Long-term Limited or Extensive, high
partners’ plans Merging
strategic relationship none trust, licensing
as own
alliance
Ownership: Internal,
One
Mergers/ Ownership commonly held None Varies
culture
acquisitions information
Module 3, Section B ■ 8 © 2023 APICS Confidential and Proprietary
Topic 2: Supply Base Analysis and Right-Sizing
Competency staircase
Ideal number of suppliers
Section C Introduction
What raw How many How difficult How easy or How reliable,
materials? components? to make? hard and how easy to use, easy
costly to to service, easy
How to How hard to How costly—
transport and to recycle or
source assemble— machines,
warehouse? reuse?
materials? and when? labor, etc.?
S3 S2 S1 Plant C1 C2 C3
Functionality
Returnability/ Validity
recyclability
Serviceability Efficiency
Quality
Design Methods
Universality (Standardization)
Benefits
Fewer defects = less Goals for Tradeoffs
waste, satisfied
customers.
exceptional Initial
expense/benefits
Can compete on quality. hidden.
quality.
Postponement (Customization)
Shifts product differentiation closer to consumer
by postponing assembly or packaging to last
possible SC location.
Benefits
Counters bullwhip Example of push-pull Tradeoffs
effect. strategy (start generic). Process, equipment,
Less in-transit Production starts based product, and packaging
inventory, insurance, on aggregate forecasts. redesign costs.
and handling costs and May increase costs if
more cash flow. Differentiation based on there are few product
actual demand signals. varieties.
Locally source locally
needed materials.
Mass Customization
Mass production to create large volume and
variety with low production costs and custom
output primarily using postponement.
Benefits
Modular Tradeoffs
Economies of scale.
design. Investment costs for
More efficient, expert
new equipment,
assemblers. HP’s assembly training, quality.
Higher sales (more of printers at Possible friction with
markets/segments). distributor, not distributors over
Lower inventory factory. added tasks.
costs.
Section D Introduction
Section D Key Processes: Section D Topics:
▪ Evaluate and select suppliers. ▪ Topic 1: Supplier Evaluation and
– Manage initial supplier
qualifications/evaluation. Selection
▪ Determine value-added services. ▪ Topic 2: Contracts
– Develop contracts.
▪ Negotiate terms and conditions, pricing, ▪ Topic 3: Purchase Orders
and delivery terms.
▪ Manage purchase orders.
– Place orders (standard, blanket, and e-
procurement).
– Reconcile and approve invoice for payment.
– Track, expedite/de-expedite, and process
changes.
– Analyze sourcing processes for automation.
Functions of Purchasing
Supplier Selection
Supplier’s perspective Buyer’s perspective
Traditional • Highest profit margin • Lowest price
thinking • Disregard customer needs • Disregard supplier impact
• Short-term transactions • Short-term transactions
Supply • Strategic view of sourcing
chain • Long-term success of all partners in SC
thinking • Cooperatively established:
Pricing
Discounts
Delivery timing
• Ongoing relationships or alliances
• Total cost of ownership and reputation effects
Negotiations
Contract Performance
Payment Terms
Goods
Currency Issues
Payment in
advance (e.g., Currency hedging
wire transfer) Forwards, futures, swaps, options
Placing Orders
Expediting
Application Causes
Expediting of Transportation
▪ Faster mode of transport
– Overnight
– Upgrading from ground to air
▪ Additional costs
– Paid by shipper or customer depending on reason
Portals
CRM/SRM
Help people interact with
systems or other people
Trading Exchanges
Buyer
• Supplier queries
Goods • Requisition approval Cash
• Track, receive, pay
Supplier
Goods • Order processing Cash
• Shipping
• Catalog maintenance
Auctions
▪ Classic or forward auctions
▪ Reverse auctions
▪ Dutch auctions
▪ Demand management
auctions
▪ Stock-market style auctions Dutch auction named after Dutch
tulip auctions. Dutch auctions are
used for U.S. Treasury securities.