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2023 Module 3 slide

Module 3 covers sourcing products and services, emphasizing the alignment of sourcing activities to demand through make-or-buy analysis and total cost of ownership. It also discusses category strategy for sourcing, including supply base analysis and segmentation. Additionally, the module highlights the importance of product design in relation to manufacturability, sustainability, and logistics.
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Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
6 views

2023 Module 3 slide

Module 3 covers sourcing products and services, emphasizing the alignment of sourcing activities to demand through make-or-buy analysis and total cost of ownership. It also discusses category strategy for sourcing, including supply base analysis and segmentation. Additionally, the module highlights the importance of product design in relation to manufacturability, sustainability, and logistics.
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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MODULE 3:

SOURCING PRODUCTS
AND SERVICES

Section A: Aligning Sourcing to Demand

Module 3, Section A ■ 1 © 2023 APICS Confidential and Proprietary


Module 3, Section A

Section A Introduction
Section A Key Processes: Section A Topics:

▪ Aligning sourcing activities to ▪ Topic 1: Make-Versus-Buy,


demand Outsourcing, and Offshoring
– Perform make-or-buy
analysis. ▪ Topic 2: Sourcing
▪ Manufacturing capabilities Requirements and Total Costs
▪ Core competencies
▪ Total cost of ownership
(TCO)
– Define sourcing
requirements and timing.

Module 3, Section A ■ 2 © 2023 APICS Confidential and Proprietary


Topic 1: Make-Versus-Buy, Outsourcing, and Offshoring

Sourcing Process

Module 3, Section A ■ 3 © 2023 APICS Confidential and Proprietary


Topic 1: Make-Versus-Buy, Outsourcing, and Offshoring

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?

Corporate Supply chain


strategy strategy

Make-or-buy decision issues

Module 3, Section A ■ 4 © 2023 APICS Confidential and Proprietary


Topic 1: Make-Versus-Buy, Outsourcing, and Offshoring

Make/Buy: Is Activity a Core Competency?


1. Does the organization already have the core
competency? (Opinions may differ.)
2. Does the market need it?
3. What is the relationship between market need and
enterprise capability?
4. Develop core competency to meet market need or
outsource?

Module 3, Section A ■ 5 © 2023 APICS Confidential and Proprietary


Topic 1: Make-Versus-Buy, Outsourcing, and Offshoring

Benefits of Contracting Out


Economies
of scale

Faster
Risk
development
cycle times Reduction

Contracting
out benefits

Increased
capital
Access to new
available for
technologies
investment

Clearer focus

Module 3, Section A ■ 6 © 2023 APICS Confidential and Proprietary


Topic 1: Make-Versus-Buy, Outsourcing, and Offshoring

Offshoring
Insource or locally
Offshore
outsource

Offshoring complexity
Market growth
(e.g., culture)
Less organizational maturity;
Additional sourcing options
less TQM emphasis

Streamlining and efficiency Risks (e.g., supply failure)

Module 3, Section A ■ 7 © 2023 APICS Confidential and Proprietary


Topic 1: Make-Versus-Buy, Outsourcing, and Offshoring

Comparing Manufacturing/Assembly Sites

Advantages Risks

▪ Low labor rates ▪ Time zone difference costs/disruptions


▪ Lower material costs ▪ Worse transport costs/lead times
▪ Lower benefits costs ▪ Higher relationship management costs
▪ Favorable duty rates ▪ Possible political risks/instability
▪ Lower taxes ▪ Cost of currency hedging
▪ Smaller capital investment (if assets ▪ Environmental costs for mitigation and
are transferred to foreign country) responsible forward and reverse logistics
▪ Need more safety stock
▪ Higher warehousing or in-transit costs
▪ More damage, theft, spoilage insurance

Module 3, Section A ■ 8 © 2023 APICS Confidential and Proprietary


Topic 2: Sourcing Requirements and Total Costs

Sourcing Requirements and Timing


Sourcing and timing
requirement categories:
▪ Cost and target price
▪ Quality culture, product quality
▪ Delivery performance
▪ Lead time
▪ Available capacity
▪ Design/collaboration ability
▪ Time to market
▪ Sustainability

Module 3, Section A ■ 9 © 2023 APICS Confidential and Proprietary


Topic 2: Sourcing Requirements and Total Costs

Relationship Between Cost Terminology

Module 3, Section A ■ 10 © 2023 APICS Confidential and Proprietary


Topic 2: Sourcing Requirements and Total Costs

Total Cost of Ownership (TCO)


▪ Main insight: Acquisition cost is often a very small portion of TCO.
▪ Reassess incremental costs over time.
▪ Costs to include:
– Landed costs
– Process change costs
– Ongoing costs
▪ Should-cost
estimate

Module 3, Section A ■ 11 © 2023 APICS Confidential and Proprietary


SECTION B:
CATEGORY STRATEGY
FOR SOURCING

Module 3, Section B ■ 1 © 2023 APICS Confidential and Proprietary


Module 3, Section B

Section B Introduction

Section B Key Processes: Section B Topics:

▪ Manage categories for ▪ Topic 1: Supply Plans,


sourcing of products and Categories, and Segmentation
services.
– Create segmented sourcing ▪ Topic 2: Supply Base Analysis
strategy. and Right-Sizing
– Conduct supply base
analysis.
– Identify savings
opportunities.
– Rationalize or right-size
supply base.
Module 3, Section B ■ 2 © 2023 APICS Confidential and Proprietary
Topic 1: Supply Plans, Categories, and Segmentation

Supply Plan Validation and Refinement

Corporate
Corporate
mission and Risk
strategy
culture assessment
alignment
alignment

Centralized
vs. Additional Planning for
autonomous optimization future growth
sourcing

Module 3, Section B ■ 3 © 2023 APICS Confidential and Proprietary


Topic 1: Supply Plans, Categories, and Segmentation

Categories and Category Strategy


Sourcing Categories Category Strategy

▪ Organization-specific group ▪ Category manager


of purchased ▪ Classifying categories by
goods/services – Total spend
▪ Should enable better – Number of suppliers
supplier management and
▪ Portfolio analysis: how
purchasing spend
much you need supplier
▪ Segment suppliers for
▪ Supplier segmentation: how
optimum relationship levels
much they need you
Module 3, Section B ■ 4 © 2023 APICS Confidential and Proprietary
Topic 1: Supply Plans, Categories, and Segmentation

Strategic Importance and Related Factors

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.

Module 3, Section B ■ 5 © 2023 APICS Confidential and Proprietary


Topic 1: Supply Plans, Categories, and Segmentation

Portfolio Analysis

Module 3, Section B ■ 6 © 2023 APICS Confidential and Proprietary


Topic 1: Supply Plans, Categories, and Segmentation

Segmented Sourcing Strategy

Transactional

Preferred
supplier

Strategic
relationships

Ownership

Module 3, Section B ■ 7 © 2023 APICS Confidential and Proprietary


Topic 1: Supply Plans, Categories, and Segmentation

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

Supply Base Analysis


Spend Analysis Market Research

▪ Forecast projected demand


per category.
▪ Translate demand per end
item into component demand.
▪ Review existing suppliers.
▪ Interviews are effective.
▪ Get corroboration on external
market and local assumptions.

Module 3, Section B ■ 9 © 2023 APICS Confidential and Proprietary


Topic 2: Supply Base Analysis and Right-Sizing

Supply Base Right-Sizing

Pareto by category spend


Preferred Higher
suppliers, quality set
deeper
relationships Rigid requirements
Bulk
discounts
or ongoing
cost cutting Triage: unacceptable,
minimum, and world class

Competency staircase
Ideal number of suppliers

Module 3, Section B ■ 10 © 2023 APICS Confidential and Proprietary


SECTION C:
PRODUCT DESIGN INFLUENCE

Module 3, Section C ■ 1 © 2023 APICS Confidential and Proprietary


Module 3, Section C

Section C Introduction

Section C Key Process: Section C Topics

▪ Influence product designs ▪ Topic 1: Product Design


(for manufacturability, ▪ Topic 2: Quality,
sustainability, Customization, and
transportation, or Sustainability
warehousing)

Module 3, Section C ■ 2 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Impact of Product Design Choices

On manufacture and On sale, service,


On supply assembly On logistics use, returns, etc.

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.?

Reverse product flow (reverse logistics)

S3 S2 S1 Plant C1 C2 C3

Flow of materials, components, products

Module 3, Section C ■ 3 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Begin with the End in Mind: Great Value has…

Functionality

Returnability/ Validity
recyclability

Serviceability Efficiency

Quality

Module 3, Section C ■ 4 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Traditional Over-the-Wall vs. Collaborative Design

Over-the-Wall Design Collaborative Design

▪ Marketing sends customer  Design team initially includes


requirements to engineering. engineers, other departments,
▪ Engineering: full-featured and possibly SC partners.
design.  Design team considers issues
▪ Purchasing: unaffordable from raw material to final stage
parts. of product life cycle,
▪ Production: costly changes. approximating cost differences.
▪ Rework.  Given approval by all functions
and partners, purchasing and
▪ Logistics finally gets design, production start detailed design.
▪ but SC/packaging too costly.
Module 3, Section C ■ 5 © 2023 APICS Confidential and Proprietary
Topic 1: Product Design

Design and Development Collaboration

Over-the-wall Informal Formal


approach collaboration collaboration
• Supplier/customer • Conversations or • VOC.
plays no role in informal • Regular formal
design. consultation with input.
suppliers/ • Supplier designs
customers. subcomponent.

Module 3, Section C ■ 6 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Implementing Collaboration and Its Benefits

Implementing Design Benefits of Design


Collaboration Collaboration
1. Proof of concept. ▪ Fewer cost overruns
2. Formalize concepts. ▪ New and improved
3. Formalize processes. approaches to design
4. Prioritize opportunities ▪ Improved customer
based on best value to satisfaction
encourage adoption. ▪ Improved efficiency (faster
to market)
▪ Higher product quality for
the price
Module 3, Section C ■ 7 © 2023 APICS Confidential and Proprietary
Topic 1: Product Design

Design Methods

Module 3, Section C ■ 8 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Design for Logistics

Supply chain and product


designed simultaneously.
Benefits Tradeoffs
Minimize transportation
↓ cost = ↑ profit margins. and storage costs: efficient
Slow-moving goods not
Warehouses store more packaging for fast wanted in larger
goods, reducing capacity loading/unloading and quantities.
pressures. higher density per pallet.
Standard box sizes may
Master carton for Minimize manufacture and conflict.
restocking. assembly time.
Cube out vs. weigh out
Retailers can sell from Maximize standardization.
pallet.
balance.

Module 3, Section C ■ 9 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Modular Design (Modularization)

Design components for use in all


products in a family.
Benefits
RAM modules Tradeoffs
Lower design cost for
product family. for computers. Higher cost per
Production Modular product (lower for
streamlining. family).
Expanded customer bookshelves. Possible reduction
base.
Á la carte menu. of fit, finish.
More efficient logistics.

Module 3, Section C ■ 10 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Component Commonality (Standardization)

Replace similar parts with a single


part.
Benefits Tradeoffs
Lower cost for bulk Replace Cost of product
purchase of
identical parts. multiple bolt modifications.
Production
streamlining.
sizes with Loss of design
flexibility.
Simpler, cheaper one size. Possible reduction
storage. in quality.

Module 3, Section C ■ 11 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Universality (Standardization)

Design one product for multiple


markets.
“One size fits all”
Benefits
Increased sales and “unisex” Tradeoffs
volume. clothing. Potential loss of
Reduced cost of sales in each
Cars, trucks with particular market.
design,
manufacturing option packages Loss of customer
compared to market- for different loyalty.
specific products. market segments.

Module 3, Section C ■ 12 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Concurrent Engineering (Simplification)

Engineers and other stakeholders


contribute.
Benefits
Design Tradeoff
collaboration. Shorten/simplify Newer
Parallel rather design. methodologies
than sequential.
exist.
Virtual design
meetings.

Module 3, Section C ■ 13 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

DFMA (Evolution of Concurrent Engineering)

Involves manufacturing function in


initial stages for ease of production.
Benefits
Less confusion, complexity,
Component tolerances.
variability, production Fewer parts.
delays, setup times, and
training. Less part handling. Tradeoffs
Enforced by Concurrent steps. Could be at odds with
standards/policies. customer desires if features
Assembly obvious/easy. are omitted.
Standardizes parts.
Helps lean, modular design, Simplify assembly steps.
and mass customization. Design in easy testing.
Software automates DFMA.

Module 3, Section C ■ 14 © 2023 APICS Confidential and Proprietary


Topic 1: Product Design

Design for Service

Simplification to improve after-sale


service.
Benefits Serviceability/maintain
Lower total cost of ability affects customer
ownership. satisfaction. Tradeoffs
Extends to logistics Faster replacement of Conflict with other
(replacement parts filters, etc., lowers design goals.
source of lifetime cost.
profitability).

Module 3, Section C ■ 15 © 2023 APICS Confidential and Proprietary


Topic 2: Quality, Customization, and Sustainability

Design for Quality

Quality measures show if design meets target


market needs, performance, aesthetics, and cost.

Benefits
Fewer defects = less Goals for Tradeoffs
waste, satisfied
customers.
exceptional Initial
expense/benefits
Can compete on quality. hidden.
quality.

Module 3, Section C ■ 16 © 2023 APICS Confidential and Proprietary


Topic 2: Quality, Customization, and Sustainability

Quality Function Deployment (QFD)

Eliminate gap between what customer


wants and product capabilities.
Benefits Design,
Improves customer operations, and
service. support Tradeoffs
Shows interactions philosophy.
Complex
between product Compares against methodology.
features for competitor
prioritization when
some conflict. features.

Module 3, Section C ■ 17 © 2023 APICS Confidential and Proprietary


Topic 2: Quality, Customization, and Sustainability

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.

Module 3, Section C ■ 18 © 2023 APICS Confidential and Proprietary


Topic 2: Quality, Customization, and Sustainability

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.

Module 3, Section C ■ 19 © 2023 APICS Confidential and Proprietary


Topic 2: Quality, Customization, and Sustainability

Design for Environment

Consider health, safety, and environment


during design and development.
Benefits Provision for reuse or
Fits SC emphasis on recycling. Tradeoffs
total life cycle. Reduced energy Increased
Better reputation. consumption. manufacturing costs
Less liability/legal and higher sales price.
Avoidance or
costs. mitigation of hazmat. Reduced safety or
Marketable longevity from less
Use lighter/fewer weight/preservatives.
environmental
friendliness. components.

Module 3, Section C ■ 20 © 2023 APICS Confidential and Proprietary


Topic 2: Quality, Customization, and Sustainability

Design for Reverse Logistics

Design to efficiently handle returns,


repairs, replacement, or recycling.
Benefits Package to reduce
Loyalty from ease of common user
process. Tradeoffs
errors/frustrations. Underestimate
Lower cost of returns.
Feedback for designs.
Box for shipping + complexity.
return.

Module 3, Section C ■ 21 © 2023 APICS Confidential and Proprietary


Topic 2: Quality, Customization, and Sustainability

Design for Remanufacture

Allowing components to be reused


in other products.
Benefits Associated with
green
Low materials and manufacturing.
resource cost. Tradeoffs
Caterpillar’s
Cost savings for customer-focused Cash tied up in
consumer. replacement of inventory longer.
Environmental law heavy equipment
conformance. parts.

Module 3, Section C ■ 22 © 2023 APICS Confidential and Proprietary


SECTION D:
SUPPLIER SELECTION,
CONTRACTING, AND USE

Module 3, Section D ■ 1 © 2023 APICS Confidential and Proprietary


Module 3, Section D

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.

Module 3, Section D ■ 2 © 2023 APICS Confidential and Proprietary


Topic 1: Supplier Evaluation and Selection

Functions of Purchasing

Module 3, Section D ■ 3 © 2023 APICS Confidential and Proprietary


Topic 1: Supplier Evaluation and Selection

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

Module 3, Section D ■ 4 © 2023 APICS Confidential and Proprietary


Topic 1: Supplier Evaluation and Selection

Total Cost of Ownership

Module 3, Section D ■ 5 © 2023 APICS Confidential and Proprietary


Topic 1: Supplier Evaluation and Selection

Supplier Corporate Social Responsibility (CSR)


▪ Organization, its employees, and suppliers hold selves
accountable for:
– Consumer health and safety
– Employee health and safety
– Environmental sustainability
– Maintainability
– Employment policy
– Community reinvestment and use of local goods and services.
▪ Legal review is needed to ensure compliance with related
laws and regulations in each jurisdiction.

Module 3, Section D ■ 6 © 2023 APICS Confidential and Proprietary


Topic 1: Supplier Evaluation and Selection

Negotiations

Hard and Soft Negotiations Principled Negotiations

▪ Hard negotiators (win/lose) ▪ Negotiations should:


– Adversary to be beaten. – Solve underlying issues.
– Take position, demand – Preserve relationships.
concessions, give none. – Result in enduring, fair
– Threaten or mislead. agreements.
▪ Soft negotiators (lose/win) ▪ Interest-based bargaining:
– Value agreement too much. – Separate the people from
problem.
– Disclose bottom line.
– Focus on interests, not positions.
– Accept one-sided agreements/
– Invent options for mutual gain.
concessions.
– Insist on objective criteria.

Module 3, Section D ■ 7 © 2023 APICS Confidential and Proprietary


Topic 1: Supplier Evaluation and Selection

Contract Performance

Contract Deployment Compliance Management


▪ Navigate legal. ▪ Concentrate with preferred
▪ Communicate with winner. suppliers.
▪ Promote new agreements with ▪ Measure compliance vs. off-
internal buyers. contract purchases.
▪ Database entry. ▪ Report findings.
▪ Order-to-pay procedures. ▪ Monitor supplier KPIs.
▪ Train users/suppliers. ▪ Audit supplier pricing.
▪ Validate performance. ▪ Monitor contract expirations,
renewals, and discount use.
▪ Use transaction management.
▪ Continually improve.
▪ Audit invoices.
▪ Establish baselines.
Module 3, Section D ■ 8 © 2023 APICS Confidential and Proprietary
Topic 1: Supplier Evaluation and Selection

Measuring Supplier Success/Avoiding Pitfalls


Establish clear performance expectations.

Measure against performance expectations


regularly.

Maintain ultimate responsibility.

Coordinate activities of multiple suppliers and


share learning.

Maintain an exit strategy.

Module 3, Section D ■ 9 © 2023 APICS Confidential and Proprietary


Topic 2: Contracts

Contract Types and Details


Level of relationship will
dictate type of contract
Contract
that is needed.
Trading details
Bilateral partner
contract agreement Pricing
Annualized
contract Delivery requirements
CISG
Incoterms® Payment terms
Performance criteria Quality assurance
PO
Order requirements Incentives and penalties
Status reporting Problem resolution Security
Language Contract termination Legal authority

Module 3, Section D ■ 10 © 2023 APICS Confidential and Proprietary


Topic 2: Contracts

Payment Terms

Trade Credit Open Account

▪ Sale of goods or services in ▪ Buyer has a credit limit with


which payment is not due the organization or a bank.
right away. ▪ Buyer can make orders or
▪ Gives the buyer time to write drafts up to the limit to
convert the good or service pay for goods or services
into revenue themselves on receipt or on a deferred
before making payment. basis.
Offered only to trading partners with good
credit records and healthy financials
Module 3, Section D ■ 11 © 2023 APICS Confidential and Proprietary
Topic 2: Contracts

Letters of Credit (L/C)

Goods

Bank 1 pays Bank Bank 2 pays Bank 1 issues


2 (after cargo exporter. L/C to importer.
arrives). Importer pays
Bank 2 asks Bank Bank 1. Bank 1 notifies
1 for payment. Bank 2 about
Exporter asks Exporter ships L/C.
Bank 2 for cargo.
payment.
Module 3, Section D ■ 12 © 2023 APICS Confidential and Proprietary
Topic 2: Contracts

Currency Issues

Buyer No goods or inferior goods Exchange rate unfavorable

Counterparty risk Currency exchange risk


Seller No payment or counterfeit/fraud Exchange rate unfavorable

Payment in
advance (e.g., Currency hedging
wire transfer) Forwards, futures, swaps, options

Open account, Futures


trade credit, or • Party agrees to buy/sell fixed amount of
COD currency at fixed price on fixed date.
• Traded on organized exchanges to minimize
counterparty risk.

Module 3, Section D ■ 13 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

Placing Orders

Purchase orders Blanket POs E-Procurement


• Initial or one-time • Long-term • Auctions
• All terms and commitment, short- • Reverse auctions
conditions term releases • Exchanges
• Functional areas • Master terms and • Portals
informed of stage conditions
• Discounts, lead
times, quality

Module 3, Section D ■ 14 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

Reconciling and Approving Invoices

Module 3, Section D ■ 15 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

Order Tracking (Internal)


Functional Area Tracking Needs
Purchasing Primary tracker of open order status and exceptions.
Sales Notify customers of potential delays/issues.
Accounts Forecast future accounts payable obligations.
payable
Accounting Accurate financial records.
Requesting Look up orders by order number, be informed of
functional area issues.
Receiving Forecast inbound workload and space needs.
Traffic Inbound inventory requirements to schedule carriers
or internal fleets.

Module 3, Section D ■ 16 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

Expediting
Application Causes

▪ Any stage of the supply ▪ Inventory shortages


chain ▪ Poor demand forecasting
▪ Should be very rare

To rush or chase production or purchase orders


that are needed in less than the normal lead time

Module 3, Section D ■ 17 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

Expediting of Transportation
▪ Faster mode of transport
– Overnight
– Upgrading from ground to air
▪ Additional costs
– Paid by shipper or customer depending on reason

Module 3, Section D ■ 18 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

B2B Digital Transaction Models

Module 3, Section D ■ 19 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

Portals
CRM/SRM
Help people interact with
systems or other people

Business Web browser Consumer


portals Dashboard portals

▪ Intranets and extranets ▪ Multiservice websites


▪ Authentication and security – E-mail
▪ Read-only exceptions, – Personalized home
forecasts, demand-pull signals pages
▪ Dynamically aggregate – Online shopping and
internal and external search
information – News

Module 3, Section D ■ 20 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

Trading Exchanges
Buyer
• Supplier queries
Goods • Requisition approval Cash
• Track, receive, pay

Specialized services Exchange Banks/FSPs


• Optimize carriers • Standardize catalogs • Settlement
• Consolidated payment • Transmit orders • Aggregation
processing • Prepare auctions • Financing
• International services • Credit

Supplier
Goods • Order processing Cash
• Shipping
• Catalog maintenance

Module 3, Section D ■ 21 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

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.

Module 3, Section D ■ 22 © 2023 APICS Confidential and Proprietary


Topic 3: Purchase Orders

Trade Exchange Benefits and Risks

Benefits for Buyers Risks for Buyers


▪ Purchasing agreement ▪ Lower-quality goods
control ▪ Nonconformance
▪ Standard product ▪ Product rework/returns
specifications ▪ Long-term loss of suppliers
▪ Lower administrative, and fewer skilled suppliers
transportation, logistics, and ▪ Ruining years of
unit costs relationship building
▪ Faster time-to-market
▪ Catalog accuracy
Module 3, Section D ■ 23 © 2023 APICS Confidential and Proprietary
Topic 3: Purchase Orders

Trade Exchange Benefits and Risks

Benefits for Suppliers Risks for Suppliers


▪ Automatic connections ▪ Reduction in revenue/
▪ Wider market, all inventory unprofitable margins
▪ Option contracts consume
▪ Faster order to cash
capacity
▪ Better future bidding
▪ Fewer internal investments
▪ Better catalogs
▪ Business continuity risk
▪ Cheaper transactions,
▪ Buyers use seller’s information to
transportation, and logistics
buy elsewhere
▪ Less replenishment lead time
▪ Exchange integration costs
▪ Supply/demand collaboration
Module 3, Section D ■ 24 © 2023 APICS Confidential and Proprietary

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