BUS 370 Chapter 7

Supply chain management

The broad set of activities carried out by organizations to analyze sourcing opportunities, develop sourcing strategies, select suppliers, and carry out the activities required to procure goods and services

Reasons for why supply chain management is critical

Global sourcing, financial impact, and performance impact/total cost of ownership

Total cost of ownership (TCO)

Purchase price, amount paid to the supplier for the product or service, is not the only consideration

Strategic sourcing process

1. assess opportunities

2. profile internally and externally

3. develop the sourcing/category strategy

4. screen suppliers and create selection criteria

5. conduct supplier selection

6. negotiate and implement agreements

Insourcing

The use of resources within the firm to provide products or services

Advantages of insources

high degree of control, ability to oversee the entire program, and economies of scale/scope

Disadvantages of insources

reduced strategic flexibility, required high investment, and potential suppliers may offer superior products/services

Outsourcing

The use of supply chain partners to provide products or services

Advantages of outsourcing

high strategic flexibility, low investment risk, and access to state of the art products/services

Disadvantages of outsourcing

Possibility of choosing a bad supplier, loss of control over the process and core technologies, communication and coordination challenges, increased risk of SC disruption and social responsibility

Factors affecting decision of insourcing vs outsourcing

environmental uncertainty, competition in the supplier market, ability to monitor suppliers performance favor outsourcing; while relationship of product/service to buying firm’s core competencies favors insourcing

Sourcing portfolio analysis

A structured approach used by decision makers to develop a sourcing strategy for a product or service, based on the value potential and the relative complexity or risk represented by a sourcing opportunity

Sourcing portfolio analysis quadrants

critical, bottleneck, leverage, and routine

Critical quadrant (sourcing portfolio analysis)

High value potential, high risk

Bottleneck quadrant (sourcing portfolio analysis)

Low value potential, high risk

Leverage quadrant (sourcing portfolio analysis)

High value potential, low risk

Routine quadrant (sourcing portfolio analysis)

Low value potential, low risk

Single sourcing

The buying firm depends on a single company for an item or service 

Multiple sourcing

Shares its business across multiple suppliers, typically due to volume requirements, geography, or risk mitigation 

Advantages of single sourcing

Volume leveraging, transportation economies, and reducing quality variability

Disadvantages of single sourcing

Knowing they have the business, suppliers can actually increase prices in the short term, increased supply risk, and buyers can become “captive” to a supplier’s technology

Advantages of multiple sourcing

Create competition, spread risk, and required if the purchased volume is too great for 1 supplier

Disadvantages of multiple sourcing

Reduces supplier loyalty, can increase risk in the event of a shortage, and may result in different product attributes with varying quality

Weighted-point evaluation system

A common type of multi-criteria decision model in which the user (buying firm) assigns weights to performance measures (such as cost, quality, and delivery), then rates the supplier in regard to how well they perform against those criteria 

Procure-to-pay cycle

The set of activities required to first identify a need, assign a supplier to meet that need, approve the specification or scope, acknowledge receipt, and submit payment to the supplier 

Trends in SM

Sustainable supply and supply chain disruptions,