SMCT Exam 2

UARK

Omni channel

a term used in ecommerce and retail to describe a business
strategy that aims to provide a seamless shopping experience across all
channels, including in store, mobile, and online

3rd Party Logistics Provider(3PL)

companies that outsource a business's
logistics operations, such as warehousing, fulfillment, and packaging.

Model

the design of your plan

Brick and Mortar

physical buildings where retailers sell goods

Milk Run

multiple stops delivering or picking up product at different
locations. Typically store locations

Major Drivers for Updating a Network Design

Changes to Global Trade Patterns

Changing Customer Expectations

Shifting customer or supply locations

Change in corporate ownership

Cost Pressures

Competitive Capabilities

Competitive Capabilities

Does your DC location create value or detract value?

Change in corporate ownership

Shifting customer or supply locations

Corporate merger, too many DCs

Cost Pressures

Chasing cheap labor, avoiding tariffs, etc

Changing Customer Expectations

Omni channel impacts

Changes to Global Trade Patterns

Bad infrastructure, lack of trade balance, etc

Major Decision Factors for DC Locations

• Transportation Infrastructure
• How close are you to your customers?
• Quality of life
• Tax and Industrial Development Incentives
• Supplier network proximity
• Land and Utility costs
• Availability of IT infrastructure
• Executive preferences

Customer Fulfillment Models

• Integrated Fulfillment
• Store Fulfillment
• Flow-Through Fulfillment
• Direct Store Delivery
(DSD)
• Pool Distribution
• Dedicated Fulfillment

Integrated Fulfillment

retail DC

TL, LTL or Parcel

store or consumer

• Retailer has both “bricks and mortar” and online sales
• They fulfill both sales channels from same network
• Easy start-up, can have product size/quantity availability issues,
can compete for same inventory.

Store Fulfillment

retail store

delivery or pickup

consumer

Online order is sent to the nearest store for customer pick-up or
delivery(could be parcel or local courier, etc)
• Conflicts between store and online inventory. Requires real time inventory
visibility at the store. Requires space at the store. Can be a stop gap to stand
up proper online fulfillment network

dedicated fulfilment

fulfilment center or distribution center

parcel or LATL, TL

consumer or store

Retailer operates two separate networks for “bricks and mortar”
and online sales.
• Solves integrated model issues, but creates more inventory and
more DCs. Allows ability to offer much more in online DCs

pool distribution

distribution center

LTL, TL

third party

source

Retailers that don’t have the density to create daily full truck loads for stores
will “pool” several stores, typically at a 3PL to do deliver several stores each
day with LTL size deliveries…aka “milk runs”

direct store delivery (DSD)

supplier DC

LTL

store

Retailer requires supplier/vendor to deliver product from their DCs
to the retail stores directly.
• This eliminates inventory and allows the supplier/vendor to “mix”
product and have control over stock outs.

flow through fulfillment

retail DC

TL, LTL, Parcel

store

delivery or pick up

consumer

Similar to store fulfillment, but the online orders are
picked/packed at the DC and sent to the store on normal delivery
truck for pick-up or delivery for customer.
• Major drawback is longer processing time/time to get to customer

Transactional

typically based just on price, not strategic. Ex transactional
buying

Capital goods

goods/equipment purchased to produce consumer goods. Ex
manufacturing equipment to produce consumer goods

Consumer goods

the end/finished product to be sold to consumers

RFI

Request for information

RFQ

Request for quote

RFP

Request for proposal

The “Market”

the available supply of or potential demand of specific goods
or services

Purchasing

Largely transactional activity
• Managing a firm’s acquisition procedures and standards
• Facilitated by the placement & processing of a PO
• Often follows formal sourcing process

Procurement

Range of processes related to an organization’s need to procure (buy) goods &
services
• Examples of activities – supplier selection, price negotiation, contract
management, supplier performance management

Strategic Sourcing

Broader processes than procurement
• Align with organizational and supply chain goals and objectives
• Cross-disciplinary collaboration

What Makes Strategic Sourcing Unique?

Consolidate and leverage
purchasing power
• Emphasis on value (effectiveness)
• Deeper, more meaningful supplier
relationships
• Attention directed to process
improvement
• Enhanced teamwork and
professionalism

Strategic Sourcing Core Principles

assess total value

develop individual sourcing strategies

evaluate internal requirements

focus on supplier economics

drive continuous improvement

assess total value

Emphasis beyond acquisition cost, evaluating total cost
of ownership and the value of the supplier relationship

Develop individual sourcing strategies

Individual spend categories need
customized sourcing strategies

Evaluate internal requirements

Requirements and specifications
thoroughly assessed and rationalized as part of the sourcing process

Focus on supplier economics

Suppliers’ economics understood before
identifying buying tactics (e.g. volume leveraging, price unbundling, price
adjustment mechanisms)

Drive continuous improvemen

Strategic sourcing initiatives as subset of
continuous improvement process for procurement and sourcing
organizations

Three Types of Purchasing Activity

maintenance, repair, operations (MRO)

capital goods

rebuy (standard, modified)

pros of electronic procurement

Lower operating costs (reduce paperwork & sourcing time, improve
control over inventory & spending)
• Improve procurement and sourcing efficiency (find new supply
sources, improve communications, improve personnel use, lower cycle
times)
• Reduce procurement prices
• Improve communications
• Easier access to more suppliers

cons of electronic procurement

• Cyber-security
• Lack of face-to-face contact between the buyer and seller
• Technology-related concerns (lack of standard protocols, system
reliability, time & money investment)

pricing is typically

a group or team inside a company

Importance of Pricing

• Align with positioning for target customers
• Align with Marketing
• Target what customers are willing & able to pay (what the Market
will bear)
• Supports organizational goals
• Enables adequate income to cover costs and make a profit

Price Sources

commodity markets

price lists

price quotations

negotiation

Preparation Techniques

1. Familiarize your team with the supplier’s company
2. Discover the supplier’s agenda
3. Profile the supplier’s negotiating team personnel
4. Review the supplier’s performance history
5. Select & prepare your negotiation team
6. Rehearse non-verbal signals
7. Develop & complete a strategy worksheet

Negotiation Strategy Types

competing (transactional)

collaborating (strategic)

compromising

avoiding

accommodating

Competing (transactional)

Enjoy negotiating, like to “win,” not relationally focused

Collaborating (strategic)

Enjoy solving tough problems in creative ways, committed to the best solution
for all involved

Compromising

Seek to close the deal by “closing the gap,” like to achieve closure as quickly as
possible

Avoiding

Defer and dodge confrontation

Accommodating

Derive satisfaction from solving other peoples’ problems, may weigh a
relationship more heavily than what they want out of a negotiation

Fixed costs

an expense that does not change regardless of production increases or
decreases

Variable costs

a cost that changes in proportion to production or sales

Machine flexibility

a production machine capable of producing a variety of products
without significant downtime between product runs

Offshoring

the practice of moving production or service operations oversees with the
intention of reducing the cost of doing business

KPIs

Key Performance Indicators. Can be interchangeably used with the term
“metrics.”

Volume vs Variety in Production Process Decisions

Economies of Scale
• Higher-volume production with lower cost per
unit of output
• Suitable in situations where production
processes have high fixed costs and equipment.
Economies of Scope
• Low-volume production with flexible capabilities
of producing a wide variety of products
• Important in markets characterized by changing
customer demand

Responsiveness vs Efficiency in Production Facility
Decisions

Centralized vs. Regional
• Centralized production facilities provide operating cost and
inventory efficiencies.
• Regional production facilities allow companies to be closer
to customers and more responsive.
Large vs. Small
• Larger facilities with excess capacity provide the flexibility to
respond to demand spikes.
• Smaller facilities that are better utilized are more cost
efficient

types of assembly processes

make to stock (MTS) I Make to order (MTO)-

assemble to order (ATO)> build to order (BTO)> Engineer to order (ETO)

Which Type of Assembly Process to Use?

 Level of customization
 Cost of finished goods
 Order fulfillment speed
 Process complexity
 Example products

Make to stock (MTS)

 Level of customization: none
 Cost of finished goods: low
 Order fulfillment speed: immediate
 Example products: commodities, toilet paper, canned soup, pharmaceuticals

Assemble to Order (ATO)

 Level of customization: limited
 Cost of finished goods: moderate
 Order fulfillment speed: days, weeks
 Example products: personal computers, automobiles

Build to Order (BTO)

 Level of customization: moderate
 Cost of finished goods: high
 Order fulfillment speed: weeks, months
 Example products: computer servers, private

Engineer to Order (ETO)

 Level of customization: total
 Cost of finished goods: very high
 Order fulfillment speed: months, years
 Example products: stadium, jumbo Tron, nuclear power plant

Make (in-house)

Internal production processes are more directly visible.
• Internal processes are easier to control from a quality
standpoint

buy (outsource)

• Lower product costs
• Free-up resources for other, more strategic needs
BUT
• More difficult to maintain visibility and synchronize
activities.
• More difficult to control over quality, intellectual property
rights, and customer relationships

what is the difference between make vs. buy

in-house and outsource