BUSOBA 3230: Purchasing and Supply Chain Design Part 2

CLASS

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Some industry sectors spend 50% or more of sales revenue on purchased services and materials from

their supply chains.

Firm is no longer constrained by

capabilities that it owns.

Sourcing used to be about…

cost reduction.

Now, sourcing is…

• outsourcing vs. vertical integration.
• Developing capabilities strategic partnerships with companies around the world.

Purchasing Teams: Work often done in teams with

operations (cross functional teams), engineering, marketing, finance, quality, logistics, and others.

Purchasing Teams: Both

• inward and outward facing (bridge role)
• Bridge role is between company and suppliers/providers.
• Communicating needs and resolving issues w/suppliers.

Purchasing Teams: Both PART 2

• analytical and interpersonal
• Understanding make/buy.
• Selecting and managing suppliers that are strategically aligned (cost, quality, and time).
• Negotiating prices and contracts.

Total Revenue

• Increase sales through better customer service.
• By improving percentage in stock.

Cost of Goods Sold

Reduce costs of transportation and purchased materials.

Supply chain affects cost of goods sold through negotiating cost of materials + transportation LEADS TO

reduced cost LEADS TO improve profits LEAD TO improve ROA.

Return on Assets (ROA)

• Increase ROA with higher net income and fewer total assets.
• Increase profits.
• Reduce assets.

It is (typically) a good idea to get your inventory down as far as possible…

until it isn't.

Just In Time Inventory (JIT)

Having the right inventory at the right time, all the time.

Just In Case Inventory

LOOK UP

Toilet Paper Video/What happened?

• No capacity cushion (competed on cost, efficient supply chain)
• Difficult to switch from commercial to consumer production/supply chain.
• More links and companies in the consumer supply chain LEADS TO more bullwhip effect.

Bullwhip Effect

• Increasing variability of orders upstream in the supply chain
• Variability in demand at the end of the supply chain (downstream),
• in stores, causes variability upstream, due to human behavior.
• With upstream, individual decisions are amplified.

Bullwhip Intellectual Causes

• Lower prices/specials/promotions
• Information errors LEAD TO system errors
• Forward buying (this is taking advantage of discounts or prior to (or example tariffs taking effect)

Bullwhip External Causes

• Supply side: Late or incomplete deliveries.
• Actual changes in demand.
• Hoarding/panic buying.

Bullwhip Remedies

• Safety stock.
• Capacity cushion.
• Be proactive.
• Information sharing.
• Coordination.

Zara Ex.

Good at managing supply chain. Especially for trendy/fast fashion items.

Zara Ex. More Info.

• Uses local and regional suppliers for trendy fashion items.
• Does vertical integration. More in house.
• Has more control of their capabilities.
• More responsive.

Supply chain design impacts

operating margins

Zara Ex. More Info. PART 2

• Much less markdowns (or discounts because it's a shorter supply chain (local and regional)).
• Higher regional suppliers.
• Little advertising needed.
• Vertical integration.
• Higher COGS.
• Higher supply chain.

Local Factories

• Fashion items
• Speedy
• Focused on quick time to market

Global Factories

• Basic items (functional items)
• Bigger supply chains
• Focused on cost

Basic is

functional

Trendy is

innovative