Ch 6 Supply Chain Study Guide

Strategic sourcing

a complete approach to finding and choosing key suppliers
focus on long-term relationships

Bottleneck

Low value, high risk, few suppliers
ex: rare earth minerals

Non-critical

Low value, low risk, routine items
ex: toilet paper

Strategic

High value, high risk, vital to success
ex: jet engines

Leverage

High value, low risk, many suppliers
ex: logistics/trucking

Insourcing

Making it yourself with your own resources

Outsourcing

Buying it from an outside supplier

Single-source

Many suppliers exist, but you choose to buy from one

Multi-source

Buying from more than one supplier to create competition

Sole source

Only one supplier exists. This is not a strategy because there is no choice.

Reasons to use a single supplier

Build a good relationship
Less variation in quality
Lower cost from all the volume
Transportation savings
Proprietary product, or volume too small to split

Reasons to use multiple suppliers

Need more capacity
Spread the risk of a supply disruption
Create competition
More sources of information
Special kinds of business

Functional products

everyday items with steady demand, low profit and lots of competition, such as office supplies. Strategy: reliable, low-cost suppliers, multi-sourced

Innovative products

short life cycles, unpredictable demand, high profit and little competition, such as a new iPhone. Strategy: a long-term partnership with one cutting-edge, market-leading supplier, single-sourced

Supply base rationalization

cutting down to the fewest suppliers possible without greatly increasing risk

Preferred supplier

the supplier that best meets all of your overall purchasing needs, not just the cheapest or highest quality. Can also add capacity for surprise demand and save money through economies of scale

Strategic alliance (partnership)

a buyer and supplier commit to work together over a long time for mutual benefit, sharing information and resources while staying separate companies

Distributive negotiation

one side wins and the other loses

Collaborative negotiation

both sides work openly toward a win-win result

Reverse auction

Pre-qualified suppliers log in at a set time and underbid each other. The lowest price wins

VMI (Vendor Managed Inventory)

The supplier tracks the buyer's inventory and decides when and how much to ship. This lowers the buyer's carrying costs and prevents stockouts

CMI (Co-Managed Inventory)

The supplier only recommends an order. The buyer must approve it. This is the key difference from VMI.

Supplier co-location

A supplier employee works inside the buyer's purchasing department to forecast, watch inventory and place orders

Ethical sourcing

buying in a way that creates positive social change. Workers are treated fairly and safely, and environmental and social impacts are considered.
Examples: making sure there is no child labor, or planting trees to replace the trees used for boxes. Keeping costs low is not this

Sustainability

meeting today's supply chain needs without hurting the ability to meet future needs. It is not about avoiding extra cost.
Example: a supplier replants trees so it can keep supplying boxes for decades. The same action can be both ethical and sustainable