SCM 301 Exam 2

Procure-to-Pay (P2P)

Integrated process from placing an order through receipt of goods/services to supplier payment.

Bottleneck Items

A purchased input of relatively low importance / spend volume, and relatively high supply market complexity

Consideration

In order to meet the other conditions of the contract, something of value needs to be exchanged; this is known as consideration

contract

A written or spoken agreement between two parties. To be valid a contract must include an offer, an acceptance, and consideration

critical items

A purchased input of relatively high importance / spend volume, and relatively high supply market complexity.

landed costs

Price paid, plus all the costs (transportation, duties, handling) to get the items to the location where you need them. A subset of total cost of ownership analysis.

leverage items

A purchased input of relatively high importance / spend volume, and relatively low supply market complexity.

outsourcing

The act of obtaining goods or services from a supplier in place of internal sourcing. You are only outsourcing if you could have / used to produce the good or service internally, and are now choosing to source from outside the company.

profit-leverage effect

Translates the cost savings in logistics to the sales equivalent required to have the same profit impact.

purchase order

Order formally placed with external supplier. Typically comes from purchasing personnel - if not, it may be an example of maverick spend.

purchasing consortium

Two or more organizations that join together for the purposes of leveraging their combined spend volume to generate advantageous pricing and service conditions from suppliers.

SCOR Model

a framework that focuses on a basic supply chain of plan, source, make, deliver, and return processes, repeated again and again along the supply chain

Strategic Sourcing Matrix (SSM)

A strategic tool used to classify all purchased inputs according to relative value/spend volume and supply market complexity. Different categories (see Bottleneck, Critical, leverage, AND Routine purchase definitions in glossary) suggest different strategic approaches to supply management.

supplier scorecard

Like a report card, a scorecard is a tool that measures and displays supplier performance along criteria that you select.

supply management

The identification, acquisition, access, positioning, management of resources and related capabilities the organization needs or potentially needs in the attainment of its strategic objectives.

Supply Base Rationalization

The process of
1) determining how many and which suppliers you should buy from as well as 2) defining the type of relationship you should build with each supplier.

Value proposition

How the company competes; that is, why do customers buy from you versus a competitor?

Analytical Hierarchy Process (AHP)

The analytic hierarchy process (AHP) is a structured technique for organizing and analyzing complex decisions, based on mathematics and psychology.

Buyback Requirements

The requirement for the original seller to buy back its goods.

GPS

Global Positioning System

Local Content

When a foreign company makes products in a country, local content is the materials, parts et cetera that have been made in that country rather than imported. A minimum level of local content is required to obtain favorable tariff/tax treatment.

Merchant Category Code (MCC)

Is a four-digit number assigned to a business by credit card companies (for instance, American Express, MasterCard, VISA) when the business first starts accepting one of these cards as a form of payment.

Multi-Criteria Analysis

A valuable tool that can be applied to many complex decisions. It is most applicable to solving problems that are characterized as a choice among alternatives

RFI

The acronym for request for information, which is a formal invitation you send to potential suppliers, asking them to provide detailed information for a specific SKU.

Sensitivity Analysis

The formal process of asking the "what if...." questions in a decision-making scenario. Sensitivity analysis helps you identify the best option and make robust decisions; that is, decision that are good across a variety of likely scenarios.

start-up costs

Money needed to get a new supplier on board to produce your products (also called switching costs)

Circular Economy

An economy model in which resources remain in use for as long as possible, from which maximum value is extracted while in use, and the products and materials are recovered and regenerated at the end of the product life cycle.

defects

faults, flaws

Excess Processing

Activities that the customer does not value and is not willing to pay for.

lean operations

Lean is "creating more value for customers with fewer resources"
- You want to get rid of all processes, steps, and materials that don't add value

lean practices

Eliminating all processes, steps and materials that do not add value.

lean six sigma

Management system aimed at removing waste (and improving performance) collaborative efforts.

motion

As one of the eight wastes, inventory represents movement of people that does not add value.

not utilizing staff talent

The practice of not challenging employees or listening to and encouraging their ideas. One of the eight wastes. If this is blatant, employees can actually undermine a company's efforts to improve on the other seven wastes.

overproduction

Making more than the customer wants or than you have known demand for. One of the eight wastes.

Root Cause Analysis

Getting beyond the symptoms of a problem to the true underlying cause of the problem

Seiketsu

(aka Standardize) Have standardized processes and procedures to maintain workplace order, ease training of new people. One of the 5 s's.

Seiri

(aka Sort) Eliminate unneeded items from the area, organize and store the things that are not needed now. One of the 5 s's.

Seiso

aka Sweep) Clean, organize, and put things away each day as things are used. One of the 5 s's.

Seiton

Aka, Simplify Having a logical place where everything belongs—i.e., a place for everything and everything in its place. One of the 5 s's.

Shitsuke

aka. Sustain - Continuously follow a specific approach/initiative, implementing it throughout a company. One of the 5 s's.

Standard work

The copying of what works (best practice) and spreading it to other areas of the organization is known as standard work. Like everything in lean, standard work is subject to continuous improvement.

Toyota Production System (TPS)

The system that Toyota created to reduce waste through lean processes while meeting customer needs and utilizing employee talent.

Value Stream Mapping

A way to represent processes and flows in a supply chain or part of a supply chain that shows each step of a process as well as value added, time spent, and time during which value is added.

Visual Management

Refers to efforts for "seeing" and making sense of an activity or process. See "Poka Yoke" for an example.

waiting

Idle/wasted time when resources are not ready/available to use.
- one of the eight wastes

Seven Rights of Purchasing

Obtaining the right material
In the right quantity
With the right service
Or delivery to the right place
At the right time
From the right supplier
At the right price

Strategic Sourcing Matrix

Leverage, Critical, Routine, Bottleneck

leverage

you buy large volume from competitive, low-risk supplier markets, lots of competitors - you can leverage your spend power and the suppliers' fear of competition to negotiate best deal

critical

you buy large volumes from complex, high-risk supplier markets. The suppliers are somewhat unique - these CRITICAL items must be sourced right! Work closely with suppliers and think long term partnerships

routine

you buy small volumes from competitive, low-rick supplier markets - buying these should be a simple routine, just push a button! Fina good supplier, spend more time on important buy

bottleneck

you buy small volumes from complex, high-risk supplier markets. These suppliers are unique - these cause a bottleneck when they fail to appear. Try to keep volume and price steady, no disruptions

Category Importance (profit impact)

the more you $pend the more important the item is to your company
- Volume purchased
- Percentage of total purchase cost
I- mpact on product quality or business growth

market complexity (supply risk)

measures how difficult it is for you to guarantee a reliable, uninterrupted flow of supply at an affordable price
- Availability
- Number of suppliers
- Make-or-buy opportunities
- Substitution opportunities
- Storage risks
- Price volatility
- Probabilities of supply disruptions
- Pace of technological change

six sigma

a systematic, data-driven approach to achieving zero defects
- reduce variation
- fewer defects \= lower quality costs \= increased profitability

Transactional Relationship

GOAL - minimize costs, assure availability
NATURE: low value co-creation potential, arms-length, short-term transitory, minimal investment

Strategic Alliance

GOAL - maximize value co-creation, assure availability
NATURE - high value of co-creation potential, interdependent, long-term, joint planning via teams, share resources, shared risks & rewards

Benefits of supplier reliance

Increase in the speed of product development
Improvement in problem-solving abilities and response time
Building stronger partnerships between suppliers and manufacturers
Increase in competitive advantage

How do you reduce defects?

Improve processes; combine all three
- six sigma
- lean principles
- theory of constraints

Common Cause Variation

the purely random, unidentifiable sources of variation that are unavoidable with the current process

Special Cause Variation

Non-random variation, should be able to identify

Make vs. Buy KEY TAKEAWAYS

- Don't outsource strategic activities
- Don't outsource activities that you do better than suppliers
- Consider outsourcing when a supplier does something better than you do

Effective capacity equation

Design Capacity - Lost Production

*backward vertical integration:
*forward vertical integration:

- refers to acquiring sources of supply
- refers to acquiring customer's operations

Reasons for buying (outsourcing)

Cost advantage, insufficient capacity, lack of expertise, quality, strategic benefits of using best-class suppliers, greater flexibility, reduction in design cycle times, less capital required, risk is transferred to supplier

reasons for making

Protect proprietary technology, no competent supplier, better quality control, use existing idle capacity, control lead-time, transportation, and warehousing cost, lower cost(possibly)

Make vs. Buy Equation

{Total cost to make (fixed cost + variable cost) \= Total cost to buy (fixed cost + variable cost)}

Total Cost of Ownership (TCO) - conceptual

Important factor that is overlooked - a cost of a unit is MORE than just a unit per cost........ It's unit, ordering, logistics, inventory, maintenance, etc. costs

Total Cost of Ownership (TCO) - quantitative

add up all the costs of ownership for both companies and choose the cheaper one

Supplier Selection ; Reasons to Search for a New Supplier

- contract expiration, poor supplier performance, innovation - new need, supply market change

How the strategic sourcing matrix relates to supplier selection strategy

Routine Buy → selection process should be; simple, efficient, fair

Critical Buy → selection process should be detailed, thorough, interactive

single sourcing

- using one supplier for a particular product
Allows volume consideration
Encourages close relationships
Supplier brings innovative product and processes
Only need to synchronize with one supplier
Lowers freight cost

Multi-sourcing

- using several suppliers for a particular product
competition among suppliers ensures price and service
Risk mitigating
Avoids too much dependence on one supplier
Better market scanning ability for new technologies or products
Possible synergies between suppliers

Key steps in Supplier Selection Process

1. supplier identification: know who your suppliers are... important to ask, Could your rival find a better supplier?

2. supplier evaluation: gaining the information you need to pick the best supplier; price, quality, technical specifications, delivery, customer service, etc.

3. supplier approval: competitive bidding, reverse actions, negotiations

4. performance monitoring: monitor and communicate results to make sure supplier is giving you what you want

Customer of Choice Matrix

Development - nurture relationship to grow the business
Core - provide outstanding service
Nuisance - provide minimal service
Exploitable - keep business as long service requests aren't too high

Lean's Goal; Eliminate the Eight Wastes

Transportation - unneeded movement of materials
Inventory - excess raw materials
Motion - unneeded movements or walking
Waiting - downtime awaiting parts
Over Processing - doing more than what's needed
Overproduction - making too much
Defects - dealing with returns, rejects
Skills - underutilizing capabilities


* LOOK AT REVIEW!

Kaizen

continuous improvement

Kanban

"Visual signal" or "cards"

Poka-yoke

mistake-proof

Takt Time

German term- conductor's baton - Rate at which units need to be completed to meet customer demand

Identify the different types of process designs (product-process matrix)

Project, Job Shop, batch, Assembly Line, Continuous Flow

Product

Customized, one of a kind output
Work closely with customers and use flexible equipment
Plan and manage each project independently

Job Shop

Distinct, low volume orders

Batch

"Customize" basic models by offering a few unique options
Differences in processing, but follow a similar flow
Less equipment and employee flexibility

Assembly Line

High demand for a standardized product
Produce to stock using a fixed sequence of activities
Equipment is specialized and workers rotate among a range of activities

Continuous Flow

When volumes are large and you can't distinguish one unit of product from the next (gas, laundry detergent, pasta, sugar)
Capital-intensive, highly automated processes
Low-skilled workers but highly trained engineers

Design Capacity

The maximum output rate that a process can achieve under ideal conditions
- "Ideal" almost never happens, so you need to determine effective capacity

Effective Capacity

The output rate of a process during normal conditions

lean management

Helps you maximize customer value by eliminating process wast

theory of constraints

An emphasis on machine utilization incents managers to keep machines running, leading to overproduction and excess inventory

throughput

The rate at which the entire organization generates money through sales for a product or service

bottlenecks

Constraints within businesses. Can be physical, policy, or partner bottlenecks

Performing Bottleneck Analysis

Step 1: Map the Process
Step 2: Calculate Activity Times
Step 3: Determine Target Values
Step 4: Determine Bottleneck Impact
- Bottleneck analysis is a powerful tool you should use when a process fails to perform to expectation or when it fails to keep up with demand. It can also be used when customer surveys are showing a decline in satisfaction, or process-related employee complaints are increasing.

Lean's Value Proposition

"do more with less and less-less human effort, less equipment, less time, and less space, while coming closer to providing customers with exactly what they want

Identify the steps involved in the lean journey:

1. Identify Customer Value
2. Map the Value Stream
3. Flow the Processes
4. Pull demand through the system
5. Seek perfection through continuous improvement

Minimize Set up Time

- Eliminate wasted motion form each step of the set-up process
- Place dies and other items to be exchanged on easily moveable structures
- Use quick release and quick attach mechanisms
- Make sure all needed tools are easily accessible
- Offload aspects of the changeover so you can get started while the line is still running

Total Quality Management

Perfect or near perfect quality is needed to run lean. The key to quality is doing things right the first time.

Cross-Functional workers

You need multi-skilled, cross functional workers. If workers are cross-trained, they can help wherever needed. Cross-training contributes to a culture of success

Balanced Cycle Times (Takt Time)

TAKT time: As you reduce set-up times and improve quality, you can begin to reduce and to balance cycle times. Your goal is to build a balanced process that produces at a pace so that output meets demand

parallel processing

the processing of many aspects of a problem simultaneously