SCM Class 10 - Planning Supply Strategies

scm broad activities carried out by organizations

§Analyze sourcing opportunities

§Develop sourcing strategies

§Select suppliers

§Procure goods and services

§Measure and manage suppliers

global sourcing

• competing against world class organizations

• global competition needs global sourcing

• consider where and when goods/ services are needed

• information systems

performance impact

affecting way company performs

• quality: performance, features, reliability, conformance, durability, serviceability, perceived quality

• delivery: right quantity, right time, right place

• price

Cost of Goods Sold- COGS

(Financial Performance)

• The purchased cost of goods from outside suppliers

Merchandise Inventory

A balance sheet item that shows the amount a company paid for the inventory it has on hand at a particular point in time

Profit Margin

The ratio of earnings (profit) to sales (revenue) for a given time period

Profit Leverage Effect

• decreasing the money spent on purchasing functions increases profit FASTER than increasing revenue as a result of marketing and sales

• every $1 saved in purchasing, lowers COGS by $1 and contributes directly to bottom line profits

% COGS FORMULA

• PERCENT COST OF GOODS SOLD

• percent of sales

• need to know to calculate profit leverage effect

NEED TO MEMORIZE

(COGS/ SALES REVENUE)X 100

PRETAX PROFIT MARGIN FORMULA

• Pretax Profit Margin Percentage

• percent of sales

• need to know to calculate profit leverage effect

NEED TO MEMORIZE

= (PRETAX PROFIT / SALES REVENUE) x 100

When Purchasing/Procurement reduces COGS by a quantity or percentage the money saved increases Pretax Profit by the same amount

§EXAMPLE: Reducing COGS by $10 increases Pretax Profit by $10

§EXAMPLE: COGS = $100. Reducing COGS by 10%, reduces COGS by:

• $100 x 0.1 = $10, which increases Pretax Profit by $10

Question: When saying if purchasing/procurement reduces COGS by $30 M what are the NEW PRETAX EARNINGS

• reducing cogs will go directly increase pretax earnings

• NEW PRETAX EARNINGS FORMULA: Original Pretax Earnings + Amount reduced by COGS

Question: When saying if purchasing/procurement reduces COGS by 1%, what are the NEW PRETAX EARNINGS

• need to find 1% of Original COGS

• COGS Amount (1%)

• NEW PRETAX EARNINGS FORMULA= Original Pretax Earnings + Amount reduced by COGS

Strategic Sourcing

Identifying ways to improve long-term business performance by better understanding sourcing needs, developing long-term sourcing strategies, selecting suppliers, and managing the supply base.

Step 1 in Strategic Sourcing

Assess Opportunities

• Spend Analysis

• Pareto Chart: Impt categories graphically descending order

Spend Analysis

• Strategic sourcing STEP 1(assess opportunities)

• Applying quantitative techniques to purchasing data to BETTER UNDERSTAND SPENDING PATTERNS and IDENTIFY OPPORUTNITIES FOR IMPROVEMENT

• Purpose: determine where efforts to change purchasing practices will have most influence

Pareto Chart

• step 1 in strategic sourcing (assess opportunities)

• visualizing important categories

• graphically orders categories of numerical data in DESCENDING ORDER

• lets most important categories be more recognized

  

Step 2 in Strategic Sourcing

Profile Internally and Externally

• Category Profile

• Industry Analysis

Internal Category Profile

• Strategic Sourcing Step 2

understanding all aspects of sourcing category that can have impact on sourcing strategy

• break down categories of purchasing into more detail

• identify where problems occur internally

• MAVERICK SPENDING: unauthorized, off contract purchases (purchases from non qualified spenders/ bypass purchasing procedures) 

External Industry Analysis

• Strategic Sourcing Step 2

Profiling major forces and trends that are impacting industry (pricing, competition, regulatory forces, substitution, technology changes, supply/demand)

• maintain visibility of global political and regulatory policies

• tracking trends in commodity and supply pricing

• monitoring market, customer, and competitor trends