supply management integration for competitive advantage

PURCHASING & SUPPLY CHAIN MANAGEMENT, 4ePURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

CENGAGE LEARNINGCENGAGE LEARNINGMonczka – Handfield – Giunipero – PattersonMonczka – Handfield – Giunipero – Patterson

Supply Management Supply Management Integration for Integration for

Competitive AdvantageCompetitive AdvantageChapter 4Chapter 4

Chapter Overview

Internal integrationInternal integration External integrationExternal integration The critical role of cross-functional The critical role of cross-functional

sourcing teamssourcing teams Integrating supply management, Integrating supply management,

engineering, and suppliers to develop engineering, and suppliers to develop new products and servicesnew products and services

Managing risk in the supply chainManaging risk in the supply chainPurchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e

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Supply Integration Defined

Professionally managing suppliers and Professionally managing suppliers and developing close working relationships developing close working relationships with different internal groups.with different internal groups.

Theme:Theme: Become more closely integratedBecome more closely integrated Develop capabilitiesDevelop capabilities Improve competitive performanceImprove competitive performance

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Elements of Supply Integration

People are coming together to work on People are coming together to work on a common problema common problem

Different people bring different points Different people bring different points of view to the tableof view to the table

Team members are often located all Team members are often located all over the globeover the globe

There is a need to develop a common There is a need to develop a common understanding of the end goalunderstanding of the end goal


Relationship Management Skills

Ability to:Ability to: Act ethicallyAct ethically Listen effectivelyListen effectively CommunicateCommunicate Use creative problem-solvingUse creative problem-solving Drive relationshipsDrive relationships


Relationship Inputs

InformationInformation About marketsAbout markets About plans and requirementsAbout plans and requirements

Knowledge and expertiseKnowledge and expertise Product/service knowledge and Product/service knowledge and

technologytechnology Process knowledge and understanding Process knowledge and understanding

“how to make it work”“how to make it work”


Relationship Inputs

Business advantagesBusiness advantages Favorable cost structuresFavorable cost structures Economies of scaleEconomies of scale

Different perspectivesDifferent perspectives ““Fresh eyes” approachFresh eyes” approach SynergySynergy


How to Achieve Integration

Cross-functional teamsCross-functional teams Information systemsInformation systems Integrated performance objectives and Integrated performance objectives and

measuresmeasures Process-focused organizationsProcess-focused organizations Co-location of suppliers and customersCo-location of suppliers and customers Buyer or supplier councilsBuyer or supplier councils Steering committeeSteering committee


Internal Linkages

Consists of many communication flows Consists of many communication flows increasing exponentiallyincreasing exponentially

Need to reach agreementNeed to reach agreement Issue of global outsourcing of internal Issue of global outsourcing of internal

functions and activitiesfunctions and activities Identifying global requirements for Identifying global requirements for

successsuccess


Operations

Traditional close relationship through Traditional close relationship through direct supportdirect support

Development of a global operations Development of a global operations strategystrategy

Sales and operations plan (S&OP)Sales and operations plan (S&OP) Often co-locatedOften co-located


Quality Assurance

Increasing in importanceIncreasing in importance Growing % of outsourced materialsGrowing % of outsourced materials Supplier quality training and Supplier quality training and

developmentdevelopment Supplier process capability studiesSupplier process capability studies Joint corrective action planningJoint corrective action planning


Engineering

One of the most important and One of the most important and challenging linkageschallenging linkages

Joint product and process Joint product and process development activitiesdevelopment activities

Co-opting engineers to work in supply Co-opting engineers to work in supply managementmanagement

Looking for new technologiesLooking for new technologies Ongoing and direct communicationOngoing and direct communication


Accounting and Finance

Much communication activity is Much communication activity is electronicelectronic

Inbound materialsInbound materials Reconciliation of POs, invoices, and Reconciliation of POs, invoices, and

receiving documentsreceiving documents Developing timely and accurate cost Developing timely and accurate cost

datadata Often basis for make-or-buy decisionsOften basis for make-or-buy decisions


Marketing and Sales

Voice of the customerVoice of the customer New product ideasNew product ideas Sales forecasts Sales forecasts production plans production plans


Legal

Contractual issuesContractual issues Patent ownership of new technologiesPatent ownership of new technologies Intellectual property issuesIntellectual property issues Product liability claimsProduct liability claims Antitrust issuesAntitrust issues Long term contracts with escape Long term contracts with escape

clausesclauses Supplier nonconformance issuesSupplier nonconformance issues


Environmental Management

Environmental management systemEnvironmental management system ISO 14000ISO 14000 Hazardous waste handling and Hazardous waste handling and

transportationtransportation

Health issuesHealth issues Safety issuesSafety issues

OSHAOSHA


External Integration

Supply management is the face of the Supply management is the face of the organization to its supply baseorganization to its supply base

Acts as liaison on multiple frontsActs as liaison on multiple fronts MaterialsMaterials New technologyNew technology Market informationMarket information ServicesServices


External Linkages

SuppliersSuppliers GovernmentGovernment Local communitiesLocal communities


Suppliers

Primary commercial linkagePrimary commercial linkage Maintain open and continuous Maintain open and continuous

communicationcommunication Supplier selection and managementSupplier selection and management


Government

International countertrade issuesInternational countertrade issues Compliance with foreign laws regarding Compliance with foreign laws regarding

contracts and supplierscontracts and suppliers Negotiation with foreign governmentsNegotiation with foreign governments Consult with appropriate agencies Consult with appropriate agencies

regarding regulatory complianceregarding regulatory compliance


Local Communities

Control of substantial budget which Control of substantial budget which could affect local economiescould affect local economies

May affect certain social goalsMay affect certain social goals EthicsEthics


Buyer-Supplier Collaboration

One or a limited number of suppliers One or a limited number of suppliers for each item or family of itemsfor each item or family of items

A win-win approach to reward sharingA win-win approach to reward sharing Joint efforts to improve supplier Joint efforts to improve supplier

performanceperformance Joint efforts to resolve disputesJoint efforts to resolve disputes


Buyer-Supplier Collaboration

Open exchange of informationOpen exchange of information Credible commitment to work together Credible commitment to work together

during difficult timesduring difficult times Commitment to high quality, defect-Commitment to high quality, defect-

free, and manufacturable products that free, and manufacturable products that supplier’s process is capable of supplier’s process is capable of producingproducing


Advantages of Closer Relations

TrustTrust Not take advantage of each otherNot take advantage of each other Share sensitive dataShare sensitive data Early supplier involvementEarly supplier involvement

Long-term contractsLong-term contracts Incentive for supplier investment in new Incentive for supplier investment in new

plant and equipmentplant and equipment Joint development of new technology, risk-Joint development of new technology, risk-

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Obstacles to Closer Relationships

ConfidentialityConfidentiality Limited interest by suppliersLimited interest by suppliers Legal barriers (antitrust)Legal barriers (antitrust) Resistance to changeResistance to change


Effective SRM

Start with how a firm interacts with Start with how a firm interacts with itselfitself Where are the functional silos?Where are the functional silos? Who are the key decision-makers?Who are the key decision-makers?

Resolve internal conflicts between Resolve internal conflicts between stakeholders before trying to change or stakeholders before trying to change or refocus externallyrefocus externally


Effective SRM

Supply management should be key Supply management should be key point of contact to make or deliver on point of contact to make or deliver on supplier commitmentssupplier commitments

Relationship management governance Relationship management governance needs relationship managersneeds relationship managers

Multiyear, long horizonMultiyear, long horizon Key performance indicators (KPIs)Key performance indicators (KPIs)


SRM Skills

Different stages of SRM require Different stages of SRM require different skill setsdifferent skill sets

Recruit from the businessRecruit from the business Monitor internal and external shiftsMonitor internal and external shifts Establish mechanisms to facilitate Establish mechanisms to facilitate

readjustment in roles, metrics, and readjustment in roles, metrics, and project deliverablesproject deliverables


SRM Skills

Schedule regular site-level supplier and Schedule regular site-level supplier and stakeholder meetingsstakeholder meetings

Drive people to insight and commitmentDrive people to insight and commitment Be willing to remove people or Be willing to remove people or

directions that aren’t aligned with directions that aren’t aligned with strategystrategy


Cross-Functional Teams

Consist of various internal functional Consist of various internal functional areas and possibly suppliersareas and possibly suppliers

Specific tasksSpecific tasks Supplier selectionSupplier selection Product designProduct design

General tasksGeneral tasks Reducing purchased item costsReducing purchased item costs Improving qualityImproving quality


Benefits of CFTs

Reduced time to complete tasksReduced time to complete tasks Increased innovationIncreased innovation Joint ownership of decisionsJoint ownership of decisions Enhanced communication between Enhanced communication between

functional areasfunctional areas


Benefits of CFTs

Realizing synergiesRealizing synergies Better identification and resolution of Better identification and resolution of

problemsproblems Need to build internal relationshipsNeed to build internal relationships


Drawbacks of CFTs

Does not guarantee successDoes not guarantee success Team process lossTeam process loss Negative effects on individual membersNegative effects on individual members Poor team decisionsPoor team decisions

GroupthinkGroupthink Artificial consensusArtificial consensus


When to Form a CFT

Facing a complex or large-scale Facing a complex or large-scale business decisionbusiness decision

CFT is likely to make a better quality CFT is likely to make a better quality decisiondecision

Assignment directly affects a firm’s Assignment directly affects a firm’s competitive positioncompetitive position

No single function has sufficient No single function has sufficient resourcesresources


Questions Driving Use of CFTs

1.1. Does our organization consider CFT Does our organization consider CFT planning issues when establishing planning issues when establishing sourcing teams?sourcing teams?

2.2. Does executive management practice Does executive management practice subtle control over sourcing teams?subtle control over sourcing teams?

3.3. Does our organization recognize and Does our organization recognize and reward team member participation and reward team member participation and team performance?team performance?


Questions Driving Use of CFTs

4.4. Do we have the right individuals Do we have the right individuals selected as sourcing team leaders?selected as sourcing team leaders?

5.5. Do our sourcing teams effectively Do our sourcing teams effectively establish performance goals?establish performance goals?

6.6. Are key suppliers part of the sourcing Are key suppliers part of the sourcing team process?team process?


CFT Planning Issues

Selecting a taskSelecting a task Meaningful?Meaningful?

Selecting team members and leadersSelecting team members and leaders Training requirementsTraining requirements Resource supportResource support


An Effective CFT Member

Understands the team’s taskUnderstands the team’s task Has task-relevant knowledgeHas task-relevant knowledge Has the time to commit to the CFTHas the time to commit to the CFT Has the ability to work with others in a Has the ability to work with others in a

groupgroup Can assume an organizational Can assume an organizational

perspective in addition to a strict perspective in addition to a strict functional onefunctional one


Resource Support

Supplier participationSupplier participation Required services and help from othersRequired services and help from others Time availabilityTime availability Budgetary supportBudgetary support Materials and suppliesMaterials and supplies


Resource Support

Team member task preparationTeam member task preparation Work environmentWork environment Executive management commitmentExecutive management commitment Job-related informationJob-related information Tools and equipmentTools and equipment


Subtle Management Control

Authorizing the creation of the Authorizing the creation of the sourcing teamsourcing team

Selecting the team’s tasksSelecting the team’s tasks Establishing broad objectivesEstablishing broad objectives Selecting team leadershipSelecting team leadership Requiring regular updatesRequiring regular updates Conducting performance reviewsConducting performance reviews


Recognition and Rewards

Monetary bonuses and other one-time Monetary bonuses and other one-time cash awardscash awards

Executive recognitionExecutive recognition Non-monetary rewardsNon-monetary rewards Merit raisesMerit raises


Guidelines for Rewards

Team membership should be a part of Team membership should be a part of the individual’s performance reviewthe individual’s performance review

Management should assess each Management should assess each individual’s contribution to the teamindividual’s contribution to the team


Issues for Team Leaders

Need to give more attention, training, Need to give more attention, training, and support to team leadersand support to team leaders

New set of basic team leadership skills New set of basic team leadership skills requiredrequired

Advanced team leadership skillsAdvanced team leadership skills Too much structure may lead to team Too much structure may lead to team

failurefailure


Importance of Sourcing Team Goals

Use as a basis for assessing team Use as a basis for assessing team performanceperformance

Provide a benchmark for assessing Provide a benchmark for assessing progress, providing feedback, and progress, providing feedback, and allocating performance awardsallocating performance awards

Challenging goals vs. “easy” goalsChallenging goals vs. “easy” goals


Supplier Involvement on CFTs

Are typically more effectiveAre typically more effective Put forth more effortPut forth more effort Higher quality of key informationHigher quality of key information Supplier becomes a resourceSupplier becomes a resource Fewer coordination problemsFewer coordination problems Greater supplier contributionGreater supplier contribution May need to also consider key May need to also consider key

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Successful Supplier Integration

Formalized process for selecting itemsFormalized process for selecting items Use of CFTs for supplier selection and Use of CFTs for supplier selection and

integrationintegration Early supplier selection for design and Early supplier selection for design and

volume workvolume work Supplier membership and team Supplier membership and team

participationparticipation Direct cross-functional communicationDirect cross-functional communication


Successful Supplier Integration

Co-location of buyer and supplier Co-location of buyer and supplier personnelpersonnel

Formal trust development effortsFormal trust development efforts Sharing of technology between buyer Sharing of technology between buyer

and supplier companiesand supplier companies Joint education and training effortsJoint education and training efforts


Risk Assessment Questions

What is the likelihood that this supplier What is the likelihood that this supplier has the ability to bring the product to has the ability to bring the product to market?market?

How does this risk assessment How does this risk assessment compare to other potential suppliers (if compare to other potential suppliers (if there are others)?there are others)?


Risk Assessment Questions

At what point are we willing to reverse At what point are we willing to reverse this decision if we proceed?this decision if we proceed?

What are the criteria and measures for What are the criteria and measures for doing so?doing so?

What is the contingency plan that takes What is the contingency plan that takes effect in the event of reversing our effect in the event of reversing our decision?decision?


Elements for Consideration

Targets – is the supplier capable of Targets – is the supplier capable of hitting affordable targets regarding hitting affordable targets regarding cost, quality, conductivity, weight, and cost, quality, conductivity, weight, and other performance criteria?other performance criteria?

Timing – will the supplier be able to Timing – will the supplier be able to meet product introduction guidelines?meet product introduction guidelines?



Ramp-up – will the supplier be able to Ramp-up – will the supplier be able to increase capacity and production fast increase capacity and production fast enough to meet our market share enough to meet our market share requirements?requirements?

Innovation and technical – does the Innovation and technical – does the supplier have the required engineering supplier have the required engineering expertise and physical facilities to expertise and physical facilities to develop an adequate design, develop an adequate design, manufacture it, and solve problems?manufacture it, and solve problems?



Training – do the supplier’s key Training – do the supplier’s key personnel have the required training to personnel have the required training to start up required processes and debug start up required processes and debug them?them?

Resource commitment – if the supplier Resource commitment – if the supplier is deficient in any of the above, is is deficient in any of the above, is management willing to commit management willing to commit resources to remedy the problem?resources to remedy the problem?


Supplier Involvement in Design

White box – supplier is given blueprints White box – supplier is given blueprints and told to make the product from themand told to make the product from them

Gray box – supplier’s engineers work Gray box – supplier’s engineers work cooperatively with buyer’s engineers in cooperatively with buyer’s engineers in joint designjoint design

Black box – suppliers are provided Black box – suppliers are provided functional specifications and create the functional specifications and create the designdesign


Defining a Technology Roadmap

Projected performance specifications Projected performance specifications for a class of products or processesfor a class of products or processes

An intention to integrate a new material An intention to integrate a new material or componentor component

Development of a product to meet Development of a product to meet customer requirements that is currently customer requirements that is currently unavailable in the marketunavailable in the market


Defining a Technology Roadmap

Integration of multiple complementary Integration of multiple complementary technologies that results in a radical technologies that results in a radical new productnew product

Any combination of the aboveAny combination of the above


Concerns with Supplier Integration

Unwillingness of internal design Unwillingness of internal design personnel to relinquish responsibilitypersonnel to relinquish responsibility

Concerns over sharing proprietary Concerns over sharing proprietary informationinformation

Lack of integrative business processesLack of integrative business processes Lack of cultural alignmentLack of cultural alignment


Integration into Order Fulfillment

Supplier suggestion programsSupplier suggestion programs Buyer-supplier improvement teamsBuyer-supplier improvement teams On-site supplier representativesOn-site supplier representatives


Supplier Suggestion Programs

Assessment of the suggestionAssessment of the suggestion FeasibilityFeasibility Resources requiredResources required Potential savingsPotential savings Go / no-go decisionGo / no-go decision Feedback to supplierFeedback to supplier


Buyer-Supplier Improvement Teams

Cost reductionCost reduction Quality improvementQuality improvement Delivery improvementDelivery improvement Process technology upgradesProcess technology upgrades Reduction of order cycle timesReduction of order cycle times


Supplier Involvement Outcomes

Greater satisfaction with the quality of Greater satisfaction with the quality of information exchangeinformation exchange

Higher reliance on suppliers to directly Higher reliance on suppliers to directly support the team’s goalssupport the team’s goals

Fewer problems coordinating work Fewer problems coordinating work activitiesactivities

Greater effort put forth on a team Greater effort put forth on a team assignmentassignment


On-Site Supplier Representatives

Waste managementWaste management Printing servicesPrinting services Spare parts and Spare parts and

MRO inventoriesMRO inventories Computer Computer

equipment and equipment and softwaresoftware

Office furnitureOffice furniture

Uniforms and Uniforms and protective protective equipmentequipment

Process control Process control equipmentequipment

Production partsProduction parts Transportation Transportation

servicesservices MaintenanceMaintenance


Buyer’s Use of On-Site Supplier Reps

Supply managementSupply management SalesSales EngineeringEngineering TransportationTransportation


On-Site Rep Benefits to Buyer

Increased buyer-supplier coordinationIncreased buyer-supplier coordination Supplier personnel work on-siteSupplier personnel work on-site Supply management staff increasedSupply management staff increased Supplier performs some sourcing Supplier performs some sourcing

activitiesactivities


On-Site Rep Benefits to Supplier

Increased supplier insight to customer Increased supplier insight to customer needs and access to new designsneeds and access to new designs

Daily interface with customerDaily interface with customer Increased supplier production Increased supplier production

efficiencyefficiency Fewer schedule changes and surprisesFewer schedule changes and surprises Reduced transaction costsReduced transaction costs Reduced inventoryReduced inventory


supply management integration for competitive advantage

Documents

supply managementlooking

common understanding

different internal groups

direct supportdevelopment

new technologiesongoing

communication flows

new products

technologyprocess knowledge