Sourcing and Transportation in the Supply Chain

7/26/2019 Sourcing and Transportation in the Supply Chain

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Unit-V

Sourcing and transportation decisionsin the supply chain

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The role of sourcing in a supply chain

Sourcing is the set of business processes required to purchase

goods and services. The process includes:

Supplier scoring and assessment

Supplier selection and contract negotiation

Design collaboration

rocurement

Sourcing planning and analysis

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"enefits of effective sourcing decisions

"etter economies of scale can be achieved if orders are aggregated

#ore efficient procurement transactions can significantly reduce the

overall cost of purchasing

Design collaboration can result in products that are easier to manufacture

and distribute$ resulting in lo%er overall costs

&ood procurement processes can facilitate coordination %ith suppliers

'ppropriate supplier contracts can allo% for the sharing of ris(

)irms can achieve a lo%er purchase price by increasing competition

through the auctions

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Supplier scoring and assessment

+

,eplenishment lead time

n-time performance

Supply fleibility

Delivery frequency/minimum lot si0e

Supply quality

nbound transportation cost

ricing terms

nformation coordination capability

Design collaboration capability

2change rates$ taes$ duties

Supplier viability

Supplier performance should be compared on the basis of the supplier3s impact

on total cost %hich is based on the follo%ing factors:


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Supplier selection and contract negotiation

Supplier selection can be performed through competitive bidding process

or through direct negotiations

4ontracts for product availability and supply chain profits:

"uybac( contracts:

5 'llo%s a retailer to return unsold inventory up to a specified amount at

an agreed upon price

5 ncreases the optimal order quantity for the retailer$ resulting in higher

product availability and profits for both the retailer and the supplier

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4ontinued7..

,evenue-sharing contracts:

The buyer pays a minimal amount for each unit purchased from the

supplier but shares a fraction of the revenue for each unit sold

Decreases the cost per unit charged to the retailer$ %hich effectively

decreases the cost of overstoc(ing

8uantity fleibility contracts:

'llo%s the buyer to modify the order 9%ithin limits as demand

visibility increases closer to the point of sale

"etter matching of supply and demand

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Design collaboration

6< percent of the cost of a purchased part is fied in the design

phase

Design collaboration %ith suppliers can result in reduced cost$

improved quality and decreased time to mar(et

mportant to employ design for logistics$ design for

manufacturability

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The procurement process

The process in %hich the supplier sends product in response to ordersplaced by the buyer

&oal is to enable orders to be placed and delivered on schedule at the

lo%est possible overall cost

)ocus for direct materials should be on improving coordination and

visibility %ith supplier

)ocus for indirect materials should be on decreasing the transaction cost

for each order

rocurement for both should consolidate orders %here possible to ta(e

advantage of economies of scale and quantity discounts

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Sourcing planning and analysis

eriodical analysis of procurement spending and supplier

performance

Using the inputs from above for future sourcing decisions

rocurement spending should be analy0ed by part and

supplier to ensure appropriate economies of scale

Supplier performance analysis should be used to build a

portfolio of suppliers %ith complementary strengths

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Transportation in supply chain

#odes of transportation 9domestic:

,oad 9about ;< percent

,ail 9about !6 percent

Sea

'ir

ipeline

,ope%ays 9negligible

@ote: Sea$ air and pipeline share about 16 percent of the total material

transportation in the supply chain.

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)actors influencing transportation cost

Transportation cost per unit load:

Volume 9higher volume %ill reduce per unit cost of transportation

Distance 9higher the distance$ higher the cost

roduct density 9%eight per unit volume

roduct shape 9odd si0ed products may need to%ing

roduct handling 9specific requirement for loading and unloading

roduct type/nature 9insulated/air conditioned etc.

#ar(et dynamics 9demand and supply conditions

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ntermodal/multimodal transportations

Use of more than one mode of transportation to move a shipment to its

destination e.g. rail/truc($ %ater/rail/truc( or %ater/truc( etc.

&ro%n considerably %ith increased use of containers

ncreased global trade has also increased use of intermodal transportation

#ore convenient for shippers 9one entity provides the complete service

Aey issue involves the echange of information to facilitate transfer

bet%een different transport modes

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Transportation net%or(s

Direct shipping net%or(

Direct shipping %ith mil( runs

'll shipments via central distribution centre

Shipping via distribution centre using mil( runs

Tailored net%or(

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Trade-offs in transportation design

Transportation and inventory cost trade-off

4hoice of transportation mode

nventory aggregation

Transportation cost and responsiveness trade-off

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Transportation modes comparison

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#ode4ycle

inventorySafety

inventoryn-transit

costTransportation

timeTransportation

cost

,ail 6 6 6 ! 6

Truc( load9TB + + + * *

Bess than truc(load 9BTB

* * * + +

ac(age carrier 1 1 1 ; 1

'ir ! ! ! 6 !

Cater ; ; ; 1 ;

1: %orst$ ;: best


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Transportation cost and responsiveness

Temporal aggregation is the process of combining orders

across time

Temporal aggregation reduces transportation cost because it

results in larger shipments and reduces variation in shipment

si0es

o%ever$ temporal aggregation reduces customer

responsiveness

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Trade-off bet%een transportation

cost and response time

DayDemand

9tons

! day response time * day response time + day response time

8ty shipped9tons

4ost9@,

8ty shipped9tons

4ost9@,

8ty shipped9tons

4ost9@,

1 +?! +?! 6+?.! < .+

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Sourcing and Transportation in the Supply Chain