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Supply Management Integration for Competitive Advantage. Chapter 4. Chapter Overview. Internal integration External integration The critical role of cross-functional sourcing teams Integrating supply management, engineering, and suppliers to develop new products and services - PowerPoint PPT Presentation
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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
22
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
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e33
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
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e44
Relationship Management Skills
Ability to:Ability to: Act ethicallyAct ethically Listen effectivelyListen effectively CommunicateCommunicate Use creative problem-solvingUse creative problem-solving Drive relationshipsDrive relationships
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e55
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”
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Relationship Inputs
Business advantagesBusiness advantages Favorable cost structuresFavorable cost structures Economies of scaleEconomies of scale
Different perspectivesDifferent perspectives ““Fresh eyes” approachFresh eyes” approach SynergySynergy
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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
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e88
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
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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
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e1010
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
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e1111
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
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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
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e1313
Marketing and Sales
Voice of the customerVoice of the customer New product ideasNew product ideas Sales forecasts Sales forecasts production plans production plans
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e1414
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
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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
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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
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External Linkages
SuppliersSuppliers GovernmentGovernment Local communitiesLocal communities
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Suppliers
Primary commercial linkagePrimary commercial linkage Maintain open and continuous Maintain open and continuous
communicationcommunication Supplier selection and managementSupplier selection and management
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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
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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
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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
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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
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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-
sharing, and supplier capabilitiessharing, and supplier capabilitiesPurchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e
2424
Obstacles to Closer Relationships
ConfidentialityConfidentiality Limited interest by suppliersLimited interest by suppliers Legal barriers (antitrust)Legal barriers (antitrust) Resistance to changeResistance to change
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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
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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)
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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
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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
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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
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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
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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
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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
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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
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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?
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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?
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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
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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
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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
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e3939
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
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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
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e4141
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
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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
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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
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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
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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
customer involvementcustomer involvementPurchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e
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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
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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
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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)?
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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?
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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?
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Elements for Consideration
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?
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Elements for Consideration
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?
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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
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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
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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
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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
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Integration into Order Fulfillment
Supplier suggestion programsSupplier suggestion programs Buyer-supplier improvement teamsBuyer-supplier improvement teams On-site supplier representativesOn-site supplier representatives
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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
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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
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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
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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
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Buyer’s Use of On-Site Supplier Reps
Supply managementSupply management SalesSales EngineeringEngineering TransportationTransportation
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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
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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
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