Current Event Assignments

1

Key Issues Addressed in Chapter 1

Evolution of the supply function

The potential contribution of supply to organizational goals and strategies

Operational versus strategic

Direct versus indirect

The profit leverage effect as a measure of supply impact on profitability (the income statement)

The ROA effect as a measure of supply impact on asset performance (the balance sheet)

The nature of organizations and the implications for supply

©2020 McGraw-Hill Education.

2

2

Competitive Factors Affecting Supply

Increased outsourcing places great reliance on suppliers

Greater dependence on suppliers for design and build responsibilities for subassemblies and subsystems

Increased global competition requires best value from suppliers for price, quality, delivery and sustainability performance

Development of new product technologies

Evolving information systems

Trend to single sourcing and strategic supplier relationships

Greater importance of supply chain environmental and social sustainability performance

Risk management

A supply chain orientation to managing relationships with suppliers and customers

©2020 McGraw-Hill Education.

3

3

Opportunities for Supply to Contribute to Organizational Success

Increase revenue

Improve customer satisfaction

Reduce total costs of ownership

Reduce lead times through process efficiencies

Identify opportunities for product/service innovations by collaborating with suppliers

Improve supply chain sustainability performance

Minimize financial, operational and reputational risks

Provide information to others in the organization in areas such as market conditions and new products and services.

©2020 McGraw-Hill Education.

4

4

Supply Chain - SCMA

Definition

The process of strategically managing flows of goods, services, finance and knowledge, along with relationships within and among organizations, to realize greater economic value through:

Supporting enterprise strategic objectives

Contributing to the achievement of strategic competitiveness of the enterprise

Contributing to the enhancement of the competitive advantage of the enterprise

Enhancing customer satisfaction

Knowledge Areas

Supply chain management involves the integration of core areas of knowledge (procurement, operations, logistics) and supporting knowledge areas (marketing, finance and accounting, human resources, knowledge management).

©McGraw-Hill Education. All rights reserved.

5

5

Difference Between Purchasing and Supply Chain Mgt

Procurement is the process of getting the goods your company requires, while supply chain management is the extensive infrastructure needed to get you those goods.

©McGraw-Hill Education. All rights reserved.

6

6

The Evolution of the Supply Function

Late 1800s:

The Handling of Railway Supplies – Their Purchase and Disposition, published 1887

1900-1950s:

reliable access to supply of raw materials, supplies and services

1970s:

senior management attention on the supply function:

international shortage of basic raw materials

price inflation

©2020 McGraw-Hill Education.

7

7

The Evolution of the Supply Function

1990s:

challenges of global supply chains

increased reliance on suppliers because of outsourcing

early 21st century:

supply chain integration

lower transaction costs

faster response times

Challenges: sustainability, globalization, technological innovations and risk management

©2020 McGraw-Hill Education.

8

8

The Evolution of the Supply Function

©2020 McGraw-Hill Education.

9

early

1900s

Today

Clerical and tactical

Focus on policies and procedures

Key challenges:

availability of supply and cost management

Strategic orientation

Global supply chains

Executive level leadership

Key challenges: Sustainability, total cost of ownership, security, globalization, risk management

9

The Evolution of the Supply Function

©2020 McGraw-Hill Education.

10

Pre 1939

1940-1949

1950-1969

1970-1989

1990-1999

Clerical

Supply assurance

Managerial emphasis

Purchasing strategy

Integration into corporate strategy

Integrated supply networks and information technology

sustainability, globalization, technological innovations and risk management

2000-2010

Today

10

Supply Management

“The integration of related functions to provide effective and efficient materials and services to the organization.”

Includes:

Operational and strategic responsibilities

In some organizations supply may have additional responsibilities for some or all of the following: receiving, inspection, warehousing, inventory control, materials handling, packaging, scheduling, in/outbound transportation, and disposal

Note: The terms purchasing, procurement and supply management are used interchangeably in this text.

©2020 McGraw-Hill Education.

11

11

Steps in the Procurement Process

(1) recognition of need

(2) translation of that need into a

commercially equivalent description

(3) search for potential suppliers

(4) selection of a suitable source(s)

(5) agreement on order or contract details

(6) delivery of products and/or services

(7) payment of suppliers

©2020 McGraw-Hill Education.

12

12

Logistics Management

“Logistics management is that part of supply chain

management that plans, implements, and controls the efficient, effective forward and reverse flow

and storage of goods, services, and related

information between the point of origin and the

point of consumption in order to meet customers’

requirements.”

--Council of Supply Chain Management Professionals (CSCMP)

©2020 McGraw-Hill Education.

13

13

Examples of Logistics Activities

customer service

demand forecasting/planning

inventory management

logistics communications

material handling

order processing

packaging

©2020 McGraw-Hill Education.

14

parts and service support

plant and warehouse site selection

return goods handling

reverse logistics

traffic and transportation

warehouse storage

14

Supply Chain Management

“The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer. The development and integration of people and technological resources are critical to successful supply chain integration.”

--Institute for Supply Management (ISM) Glossary

©2020 McGraw-Hill Education.

15

15

Characteristics of an Integrated Strategic Procurement and Sourcing Function

©2020 McGraw-Hill Education.

16

Strategic Positioning

Integration across company and strategic business unit corporate plans

External/internal customer focus

Functional Leadership

Executive status of the chief supply officer

Establishes integrated visions and works at results and processes

Drives supply base/supplier management strategies company-wide

Integration

Cross-functional, cross-location teaming

Part of the technology, manufacturing and strategic business unit (SBU) planning process

Executive Leadership

Executive level awareness of the opportunities to use supply to achieve strategic goals and objectives

16

Characteristics of an Integrated Strategic Procurement and Sourcing Function (cont’d)

©2020 McGraw-Hill Education.

17

Supplier Management

Joint performance improvement efforts

Value focused

Total cost and value improvement

Supplier benchmarking

Measurement

Customer orientation

Total value/cost focused

Benchmarking with best in class

Systems

Integrated global databases and ERP systems

Historical performance data

Supply Base Strategy

Driven to achieve best value for cost, delivery and quality

Standardization

Concurrent engineering

Supply base optimization

17

Profit-Leverage Effect ($ millions)

©2020 McGraw-Hill Education.

18

Before Spend Decrease

After 5% Spend Decrease

Sales: $500

Purchases 300

Labor 35

Overhead 100

Gross Profit $ 65

SG&A, Interest 40

Profit: $ 25

Sales: $500

Purchases 285

Labor 35

Overhead 100

Gross Profit $ 80

SG&A, Interest 40

Profit: $ 40

A 5% reduction in purchase cost

creates a 60% increase in profit

18

Return-on-Assets Factors

©2020 McGraw-Hill Education.

19