SOURCING AND
SUPPLY MANAGEMENT
Session 16 – August 08, 2023
Learning Objectives
• Define supply management and understand its impact on a
firm’s performance
• Analyze how to make insourcing/outsourcing
• Understand ways of manage ongoing supplier relationships
• Describe how to access and select suppliers
• Describe the steps in supply category management
2
• Purchasing
Supply Management
Purchasing is a set of function associated with acquiring the goods and services that an organization
requires, including ordering, expediting, receiving, and fulfilling payment.
• Procurement
Procurement is the process of identifying, shortlisting, selecting and acquiring suitable goods or
services from a third-party vendor through direct purchase, competitive bidding, or tendering process
while ensuring timely delivery of right quality and quantity
• Supply Management
Supply Management is a strategic approach of planning and acquire current and future needs of an
organization, aligned with the organization development orientation and competitive advantage
3
Supply Management
the identification,
acquisition, positioning and
management
of resources, capabilities and
supplier relationships.
4
Supply Management
Supply chain
What firms do to create and deliver value?
Supplier
Manufacturer
Distributor
Retailer
Customer
Demand chain
How demand moves from buyer to supplier
Supply Management is a strategic approach of planning and acquire current and future needs of an
organization, aligned with the organization development orientation and competitive advantage
5
Supply Management
organization development orientation
competitive advantage
6
Types of Purchases
Production Materials
• Raw Materials
• Parts and Components
Capital Equipment
• Machinery
• Vehicles
MRO Supplies
• Operating Supplies
Services
• Repair Services
• Professional Services
7
Goals in Supply Management
•
Timely availability
of resources
•
Supply chain
risk
•
Reduce total cost
8
Goals in Supply Management
Reduce total cost
9
Goals in Supply Management
• Total cost in supply management
When the costs occur
Types of costs
Before the transaction Time spent and costs of searching for, visiting, evaluating,
and certifying suppliers.
During the transaction Purchase price and costs of ordering, transporting,
expediting, receiving, inspecting, and following up.
After the transaction
Cost of inventory, supply risk, production downtime,
defects in FGs, warranties, safety recalls, replacements,
repairs, lost sales, liability and damaged reputation.
10
Goals in Supply Management
•
Timely availability
of resources
•
•
Supply chain
risk
•
Reduce total cost
Enhance quality and standardization
11
•
In 2015, Takata airbag inflators caused
the largest automotive recall ever in
the US.
•
19 companies, including Honda,
Toyota, BMW purchased airbags from
Takata.
⇒ Must find alternative suppliers.
⇒ Customers have to wait for a long
time to get their vehicles repaired.
https://www.nytimes.com/2015/05/20/business/takata-airbag-recall.html
12
Goals in Supply Management
•
Timely availability
of resources
•
•
Supply chain
risk
•
Reduce total cost
Enhance quality and standardization
13
Goals in Supply Management
•
Timely availability
of resources
•
•
Supply chain
risk
Enhance quality and standardization
•
•
Reduce total cost
Access technology
14
Making Insourcing/Outsourcing decision
Insourcing
Outsourcing
• Acquiring inputs from
operational processes
provided within the
• Acquiring inputs from
operational processes
provided by suppliers.
firm.
⇒ Make/buy decision: the choice between making a
product internally or purchasing it from the suppliers.
15
10 mins game
Why a company should apply
insourcing or outsourcing?
Insourcing
Outsourcing
16
Making Insourcing/Outsourcing decision
17
Making Insourcing/Outsourcing decision
Insourcing
• Activities that are
needed for current or
future core
Outsourcing
• Activities that are
non-core.
competencies.
18
What are the core activities?
In a university, which
activity is the core?
19
Supplier Relationships
Transaction-Oriented
Adversarial
Relationship
•
•
•
•
•
•
Arm’s-length
relationship
Collaborative
Cooperative
relationship
Maintain independence
Self-interest
Which materials/ components
Focus on price
require which types of suppliers and
Short-term
which types of supplier
relationships?
Hoard information
Buyer-seller relations
Full
Partnership
•
•
•
•
•
•
Mutual dependence
Share risk/reward
Focus on total cost
Long-term
Shared information
Cross-functional
relations
21
CHECK
ATTENDANCE
22
BREAK-TIME
23
Sourcing
the process used to acquire
goods and services
Identify Need
and Develop
Specifications
Identify
potential
Suppliers
Assess &
Select
supplier
Manage
Suppliers
Relationship
24
Sourcing
Identify Need
and Develop
Specifications
Identify
potential
Suppliers
Assess &
Select
supplier
Manage
Suppliers
Relationship
25
Sourcing
Identify Need
and Develop
Specifications
Identify
potential
Suppliers
Assess &
Select
supplier
Manage
Suppliers
Relationship
26
Sourcing
Identify Need
and Develop
Specifications
Identify
potential
Suppliers
Assess &
Select
supplier
Manage
Suppliers
Relationship
Weighted-point
model
27
Supplier selection using
a Weighted-point model
Category
Weight
Supplier A
Supplier B
Supplier C
Rating
Score
Rating
Score
Rating
Score
Quality systems
40%
3
1.2
5
2.0
3
1.2
Delivery
capability
40%
2
0.8
3
1.2
4
1.6
Price
20%
5
1.0
3
0.6
2
0.4
Weighted score
100%
3.0
3.8
3.2
All scores on a 5-point scale with 1 = poor, 5 = excellent
28
Supplier selection using
a Weighted-point model
Category
Weight
Supplier A
Rating
Score
Supplier B
Rating
Score
Supplier C
Rating
Score
Quality systems
Delivery
capability
Price
Weighted score
All scores on a 5-point scale with 1 = poor, 5 = excellent
29
Supplier selection using
a Weighted-point model
Category
Weight
Supplier A
Rating
Quality systems
40%
Delivery
capability
40%
Price
20%
Score
Supplier B
Rating
Score
Supplier C
Rating
Score
Weighted score
All scores on a 5-point scale with 1 = poor, 5 = excellent
30
Supplier selection using
a Weighted-point model
Category
Weight
Supplier A
Rating
Quality systems
40%
Delivery
capability
40%
Price
20%
Weighted score
100%
Score
Supplier B
Rating
Score
Supplier C
Rating
Score
All scores on a 5-point scale with 1 = poor, 5 = excellent
31
Supplier selection using
a Weighted-point model
Category
Weight
Supplier A
Rating
Score
Supplier B
Rating
Score
Supplier C
Rating
Quality systems
40%
3
5
3
Delivery
capability
40%
2
3
4
Price
20%
5
3
2
Weighted score
100%
Score
All scores on a 5-point scale with 1 = poor, 5 = excellent
32
Supplier selection using
a Weighted-point model
Category
Weight
Supplier A
Supplier B
Supplier C
Rating
Score
Rating
Score
Rating
Score
Quality systems
40%
3
1.2
5
2.0
3
1.2
Delivery
capability
40%
2
0.8
3
1.2
4
1.6
Price
20%
5
1.0
3
0.6
2
0.4
Weighted score
100%
All scores on a 5-point scale with 1 = poor, 5 = excellent
33
Supplier selection using
a Weighted-point model
Category
Weight
Supplier A
Supplier B
Supplier C
Rating
Score
Rating
Score
Rating
Score
Quality systems
40%
3
1.2
5
2.0
3
1.2
Delivery
capability
40%
2
0.8
3
1.2
4
1.6
Price
20%
5
1.0
3
0.6
2
0.4
Weighted score
100%
3.0
3.8
3.2
All scores on a 5-point scale with 1 = poor, 5 = excellent
34
Supplier selection using
a Weighted-point model
Category
Weight
Supplier A
Supplier B
Supplier C
Rating
Score
Rating
Score
Rating
Score
Quality systems
40%
3
1.2
5
2.0
3
1.2
Delivery
capability
40%
2
0.8
3
1.2
4
1.6
Price
20%
5
1.0
3
0.6
2
0.4
Weighted score
100%
3.0
3.8
3.2
All scores on a 5-point scale with 1 = poor, 5 = excellent
35
A Weighted-point model Exercise
36
A Weighted-point model Exercise
Supplier Name
•
•
•
Dazzling Lighting Inc. in Ohio, the USA
is evaluating suppliers for its new line
of products to be sole to home
builders.
Three potential suppliers have been
identified and evaluated by a crossfunctional team.
Using the data, please apply a
weighted-point model for the supplier
selection decision.
EZ Lite
North-South
Trading
Zhenjiang
Lighting
Annual Sales
$200 million
$350 million
$100 million
Location
Ohio, the USA
Mexico
China
Defective parts per
million (ppm)
75
130
120
Transportation
Time
1 day
5 days
45 days
On-time Delivery
99%
92%
86%
Purchase Price
$4.50/unit
$3.00/unit
$2.15/unit
37
A Weighted-point model Exercise
Supplier Name
Category
Quality performance
EZ Lite
North-South
Trading
Zhenjiang
Lighting
Annual Sales
$200 million
$350 million
$100 million
Location
Ohio, the USA
Mexico
China
Management capabilities
Defective parts per
million (ppm)
75
130
120
Delivery performance
Transportation Time
1 day
5 days
45 days
On-time Delivery
99%
92%
86%
Purchase Price
$4.50/unit
$3.00/unit
$2.15/unit
Purchase Price
38
A Weighted-point model Exercise
Category
Weight
North-South
Trading
EZ Lite
Zhenjiang
Lighting
Rating
Score
Rating
Score
Rating
Score
Quality performance
40%
4
1.6
3
1.2
3
1.2
Management capabilities
30%
4
1.2
3
0.9
3
0.9
Delivery performance
20%
5
1
4
0.8
2
0.4
Purchase Price
10%
1
0.1
4
0.4
5
0.5
Weighted score
100%
3.9
3.3
3
All scores on a 5-point scale with 1 = poor, 5 = excellent
40
A Weighted-point model Exercise
Category
Weight
North-South
Trading
EZ Lite
Zhenjiang
Lighting
Rating
Score
Rating
Score
Rating
Score
Quality performance
40%
4
1.6
3
1.2
3
1.2
Management capabilities
30%
4
1.2
3
0.9
3
0.9
Delivery performance
20%
5
1
4
0.8
2
0.4
Purchase Price
10%
1
0.1
4
0.4
5
0.5
Weighted score
100%
3.9
3.3
3
All scores on a 5-point scale with 1 = poor, 5 = excellent
41
Supplier Relationship
Management (SRM)
42
Supplier Relationship
Management (SRM)
a comprehensive system
43
Supplier Relationship
Management (SRM)
a comprehensive system
managing the firm’s interactions
with its supply base.
44
Supplier Relationship
Management (SRM)
45
Supplier Relationship
Management (SRM)
•
Streamlines processes
and interactions
46
Supplier Relationship
Management (SRM)
•
Streamlines processes
and interactions
•
Identifies critical suppliers
47
Supplier Relationship
Management (SRM)
•
Streamlines processes
and interactions
•
•
Supplier
performance
Identifies critical suppliers
48
Supplier Relationship
Management (SRM)
•
Streamlines processes
and interactions
•
•
Supplier
performance
Identifies critical suppliers
•
Access supply risks
49
Supplier Relationship
Management (SRM)
•
Streamlines processes
and interactions
•
•
Supplier
performance
Identifies critical suppliers
•
•
Manages
administration
Access supply risks
50
Supplier scorecards
• Quality, delivery, cost reduction, service,
innovation and sustainability.
• Using colour coding. For example:
51
Supplier scorecards
• Quality, delivery, cost reduction, service,
innovation and sustainability.
• Using colour coding. For example:
Excellent
suppliers
52
Supplier scorecards
• Quality, delivery, cost reduction, service,
innovation and sustainability.
• Using colour coding. For example:
Excellent
suppliers
Accepted
suppliers
53
Supplier scorecards
• Quality, delivery, cost reduction, service,
innovation and sustainability.
• Using colour coding. For example:
Excellent
suppliers
Accepted
suppliers
Need-to-improve
suppliers
54
Supplier
scorecards
55
How to Create Supplier
Scorecards with Sheets
•
https://www.youtube.com
/watch?v=16QNrt659Gk
56
Question for NEXT WEEK?
57
Question for NEXT WEEK?
• In term of Supply Chain Management, what
makes Japan become the Asia Dragon from
the 1960s to the 1980s despite the country’s
lack of natural resources and unfavored
geographical location?
58
THANK YOU!