Future Development in Global
Sourcing and Logistics
26.09.2011 - 27.09.2011
Professor Dr. Dr. h.c. Ulli Arnold
University of Stuttgart
ulli.arnold@bwi.uni-stuttgart.de
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 1
Agenda
1.The Concept of Global Sourcing
2.Barriers to Worldwide Sourcing
3.Organisational Buying Behaviour
4.Global Sourcing Analysis
5.Organisation of Global Sourcing
6.Sourcing Strategies
7.Vertical and Horizontal Cooperation
8.Sourcing Processes
9.Controlling of Procurement
10.Logistics as an Enabler
11.Supply Chain Management
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 2
Chapter 1
The Concept of Global Sourcing
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 3
1. Global mega trends
Corporate Social Responsibility
will be of greater importance
as organizations face changes
in consumption patterns with
regards to green, social
and health
Increase of
environmental
and social
responsibility
Demographic change
will be highly impact
availability of
skilled and also
low cost labor
Information technologies
and innovations will become
a key success factor
Fundamental market
changes will be more
frequent and access to raw
materials will become more
critical
Demand in traditional industries (and mature markets) will slow down,
but developing markets will experience strong growth
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 4
1. Structure and development of the world trade capacity
2000 - 2006
(Source: WTO, International Trade Statistics 2007)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 5
1. Structure and development of the world trade capacity
World trade flows
Selected intra- and inter-regional merchandise trade flows, 2006
(Source: WTO, International Trade Statistics 2007)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 6
1. Structure and development of the world trade capacity
World exports of goods (detailed), 2000-2006
Logarithmic scale
(Source: WTO, International Trade Statistics 2007)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 7
1. Structure and development of the world trade capacity
World exports of goods and commercial services, 2000-2006
World exports of goods and commercial
services, 2000-2006
World commercial services
exports by category, 2000
and 2006
(Source: WTO, International Trade Statistics 2007)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 8
1. Sourcing Tasks in International Business Activities
Activities
Domestic
Production
Indirect
Imports
Overseas
Production
Direct
Imports
Direct
Investment
No Direct
Investment
Joint
Venture
Licensing
(Sourcing
Consulting)
Contract
Production
(Supply)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Management
Contract
(Sourcing)
Own
Production
International
Production
Coordination
Slide 9
1. Global Sourcing - Definition
• What is Global Sourcing?
The business process of identifying, evaluating, negotiating and configuring
supply chains across multiple suppliers and geographies
• Common reasons for Global Sourcing
– Reducing overall cost structure
– Availability of new technology and capacity. Often domestic suppliers
lack capacity and / or are not making the necessary investments to stay
competetive
– Establishing alternative sources of supply- reduced risk
– Access to new designs or specialized intellectual capital
– Superior quality. This is typically due to supplier investment in
technology and capacity to attract global businesses
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 10
Chapter 2
Barriers to Worldwide Sourcing
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 11
2. Barriers to World Wide Sourcing

Economical barriers
e.g. Tarriffs, duties, hidden costs

Political conditions
e.g. Legal system, political stability, protectionism etc.

Cultural conditions
e.g. flexibility, values, openness etc.
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 12
2. Barriers to World Wide Sourcing (economical)

total cost in international purchasing is also called
landed costs

international purchasing may include many additional
cost components compared with domestic purchasing:
o
o
o
o
o
o
Packaging
Transportation
Duties/ Tarifs
Insurance premiums
Payment terms
Fees and commissions
o
o
o
o
o
o
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Port terminal and handling fees
Custom broker fees
Taxes
Communication costs
Payment and currency fees
Inventory carring costs
Slide 13
2. Barriers to World Wide Sourcing (political)
Trade and currency policy
State/ Suprastates foreign trade regimes
a)
Contractual trade barrier: Duty, dues
fiscal policy to suppress foreign provider
b)
Non-contractual barriers :
- building specifications
- terms of use
- national safety regulations
- ecological demand
c)
Currency control:
Contrary: complete convertibility of the currency
d)
Laws/restrictions:
- Kriegswaffenkontrollgesetz
e)
Industrial policy
- grants
- risk taking
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
- Narcotics law
- export promotions
Slide 14
2. Barriers to World Wide Sourcing (political)
Free trade zones ordered by regions
(members)
Africa :
Middle East:
1.
Communaute Economique de l´Afrique de l´Quest (7)
13. The Arab Common Market (7)
2.
Communaute Economique de Pays des Grans Lacs (3)
14. Economic Cooperation Organization (3)
3.
Economic Community of West African States (16)
15. Gulf Cooperation Council (6)
4.
Indian Ocean Commission (5)
5.
Mano River Union (3)
North and South america:
6.
Preferential Trade Area for Eastern and Southern Africa (18)
16. North America Free Trade Area (NAFTA) (3)
7.
Southern African Customs Union (4)
17. Andean Pact (5)
8.
Southern African Development Coordination Conference (10)
18. Central American Common Market (5)
9.
Union Douaniere et Economique de l´Afrique Centrale (6)
19. Caribbean Community (13)
20. Mercosur (4)
Asia und Pacific:
10. Australia-New Zealand Closer Economic Relations
Trade Agreement (2)
11. Association of South Asian Nations (ASEAN) (5)
12. Asiatic Pacific Economic Cooperation (APEC) (18)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 15
2. Barriers to World Wide Sourcing (political)
Free trade zones in Africa
(Source: unctad.org)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 16
2. Barriers to World Wide Sourcing (cultural)
Transparency International – Corruption Perception Index 2009 (1)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 17
2. Barriers to World Wide Sourcing (cultural)
Transparency International – Corruption Perception Index 2009 (2)
The Corruption Perception Index(CPI) is
published since 1995.
In the CPI every country is classified for their
degree of corruption, percieved by the
governement and civil service.
The CPI is based on several surveys and
research from different independent institutions.
(Source: www.transparency.ch)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 18
Chapter 3
Organisational Buying
Behaviour
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 19
3. Organisational Buying Behaviour
N
Environment
Characteristics of
the procuring
organization
Purchase type
Organizational
procurement
process
Buying Center/
Buying Network
Selling Center/
Selling Network
Selling Center/
Selling Network
A
K
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 20
3. Organisational Buying Behaviour
•
•
•
•
Multi-personality
Problem-solving and decision-making process
Active information behavior
Intensive personal interactions
Organizational purchasing behavior takes
place in a multi-personal problem-solving and
decision-making process that is characterized
by interactive information and behavior
through frequent interactions.
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 21
3. Buying Center Concepts
Buying-Center:
Theoretical summary of the decision making unit
The idea of the Buying-Center
Problem-oriented group of interacting members within an organisation, the
group is established for purchasing an industrial good.
The Buying-Center is often institutionally established in „investement
comissions“
Problem for suppliers: Who is involved at which time and with which part in
decisions (identification according to persons/ roles / functions)?
The range (number of participants) and the structure cannot be defined
precisely.
Marketingimplication for the provider: Analysing the range and structure of
the Buying-Center.
Source: Backhaus/Voeth, 2007, S. 46-75
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 22
3. Buying Center Concept (Webster/Wind)
Buyer
Decider
Purchase decision
User
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Gatekeeper
Influencer
Slide 23
3. Buying Center Concept (Extension according to Bonoma)
• The rolemodel is widened by Bonoma with the role of an
initiator
• Witte`s promoter-/ opponent-model
– Subject- and powerpromoter
– Subject- and poweropponent
 Promoter-Team
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 24
3. Structure of power and behaviour in buying-centers
Promoters
Opponents
Handicap and delay
decision processes
Promote and influence the
purchasing process
Differentiation into :
Power opponents
Knowledge opponents
Differentaiotion into:
-Subject promoters
-Power promoters
Buying-Center
Decision
behaviour
Information
behaviour
Risk behaviour steers
decision behaviour
Types of information treatment:
1. Decision oriented
2. Fact oriented
3. Security oriented
1. Facts-reactor
2. Image-reactor
3. Neutral reactor
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Types of information
serach behaviour:
1. literal-scientifical
2. Objectiveevaluative
3. Spontaneous/
passive
Slide 25
3. The promoters and opponnents model
Sources of power
Power promoter
•
High hierarchic position
•
•
•
•
•
Subject promoter
•
Competence of experts
•
•
•
•
Process promoter
•
•
Organisational skills
Internal organisational
potentials of
communication
Barriers
Performance
•
•
Provides organisational
resources
Defines goals
Grants incentives
Sanctions actors
Blocks opponents
•
•
Will barriers
Hierarchy barrierrs
Evaluates new und
complex problems
Evaluates und develops
solutions
Realises solutions
Initiates and promotes
specific subject didactic
processes
•
Subject oriented skill
barriers
Collects, filters, translates •
and interprets informations
und forwards them to
according actors
Promotes communication
relationship und coalitions
among actors
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Organisational and
administrative barriers
Slide 26
Chapter 4
Global Sourcing Analysis
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 27
4. Selection of sourcing countries
Portfolio approach
All considered
markets are being
evaluated for their
market attractiveness
and market barriers.
Afterwards a matrixstructure is beeing
set-up.
Based on that
structure four market
types can be
differentiated.
Market
attractiveness
Target markets
Promising markets
Occasional markets
No Go markets
high
low
low
high
Market
barriers
(Source: Backhaus et al., 2003, S. 124-125)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 28
4. Selection of sourcing countries
Portfolio approach
(Source: Albaum/ Duerr/ Strandskov, 2005, S. 188)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 29
4. Selection of sourcing countries
BERI-Index (1)
 Business Environment Risk Information (BERI)
• Established1966; Headquarters in Friday
Harbor, State of Washington, U.S.A
• Evaluates country specific risks in a
multidimensional model
• One year and five year forecast
• Examines 50 countries
• Two simultaneous panels examining political
and economic conditions
(Source: www.beri.com, 2010)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 30
4. Selection of sourcing countries
BERI-Index (2)
Final Evaluation consists of the aggregation of three subindizes:
BERI
ORI
Operation Risk Index
PRI
Political Risk Index
R-Factor
Remittance &
Repatriation Factor
(Source: www.beri.com/brs.asp, 2010)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 31
Chapter 5
Organisation of Global
Sourcing
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 32
5. Centralization vs. decentralization
Structural alternatives in an overview:
Realizing supply economies of scale, economies of process,
economies of information
Degree of
centralization
high
supply
economies
of process
and information
supply
economies
of scale
hierarchical
coordination
centralized
structure
mix of centralized
and decentralized
(lagrest $ volume
centralized)
hybrid
coordination
mix of centralized
and decentralized
(lagrest $ volume
decentralized)
market
coordination
decentralized
structure
low
low
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
high
Homogeneity
of demand
Slide 33
5. International Purchasing Offices
 What do International Purchasing Offices (IPOs) do to support
international purchasing
o
o
o
o
o
o
o
o
o
Identify foreign suppliers
Solicit quotes
Expedite and trace shipments
Negotiate supply contracts
Obtain product samples
Manage technical problems
Represent the buying firm to the suppliers
Manage countertrade
Perform site visits
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 34
5. Determinants of the International Purchasing System (IPS)
Independent
Dependent
Situational Factors
Level of IPS
Complexity of
Business Environment
Extent of International
Supply Base/Program
Dynamics in
Purchasing Environment
Value-Adding Services
Provided by International
Suppliers
Importance of
International Purchasing
Worldwide Information
Systems
Lack of Alternative Source
E-Commerce
International Purchasing
Motives
Capabilities of Purchasing
Personnel
Cost Driven
Non-cost Driven
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 35
5. Structural Relationship in a Strategic Network
Ultimate
Customers
Distributor
Partners
Logistic
Partners
Sourcing
Firm
Logistics
Partners
Supplier
Partners
Supplier
Suppliers‘
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 36
5. Structure of a virtual organization
Designer
Producer
Virtual
Organization
Supplier
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Marketer
Slide 37
5. Lead Buyer Strategy: Example BASF
Lead buyer system for Product Focus Groups
 Lead Buyer coordinates product / product group
 Supported by Regional Buyers
(Source: Britt, 2011)
 Each product / product group with dedicated strategy
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 38
5. Procurement Hubs: Example BASF
Procurement hubs for non-focus products
 Decentralized / delegated products
 Local demand
 Local hub buyer responsible for procurement
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
(Source: Britt, 2011)
Slide 39
Chapter 6
Sourcing Strategies
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 40
6. Sourcing Strategies: Tasks of Procurement
(Source: Arnold 1997)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 41
6. Sourcing Strategies: Sourcing-Toolbox
Supply Strategy as a Combination of Sourcing Concepts
object sub-strategy
unit
modular
system
area sub-strategy
local
domestic
global
time sub-strategy
stock
demand tailored
just-in-time
subject sub-strategy
site sub-strategy
e-application sub-strategy
individual
collective
external
internal
non-eeeeprocurement coordination procurement collaboration
(Source: Arnold 1997)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 42
6. Sourcing Strategies
Different origins of specificity
(see Williamson 1989)
Input
specificity
• site specificity
• physical asset specificity
• human asset specificity
• dedicated asset specificity
• brand name specificity
• time specificity
……………………………………………………………….
• information specificity (UA)
• Process specificity (release process including quality
management)
• selected supplier specificity / relationship related specificity
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 43
6. Sourcing Strategies
Transaction costs consist of
• Coordinating costs
• Control costs
• Opportunity costs
ex ante transaction costs
ex post transaction costs
Transaction costs define different governance modes (between
markets, hierarchy and hybrid forms).
Specificity and strategic value are the main factors which define the
characteristic of a transaction.
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 44
6. Sourcing Strategies
How can be achieved completeness of
contracts between buyer and supplier?
explanation by agency theory
Complete means:
All possible elements which influence the relationship between benefits
and costs are clearly defined and operationalized.
Information problems cause
A. Ex ante:
• Hidden characteristics
Problem: the well performing suppliers will be ignored
(≙ adverse selection)
B. Ex post:
• hidden action
moral hazard
• hidden information
• hidden intention
• hold up
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 45
6. Sourcing Strategies
How to solve information problems?
• signalling (supplier´s activity)
(e.g. open book policy)
• screening (buyer´s activity)
(e.g. auditing)
• self selection (offering hidden infromation by choosing specific
contract modalities)
• incentive driven contract elements to stimulate convergence of
interests
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 46
6. Sourcing Strategies
(Source: Krause/Handfield, 2000)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 47
6. Sourcing Strategies
(Source: Krause/Handfield, 2000)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 48
6. Sourcing Strategies
Development of a World Class Supply Base
Identify, assess and rationalize the supplier base
Objective: Create a pool of potentially capable suppliers.
1st step: Identify strategic global supply chain needs
- end customers requirements
- product development targets
- improvement of market position and competitiveness in
product lines and market areas.
All these requirements directed to supplier potentials and abilities are
steered by the general sourcing objectives like
• cost reduction
• quality / value improvement
• technology road maps
• business expansion plans.
(Source: Krause/Handfield, 2000)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 49
6. Sourcing Strategies
Development of a World Class Supply Base
2nd step: Search for competitive suppliers.
3rd step:
Establish controlling system for global sourcing activities:
- performance metrics
- supplier assessment model
- tracking system for supplier performance
- reporting of total cost of ownership figures
establish immediate feedback to internal customers and suppliers.
4th step: Supplier base fit
Eliminate suppliers which are not able to fulfil companys requirements;
identify already fully capable suppliers;
identify suppliers which can be developed in the future.
(Source: Krause/Handfield, 2000)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 50
6. Sourcing Strategies
Development of a World Class Supply Base
Problem solving development
Objective: Suppliers meet all current requirements of manufacturing
and other business activities.
5th step: On site visits to assess capabilities and potentials of suppliers
by cross-functional teams
- technological assessment
- suppliers risk assessment
- environmental risk assessment.
6th step: Activities to eliminate suppliers deficiencies
- by technical support
- by management support
- by financial support.
(Source: Krause/Handfield, 2000)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 51
6. Sourcing Strategies
Development of a World Class Supply Base
Proactive development
Objective: Self-reliant global supply base with ability for continuous
improvement.
7th step: Establish open relationship through feedback and information sharing;
establish appropriate communication culture for mutual understanding;
provide efficient IT-systems.
8th step: Systematic supplier development
- direct involvement of supplier; avoid agency problems
- incentives and rewards
- warnings and penalties
Maintain efforts and activities to reach self-reliance of relationship.
(Source: Krause/Handfield, 2000)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 52
6. Sourcing Strategies
Development of a World Class Supply Base
Integrative development
Objective: Globally aligned supplier network.
9th step: Supplier integration in new product/process development
- share business plan information and technology road maps
- integrate staff members, employees of suppliers (and vice versa)
10th step: Establish performance improvement in second tier suppliers;
realize concept of supply chain management upstream.
11th step: Establish integrated supplier network:
- supplier becomes responsible for supplying multiple global
company sites
- develop benefits by horizontal extension of supplier network.
(Source: Krause/Handfield, 2000)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 53
6. Calling a Change in the Outsourcing Market
In the Real World, Outsourcing Frequently Fails to Deliver its Promise
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 54
6. Outsourcing – what is it?
„Do what you can do best – outsource the rest“
„Outside Resource Using“
Strategic Approach:
• Focusing on core competences („lean“)
= resources view
• Using of already available skills and capabilities on
markets
= market view
• Outsourcing – Offshoring – Make or Buy
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 55
6. Potential Advantages by Outsourcing
 scale:
External supplier can bundle,
specialize, balance capacities
 scope:
Outsourcing-Partner can provide an access
to new/other markets
 technology expertise:
Outsourcing Partner can invest in more
efficient technologies – faster, more
intense
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 56
6. Advantages and Disadvantages of Outsourcing
Advantages
Disadvantages
Freeing up of cash: investments can be
concentrated on core activities
Increased dependence on suppliers
Optimal usage of knowledge, equipment and
experience of third party
Continuous follow-up and monitoring of the
supplier relationship necessary
Increased flexibility: fluctuations in the workload
can more easily be absorbed
Risks of communication and organizational
problems during the transfer of activities to a third
party
Outsourcing leads to easier and more focused
primary processes in the organization
Risks of leakage of confidential information
Input through an independent party’s point of view
which reduces the risks of introvert shortsightedness in the organization
Performance incentives and penalties
Risk of losing essential strategic knowledge
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 57
6. Aims of Outsourcing
Fixe
Fixed
Kosten
Costs+
Gemeinkosten
Indirect Costs
Variable
VariableKosten
Costs +
Einzelkosten
Direct Costs
Complexity of
Market requirements
Internal
Charging
Variable Costs
Direct Costs
External
Payments
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Splitting
Splitting
derofBedarfe
Requirements
(Spot Buys)
(Spot Buys)
Bündelung + langBundling
fristige
+ longPartnerschaft
term
Partnership
Determinated
Requirements
Openness of
Performance
Profiles
Slide 58
6. Possible Results
Effect - Relationships
Outsourcing
?
Competencebasis
?
Futureskills
?
Positive Effects, e.g.:
Negative Effects, e.g.:
 Lower costs for knowledge
 Loss of competence
 Extension of the competence profile
 Decrease of performance quality
 Deepening of the competence profile
 Loss of know-how- bearer
 Concentration on core activities
 Increase of total costs for knowledge
Organizational development
(restructuring; reengineering)
 Publication of confidential information
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 59
6. Possible Results
Impact of a depth of added value change by inrespectively outsourcing (traditional: „make or buy“) on:
-
Level of the purchasing policy, the supply management and the placing
activities
Capital investment; capital commitment
Number of employees; employment, capacity utilization
Processing competence
Quality
Amount and structure of costs;
relation to fixed / variable costs („break-even“-Point)
Production management flexibility
Negotiation potential to external service providers
Risk structures
Conclusion: Changes intervene regularly in existing structures /
processes (business restructuring / reengineering)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 60
6. Competitive Comparison
Example of automobile industry
comparative study from WOMACK / JONES / ROOS of MIT
(Japan; USA; West-Europe)
Japanese automobile-manufacturer are better, because
 lower depth of added value
 better networking with supplier
therefore:
- shorter product development cycles
- more intensive use of JIT-supply
- major market flexibility
- major internal flexibility
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 61
6. Development Process of Outsourcing
“Outsourcing has progressed from involving only peripheral
business activities towards encompassing more critical business
activities that contribute to competitive advantage.
Many outsourcing failure cases have been a result of the
misapplication of the concept by practitioners.”
[Mc Ivor, Ronan: The Outsourcing Process; Cambridge 2005]
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 62
Chapter 7
Vertical and Horizontal
Cooperation
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 63
7. Supplier relationship as a connecting factor between the supply
market and the firm
supply market
3. contracting
supply
purchasing
partner
firm demand
purchasing
the firm
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 64
7. Vertical and Horizontal Cooperation
Definition of cooperation: constitutional features
• Independence of the cooperation members is a criteria
needed by law to distinguish it from a merger
• Partners in the cooperation are two or more enterprises
• The main interest of the cooperation is an ex ante matching of plans
or a coordination of single interests, mainly in one functional part
(e.g. purchasing)
• The main goal of a cooperation is a better economic situation for the
cooperation partners, reached by a cooperative practice
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 65
7. Vertical and Horizontal Cooperation
Inland Ausland
Zulieferpyramide
Dominierende
Abwicklungsformen:
-
Gemeinsame Verantwortung
early supplier involvement
simultaneous engineering
Lebensyklusvertrag
“typische” Partnerschaften
EndproduktOEM
hersteller
2
EndproduktOEM
hersteller
1
Systemlieferanten
Key
Suppliers
- Auftragsfertigung
- Zielgrößen Qualität,
Kosten, Flexibilität
- marktliche Transaktionen
Komponentenlieferanten
System/Module
Suppliers
Rohmaterial-, Halbfabrikate-,
- preisdominierte
Lieferantenauswahl
- multiple
sourcing
- Spot-Transaktionen
- branchenweite
Standardisierung von
Gütern/Schnittstellen
Supplier BaseDIN(components,
raw materials etc.)
und Normteillieferanten
Inland Ausland
1
Vertikale
Global
Sourcing-Netzwerke
Vertical
Global
Sourcing Cooperation
(Supplier Partnering)
(Supplier Partnering)
Horizontale Global Sourcing-Allianzen
2
Horizontal
Global Sourcing Cooperation
(Consortium
Purchasing)
(2a)
Beschaffungsallianz
für Global Sourcing
(Cooperative Purchasing)
(Consortium Purchasing for Global Sourcing)
Kooperationspartner im Inland,
gemeinsame Erschließung von Auslandsmärkten
(2b) Globale Beschaffungsallianz
(Global Consortium Purchasing)
Kooperationspartner im Ausland,
gemeinsame Bearbeitung der jeweiligen Märkte
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 66
7. Vertical and Horizontal Cooperation
Vertical Cooperation: supplier/seller-relationship
• Modern sourcing concepts need cooperations
• Cooperation reduces transaction costs
Horizontal Cooperation: Cooperative Purchasing
Planning of horizontal supply cooperations
• setting goals
• finding partners: the idea of a procurement fit
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 67
7. Fit Dimensions as Factors in Partner Selection
Partner Management
Fundamental
mentalFit
Fit
Strategic
Fit
Commitment
Shared vision
Agreement
strategic goals
Power balance
Compatible
business plans
Mutual benefits
Manageable risk
Significant
Potential for added
value
Agreement on
configuration
Cultural
Fit
Logistics
Fit
Pluralism
Object compatibility
Assimilation
Transport mode
compatibility
Transfer
Resistance
Information flow
compatibility
Same planning
horizon
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
(Source: Arnold,1999)
Slide 68
7. Economic Effect of Vertical Cooperation
costs
Costs of production
Coordination costs
Paradigm of
specialization
Paradigm of
cooperation
Specialization level
Vertical cooperations have the goal to reduce the coordination costs
through intensive cooperation with selected system suppliers.
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 69
7. Economic Effect of Horizontal Cooperation
Purchaser
Supplier
Individual
Demand
A
Total
Demand
Individual
Demand
B
Economy of
Scale
A+B+C
Individual
Demand
C
(Electronic)
Bundle Platform
Mechanisms of horizontal purchasing cooperation
Economies
Economies of
Economies
of Scale
Information
of Process
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 70
Chapter 8
Sourcing Processes
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 71
8. Enabling Processes for Global Sourcing
II
Develop
Organization and
Teaming strategies
Establish globally I
integrated and aligned
purchasing and supply
chain Strategies + Plans
Establish HumanVI
Resource development and training
Source: Robert.M. Monczka, Ph.D.
INTEGRATED,
ALIGNED AND
GLOBAL
III
Deploy
Globalization
IV
Develop purchasing
and supply chain
Measurements
Develop and V
implement enabling
IS / IT systems
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 72
8. Purchasing Portfolio Analysis
Kraljic’s (1983) product portfolio based on two variables:
1.
Purchasing’s impact on the bottom line
the profit impact of a given supply item measured against criteria
such as cost of materials, total cost, volume purchased
2.
Supply risk
measured against criteria such as short-term and long term
availability, number of potential suppliers, structure of supply
markets.
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 73
8. Supplier Portfolio
High
Leverage products
Strategic products
alternative sources of
supply available
 substitution possible

critical for product’s cost price
 dependence on supplier

Purchasing’s
impact on
financial
results
Performance based
partnership
Competitive bidding
Routine products
Bottleneck products
large product variety
 high logistics complexity
 labor intensive

monopolistic market
 large entry barriers

Systems contracting +
E-Procurement solutions
Secure supply + search
for alternatives
Low
Low
Supply risk
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
High
Slide 74
8. Supplier Portfolio
High
Leverage suppliers
Strategic suppliers
many competitors
 commodity products

market leaders
 specific know-how

Supplier
impact on
financial
results
Buyer dominated segment
Balance of power may differ
among buyer-supplier
Routine suppliers
Bottleneck suppliers
large supply
 many suppliers with
dependent position

technology leaders
 few, if any, alternative suppliers

Reduce number of suppliers Supplier Dominated segment
Low
Low
Supply risk
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
High
Slide 75
8. Risk Management
Types of risks
endogenous
exogenous
internal
external
general risks
situational risks
general risks
task-specific risks
direct way
influence of
customers
company
size
management
of material
flow
performance
programme
production
technology
information
technology
economic
sector
sociocultural
sector
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
technological sector
physical
sector
indirect way
influence of
competitors
political
sector
(Source:
Beschaffung Aktuell, 02/2011)
Slide 76
8. Risk Management: A Process Perspective
• risk awareness
• risk perception
• early warning system
• risk screening
1
risk identification
3
risk
management
4
communication
2
risk analysis;
assessment
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 77
8. Risk Management: An International Perspective
market risk
compliance
risk
environmental risk
global risk
management
transport
risk
price risk
…
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 78
8. Risk Analysis in Global Sourcing
Non-Economical Risks
Political risks
• Social Conflicts
• Confiscation of goods
• Political trade protection e.g. tariffs
Administrative risks
• Bureaucracy
• Ineficiency of local administration
Cultural risks
• Language
• Way of life
Jurisdictional risks
• enforceability of contracts
Economical Risks
Makro-Economical
• Economic cycles
• Changes in currency exchange rates
Mikro-Economical
• Transport and distribution risks
• Contractual risks (Claim Management)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 79
8. Risk Analysis in Global Sourcing
Systematisation of currency exchange risks
Exchange rate change
Estimation risk)
(economic risk)
(transaction risk)
time
(Source: Büschgen, H.E. (1997), International Finance, S. 311)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 80
8. Risk Analysis in Global Sourcing
Hedging
- A hedge is a position established in one market in an attempt to offset exposure
to price changes or fluctuations in some opposite position with the goal of
minimizing one's exposure to unwanted risk.
Example: Hedging an agricultural commodity price
A typical hedger might be a commercial farmer. The market values of wheat and other crops fluctuate
constantly as supply and demand for them vary, with occasional large moves in either direction. Based on
current prices and forecast levels at harvest time, the farmer might decide that planting wheat is a good idea
one season, but the forecast prices are only that — forecasts. Once the farmer plants wheat, he is committed to
it for an entire growing season. If the actual price of wheat rises greatly between planting and harvest, the
farmer stands to make a lot of unexpected money, but if the actual price drops by harvest time, he could be
ruined.
If the farmer sells a number of wheat futures contracts equivalent to his crop size at planting time, he effectively
locks in the price of wheat at that time: the contract is an agreement to deliver a certain number of bushels of
wheat to a specified place on a certain date in the future for a certain fixed price. The farmer has hedged his
exposure to wheat prices; he no longer cares whether the current price rises or falls, because he is guaranteed
a price by the contract. He no longer needs to worry about being ruined by a low wheat price at harvest time,
but he also gives up the chance at making extra money from a high wheat price at harvest times.
(Source: Dichtl, E.; Issing, O. (Hrsg.): Vahlens Großes Wirtschaftslexikon. 2.
Aufl., München 1994, S. 906-907 und Alisch, K.; Winter, E.; Arentzen, U.
(Hrsg.): Gabler-Wirtschafts-Lexikon. 16. Aufl., Wiesbaden: 2004, S. 1381)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 81
8. Risk Management: Example BASF
(Source: Britt, 2011)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 82
Chapter 9
Controlling of Procurement
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 83
9. Controlling of Procurement
What should be measured?
no single index of performance
no universal way of evaluating
• commercial focus (price, quantity, place, service, time, cost savings)
• efficiency metrics (process costs, TCO-concept)
• effectiveness parameters (improve capabilities)
Who should be interested?
procurement management
internal customers
top management
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 84
9. Controlling of Procurement
Key areas of procurement
performance measurement
Purchasing
Performance
Purchasing
Effectiveness
Purchasing
Materials costs/
prices
Product / quality
Materials price/cost control
Materials price/cost reduction
Involvement of purchasing
in new Product development
Purchasing and Total
Quality control
Adequate requisitioning
Purchasing logistics
Order and inventory policy
Supplier delivery reliability
Personnel
Purchasing
Efficiency
Purchasing
organization
Management
Procedures and policies
Information system
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 85
9. Controlling of Procurement
Examples of purchasing performance indicators
Dimension
Measurement aimed at
C/I* Examples
Purchased
materials
prices and
costs
Purchased materials cost control
C
Purchased materials cost reduction
C
Product /
quality of
purchased
materials
Early purchasing involvement in
design and development
Incoming inspection quality control
and assurance
I
Purchasing
logistics and
supply
Monitoring requisitioning
Delivery reliability (quality and
quantity)
I/C
Purchasing administration lead times, order
backlog (per buyer), rush orders, delivery reliability
index per supplier, materials shortages, inventory
turnover ratio, JIT deliveries
Purchasing
staff and
organization
Training and motivation of purchasing
staff
Purchasing management quality
Purchasing systems and procedures
Purchasing research
I
Time and workload analysis of purchasing
department, purchasing budget, purchasing and
supply audit
C
Materials budgets, variance reports, price inflation,
reports, purchasing turnover
Purchasing cost saving and avoidances, impact on
return and investment
Time spent by purchasing on design and
engineering projects, sampling reject rate (%)
Reject rate (%), line reject rate (%), quality costs
per supplier
* Note: C = continuous and I = Incidental
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 86
9. Benchmarking
Benchmarking in procurement
= kind of comparison between firms to improve purchasing performance
Types
• business funtion oriented (e.g. outsourcing of non-core-activities)
• supply process oriented (best practices in purchasing processes)
• externally oriented (outside own business – outside own industry)
Model for supply process benchmarking
1.
2.
3.
4.
5.
6.
7.
Identification of status quo
Cost information and evaluation
Illustration of own deficits
Checking of transfer possibilities
Infrastructure investments
Implementation of best practices
Continuous improvement
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 87
9. Types of Benchmarking
Benchmarking
object
Product benchmarking
Instrument depend heavily on product
structure, technology and complexity
Strategy benchmarking
Strategies are often incomparable
because they are highly specific for
one company
Benchmarking subject
Benchmarking partner
Organization benchmarking
Focuses on structures, not on
processes
Process benchmarking
Allows to gain knowledge on ways to
handle business activities without the
risk, that results are not transferable
Company benchmarking
Not easy to handle, because it allows
no focus
Business function
benchmarking
Concentrates on one business
function, in our case on purchasing
Internal benchmarking
Only possible for multibusiness unit
organizations
External benchmarking
(same branch)
Often not easy because the partners
are competitors
External benchmarking
(different branches)
Ideal to identify the real best practice
benchmark
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 88
9. Report of Cross-Industry Standard Benchmarks (CAPS)
Cross-Industry Standard Benchmarks November 2010
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Total spend as a percent of sales dollars……………………………………………..........
Procurement operating expense as a percent of sales dollars…………….……………..
Procurement operating expense as a percent of total spend…..…………………………
Procurement operating expense per procurement employee………………...…………..
Procurement employees as a percent of company employees…………….…………….
Total spend per procurement employee….…………………………………………………
Managed spend per procurement employee……………………………………………….
Percent of total spend managed/controlled by procurement……………………………...
Percent of total spend offshore…………….………………………………………………...
Percent of total spend onshore………………….…………………………………………...
Average annual spend on training per procurement employee….……………………….
Cost avoidance savings as a percent of total spend…………..…………………………..
Cost reduction savings as a percent of total spend…………..……………………………
Percent of active suppliers accounting for 80% of total spend……….…………………..
Percent of total spend with diversity suppliers……….……………………………………..
Percent of active suppliers who are eProcurement enabled……………………………...
Percent of total spend via eProcurement………….………………………………………..
Percent of total spend via eAuctions………….……………………………………………..
Percent of total spend via procurement cards………………….…………………………..
Percent of total spend via strategic alliances…………….…………………………………
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Utilities
Chemical
34,36%
0,12%
0,64%
99.309$
1,14%
20,75$ (m)
16,71$ (m)
85,48%
0,36%
99,64%
794$
1,13%
1,22%
4,53%
12,13%
5,62%
51,30%
0,22%
0,39%
111.031$
0,92%
33,43$ (m)
31,41$ (m)
92,29%
15,03%
84,97%
693$
1,12%
1,50%
4,74%
24,42%
11,26%
0,57%
2,14%
19,81%
Slide 89
9. Example: Balanced Scorecard
Support for sales
increase
PROCESS
Reduced assets
Substantial and
continuous
savings
Supporting short
response times
We purchase effective and
effizient
Standardized
purchasing
routines
We foster and leverage the potential of people and organization
Improved SCM
Skills
Efficient
worldwide
network
Providing lifecycle benefits
We challenge and strengthen the
core businesses and technologies
Sustained in/
outsourcing
Standaridzation,
modularization
and sustained
MoB
We utilize information and
information technology
Managing
SCM
knowledge
Improved key
tools
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Supporting
customers in
their success
We exploit supplier potential
Wellintegrated
suppliers
Selective and
challenging
partnerships
We work with the best suppliers
Lean,
differentiaded
and global
supplier base
SUPPLIER
POTENTIAL
Reduced supply
chain risk
We support SIG´s customer intimacy strategy
CUSTOMER
FINANCE
We contribute to shareholder value and satisfaction
SIG as
attractive
customer
Slide 90
9. Controlling of Procurement
„if you can’t measure it you can’t manage it.“
„Not everything that can be counted
counts, and not everything that counts can
be counted.“
[Albert Einstein (1879 - 1955), German theoretical physicist]
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 91
Chapter 10
Logistics as an Enabler
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 92
10. Case study: production network Behr
Intensive cooperation on
capacity, production technology
and logistics
USA
Dayton
Canton
Charleston
Fort Worth
Webberville
Spain
Barcelona
Montblanc
Germany
Mühlacker
Kirchberg
Vaihingen/Enz Mylau
Pforzheim
Lippstadt
Neustadt/Donau Reichenbach
Stuttgart
Meerane
France
Hambach
Rouffach
Brazil
São Paulo
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Czech Republic
Mnichovo Hradiste
India
Pune
South Africa
Durban
Pretoria
Johannesburg Port Elizabeth
Slide 93
10. The logistics market - study "Top 100 Logistics"
logistics market:
TUL-logistics: goods traffic, handling, picking and
storage activities of the entire economy
Coordinating-logistics: order processing,
disposition, supply chain-planning costs
(+ holding inventory costs)
Not included: industrial production processes,
which are usually associated with functions and cost
responsibilities of the production;
activities in the branches of retail trade,
carried out by the sales staff
Contract-logistics: businesses, integrating tight
relationships between carriers and service providers;
several logistics functions, long term relationships
and a high volume of sales will be handled
Market data Germany:
 Market volume: 200 Billion Euro
 Workplaces in the logistics industry: 2,65 Mill.
 Inhouse logistics: 51 %
 Market volume service provider:
98,5 Billion Euro
 Logistics cost components:
8,3 % of gross domestic products
Trends:
 small market growth due to rationalization
effects
Increase in market share of service provider
 Growth potential for contract logistics
 Quantities of goods largely constant/
transport distances increase
(Source: Klaus/Hartmann/Kille 2010/2011)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 94
10. Logistics Market Volume in Europe
(Source: Klaus/Hartmann/Kille 2010/2011, p.164)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 95
10. Coordination in Logistics
1.
Internal coordination of physical commodity flows (Adjustment of container
systems, technical additives, avoiding of „breackages“ in commodity flow
2.
Cross-plant coordination with suppliers and customers
(Standardization of packages, process flows, means of transport)
3.
Coordination of short-term production tasks and commodity flows (optimal
production lots and optimal order size)
-4.
Coordination on product and programme policy level (management of
modularization complexity, flexible manufacturing systems)
5.
Coordination in structure decisions (logistics requiremented constructions of
products, recyclable design)
6.
Coordination on strategic corporate planning level (coordination with competitive
strategy, divisional strategies)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 96
10. Definitions of Logistics
- Logistics is responsible for regional and temporal change of goods
- Information flow and product flow belong together and represent
the main elements of logistic systems
- Efficient and effective arrangements of logistic systems
- Focusing on the requirements of customers
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 97
10. Economic Targets of Logistics
System of logistics costs
Service levelcosts
logistics system costs
costs are considered
directly with logistics
costs
Orderprocessingcosts
Warehousing(stock-)
costs
Packagingcosts
Transportationcosts
Warehousecosts
Lot costs
(Source: Pfohl 2004, p. 31)
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 98
10. Logistics Success: Costs Reduction vs. Performance Improvements
Logistics Performance
Logistics Success
Logistics Costs
Reduction of
delivery time
Reduction of
carrying costs
Improvement of
delivery reliability
Reduction of
storage costs
overall optimization
Improvement of
delivery condition
Reduction of
transportation costs
Increase of delivery
flexibility
Reduction of order
processing costs
etc.
etc.
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 99
Chapter 11
Supply Chain Management
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 100
11. The Concept of Supply Chain Management
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 101
11. The Concept of Supply Chain Management
Information flow
Tier 2
Supplier
Tier 1
Supplier
Purchasing
Materials Production Physical
Management
Distribution
Marketing
Customer
& Sales
Supply Chain Business Processes
Product flow
CUSTOMER RELATIONSHIP MANAGEMENT
Consumer
Supply Chain Management
Components
 Product structure
 Managements methods
CUSTOMER SERVICE MANAGEMENT
DEMAND MANAGEMENT
ORDER FULFILLMENT
MANUFACTURING FLOW MANAGEMENT
PROCUREMENT
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
RETURNS CHANNEL
 Power and leadership structure
 Risk and reward structure
 Culture and attitude
 Planning and Control
 Work structure
 Organization structure
 Product flow facility (IT)
structure
 Information flow facility (IT)
structure
Cooper/Lambert/Pagh (1997): “The integration of all key business processes
across the supply chain is what we are calling supply chain management.”
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 102
11. Supply Chain Operations Reference-Model
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 103
11. Supply Chain Planning Tools
Strategic
Planning
Level
Strategic (Supply Chain) Management
Supply Chain Planning Tools
Product
Development
Tactical
Planning
Level
Financial
Analysis
Operational
Level
Financial
Control
HR
Management
Financial
Management
Supplier
Management
International
Logistics
ERP Systems
Product Data
Management
Market
Analyses
Production
Control
Cross
Docking
VMI
Customer
Management
Asset
Management
LifeCycle
Management
Procurement
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Production
Distribution
Customer
Service
Final
Customer
Slide 104
11. Challenges for Supply Chain Management
customer
tailored
products
more
service
offers
supply chain
manufacturer
“value
creator”
final
customers
distribution to
outpacing:
high quality and
low cost
increasing
international
competition
supply market
consequences
of customer market
challenges
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 105
11. Crossroads in Supply Chain Management
dangerous
crossroads
networking/
cooperation
ignorance of
supply side
recent development
of purchasing to
supply chain management
global sourcing/
globalization
consortia/
decentralization
keep away
from SCM
e-purchasing/
computerization
time
past
future
present
Prof. Dr. Dr. h.c. Ulli Arnold, Chair for Industrial Goods Marketing and Procurement
Slide 106