ISQA for 1

Strategic Planning

 Mission Statement  Vision Statement  Strategies  Long-Term Action Plan  Commits Organizational Resources  Creates Competitive Advantage  Performance Measures

Strategic Planning Steps  Developing the Vision  Translating the Vision into Goals  Developing the Strategies to Achieve the Goals  Selling the Strategies  Executing the Strategies  Tracking Progress

Development of Commodity and Supplier Strategies  Identify Critical Elements  Cost Drivers  Critical Materials  Key Technologies  Determine How to Manage  The Commodity  Each Supplier Within the Commodity

Commodity Strategy  Industry Standard or Custom  Criticality  Market Study / Commodity Study  Global  Domestic

Commodity Strategy  Sourcing Strategy  Single or Multiple Sources  Price/Cost Analysis  Contract Type  Automation  Logistics  Inventory  Transportation  Supplier Evaluations

Supplier Strategy  Formal Analysis  Capability, Capacity, etc.  Present Status, Desired Status, Methodology  Performance Improvements  Additional Services  Administrative Improvements  Consignments, etc.  What Must WE Do?

Strategy Development Example: Nuts and Bolts  Critical Elements  Quality (Counterfeit)  Availability  Minimize Administrative Cost  Strategy  Single Source  Local Supplier  Or Consigned Inventory  Known Manufacturer  VMI

Strategy Development Example  Decide How to Manage Specific Supplier  Goals / Objectives for That Supplier  Develop Specific Performance Measures to Track Supplier Improvement  Invoice Accuracy  Prompt Backorder Clearance  On Time Delivery  Supplier Forecasting

Forecasting as a Strategy Foundation  Volume Requirements  Timing  Locations  Future Requirements  Technology Impacts

Technology

Alphabet Soup  ERP  MRP  MIS  CRM  SRM  WMS  TMS  RFID  GPS  EDI  CAD  CPFR  ASRS

RFID 

Ladar Forklift  ailer_loading.aspx?pid=190&qs=1_6_

ISQA 4/539 Specifications Sourcing Strategy Supplier Selection

Specifications  Responsibility  Purchasing’s Role  How Described  Descriptive  Design  Performance  Statements of Work

Specification Provides  Performance Requirements  Parameters Which Describe Including Units of Measure  Materials to be Used  Production Processes  Inspection, Test Requirements  Reference to Other Documents or Specifications  Mil Specs, Drawings, SAE Specs, etc.

Elements of Specifications  Intended Use, Quality Requirements  Standardization  Value Analysis  Internal Negotiation Opportunities

Quality  How would you define ‘Quality’?

Quality  Definitions  Quality - Quality Control  PROCESS Controls  Rule of 10  Quality and Multiple Sourcing  Supplier Certification

Quality  Is Quality Free?  Can We Achieve 100% Quality?

Total Quality Management  TQM Principles  Know/Understand Customers and Requirements  Satisfy/Delight Customers  Continuous Improvement Elements of TQM  Process Identification  Process Mapping  Process Simplification  Process Controls  Track - Monitor  Continuous Improvement  TQM and Six Sigma

Value Analysis  Begun by Larry Miles at GE  Basic Objectives  Reduce Cost While Maintaining Function or  Increase Function While Maintaining Cost  NEVER Cheapen Product While Reducing Cost  Focus is Always on Function and Value

Value Analysis, cont.  Exploded View Parts Diagram  Question Each Part  Really Necessary?  An Industry Standard?  If Custom,  of Most Suitable Material?  Do Specs Reflect Need  Manufactured in Most Efficient Way?  Assembled in Most Efficient Way?  Does Each Component “Match” Overall Design?  An Example

Standardization  Internal  Processes  Materials  Equipment  External  Industry Standards (Materials)  Industrial Standardization (SAE)  Multi-Industry (ANSI, ASTM)  International (ISO, Metrics)

Standardization  Industry Standards  Company Standardization  Impacts on Inventory  Impacts on Purchasing  Impacts on Maintenance and Repair  Impacts on Quality  Implementation

Why Involve Purchasing in the Design Process?  Define Requirements  Generic or Proprietary  Determine Availability and Lead Times  Examine Alternative Goods  Make/Buy Analysis  Minimize Total Cost  Early Supplier Involvement

Suppliers and New Product Development  Create Competitive Advantage  Early Supplier Involvement  Supplier Expertise and Cost  Latest Technology  Faster to Market  Improved Quality  Fewer Changes, Change Orders

Sourcing Strategies

General Supply Chain Strategies  Supply Base Reduction  Supply Base Addition  Supplier Development  Inventory Strategies  VMI  Consignments  Lean Operations  Simplification  Standardization  Automation  Risk Management  Identification  Mitigation  Cost Reduction  Administrative  Commodities  Services  Leveraging Technology  Lead Time Management  Sustainability

Sourcing Strategies  Industry Standard or Custom?  Criticality  Term of Agreement  Automation  Risk Mitigation  Sustainability

Supplier Selection

Dave Hoover’s Purchasing Axioms  A Firm Has The Suppliers It Deserves  A Supplier Will Only Be As Good As It Has To Be  The Best Way To Get More From Suppliers Is To Ask For It

Supplier Selection  Goal: Long Term, Close Relationship with World Class Suppliers  Create Competitive Advantage from Supply Base  Capabilities  Performance  Future Considerations

Capabilities  Financial Capabilities  Today  To Grow With Us  Technical Capabilities  Engineering  Buyer Support  Quality Process Controls  Manufacturing Capabilities  Production Capabilities  Capacity

Supplier Characteristics  Proximity  Access to Infrastructure  Union Shop  Forecasting  Others  Terms (2/10, Net 30)  Risk Profile  Sustainability

Risk and Sustainability Supply Chain Risk  External  Governmental  Infrastructure  Supplier  Logistical  Terrorism  Natural Disasters  Accidents  Internal  Policies  Administrative  Operational  Organizational  Ethics Sustainability  Environmental  Non-Renewable Resource  Energy Consumption  Emissions  Hazardous Materials  Social Responsibility  Ethics  Gender Equity  Living Wage  Labor and Relationships  Organizational  Profitability, LT Viability  Customer Perceptions  Customer Relationships

Risk Prevention/Remediation  Ts and Cs  Safety Stock  Safety Lead Time  Additional Suppliers  Geographic Dispersion  Business Continuity  Ours  Suppliers  Training  ISO  Supply Chain Mapping  Forecasting  Project Management  Review Supplier Selection Process  Supplier Visits  Daily Diligence

Supplier Selection Process  Clear Specification  Marketplace Surveys  Identification of Available Suppliers  Determining Supplier Qualifications  Make/Buy Analysis  Selecting from Qualified Suppliers  Reverse Auctions

Supply Base Analysis  Industry Average Numbers of Suppliers  How Many Suppliers Do You Have?  How Many Suppliers Do You NEED?  Risk  View Suppliers as Investments  Is the Supplier Making Money For You?  Is the Supplier a Good Return on Your Investment  Sustainability

Supply Base Reduction  Maximize Leverage  Increase Quality and Reduce Variability  Utilization of Resources  Minimization of Administrative Cost  Create Stable Supply Base  Develop Synergy  Create Competitive Advantage Through Supply Base  Manage Risk

Supplier Performance  Quality  On Time Delivery  Flexibility  Problem Resolution  Productivity Improvement  Their Supplier Management Program  Progress Toward Certification  Other Important Criteria

Buyer Performance  Forecast Accurately  Share Information  Minimize Rush Orders and Schedule Changes  Focus on Total Cost - Not Price  Pay Bills On Time  Manage Supplier Relationships

Supplier Visits  Housekeeping  Inventories  Order Processing Procedure  Quality Processes  Their Purchasing Process  Financial Statements  Other Capabilities  Engineering, Logistics, Technology  Logistics, Process Improvement  Credit Policies and Terms

Other Supplier Selection Criteria  Social Goals  Minority/Women Owned  Small Business  Buying Local (Governmental Set-Asides)  Manufacturer vs Distributor  Environmental Considerations  Supply Chain Risk

Intangibles  Intuition  Personality Types  Corporate Philosophy  Reputation  References

Global Sourcing

 Domestic Sourcing  Same Language  Same Cultural/Ethical Expectations  Same Legal System  Same Banking System  Same Transportation  No Customs, Tariffs

Global Sourcing  Why Look for Global Sources?  Lower Total Cost (Landed)  Access to Markets (Countertrade)  Access to Raw Materials  Access to Technologies  Other Reasons  Quality  Competition

Global Sourcing  Finding Global Suppliers  Directories  Trading Companies  Embassies/Consulates  Trade Shows  Countertrade  Logistics Issues  INCOTERMS  Other Logistics Costs

Global Sourcing  Problems With Global Sourcing  Good Specifications  Cultural Issues  Language Difficulties  Long Lead Times  Paperwork  Payment Issues  Political Risk  Currency Risk  Security Issues  Sustainability

Global Sourcing  Methods  Intermediaries  Foreign Subsidiaries  International Purchasing Offices  Direct Purchases  Inspection Services  Customs Brokers and Freight Forwarders

Global Sourcing: Communication  Understanding the True Barriers  Speaking  Reading and Writing  Slang and Colloquialisms  Two Word Verbs  Vocabulary  Conversational  Business  Technical

Global Sourcing: Communication  Translators  Local,  At Destination  Types  Translating Written Materials  Business Cards and Titles

Global Sourcing: Payment  Domestic Payment  Payment Up Front (Avoid)  COD  On Account  International Payment  Payment Up Front (Avoid)  Against Documents  Letters of Credit  On Account

International Negotiation  Age, Gender  Status, Authority  Formality  Numbers and Team Composition  Professionalism  “Yes” and “No”

International Negotiation  Silence  Subtleties  Deadlines  Cultural Respect  On Being Alone

Make/Buy and Outsourcing

Make/Buy  Products We Never Make  Products We Always Make  In Between Products: Make/Buy

Make/Buy  Industry Standards, Proprietary Products and Make/Buy  Procurement from Suppliers  Procurement by Manufacture  Fluid Decision  Revisit at Regular Intervals  As Economic Conditions Change  As Internal Conditions Change  Always Maintain Internal Capability

Reasons to Make  Quantities Too Small  Quality Too Critical  Timing Too Critical  Trade Secrets (for a time)  Cheaper  Keep Crew Busy  Avoid Sole Source (perhaps)  Union Shop  Unreliable Supplier

Reasons to Buy  Quantities Too Large  Supplier Quality Acceptable  Have Sufficient Lead Time  Lack of Necessary Competencies  Lack of Capacity  Cheaper  Reciprocity

Vertical Integration  Cost and Responsiveness  Insure Performance  Scheduling  Control  Boeing

Outsourcing  Strategic Decision  Activity is Not Core Competency  Will, In Future Completely Depend on Suppliers  Will No Longer Maintain Internal Capability  Management of Outsourced Activities

Outsourcing  Our Core Competencies  Suppliers’ Core Competencies  Dependence on Suppliers  Strategic Vulnerability  Technology Transfer  Source from Competitors’ Suppliers  Supplier Exploitation  Price Creep  Service

Outsourcing  Firms Rethinking Outsourcing  Rising Wage Rates  Rising Transportation Costs  Currency Exchange Rates  Long Lead Times  Recent Survey (Global Retail Goods Firms):  50% of firms in survey are considering moving out of China  26% actually doing it