1. Introduction to Global Supply Chain Management Module Three: Product Procurement & Supplier Relationship Management

2. Class Agenda Sourcing & Purchasing defined The purchasing function
May 18
Class Agenda
Sourcing & Purchasing defined
The purchasing function
S&OP integration & synchronization
Key elements of Supplier Relationship Management (SRM)
Operational requirements
Analysis of the purchasing process

3. Sourcing & Purchasing: Buy-Side Activities In a Global Model
MANUFACTURER
DISTRIBUTION
SYSTEM C T O M
MATERIALS
MANAGEMENT
Buy Side
Sell Side

4. Different Operating Models & Inventory Types Influence Sourcing & Purchasing Strategies
Types of Inventory
Operating Model
Raw materials
Components/sub-assemblies
Work In Process
Finished goods
Distribution inventory
Accessories
Spare parts
MRO
Build to stock
Build to order
Assemble to Order
Engineer to Order
Just In Time
Vendor Managed Inventories

5. Global Sourcing & Purchasing Defined
“The business disciplines of sourcing and purchasing are closely linked in that they are both
related to the acquisition of goods & services that contribute to the execution of a company’s
business model.
Sourcing is a strategic function that establishes the criteria, policies and procedures for selecting
and working with both domestic, and overseas suppliers. Executed within the framework of an
integrated global supply chain, product sourcing activities include country/region/industry
analysis, structural analysis of supplier networks, single vs. multi-vendor sourcing strategies,
risk management, logistics & Customs infrastructure, government regulations & tax code, vendor
profiles, landed cost analysis, cumulative lead-times, human rights & environmental policies.
Conversely, purchasing is involved in the actual procurement of raw materials, components,
sub-assemblies, finished goods, accessories and/or service parts in quantities that are the result
of ongoing S&OP. Regardless of a company’s business model, purchasing executes on activities
that include vendor selection, quality specifications, price & quantity negotiations, terms of sale,
shipping terms, cancellation dates, last-ship dates, charge-backs, title transfer, standard
operating procedures and documentation requirements.”
Dan Gardner, April 2015

6. The Integration of Purchasing With Other S&OP Functions
Whether a company acquires goods through an intercompany purchase or from an outside vendor, the coordination of MRP with other S&OP activities is critical to success
Bill(s) of Material
Purchase order management
Production planning & MPS
Capacity planning
Lead time compliance
Logistics planning
Material Requirements Planning is what drives the purchasing function

7. MRP & Purchasing: Gross-to-Net Exploding
An exercise whereby the original (gross) requirement for a product is reduced by:
Inventory on hand
Confirmed order receipts
Confirmed order releases
Planned order releases
Gross-to-Net Exploding must be integrated with the raw materials inventory management function
Integration is achieved through process design and supply chain software applications

8. MRP & Purchasing: Lead Time Off-Setting
Orders are placed for products on a date that “off-sets” cumulative lead times with the desired date of receipt
P.O. preparation/acceptance
Production time
Transportation lead time
Customs clearance
Domestic distribution
Lead time off-setting must be integrated with the logistics function
Integration is achieved through process design and supply chain software applications

9. MRP & Purchasing: A Typical Inbound Supply Chain
Origin: Somewhere Overseas
Destination: Somewhere in the U.S.A.
Supplier Origin Trucker Origin Forwarder International Transportation
CHB U.S. transport W&D Order Fulfillment Last Mile Client

10. Product Procurement & SRM: Strategic Sourcing Considerations

11. Product Procurement & SRM: Complexity & Risk
Many companies buy hundreds (if not thousands) of different products in overseas markets
To purchase that many products a firm has to deal with hundreds of active and potential vendors
Suppliers can be spread across multiple regions and dozens of countries
Vendors have to be vetted and qualified prior to working with them

12. Product Procurement & SRM: Complexity & Risk
Detailed purchase agreements must be negotiated with each supplier
Vendors must be able to work with other supply chain players
Detailed Standard Operating Procedures (SOP’s) have to be crafted with each supplier
The vendor has to be able to execute
Ideally, cloud-based software helps to manage the relationship

13. The Purchasing Function: Key Considerations in Vendor Selection
Ownership structure
Financial stability
Product portfolio
Existing portfolio of clients
Technical (engineering) capabilities
Location(s)
Possible countries of origin

14. The Purchasing Function: Key Considerations in Vendor Selection
Number of employees
Physical plant
Production capacity
Product quality programs
Lean Manufacturing
Six Sigma
Use of Standard Operating Procedures (SOP’s)

15. The Purchasing Function: Key Considerations in Vendor Selection
Cost structure (unit cost)
Demonstrated S&OP capabilities
MPS, MRP, Capacity Planning
Supply chain software & visibility tools
Knowledge of global trade
Shipping, documentation & compliance

16. The Purchasing Function: Key Considerations in Vendor Selection
Respect for patents, trademarks & intellectual property
Human rights compliance
Green vendor initiatives
Key Performance Indicators
Product quality, quantities, logistics, billing, rejections/returns, et al

17. The Purchasing Function: Contractual Clauses
May 18
The Purchasing Function: Contractual Clauses
Product specifications
Merchandise description
Quality, grade, size & condition
Quantities & weights
Price
Currency of sale
Payment terms

18. The Purchasing Function: Contractual Clauses
May 18
The Purchasing Function: Contractual Clauses
Product warranties & returns
Substitution
Incoterms® 2010 rule
Mode of transport
Lead-time
Last ship date

19. The Purchasing Function: Contractual Clauses
May 18
The Purchasing Function: Contractual Clauses
Order cancellation date
Charge backs
Documentation requirements
Dispute resolution
Applicable law
Severability

20. The Purchasing Process: Alignment, Integration & Synchronization

21. Purchasing Example: Build-to-Order Model
Origin Country
In Transit
Destination Country
Suppliers
Consolidation
Center
De-Consolidation
Center
Customer DC
Stores
Buyer places P.O. on vendor
Vendor acknowledges receipt of P.O.
Vendor uploads P.O. in system
Vendor executes MRP
Supplier acquires net raw materials requirements
Completes production process
Supplier prepares commercial documentation
Vendor notifies 3PL and buyer of cargo readiness
3PL picks up cargo & documentation
3PL prepares shipment for export
3PL makes booking with SS Line
3PL executes export
3PL send ASN to buyer
Goods are shipped

22. Purchase Order Process Flowchart:
Begin
Buyer’s system
generates
Planned Order
Release (P.O.R.)
Make
changes
Changes
required?
Yes No
End
Negotiate
Purchasing agent
reviews P.O.R.
isssues P.O.
to buyer
Supplier
acknowledges
reciept of P.O.
Vendor inputs
P.O. information,
S&OP updated No

23. Purchasing & The “Documentation Trail”
The Documentation Trail is a metaphor that symbolizes the source, creation, use and filing of all documents associated with an international transaction
Sales contract
Purchase orders
Commercial invoice
Packing list
Forwarder’s cargo receipt
Ocean bill of lading
Airway bill
Insurance certificate
Certificate of origin
Phytosanitary certs
Letter of credit

24. Document Example:
Purchase Order

25. Document Example:
Commercial Invoice

26. Document Example:
Airway Bill

27. End of Module Three Congratulations!!!