1. Procurement Management & Managing Relationships with Suppliers
Dira Ernawati, ST. MT
Jur. Teknik Industri – UPN “Veteran” Surabaya

2. Background
About 40 – 70% of cost of goods sold are from material costs
Non financial contributions of supply management are of high importance:
Quality of supplied materials
Delivery consistency from supplier
Supplier willingness to deliver more frequently with smaller delivery quantity
Supplier involvement in developing new products
Supplier production and delivery flexibility
Dira Ernawati, ST.MT

3. Activities Related Procurement Management
Design strategic relationships with suppliers
Selecting appropriate suppliers
Chose and implement appropriate technology to support procurement activities
Maintain procurement related data bases
Managing purchasing activities
Evaluating supplier performance
Dira Ernawati, ST.MT

4. Categories of Goods Purchased
Direct materials, components, subassemblies
Property, plant, and equipment (PPE)
Maintenance, repair, and operating supplies (MRO)
Services
Dira Ernawati, ST.MT

5. Supplier Relationships & Sourcing Strategy

6. What is a Partnership
A close collaboration among two or more trading partners in a supply chain, characterized by friction-free information sharing between them. Trading partners: suppliers, 3PL, dealers/distributors.
They both agree to share risks and benefits of the relationships for a long term. A study by Helper (1991) revealed that the average length of contract in the US has increased from 1.2 years in 1983 to 2.3 years in Some companies (like Chrysler and Mazda 626) signed supply contracts for the life cycle of a model (Typically for 3-5 years).
Dira Ernawati, ST.MT

7. Practices Across NationsGM
Ford
Chrysler
Toyota
Nissan
Hyundai
Kia
Daewoo
Suppliers tend to supply only one automaker
Suppliers supply multiple automakers
Most effective at strategically segmenting suppliers
Big, but not loyal
Able to learn from other customers
Loyal, but small
Unable to learn from other customers
Dira Ernawati, ST.MT

8. Supplier Segmentation in Automotive Industry
Supplier Association
(190 suppliers)
Supplier Association
(90 suppliers)
Subsidiaries
> 20% ownership
30 – 35 suppliers
Engine parts
Transmission
AC/Heater
Radiators
Body Panels
Seats
Tires
Batteries
Spark plugs
Shocks
Belts
Dira Ernawati, ST.MT

9. Supplier Segmentation @ Japanese Automakers
Non Strategic Suppliers
Standardized / commodity items
Low value inputs
Stand alone
Low asset specificity
Little help from automakers
Suppliers supply to multiple automakers
Single functional interface (marketing to purchasing)
Price benchmarking
Strategic Suppliers
Customized items critical for product differentiation
High value
Multiple interaction effects with other inputs
High asset specificity
Intensive face to face contacts
Often exclusive relationships
Multiple functional interfaces (engineering, manufacturing, etc.)
Self enforcing agreements are necessary (trust, ownership, etc.)
Dira Ernawati, ST.MT

10. Sourcing Strategy Leverage More suppliers Large spending value
Reverse Auctions
Full Strategic Sourcing
Leverage
More suppliers
Large spending value
Commoditized items
Strategic
Critical, customized
Limited suppliers
Commodities
Low priority items
Low spending value
Bottleneck
Exchanges
Spot buys, integration
Dira Ernawati, ST.MT

11. E-Auction, Exchange, Integrator, Spot Buys
Jenis
Penjelasan
e-Auction
Real time negotiation. Supplier bisa merevisi bid, bisa melihat bid orang lain.
Exchange
Linking buyers and sellers electronically, can be private or public exchange.
Integrator
Third parties, assume responsibility for managing a company’s sourcing activities.
Spot buys
Made on open market, based on price. Time consuming, because made on individual basis.
Dira Ernawati, ST.MT

12. E-Auction Example AIRLINE EXAMPLE Number of supplier: 9
Number of bids:46
Materials Sourced: Mixed consumables
Negotiation format: Reverse Auction
Duration:30 minutes with two 5-minute extensions
Establish real time competition. Do not address Total Cost of Ownership (TCO). Not suitable if supply < demand.
Dira Ernawati, ST.MT

13. E-MARKETPLACE APPLICATION FOR STRATEGIC SOURCING
Industry
Commodity
Historic costs
Cost reduction
Airline
PC Consumables
$ 2.5 M
37%
Stationary
$ 1.3 M
30%
Consumer goods
Direct materials-sub assemblies
$ 9.3 M
Foods
Sliced beans
$ 230,000
21%
Petrochemical
Misc. direct and indirect materials
$ N/A
10-15%
Dira Ernawati, ST.MT

14. Sourcing Strategy Leverage Test equipments Batteries Antennae
Strategic
Transport equipment
High end routers
Premium handsets
Commodities
Laptops & desktops
Cable
MRO/Office supplies
Fuel
Bottleneck
OSP Construction
Pedestals
Old technology plugs
Dira Ernawati, ST.MT