Supplier Relationships

1. Supplier Relationships

2. Types of Purchases • Products We Never Make • Products We Always Make • In Between Products • Make/Buy • Outsource

3. Make/Buy and Outsourcing

4. 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

5. 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

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

7. Vertical Integration • Cost and Responsiveness • Insure Performance • Scheduling • Control

8. 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

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

10. 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

11. Supplier Selection

12. Supplier Selection • Types of Purchases • Industry Standard • Custom Assemble from Common Parts • Custom Manufacture from Common Materials • Custom from New Technologies

13. Supplier Selection • Types of Suppliers • Manufacturers • Industry Standards • Patented Products • Proprietary Technologies • Distributors • Don’t Forget Carriers

14. Criticality Grid High Patent M Prop Tech A R K E T Ind Std Commodity Low Low High INTERNAL Volume, Importance Volume, Pervasive

15. Criticality Grid: High Market • Sole Source • High Market Concentration • High Price Volatility • High Supply Industry Capacity Utilization • Patented Product • Proprietary Technology

16. Criticality Grid: Low Market • Industry Standard Items (Some Differentiation) • Commodities • Non-proprietary Indirect Supply Items • Many Substitutes

17. Criticality Grid: Low Internal • Little Use • Low Volumes • Unimportant Technology

18. Criticality Grid: High Internal • High Volume • High Dollar Expenditure • High Price Sensitivity • Pervasive • Key Operating Characteristic

19. Criticality Grid: Managerial Objectives High Patent Look Ahead Strategic Alliances M Prop Tech A R K E Market Driven Market Driven T Min Admin Cost Supply Continuity Ind Std Automate Operational Alliance Commodity Low Low High INTERNAL Volume, Importance Volume, Pervasive

20. Criticality Grid: Contract Applications High Patent Look Ahead Evergreen Agreements M Prop Tech Strategic Alliances A R K E Petty Cash Multi-Year T Purchase CardsSystems Contracts Ind Std Blanket OrdersOperational Alliances Commodity Low Low High INTERNAL Volume, Importance Volume, Pervasive

21. Strategic Alliances and Integration

22. Elements of Supply Chain Integration • Information-Sharing • IT System Integration • Engineers • Production • Buyers/Suppliers • Shipping/Receiving • Accounts Payable/Accounts Receivable

23. Integration • For Strategic Suppliers • Significant Administrative Resources Needed • Long Term Relationships • Expansive Information Sharing • Complex and Expensive

24. Integration Benefits • Minimizes • Product Costs • Costs of Inventory • Lead Times • Product Development • Product Delivery • Improves Customer Service • Creates Competitive Advantage

25. Lessons Learned • Integrate Selectively • Integration is Difficult and Expensive • Fine Line Between Lean and Starving • True Integration (Customer Through Suppliers) is Very Rare • Lean, JIT, CPFR All Require Integration • Supplier Selection & Management Key • No Substitute for Face-to-Face

26. Conclusions • Supply Chain Integration is Popular Concept • Information Integration Often Beyond Smaller Supplier Capability • Rhetoric Far From Reality

27. Questions, Comments, Observations, Conclusions, Arguments?