MIM 524 Global Sourcing Class three

1. MIM 524 Global Sourcing Class three

2. Which Comes First? Organization? Strategy? Does function dictate structure or does structure dictate functionality? Does strategy dictate organization or does organization influence strategy? Chicken or Egg?

3. Structure • Organizational challenges • Structure • Logistics • Inventory Optimization • Carrier Optimization

4. Organizational Structure Considerations • Centralized Vs Decentralized • International Purchasing Organization (IPO) • Functional Vs Geographical Proximity • Generalists Vs Specialists • Separate Vs Integrated (with end users)

5. Centralized Vs Decentralized • Centralized has the following advantages • Standardized Process and Controls • Easier tracking of spends, trends, etc. • Allows for “pooling of purchase” to drive better overall deals and support • Uniform support across multiple locations • Disadvantages • Lack of local customization – small unique needs may not be supported • Logistical issues – Ex: Bulk spends • Less integration with end users (Ivory Tower Perceptions)

6. International Purchasing Organizations (IPO) • Blended strategies of specialists in specific geographical locations • They specialize in “how” to source in those specific geographies • Leveraged by many large MNC’s (multi-national companies) • Singapore, Taiwan and Hong Kong – high concentrations • IPO’s typically compliment and leverage centralized commodity teams • Provide input, trends and potential new emerging sources • Receive input from commodity specialists on overall engagement models, benchmarking and indicators.

7. Functional Vs Geographical • Functional allows for • A deep investment in the understanding of specific commodities • Commodity expertise is very high and a competitive advantage • One stop shop globally for all support in that unique commodity area • Geographical proximity allows for • Better integration with all internal customers (large and small) • Better response times and flexibility for customers

8. Separate Vs Integrated • Emergence of Business Ethics • SOX – Sarbanes Oxley • Anti-trust Issues • Fiduciary responsibility • How do we ensure we are wisely using company funds? • Separate Function/Organization Provides • Standard Training and Controls Monitoring • Confidentiality, Insider Trading, etc. • Checks and Balances on Decisions • Step away from the business operations • Monitoring of Conflict of Interest • When might integrated be a better option?

9. Strategic Planning • Mission • Vision • Strategies • Long Term Action Plan • Commits Organizational Resources • Creates Competitive Advantage • Performance Measures

10. Supply Chain Strategy Business Processes People Information Technology eBusiness Three enabling strategies Strategy #1: Re-engineer and improve Supply Chain business processes Strategy #2: Enhance our relationships through the Chain Strategy #3: Create electronic capabilities to run competitive Supply Chains

11. Strategic Planning & The Source Function • Elements of a strategy • Long term vision • Broad reaching – competitive advantage • Sustainable and repeatable • Drives optimized results • Deliberate • Resource commitment • Emerging Trends • Outsourcing • Collaboration/Joint Development/Venture • Supplier Enabling • Low cost geographies • Methods of optimizing existing supply base • Consolidation • Expansion • Single, sole or Multi sourcing • Long term relationships VS transactional events • Fulfillment

12. Strategies at different levels… • Corporate Strategies • Supply Strategies • Commodity Strategies • Individual Supplier Strategies

13. Corporate Strategies • Focuses on market position • How do we retain or take lead in market segment shares? • What competitive advantages do we utilize • Leader or Lager – Cost, Quality, etc. • Customer Profile • Size (OEM, ODM, Distribution, Channel, End Users – AKA Joe Customer) • Location (Geographies, Proximity to Metro Areas, other) • Demand Profile – What do they need now and in the future • What does the market expect? • Growth? What % • Investment/Innovation? R & D, Patents, etc. • Technology/Product Life Cycles • Emerging Technologies • Complimentary products/technologies • Time to Market or Lager? • Mission and Culture • How will the company utilize it’s resources to deliver results

14. Purchasing and Sourcing Strategies

15. Commodity Strategies • How many suppliers? • Opportunity to consolidate? • Expand to drive competition? • M & A Impact • Custom Vs Standard? • Location of suppliers? • Proximity to source of use? • Supply chain considerations • Low cost geo’s? • Performance of supply base • Cost Rabbit • Technology leaders • Quality levels and overall performance to current demand • Measured by Supplier Report Cards • Make Vs Buy • Global Sourcing Options • Enabling/Investment for competitive Advantage • Licensing Deals

16. Commodity Strategic Plans • Sourcing Research • Commodity Studies/Global Market analysis • Forecasting/Management of Change • Value analysis/Product Studies • Supplier Studies • Benchmarking/Market Analysis • Training and Education • Understand the environment, economy and related factors • Newspaper, professional publications, etc.

17. Supplier Strategies • Determine which Segment they support? • One time transaction • Supply agreements • Commodity – Stable • Commodity – Changing • Strategic • Make VS Buy • Leader or Lagger • Cost, Quality, etc. • Investing in the future • Enabling/Licensing • Training/BKM Sharing (Best Known Methods) - TQM • Away Teams • Performance – Financially? • Allocation Strategy • Single Source? • Multi Source? • % of total

18. Supply Strategies • Volume buys – Pool of purchase • MOQ – Minimum Order Quantities • Inventory investments • JIT • ARM (auto replenishment model) • Consignment – Min Inventory, Min Turns • Third Party Logistics (3PL’s) – optimize TPT • Hub (owned) – optimize TPT (through put time) • In House Min/Max • Logistics method and INCO Terms • TPT Flexibility • Expedite • Upside/Downside • Cancellation Windows • How transaction is managed? (Req to Settle Flow) • PO – discrete • Blanket PO • Erelease/ereceipt –Rosetta net (EDI/Internet) • PCard • Catalog/Web orders • Barcode/RFID

19. Supplier Strategies • Single Source – Collaboration Strategy • Share long term roadmaps • Commit to long term contracts and relationship • DFX (Design for Cost or Manufacturing or Supply Chain) • Multi Source – Competition Strategy • Market/competition driven pricing and performance • Allocation negotiation strategies (Possible Reverse Auction) • Transactional – Fulfillment Strategy • Focus on easy of procurement – typically automated • Supplier catalogs with wide selections • High Transactions Low cost

20. LO 1 INVENTORY COSTS • Costs to acquire • Ordering costs • Setup costs • Carrying costs • Stockout costs

21. Cash-to-Cash Cycle Time 0ENLI009 Inventory days + Days sales outstanding – Average payment of supply period for materials 0ENLI015 0ENLI003 0OPPLAN017 Faultless Invoices 0OPDEL023 Returns 0OPDEL067 Sales 0ENPR026 Inventory 0OPPLAN012 Number of Supply Sources 0OPSO012 Order Fulfillment Lead Time 0OPPLAN030 Perfect Order Fulfillment 0OPDEL061 Total Source Lead Time 0OPSO041 Fill Rates 0OPDEL025 Forecast Accuracy 0OPPLAN008 Scheduled Achievement 0OPMAKE022 Delivery Performance to Scheduled Commit Date 0OPDEL019 Production Lead Times 0OPMAKE017 Yield 0OPMAKE033 Scrap 0OPMAKE023 Machine wait time 0OPMAKE007

22. Supplier Management Strategies by Segment/Size IV Strategic Alliance/Collaborate III Outsource/Enable Leverage II Supplier Management Strategy Supplier Management Segment Commodity Simplify I Bottleneck Acquire/Equity Investment or Reduce Small Supplier Low Scalability Mid Size Supplier Marginal Scalability Large Supplier Scalability Mega Supplier High Scalability Supplier Size and Scalability – Flexibility and Willingness to Invest

23. Purchasing Strategies • Strategic Supplier Long Term Contracts • Purchase Orders • Technologies • Internet/EDI • Bar Coding, RFID Tags • ERP Capabilities • Reverse Auctions • Supplier Catalogs • Electronic PO’s Contracts and Signatures • PCards • Outsourcing the transaction process

24. Analysis and Selection • Supplier Certification • Qualification • Auditing • Testing and Sampling • Stat Process Control • QOM – Quality Operating Systems • TQRDCE – hp model • Comparative Performance • What are the competitors using? • What are other segments of the corporation using? • What are others outside the industry using?

25. Supplier Analysis & Selection Technology Quality Resourcefulness Service Availability Cost

26. LOGISTICS

27. Logistics • What is it.. • Freight Carriers • Pro’s and Con’s of each type (Air, Water, Ground (truck or Rail) • Freight Forwarders • Customs Brokers • Third Party Logistics (3PL’s) • Agents • Who should be responsible for it • Who pays? • Who manages customs clearance? • Who pays duties? • When does Title transfer? • INCO Terms

29. Critical Logistics Issues • Timely Service • On Time • Consistent • Technology Infrastructure • Information Availability • Information Accuracy • Efficient Use of Logistics Assets • Transportation Assets • Facilities • Inventories

30. Critical Logistics Issues • Cost Effective Services • Entire Logistics System • Integration • Of Organizational Activities • Of Supply Chains • Of Modes • Capacity Constraints • Containers and Ports • Airports • Risks • Damage (Moisture, Vibration, Contamination, Impact) • Pilferage/Theft/Replaced (countfeit) • Lost/Un-trackable

31. Logistics Strategies • Similarity to Products • Commodity Strategy • Standard Service Needs? • Custom Service Needs? • Which Modes Will Be Used? • How Many Carriers are Necessary? • What Characteristics? • Make/Buy Analysis

32. Key Logistics System Features • Cycle Time / Lead Time • Consistency of Cycles • Order Accuracy • Consolidation • Problem Notification/Resolution • Customer Satisfaction/Feedback • Flexibility / Responsiveness • Cost

33. Enhanced EB Indicators that optimize the Supply Chain Potential

34. Logistics Strategies • Uninterrupted Supply of Inbound Material • Supplier Selection • Forecasting of Supply • Information Sharing • Inbound Transportation • Facility Numbers and Locations • Local Warehouses • Distribution Centers • Inventory Quantities and Locations • Timely Distribution of Necessary Materials • Forecasting of Demand • Outbound Transportation

35. Services Provided By 3PL’s

36. An Example

37. Current In Bound Logistics Flow Raw Materials ODM1 HK FF ODM1 HK 3PL ODM2 HK FF ODM2 ODM3 HK FF ODM3 ODM5 HK FF ODM5 ODM6 HK FF ODM6

38. Proposed Flow Raw Materials HK Raw Material 3PL ODM1 HK 3PL ODM2 ODM3 ODM5 ODM6

39. Assigned Reading The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell by Joan Magretta

40. Case Team Break Out

41. Current Events

42. Next Class • Scott Case Submittal Due at Beginning of Class • Sourcing Strategies, Supplier Selection • Price/Cost Analysis • Scott Case Presentations • Current Events

43. Questions?

44. Back up Foils

45. LO 1 EOQ: Definition Is a model that calculates the best quantity to order or produce. (Economic Order Quantity)

46. LO 1 TOTAL COST is a function of: • The total cost (TC) formula includes the following: • P = $25 per order [cost of placing & receiving order (setup & production)] • D = 10,000 [known demand] • Q = 1,000 [order size (or production lot size)] • C = $2 per unit [carrying cost of 1 unit for 1 year]

47. LO 1 FORMULA: Total Cost Total cost looks at all inventory costs. P.214 of V.W. Total cost (TC) equation: = Ordering cost + Carrying cost = PD/Q + CQ/2 PD/Q = [(10,000/1,000) x $25] = $ 250 CQ/2 = [(1,000/2) x $2] = $1,000 TC = $1,250

48. LO 1 How can the total cost be reduced? The EOQ model will compute the cheapest batch order size.

49. LO 1 FORMULA: EOQ EOQ is a calculation intended to lower total inventory costs. EOQ equation: = √ 2 x Order costs ÷ Unit cost = √ 2PD/C = √ 2 x $25 x 10,000 / $2 = √ 250,000 = 500

50. LO 1 What do you do with the order quantity calculated by the EOQ model? Enter the order quantity into the TC equation.