SUPPLY CHAIN MANAGEMENT
IMPORTANCE
- Most firms spend a huge portion of their sales on purchases. Since the increasing
percentage of an organization’s cost are determined by purchasing, relationships with
suppliers are increasingly integrated and long term. Combined efforts that improve
innovation, speed design, and reduce costs are common. Such efforts, when part of
a corporate-wide strategy, can improve partner’s competitiveness. This integrated
focus places added emphasis on managing supplier relationships
Supply Chain Management
- Refers to the coordination of all supply chain activities involved in enhancing
customer value
- Describes the coordination of all supply chain activities, starting with raw materials
an ending with a satisfied customer.
- Includes:
o Suppliers
- Manufacturers & service providers
o Distributors
- Wholesalers and retailers
- Delivers the product/service to the final customer
- Objective: to structure the supply chain to maximize its competitive advantage and
benefits to the ultimate consumer.
- Central feature of successful supply chains is members acting in ways that benefit the
team (the supply chain)
SOURCING ISSUES
Make-or-Buy Decisions
- Refers to a choice between producing a component or service-in-house or purchasing
it from an outside source
- Choosing products and services that can be advantageously obtained externally as
opposed to produced internally
- Supply chain personnel evaluate alternative suppliers and provide current, accurate
and complete data relevant to the alternatives
Outsourcing
- Refers to the transferring a firm’s activities that have traditionally been internal to
external suppliers
- Transfers some of what are traditional internal activities and resources of a firm to
outside vendors, making it slightly different from the traditional make-or-buy decision
- Part of the continuing trend toward using the efficiency that comes with
specialization.
6 SOURCING STRATEGIES
Many Suppliers
- Supplier responds to the demands and specifications of “request for quotation” with
the order usually going to the low bidder
- Common strategy for products like commodities
- Plays one supplier against one another and places the burden of meeting the buyer’s
demands on the supplier
- Makes supplier responsible for maintaining the necessary technology, expertise and
forecasting abilities as well as cost, quality and delivery competencies
- Long term partnering relationships are not the goal
Few Suppliers
- Buyer is better off forming a long-term relationship with few dedicated suppliers,
rather than looking for short-term attributes like low cost
- It can create value by allowing suppliers to have economies of scale and a learning
curve that yields both lower transaction costs and lower production costs
- Encourages suppliers to provide design innovations and technological expertise
