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  5. MNP3701 - Strategic Sourcing (MNP3701)

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Summary MNP3701 Chapter Summaries
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  • MNP3701 - Strategic Sourcing (MNP3701)
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  • University Of South Africa (Unisa)

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  • September 3, 2020
  • 52
  • 2018/2019
  • Summary

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  • mnp3701

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  • University of South Africa (Unisa)
  • MNP3701 - Strategic Sourcing (MNP3701)
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MNP3701 – Strategic Sourcing

SU 1 CH 1: Intro to Purchasing & Supply Chain M
(P& SCM)
1.1 New Competitive Env
 Incr numbers of world-class competitors (domestically & internationally)
 Forced orgs to improve internal process
 Sophisticated cust (industrial & cons) demand price reductions
 Info available over internet alters balance btwn buyers & sellers
 Abundance of comp & choice have cond cust to want higher quality, faster delivery & tailored prods
 Social media spreads prod info at accelerated rate, incl word of mouth

 Changes made companies realise how NB it is to M their supply base
 Must be involved in M on/ serious interest in suppliers that provide materials/ services
 Concerned with network of downstream firms resp for delivery & aftermarket service of prod to end cust
 Led to emergence of supply chain M

Factors Driving SCM
1 Cost & availability of info res among firms in supply chain allow easy linkages that eliminate time delays
2 Competition in domestic & international markets req quickness, agility & flexibility
3 Cust expectations & req are more demanding
4 Ability of supply chain to react rapidly by M risk minimises disruptions & mitigate impact on lost sales
5 Competition btwn supply chains, not just companies; 1s with best supply chains will be market winners &
gain comp adv

1.2 Why Purchasing is NB
1. Increased value & savings
 Focus on P&S M to incr cust value by improving perf
 Supplier capabilities can differentiate final goods & incr their value to cust
2. Building relats & driving innovation
 Relat with suppl to jointly reduce costs & contr innovative ideas to add value
 Buyer & suppl must agree to acceptable paybacks so that each realizes a positive gain, with this
cooperation, a level of trust is est which sets stage for innovations
3. Improving quality & reputation
 P&S impacts quality coz firms are seeking to incr proportion of parts & services outsourced to
concentrate on specialities
 This incr importance of relat btwn purch, suppl & quality
4. Reducing time to market
 Purch acts as liaison btwn suppl & engineers & can help improve prod & process designs
 Purch can begin to add value & contr to incr competitiveness by involving suppl early in design
process
5. Generating economic impact
 Power of org purchasers as a group is significant
 ISM report on busn is indicator of economic activity – monthly survey of purchasing M & is monitored
by financial market
6. Contributing to competitive adv

1

,  Effective purch is NB to gaining com adv
 Indication of enhanced status, reputation & recognition is higher salaries to purch professionals

1.3 Language of P & SCM
Purchasing/ procurement
 Functional group (formal entity on org chart) & functional activity (buying goods & services)
 Activities incl suppl IDing & selection, buying, negotiating, contracting, supply market research & eval
 Referred to as “the 5 rights” – right quality, in right quantity, at right time, for right price, from right source
Supply M/ strategic sourcing
 Strategic approach to planning for & acquiring orgs current & future needs through effectively managing
supply base, using process orientation in conjunction with cross-functional teams to achieve org mission
 Identification, acquisition, access, positioning & M of res & related capabilities org needs/ potentially needs in
attainment of its strategic obj
 Key elements of def: supply M is planning & acquiring current & future needs of org via
1. Strat orientation - req pursuing strat resp (activities with major impact on LT perf of org) & must be
aligned with overall mission & strats (excl routine decisions)
2. Supply base M - progressive approach to M supply base that differs from arms-length approach with
sellers, req purch professionals to work directly with suppl
3. Process driven approach – process approach to obtaining goods, process of IDing, evaluating,
selecting, M & developing suppl for ultimate suppl chain perf
4. Cross-functional groups – suppl M is cross-functional – it involves purch, engineering, suppl quality
assurance, suppl & other functions to work together on mutual goals (LT win-win relat)
 Broader & more inclusive than purchasing
 Organisationally, leading & coordinating strat suppl M activities is resp of purchasing
Supply Chains & Value Chains
 Supply chain orientation – higher level recognition of strategic value of managing operational activities & flows
in & across supply chain
 Supply chain (SC) – set of 3/ more orgs linked directly by 1/ more of upstream/ downstream flows of prods,
services, finances & info from source to cust




 Supply chain M - endorses supply chain orientation & involves proactive M of 2-way movement &
coordination of goods, services, info & funds from raw material through end user
 SCM req coordination of activities & flows extending across boundaries
 Supply chains composed of interrelated activities that in/external to firm & diverse in scope
 Supply chains are visualised as composed of processes rather than discrete activities
 Egs of critical org processes in SC – new-prod dev, cust-order fulfilment, suppl eval & selection &
demand & supply planning
 SC as series of systematic processes makes sense coz
 Processes move across functional boundaries, which aligns with SC orientation
 Well-communicated processes accelerate learning as become familiar with process
 Formal SC processes can build in best practices & knowledge that enhance success
 Orgs can document, measure & improve SC processes

2

,  Value chain (VC)– primary & secondary support activities that can lead to competitive adv when done properly
 Diff btwn SC & VC – conceptualise SC as subset of VC, all personnel in org are part of VC, but not SC
 Primary activities in VC are operational part (SC), incl primary & support activities
 VC focuses on internal participants, SC focuses on in/ external participants
 Extended value chain/ enterprise – expanded VC to incl suppl & cust up/downstream from org, not only
internal participants (multiple levels of suppl & cust form foundation)
 Success is function of effectively M linked group of firms past 1st level suppl/ cust
 Recognise competition is no longer btwn firms but btwn coordinated SC/ networks of firms
 Purch is support activity, meaning it provides service to internal cust
 It is central link with suppl providing direct materials (upstream/ left side of pic) but can support materials/
service req of any internal group
 Direct material – items provided by suppl & used directly during production/ service delivery)
 Becoming incr resp for sourcing indirect goods req by internal groups, eg computers, office supplies
 Right side of model is cust/ downstream part of SC, meeting expectations is NB to org so focal point of SC
activities
 Repr linear view but not always the case
 Flow of materials, info, funds & knowledge across SC are often fragmented & uncoordinated
 Shows suppl linking with inbound logistics then operations, which is normal with direct materials, but
indirect items & finished goods sourced externally can mean suppl delivering to any part of SC

1.4 Achieving P&SC Benefits
 Innovative products
 Better supply chain activities to M prod demand - inventory investment, channel distr, SC relats
 Reduced prod lines, forecasted sales weekly, relied on suppl to M inv for std prods
 Partnership with suppl to build components close to facilities with JIT delivery, simplified distr channel

1.5 Supply Chain Umbrella (M activities)
1. Purchasing
 Major SC activity in most orgs
2. Inbound transportation
 Larger orgs have specialised transport function to M physical & info links btwn buyer & suppl
 May have minimal common purch req across units, but can coordinate purch of transport services
3. Quality control
 Lately all orgs recognise importance of suppl quality & need to prevent instead of detect quality probs
 Emphasis shifted from detecting defects at time of receipt/ use, to prevention early in materials-
sourcing process (work with suppl to dev proper quality control processes)
4. Demand & supply planning
 Demand planning - IDs all claims/ demand on output, incl forecasts of anticipated demand, inv
adjustments, orders taken but not filled, aftermarket req
 Supply planning – process of taking demand data & dev supply, production & logistic network capable
of satisfying demand req
5. Receiving, materials handling & storage
 Inbound material must be physically received as it moves from suppl to purch
 Receiving, materials handling & storage are part of materials M
6. Material/ inventory control
 Materials control – det appropriate quantity to order based on projected demand & M material
releases to suppl; incl generate materials release, contact suppl directly & monitor status of inbound
shipments (purch dept is resp)
 Inv control – det inv level of finished goods req to support cust req, emphasising physical distr
(outbound/ downstream) side of SC
7. Order processing
 Ensure cust rec materials when & where they req
 Repr link btwn producer & external cust

3

, 8. Production planning, scheduling & control
 Production plan relies on forecasts from marketing to estimate volume of materials req in ST
 Operations resp for carrying out production plan & meeting cust order due dates; order processing,
production planning & ops must work together
9. Warehousing/distribution
 Before prod is shipped to cust, may be stored in warehouse/ distr centre
 Orgs try make prod only after rec cust order & info systems becoming more sophisticated so
warehousing becoming less NB
10. Shipping
 Physically getting prod ready for distr to cust
 Req packing to prevent damage, any special labelling, shipping docs, arranging transportation
11. Outbound transportation
 Few orgs own transportation link to cust
 Full service transport providers (3rd party logistics) are M entire distr networks
12. Customer service
 Wide set of activities attempting to keep cust satisfied with prod
 3 primary elements of cust service are pre-transaction, transaction & post-transaction activities

1.6 Four Enablers/ Pillars of P& SCM
1 Capable Human Res
 Effective SCM req close collaboration with suppl & internal coord with various functions to coord activities
with material flow across SC (relat with key suppl become basis for purch strats)
 Access to right skills req sound HR strat that incl internal dev of high-potential indivs, recruiting talent & hiring
promising graduates
2 Proper Org Design
 Org design – process of assessing & selecting structure & formal system of communication, division of labour,
coordination, control, authority & resp req to achieve org goals
 Formal charts show org design but are incomplete, its more than just lines & boxes
3 Real-Time Collaborative Tech Capabilities
 Incr info tech allow enhanced collaboration btwn parties in SC
 Primary SC applications involved in SC collaboration
1. Supply chain planning
 Improve forecast accuracy  Shorten life cycles
 Optimise prod scheduling  Reduce transportation costs
 Reduce working capital costs  Improve cust service
2. Supply chain execution
 Obtain materials& M physical flow from suppl through downstream distr (summed up as lean
logistics, lean operations/ lean supply)
 Regardless of type of into tech used, SC systems should capture & share info on real-time basis about material
& prod movement across SC

4 Right Measures & Measurement Systems
Roadblocks btwn Measurement & Perf
1. Too many metrics 3. Constantly changing metrics
2. Debate over correct metrics 4. Old data
Why is Measurement NB
1. Objective measurement supports fact-based decision making
2. Communicates req through SC & promotes cont improvement & change
3. Improves future suppl perf
4. Recognises outstanding perf
5. Conveys what is NB by linking critical measures to desired outcomes
4

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