Logistics & Supply Chain Management ( all inclusive)
FHNW BIT Logistic & supply chain management
FHNW BIT Logistic & supply chain management
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Cartes-fiches
Describe the different sourcing cocepts of object complexity
Object complexity has three sourcing concepts. It is sourcing according to the complexity of the object.
- Modular sourcing: procurement of complex modules (with specification of bill of materials, suppliers and prices to the module supplier or variations of the beforementioned)
- System sourcing: procurement of complex system (whereby the module supplier develops and manufactures the system itself)
- Unit sourcing: procurement of non-complex objects, often from several suppliers (e.g. standardized/normed parts)
Describe the different sourcing concepts of organizational form
Organizational form has two concepts.
- Individual Sourcing: Procurement by the procuring company itself (usually the case)
- Collective Sourcing: Procurement in cooperation (if this is possible / reasonable within the procurement market, procurement processes and with regard to supplier relationships)
Describe the different sourcing concepts of manufacturing location
Sourcing according to the Manufacturing (or warehouse) location has two concepts.
- External Sourcing: Production / manufacturing at the supplier (usually the case)
- Internal Sourcing: Manufacturing at the procuring company, e.g. in the form of:
- Supplier parks (obligation of suppliers to produce or maintain stocks in the immediate vicinity of the procuring company)
- Factory-within-Factory (supplier on factory premises fully integrated into the production)
Describe the different sourcing concepts of geography
Geography has three concepts.
- Global Sourcing (Offshore): systematic geographic expansion to international procurement
- Potential advantages: best possible prices, securing resources and/or innovation potential that is not possible with domestic or local sourcing
- Potential disadvantages: political risks, transport routes, legal uncertainty, effort
- Domestic Sourcing (Near-shore): Procurement within the same country
- Potential advantages: language and cultural proximity, legal certainty, short distances, etc.
- Potential disadvantages: dependence upon domestic sources, risk of dependence on import monopolists and their pricing policy, depending upon the object to be procured, impossible
- Local Sourcing (Onshore): conscious procurement in the immediate vicinity
- Potential advantages: absolute proximity, is of great importance in some areas, e.g. Innovation clusters, regional resp. local organic products
- Potential disadvantages: potential of suppliers elsewhere remains unused, otherwise the same as Domestic Sourcing above
Where would you classify the following products in the sourcing toolbox? Cocoa beans for manufacturing chocolate at Coop (Halba) Paper for printing bank statements at UBS Electric motors for lifts and escalators at Schindler
- Cocoa beans for manufacturing chocolate at Coop (Halba)
- Geography: global sourcing, multiple sourcing
- Multiple unit, individual, external, global
- Paper for printing bank statements at UBS
- Local sourcing, single source
- Single, unit, individual, external, domestic
- Electric motors for lifts and escalators at Schindler
- Object complexity: Modular Sourcing,
- number of suppliers: sole sourcing
- Multiple, modular, individual, external, globaly
What is a procurement portfolio
A procurement portfolio (Kraljic model) is an analytical tool in procurement management. In a procurement portfolio, products and suppliers are assigned to four quadrants. The quadrants are structured according to the following criteria:
- Effect on the financial results
- Supply risk
- Products
- Suppliers
- Product development using the example of Océ
Describe the procurement portfolio criteria Effect on financial results and supply risk
Effect on the financial results: The higher the respective volume or monetary value of a product or the sales volume with a supplier, the greater the influence of the product or the supplier on the financial result.
Supply risk: If a company purchases a product from only one supplier and there is no alternative source of supply, one can generally assume a high supply risk. Indicators for this include, for example, short-term and long-term product availability, the number of potential suppliers or the cost of changing suppliers.
In which quadrants of the procurement portfolio criteria belongs a retailer such as Coop order the procurement of fruit and vegetables, a bank like UBS procuring information systems, or a machine builder like Schindler procuring lift motors? Which sourcing concept does the respective company likely pursue for these products?
Product
Coop: leverage products
UBS: strategic products
Schindler: leverage.
Supplier
What do you know about the inventory management of product components?
The inventory management of product components is subject to specific rules:
- The required components and spare parts should always be available on time and at the right place in the required quality and quantity.
- Missing components and spare parts can bring entire production processes to a standstill (Stockouts). At the same time, storage costs may not be excessive.
What do you know about the different parts of ABC and XYZ analyses of the inventory management?
Goal fulfilling management of components and spare parts for ABC parts and XYZ goods: .
- A parts: capital intensive, high risk of standstill in case of failure, high storage costs
- B parts: standard parts, classic standardized machine assemblies
- C parts: small parts and consumables, low value, large quantity
- X goods: good forecast accuracy, small parts, production-synchronous control (call-offs)
- Y goods: average forecast accuracy, stock procurement
- Z goods: safety stock required, neither production-synchronous nor buffer storage
Where would you classify the following products in the ABC and XYZ analysis? Cocoa beans for chocolate production at Coop (Halba) Paper for printing bank statements at UBS Electric motors for lifts and escalators at Schindler
Cocoa beans: CY -> stock procurement
Paper: CX -> stock procurement
Electric motors: AX -> tailored procurement
What is there to know about the strategic supplier management process?
«Strategic Supplier Management consists of a long-term optimization of the supplier relationship in order to guarantee the security of supply of the company permanently. Operative Supplier Management, on the other hand, primarily focuses upon improving procurement efficiency.»
«Supplier Relationship Management [...] encompasses all activities related to supplier selection, supplier development and supplier integration. Supplier management is fed by the operational and strategic design of procurement processes. The overarching goals of supplier relationship management lie in optimizing supplier relationships, reducing processing costs, lowering purchase prices, improving product quality and continuously monitoring procurement activities.»
The supplier management process can be divided into three main sections:
- Preselection: Supplier preselection (identification, delimitation),
- Management: Managing the supplier relationship (evaluation, selection),
- Intensification: Intensifying/Strengthening the supplier relationship (integration, development)
Describe all the steps necessary for the Preselection step of the strategic supplier management process.
Supplier preselection
- Supplier identification
- Primary sources: supplier surveys, self-assessments, trade fairs, conferences or exhibitions, trial deliveries
- Secondary sources: trade publications, statistics, market reports
- Supplier delimitation (pooling)
- Limit internal workload to control transaction and process costs
- Use standardized questionnaires to target suppliers:
- Capacities, creditworthiness, pricing, service levels, technical know-how, sustainability goals
Describe all the steps necessary for the Management step of the strategic supplier management process.
Management
- Supplier rating system
- Benefit analysis: supplier performance, image, financial and technical performance, cost structures, willingness to cooperate.
- Classification based upon the result of the benefit analysis:
- Premium Supplier: > 90% achievable points -> Strategic cooperation
- Standard Supplier: 70-90% achievable points -> Continuation of the relationship
- Poor Supplier: 50-70% achievable points -> Supplier improvement
- Expendable Supplier: <50% achievable points -> phase out the supplier, if there is no strategic commitment
- Supplier selection
- Clearly superior: easy choice, hardly any wrong decisions, failures are severe
- Minimum differences: selection difficult, wrong supplier could be selected, good substitution opportunities
- Hardly suitable: supply security more important than price negotiation
Describe all the steps necessary for the Intensification step of the strategic supplier management process.
Intensification
- Supplier integration: potential success factors for supplier integration include the coordination of information and communication systems, intensifying any overlapping goals, the implementation of joint incentive mechanisms and the pooling of knowledge and resources.
- Development integration: integration of manufacturer development activities
- Procurement integration: implementing just-in-time or just-in-sequence, vendor managed inventory, consignment process
- Production integration: kanban processing, vendor parks, factory-in-factory
- Supplier development
- The goal is to operate a true Supplier Relationship Management (long-term relationship) between the manufacturer and the supplier to achieve mutual competitive advantage
What are the differences between the concepts of "Procurement Management" and "Supplier Management" resp. "Supplier Relationship Management"? Which concept do you think is more comprehensive?
Procure - o focused on product procurement and manufacturing. Operational part. When do you need what
Supplier - identification, rating, selection, manage and care for relationship to supplier but only strategic ones, how can you profit from each other.
Procurement management is more comprehensive. It is an umbrella term.
Define E-Procurement
"E-Procurement is supporting the relationships and processes of a company to its suppliers through networked information technology".
E-procurement systems are networked information systems equipped with specific functions and data that support procurement processes and relationships with suppliers.
Support of processes z. B.:
- Search for suppliers
- Demand assessment (planning)
- Order release
- Order placement
- Review of orders placed
- Invoicing
Support of relations z. B.:
- Contract management: compliance with conditions, cooperation
- Controlling and evaluation: delivery reliability, quality, prices
- Data exchange: utilized standards, master data
What are the differences in direct and indirect goods of E-Procurement?
Direct goods: input materials for production and merchandise
- Procurement is often controlled by a materials management or ERP (Enterprise Resource Management) system and can thereby achieve high efficiency, the subject of supply chain management
- Supplier selection through tenders and auctions (e-sourcing and e-auction systems)
- Order processing supported by automated electronic data interchange (EDI)
Indirect goods: MRO (maintenance, repair and operations), manufacturing equipment and auxiliaries, maintenance, spare parts and consumables
- Manual and expensive procurement process (product selection, approval, audit), triggered by people as needed.
- Often supported by e-purchasing systems and online marketplaces
What are the different basic types of E-Procurement systems?
E-procurement systems can be divided into three different variants. The name of these solutions is derived from which party operates the system in the procurement process:
- Buy-side-system
- Sell-side system
- Marketplaces
Describe the marketplace solution of E-procurement systems
What advantages does a “buy-side solution” offer for buyers? What advantages does a “sell-side solution” offer for buyers?
Advantages buy-side solution (typically large companies or those requiring higher security)
- Only one login
- Uniform design
- Rights for individual users according to the rules of the purchasing organization
- Support of approval procedures
- Assortment control
- Transparency thanks to own data management and reporting
- Central interface for data integration into ERP
Benefit Sell-side solution (typically smaller companies or those not requiring higher information security)
- Little initial effort, no /little investment
- Product-specific presentation of articles
- Configuration of products possible
- Up-to-date conditions
- Availability information
What are E-Sourcing and E-Auction platforms good for?
In order to reduce procurement costs, companies use e-sourcing platforms (tenders with evaluation procedures, mostly A and B parts) and e-auction platforms (tender with exact specifications of the goods to be procured, mostly B and C parts)
There are three types of platforms:
- Closed systems: Very expensive and worthwhile only for long-term connectivity and large order quantities (automotive industry)
- Half open systems: standard interface at the customer and open at the supplier, customers can actively intervene in the operations of the supplier, place orders, retrieve stock levels, etc.
- Open Systems: Requirements are low, not strategic, and participation through the Internet and catalogs
Examples: ARIBA, JAGGAER (Pool for Tool), simap, etc.
Define and Describe Electronic Data Interchange (EDI)
Electronic Data Interchange (EDI) is the asynchronous electronic exchange of structured data between the application systems of business partners, free from media discontinuity and human intervention.
EDI is an early form of e-business (be it the 1970s).
- Classic EDI takes place via proprietary, mutually incompatible networks of network operators (so called VAN providers - Value Added Network); This is associated with high costs.
- In recent years, EDI has been extended to include vendor-independent technologies, including XML, and is increasingly using the Internet for transmission.
- There are a number of standards for business news, the most important being UN / EDIFACT (about 200 messages). From him there are many industry-specific derivations.
Electronic Data Interchange (EDI) in, for example, automated warehousing:
- When the reorder level in the customer's warehouse is reached, the supplier automatically initiates a delivery of goods without the customer making a delivery call-off.
- This allows you to outsource the responsibility for inventory management to the supplier (see next slide on «Vendor Managed Inventory»)
Advantages:
- Avoid multiple data entry
- Reducing the number of Manual Activities
- Reduction of Administrative Measures
- Acceleration of the Communication Process
Disadvantage:
- High acquisition costs
- More elaborate comparison of master data
- For EDI across platforms of EDI intermediaries:
- Low transparency over fees
- Violation of access rights (secrecy)
What are examples of data exchange standards?
EDI itself is not an actual standard, the principle covers all standards for the structured exchange of electronic data.
Examples of standards:
EDIFACT - Electronic Data Interchange for Administration, Commerce and Transport –World-Wide, Industry-Independent EDI Standard
EANCOM - EAN + Communication –Sub of the EDIFACT standard used in the consumer goods industry worldwide
ODETTE - Organization for Data Exchange by Teletransmission in Europe –Industry-dependent standard (automotive and supplier industry)
Compare data exchange via web browser or email to data exchange via EDI
What does the statement "all forecasts are wrong" mean concretely in the business sense, and how do companies deal with it?
A forecast is by definition "an estimate what you think will happen". In business sense forecasting is demand forecasting. So make a forecast which customer will want which products, how many and when. Based upon the forecast, you may stock up inventory. There are two types of demand. 1. independent -> forecast or demand for the next quarter/year 2. dependent this is calculated based on a forecast. (e.g. tire supplier produces tires based on the forecast sale of cars of their customers)
How to forecast accurately
1. shorten forecast horizon. Day-to-day = most accurate
- Start with an aggregate forecast. (product groups, not individual products)
- Use multiple sources of input.
Good forecast characteristics
- Timely. Continuously updated up to the current date. It is dangerous to make decision based on outdated forecast
- Simple to understand and to use.
Study the exponential smoothing of the first order, and how does this method differ with the simple and moving average calculation?
Goal of exponential smoothing is to make an exact forecast about the future even if you had strong swings in the past (ups and downs).
For that old forecast get compared to the actual sell. What is to much or too less is used as % for planning error. This % is called alpha and is usually between 0 and 1 (1=1 no smoothing). Best so far are alpha = (0.2, 0.4).
So for calculation you need f.g:
A= forecast march= 5.200
B= actual sell march= 5.050
C= alpha = 0.2
D = alpha = 0.8
Forecast april = A + C(B-A) = 5.170
Forecast april = A + D(B-A) = 5.080
This means the smaller the smoothing factor alpha the bigger the smoothing of the curve. For long term smoothening.
The bigger the smoothing factor aopha the smaller the smoothing of the curve. Good for short term smootheningo.
How can an optimal order quantity be determined?
Economic Order Quantity. The order size that will result in the lowest total inventory cost (EOQ)
EOQ= in units. So if we place order in each EOQ result then it is the cheapest possible inventory cost.
D in units, costs in $,
H is based on the estimate how much it will cost you to hold your item in inventory for a year. E.g. a phone in inventory. Phone is valued 100$ and a 40 % holding cost = it costs 40$ per unit to hold it for a year
What impact does forecasts have on procurement?
In order to ensure a coordinated flow of activities within an enterprise, procurement conditions, manufacturing cpacities, sales opportunities, etc. must be a continuously interdependently coordinated. This requires that the functional plans of the other areas are aligned with this costraint or bottleneck by means of adequate activites.
As a result, companies today are confronted with two questions:
- Under consideration of timing, costs and service levels, how can we create a lasting balance between the supply side (stocks, production and transprot cpaacities, etc. ) and the demand side?
- In what way and at what time must the supply side be expanded or reduced?
What are some planning challenges in procurement?
Companies must continuously and efficiently plan and control their material and information flows - from procurement through to production and sales. Planning challenges:
- Demand and sales planning are based on forecasts and experience.
- Forecasts are inaccurate, there is always uncertainty or a possible error.
Possible measures to reduce uncertainty:
- Ongoing review and adjustment of forecasts
- Cost-intensive bottleneck control (e.g. inventories) to compensate demand fluctuations
- Include business partners in planning to increase the transparency of all business processes and identify bottlenecks and postponements
- Include planning data from partners (suppliers, logistics service providers, sales offices, etc.) in your own procurement, production, sales, distribution and transport planning.
What impact do demand forecast have on employees and on the financial result?
why is this relevant to procurement management?
- You need to hire or fire people based on demand forecast of the next year. Maybe get some temporary workers with the right skill sets.
- If good year but forecast for next year is bad maybe cut the dividends.
- If forecast is not as good and is overseeked - employees may get a bit more bonus, if not may get nothing
- Contact suppliers in time so they can plan, based on the forecast too