Ch 10 Outsourcing- ^flexibility, focus on core competencies, deve comp advantage. Increasing rapidly. Can enable: leveraging of supplier’s expertise, ^in innovation. Results in: lower staffing levels, vcosts, ^flexibility. Strategic- Not outsourced: an item that is critical to success of product. Item requiring specizd design, mfging skills or equip. item that fits well w/in firm’s core comp. Make or Buy Tactical- poor supplier perf, changing sales demand, restricted mfging capability, mod of product, ^mfging capability, imp. upplier capability. Favor Making: cost considerations, desire to integrate plant ops, use of excess plant capacity, control over prod and/or qlty, design secrecy reqrd, unreliable suppliers, desire to keep stable work force.
Elements in Make Cost Analysis: delivered purchased material costs, direct labor costs, +costs from qlty & related probs, +inv carrying costs, +factory OH costs, +managerial costs, +costs of capital.
Favor Buying: limited prod facilities, cost consids (less expensive), small-vol reqrmnts, suppliers specialized know-how, stable work force, multiple-source policy, indirect mngrial control consids, procurement & inv.
consids. Elements in Buy Costs Analysis: purch price of part, transport costs, rec’ing & inspection costs, +purch costs, added costs related to qlty or service. Cost Consids: Time (short-term- focus on direct measurable costs. Long- measures hidden costs like storage, inspect, tooling, qlty, etc) Capacity (fixed costs issue if need to ^ capacity).
Other factors influencing: prod requirements, quality require, business process outsourcing issues (can speed up innovative change, orgs can outsource entire functions, secrecy issues), Tech Risk & Maturity, unreliable suppliers, supplier’s speclzd knowhow, small vol’s, limited facilities, workforce stability, multiple-source policy, mangrial control consids, procurement inv consds (paperwork). Dangers of outsourcing: loss of; control, client focus, clarity, cost control, secrecy. Ineffective mgmt, double outsourcing. Ch 11
Strategic Sourcing Plan: Stages: discovery>eval>selection>devel>mgmt Bidding vs Negotiation should be decided by using objective criteria, total cost perspec & sound supply mgmt logic. ESI: early supplier involve is approach in supply mgmt to bring expertise & collab synergy of suppliers into design process. ESI Opportunities: materials, service, tech, specs & tolerances, stds, order qtys, lead time, processes, pkging, transport, redesigns, assbly changes, design cycle time, invv. Reasons for ESI: get supplier inputs b4 design is frozen, capitalize on latest tech, save time, team relationships.
Supply Base Redctn: achvd thru vvariety & ^consolidation. Benefits: ^leverage w/ suppliers, better focus. Consids for Single Sourcing: vtotal cost from ^vol. Qlty consids dictate. Buyer obtains more influence w/ supplier. vcosts to source, process, expedite, inspect. JIT reqrmnts. vfreight costs. Special tooling req. vtotal system inv. Supplier will have ^commitment. ^interdependency & risk sharing, time to mkt critical. Dual sourcing use 70/30 approach: 70% of vol awarded to 1 supplier. 30% to 2nd. Econ of scale obtained from big supplier. Little provides competition.
Consids for Mult Sourcing: protect buyer during bad times. Maintain competition. Provide back-up source. Meet local content req. Meet cust’s vol reqs. When cust is small player in mkt for specific item. Avoid complacency on part of supplier. When tech path is uncertain. Suppliers tend to leapfrog in tech. Local buying adv: closer cooperation btwn buyer & seller. Delivery dates more certain. vprices from merged transp & ins. vlead times vinv. Rush orders filled faster. Disputes easier resolved. Implied social respons. to community fulfilled. National buying adv: econ of scale. tech assistance. Better handling of changing demand. Shortages less likely. Distributor over mfgr: econ of scale, vof orders, vof paperwork, special services, technical advice, credit. Ch 12 Stages to Global Supply Mgmt: 1. International Purching 2. Global Sourcing 3. Global Supply Mgmt. Reasons for: superior qlty, better timeliness, vtotal costs, ^adv tech, broader supply base, expanded cust. base. Problems: cultural issues, long lead times, ^inv, vqlty, social & labor probs, ^costs of doing bus, ^opacity-risk of doing bus in particular country.
Global Trade Intermediaries: import merchants (easiest), commission houses (act for exporters abroad), agents or reps (work for exporter), import brokers (commission paid by sellers & buyers, charges fee for bringing parties together), trading companies (perform all above), subsidiaries (facilitate international sales), FFF (Foreign Freight Forwarders), NVOCC (non-vessel operating common carriers: turnaround use for containers). Direct Suppliers: eliminating intermediaries, IDing direct suppliers, qualifying direct suppliers, preparing for direct relations, initial meeting.
Ch 13 TCO: Total Cost of Ownrshp. A. Acquisition Costs 1. Purch price 2. Planning costs 3. Qlty costs 4. Taxes (customs duties tariffs. Regional trade agreements. Income-base shifting) 5. Financing costs B. Ownership Costs 1. Downtime costs 2. Risk 3. Cycle time 4. Conversion 5. Non-value added 6. Supply chain (forecasting, admin, transport, inv, mfging, cust serv, supplier select. /relations, global sourcing) C. Post-Ownership Costs 1. Enviro costs 2. Warranty 3. Product liability 4. Cust dissatification 5. Disposal method Ch 14
Conditions of Comp: Pure (supply & demand determine prices), Imperfect (monopolistic competition- more suppliers. Oligopoly- few suppliers), Monopoly (one seller controls entire supply) Variable-Margin Pricing: freq in suppliers that sell line of products, pricing based on whole line, results in prices on some too high, some fake low. Prod Differentiation: Undiff- not distinguished by spec differences. Diff- prods appear diff from those of competitors 6 categ of cost: variable mfging costs, fixed mfging costs, semi variable/mixed mfging costs, total prod costs, direct, indirect (OH).
Price Analysis: >1 independent prices: Comp price proposals (>1 responded, proposals responsive to buying firm’s req. , supplier competed independently, supplier’s lowest offer doesn’t have unfair adv, veval. price is reasonable) Regulated, catalog or mkt prices (Catalog: price on list, dated, available. MKT: price= interaction of many buyers & sellers, supply/demand est price) Internet (buying exchanges, reverse auctions, tailored global searches) Comparision w/ historical
Independent cost quotes (used on basis for comparisons, not used if other methods avail, price develpd thru independent cost est should be fair & reasonable) Cost Analysis: when price analysis is impractical or price an. does not allow buyer to reach conclusion. Review & eval of actual or est costs. Direct, Indirect, OH. Elements affecting cost: capabilities of mgmt, efficieny of labor, amount & qlty of subcontracting, plant capacity & continuity of output. Sources of cost data: ask for it from 1. Potential suppliers as precondition of proposals & bids 2.
Suppliers w/ relationship 3. Cost models. Problems w/ Learning Curves: non-uniform learn rate. Low-labor-content items. Small payoffs. Incorrect learn rates. Estblsd items. Misleading data. Ch 15 Compensation Agreements: fixed price, incentive, cost-based Technical Risk of Contract: risk assoc w/ nature of item, technical risk appraisal (type & complexity of item, stability of design specs or stmnt of work, availability of historical pricing data, prior production experience) Contract Schedule Risk: anticipate material & labor cost^, anticipate possible sched slippages/uncertainty.
FFP (Firm Fixed Price) Contracts: agreement to pay specified price when item has been delivered & accepted. When to use: specs are well defined, cost riskv, schedule riskv, tech riskv, competition has estblshd pricing. Incentive Arrangements: used to motivate supplier to control costs, good performance. Contract price usually higher. Ceiling price usually fixed during negotiations. Cost responsibility shared. Two types: fixed price incentive & cost plus incentive fee.
Elements of simplified incentive control: target cost, target profit, allocating costs above/below target. Cost-Type Arrangements: used when- research & devel ^tech risk, project completion in doubt, prod specs are incomplete, ^$ (highly uncertain procurements involved). Common types are- cost +fixed fee, cost+award fee, cost w/out fee, cost sharing, time & materials. Consids When Selecting Contract Types: unstable labor and/or mkt conditions, improve in prod needed, complexity, prod req devel, design not completed, learning, short time, short delivery period.
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