Course: Strategic Procurement in SCM Lecture / Week #.

3 (19th August, 2011) Lecture Contents about: Supply Organizations Book Chapters #. 2

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

Today, we will cover: 1. Objectives of Strategic Supply Management; 2. Organizational Structures for Supply Management; 3. Potential Pros and Cons of Centralized / DeCentralized Supply Management Structures; 4. Supply Activities; 5. Supply Teams; 6. Supply Processes and with Strategies and Goal Alignment;

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

Supply Organizations
(Chapter #. 2)

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

 For procurement people, within the supply management

has a strategic challenge to ensure the effective use of the resources and capabilities to maximize supplys contribution to organizational objectives. management to select strategies designed to address competitive challenges and adopts an appropriate corporate organizational structure to complement the companys strategies. and prosperity of the organization.

Supply Management is an on going challenge for senior

Strategic supply is concerned with the long-term survival

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

 The standard statement of supply management objectives

is to obtain the:
Right Materials; 2. Right Quantity; 3. Right Time; 4. Right Place; 5. Right Price; 6. Right Source; 7. Right Service.
1.

Its like attempting to manage several balls in the air at the

same time.

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

 Supply Management - Strategies Development Areas:

1.
1. 2. 3.

Improve the Organizations competitive position;

Identify and exploit opportunities of revenue enhancement; Asset Management; Cost Reduction; a) Access to new technologies; b) Flexible delivery arrangements; c) Fast response time; d) Product design and engineering assistance.

2.
1. 2.

Provide an uninterrupted flow of materials, supplies and services;

Stockouts; Late Deliveries; a) Production losses; b) Lower revenues and profits; c) Diminishing goodwill / image.

3.
1. 2.

Keep inventory investments and losses at a minimum;

Inventory Levels i.e. Large or minimum? Large inventories require use of capital and expose many associated Risks.

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

Supply Management Strategies Development Areas (Contd.):

4.
1.

Maintain and Improve Quality:

Failure would result in end-product would not meet the expectations or will result in higher than acceptable costs.

5.
1.

Find and develop best-in-class suppliers:

Developing the dependable supplier base through:
a) b)

Analyzing their capabilities and strengths ; Should be both responsive and responsible.

6.
1.

Standardize, where possible:

Standardize the items being bought and processes undertaken to procure them;
a)
i.

Common specifications or process across an organization, industry or region; This leads to: i. Lower risks in market place; ii. Lower price s; iii. Lower inventory levels; iv. Supply base reduction; v. Lower Operating costs; vi. More consistent Service Levels; vii. Shortened Cycle Time; viii. Lower Transactional Costs.

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

Supply Management Strategies Development Areas (Contd.):

7.
1.
a) a. b. c. d. e. f.

Purchase required items and services at lowest total cost:

Price is the most convenient method to compare competing suppliers proposals.
However, other factors also worth considering i.e. Quality levels; After sales service; Warranty costs; Inventory and spare parts requirements; Lead time; Responsiveness.

8.
1.

Achieve harmonious, productive internal relationships: Supply and Design Engineering - the process of Requirement Specifications Development.

This need close cooperation between cross functional teams. These specifications are driven by final Customers requirements for value and satisfaction; The failure to do so during design stages results in inadequate product or service performance, costly delays, rework, and end user dissatisfaction;

2.

3.

Supply and Operations - Effectively and efficiently managing equipments, people, and space;

4.

Supply and Sales/Marketing - Synchronized with Marketing Campaigns, Special Promotions,

Sales Forecasts, Changes in Packaging and Design;

5.

Supply and Accounting/Finance - Synchronized interacting areas are accounts payable,

planning and budgeting.

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

Potential Pros and Cons of CENTRALIZATION

Advantages
Strategic focus. Greater buying specialization. Ability to pay for talent. Consolidation of requirements-clout. Coordination and control of policies and procedures. Effective planning and research. Common suppliers. Proximity to major organizational decision makers. Critical mass. Firm brand recognition and stature. Reporting line-power. Cost of purchasing low.

Dis-advantages
Lack of business unit focus. Narrow specialization and job boredom. Cost of central unit highly visible. Corporate staff appears excessive. Tendency to minimize legitimate differences in requirements. Lack of recognition of unique business unit needs. Focus on corporate requirements, not on business unit strategic requirements. Most knowledge sharing one-way. Even common suppliers have difficulty in geographic and market segments. Distance from users. Tendency to create organizational silos. Customer segments require adaptability to unique situations. Top management not able to spend time on suppliers. High visibility of purchasing operating costs.

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

Potential Pros and Cons of DE-CENTRALIZATION

Advantages
Easier coordination/ communication with operating department. Speed of response. Effective use of local sources. Business unit autonomy. Reporting line simplicity. Undivided authority and responsibility. Suits purchasing personnel preference. Broad job definition. Geographical, cultural, political, environmental, social, language, currency appropriateness. Hide the cost of supply.

Dis-advantages
More difficult to communicate among business units. Encourages users not to plan ahead. Operational versus strategic focus. Too much focus on local sources-ignores better supply opportunities. No critical mass in organization for visibility/ effectiveness- whole person syndrome. Lacks clout. Sub optimization. Business unit preferences not congruent with corporate preferences. Small differences get magnified. Reporting at low level in organization, Limits functional advancement opportunities. Ignores larger organization considerations. Limited expertise for requirements. Lack of standardization. Cost of supply relatively high.

SZABIST. MBA Fall-2011. Instructor: Faisal Abubakar, Strategic Procurement in SCM

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