SCM Chapter 4 – Marketing 300

Role of Procurement
Shift from adversarial, transaction focused negotiation with suppliers to ensure the firm is positioned to implement manufacturing & marketing strategies with supplier support
accounts for 55 cents of every dollar
continuous supply
Objective: To ensure continuous supply of materials, parts, and components available to maintain manufacturing operations
minimize inventory investment
to maintain supply continuity with minimum inventory investment possible
-ideal for materials to arrive at moment of scheduled production use
quality improvement
quality of finished goods/services is dependent upon the quality of materials/components
-firm & suppliers must be jointly committed to continuous quality improvement
Supplier development
successful procurement requires locating suppliers, analyzing capabilities & selecting/working with those suppliers to achieve continuous improvement
Lowest Total Cost of Ownership
-Along with purchase price of material or item, service costs and life cycle costs must be considered
-purchase prices must be de-bundled from price of services under consideration to allow for appropriate decision
-quantity discounts encourage purchase of larger quantities
-cash discounts encourage prompt payment of invoices
Procurement Strategies
Volume Consolidation, Supplier Operational Integration, Value Management, Flexibility & Cost of Design changes, E-commerce & Procurement
Volume Consolidation
-Reduction int he number of suppliers
-Positioned to increase buyers negotiating strength in relationship to supplier
Supplier Operational Integration
buyers & sellers integrate processes & activities to improve performance
-eliminate redundant activities
-this can provide more savings than volume consolidation
Value Management
focus on buyer-seller operations is a more comprehensive & sustainable relationship
—procurement can work with suppliers to reduce Total Cost of Ownership: value engineering, reduced complexity & early supplier involvement in new product design
Value Engineering
examine material and component requirements at an early state of new product design to ensure balance of lowest total cost & quality are incorporated into design
Flexibility & Cost of Design changes
The later it is, the more costly the change in design will be
E-commerce & Procurement
Electronic Data Interchange (EDI): electronic transmission of data between a firm and suppliers so they can obtain and provide timely and accurate information; helps with standardization of data & reduces Total Cost of Ownership

Online Buying Exchanges: cooperative efforts among firms, often competitors to deal with common base of suppliers; con= reinforces buyers’ focus on purchase price

Brand Power
Measure of customers purchase preference based on manufacturer’s reputation, product quality & supply chain capabilities

—stronger brand image=more leverage on the supply chain structure and strategy

Manufacturing processes can be classified in terms of cost per unit to volume of output
Economy of Scale: average cost of producing a product declines as manufacturing volume increases
Manufacturing processes characterized by relatively frequent product runs & high repetition of small lot sizes—-feature flexibility
Economy of Scope: achieved by manufacturing processes featuring variety, rapidly switching from one product to another while retaining efficiency
Manufacturing processes reflect balance between economy of scale and economy of scope
– interact with volume and variety to create realistic manufacturing plans
——–capacity, equipment, setup/changeover
Elapsed time between release of work order to shop floor & completion of all work necessary to achieve ready to ship product status

Operational time: combo of setup/changeover & running or actual production time
Inoperational time: unexpected delays w/ manufacturing processes

Predatory Pricing
Setting prices below costs, threatening to cut off business with suppliers and discouraging the purchase of competitors products
to protect domestic business
Why does a quota exist