SCM201 Chapter 4

PURCHASING & SUPPLY CHAIN MANAGEMENT, 6e
Supply Management
Integration for
Competitive Advantage
Chapter 4
© 2016 Cengage Learning. All rights reserved. May

not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part. SOUTH-WESTERN CENGAGE LEARNING
Chapter Overview
 Integration: What is it?

 Internal integration
 External integration
 Critical role of cross-functional
sourcing teams
 Integrating supply management,
engineering, and suppliers to develop
new products and services
2
a publically accessible website, in whole or in part. Purchasing & Supply Chain Management, 6e
4.1.Supply Integration Defined
 Professionally managing suppliers and

developing close working relationships
with different internal groups
 Theme
 For supply management to become more
closely integrated with other internal and
external functions to develop capabilities
that will lead to improved competitive
performance
3
.Elements of Supply Integration
 People coming together work together

on a strategy or solve a problem
 Different people bringing different
points of view to table
 Team members often located all over
the globe
 Need to create common understanding
of end goal or purpose
4
.Relationship Management Skills
 The ability to … (kĩ năng cần thiết cua

ng quản lý)
 Act ethically
 Listen effectively
 Communicate
 Use creative problem-solving
 Drive relationships

5
.Relationship Inputs
 Information
 About markets
 About plans and requirements
 Knowledge and expertise
 Product and service knowledge and
technology
 Process knowledge and understanding
“how to make it work”

6
.Relationship Inputs
 Business advantages
 Favorable cost structures
 Economies of scale
 Different perspectives
 “Fresh eyes” approach
 Synergy

7
.How to Achieve Integration
 Cross-functional teams and committees
 Information systems
 I.e., videoconferencing and webmail
 Integrated performance objectives and measures
 Common goal
 Process-focused organizations
 Co-location of suppliers and customers
 Buyer or supplier councils
 Steering committee

8
4.2.Internal Linkages
 Consists of many communication flows

increasing exponentially
 Need to develop global agreements
 Issue of global outsourcing of internal
functions and activities
 Identifying global requirements for
success

9
.Communication Flows and Linkages
Quality
Assurance
Engineering Operations
Purchasing
Legal and
Accounting
Environmental
and Finance
Safety
Marketing Suppliers

10
.Operations
 Traditional close relationship through

direct support
 Development of global operations
strategy
 Sales and operations plan (S&OP)
 Often colocated

11
.Quality Assurance
 Increasing in importance
 Growing % of outsourced requirements
 Supplier quality training and
development
 Supplier process capability studies
 Joint corrective action planning

12
.Engineering
 One of most important, yet challenging, linkages

 Firms can create stronger communication in several
ways:
 Working together on product development or supplier
selection
 Colocating buyer in engineering
 Appoint an interdepartment liaison
 Recruiting commodity managers with very strong technical
backgrounds

13
.Engineering
 Looking for new sources of technology

 Ongoing and direct communication
 Identifying the most technically and
financially capable suppliers
 Assessing a suppliers’s production
capabilities
 Dealing with quality risks in new products
 Ensuring ongoing technical support and
service
14
.Accounting and Finance
 Much communication is tactical and electronic

 Highly focused on cost reduction
 Inbound material requirements
 Reconciliation of P.O.s, invoices, and receiving
documents
 Purchase of capital equipment
 Developing timely and accurate cost data on
supplier performance
 Provide total cost data
 Often basis for make-or-buy decisions

15
.Marketing/Sales
 Indirect linkage between supply

management and marketing / sales
 Voice of the customer => New product
ideas
 Sales forecasts  production plans

16
.Legal
Seeking counsel on specific elements of

contracts
 Patent ownership of new products
 Intellectual property issues
 Product liability claims
 Antitrust issues
 Long term contracts with escape
clauses
 Supplier nonconformance issues
17
.Environmental Management,
Health, and Safety
 Environmental management system
 Supplier sustainability
 ISO 14000
 Hazardous waste handling and
transportation
 Health issues
 Safety issues
 OSHA ( occupational safety and health
administration )
18
4.3.External Integration
 Supply management is face of
organization to its supply base
 Acts as liaison on multiple fronts
 Materials
 New technology
 Market information
 Services
 Suppliers, government, and local
communities
19
.Suppliers
 Primary external linkage

 Maintain open and continuous
communication
 Supplier selection and management
 Non-supply management personnel
should not deal with suppliers without
knowledge of supply management

20
.Government
 International countertrade issues

 Negotiation with foreign governments
 Compliance with laws regarding
contracts and suppliers
 Negotiation with foreign governments
 Consult with appropriate agencies
regarding regulatory compliance

21
.Local Communities
 Control of substantial budget which

could affect local economies
 May affect certain social goals
 Sourcing from local suppliers
 Awarding contracts to qualified minority
suppliers
 Environmental sustainability
 Ethical issues

22
.Collaborative Buyer-Supplier
Relationships
 Definition of collaboration
 Process by which two or more parties adopt
a high level of purposeful cooperation to
maintain trading relationship over time to
achieve specified goals
 Relationship is bilateral
 Mutual commitment to future
 Balanced power relationship
 Built-in procedures for managing conflict
23
Relationships
 One or limited number of suppliers for
each purchased item or family of items
 Win-win approach to reward sharing
 Joint efforts to improve supplier
performance
 Joint efforts to resolve disputes

24
Relationships
 Open exchange of information
 Credible commitment to work together
during difficult times
 Commitment to high quality, defect-
free, and manufacturable products that
supplier’s process is capable of
producing

25
.Advantages of Closer Relations
 Trust
 Not take advantage of each other
 Share sensitive data
 Early supplier involvement
 Long-term contracts
 Incentive for investment in new plant and
equipment
 Joint development of new technology, risk-
sharing, and supplier capabilities
26
.Obstacles to Closer Relationships
 Confidentiality
 May create a direct competitor
 Limited interest by suppliers
 Legal barriers
 Antitrust issues
 Resistance to change
 Traditional “arm’s-length” approach

27
.Critical Elements of Supplier
Relationship Management
 Focus on deliverables at product level
 Well-defined, compelling business case
 Business outcomes at SBU level
 Let business outcomes drive relationship
process, course of action, and level of
investment
 Overall relationship is outcome of many
smaller relationships
 Program management
28
.Critical Elements of Supplier
Relationship Management
 Specific benefits to both supplier and
buyer with criteria for success and
realistic timeline
 Realistic assessment of benefits and
costs
 Consideration of soft benefits and
creation of believable metrics
 Metrics should conform to existing
available data
29
.Effective SRM
 Start with how a firm interacts with

itself
 Where are functional silos(các bên k chia
sẻ thông tin vs nhau nữa)?
 Who are key decision-makers?
 Resolve internal conflicts between
stakeholders before trying to change or
refocus externally

30
.Effective SRM
 Procurement should be key point of

contact to make or deliver on supplier
commitments
 Relationship management governance
needs relationship managers
 Multiyear, long-term horizon
 Key performance indicators (KPIs)

31
.SRM Skills
 Different stages of SRM require …
 Different people and skill sets
 Different levels of investment and attention
 Recruit from the business
 Monitor internal and external shifts
 Establish mechanisms to facilitate readjustment in
roles, metrics, and project deliverables
 Schedule regular site-level meetings with suppliers
and stakeholders
 Reevaluate and revise KPIs
 Drive people to insight and commitment
 Be willing to remove people or directions that aren’t aligned
with strategy
32
.Critical Role of Cross-Functional
Sourcing Teams
 Consist of various internal functional
areas and, increasingly, suppliers
 Specific tasks
 Supplier selection
 Product design
 General tasks
 Reducing purchased item costs
 Improving quality

33
.Cross-Functional Teams
Time Frame
Finite Continuous
Full-Time
Assigned
permanently to
Move from project
specific team with
to project
evolving or changing
responsibilities
Personal
Commitment Support a specific
team assignment in Ongoing support of
addition to regular team assignments in
responsibilities; addition to regular
Disband after responsibilities
Part-Time
completion
34
.Benefits of CFTs
 Reduced time to complete tasks

 Increased innovation
 Joint ownership of decisions
 Enhanced communication among functions or
organizations
 Realizing synergies by combining individuals and
functions
 Better identification and resolution of problems
 Need to build internal relationships

35
Potential Drawbacks of CFTs
 Use does not guarantee success

 Team process loss
 Negative effects on individual members
 Poor team decisions
 Groupthink
 Artificial consensus

36
.When to Form a CFT
 Facing a complex or large-scale

business decision
 CFT is likely to make better quality
decision
 Assignment directly affects firm’s
competitive position
 No single function has sufficient
resources to solve problem
37
.Questions Driving Use of CFTs
1. Does our organization consider CFT

planning issues when establishing
sourcing teams?
2. Does executive management practice
subtle control over sourcing teams?
3. Does our organization recognize and
reward team member participation and
team performance?
38
.Questions Driving Use of CFTs
4. Do we have right person selected as

sourcing team leader?
5. Do our sourcing teams effectively
establish performance goals?
6. Are key suppliers part of sourcing
team process?

39
1.1.CFT Planning Issues
 Selecting a task
 Meaningful task is one that requires
members to use a variety of higher-level
skills, supports giving members regular
feedback about performance, results in an
outcome with a significant effect on the
organization and others outside the team,
and provides members autonomy for
deciding how they will do the work.

40
.An Effective CFT Member
Selecting team members and leaders

- An effective team member’s requirement
 Understands team’s task and has task-relevant knowledge
 Has time to commit to CFT
 Has ability to work with others in a group
 Can assume organizational perspective rather than a strict
functional one
 Training requirements
 Resource support

41
.Resource Support
 Supplier participation
 Required services and help from others
 Time availability
 Budgetary support
 Materials and supplies

42
.Resource Support
 Team member task preparation

 Work environment
 Executive management commitment
 Job-related information
 Tools and equipment

43
1.2.Subtle Management Control
 Authorizing creation of sourcing team

 Selecting team’s task(s)
 Establishing broad objectives
 Selecting team leadership
 Requiring regular updates or at key
milestones
 Conducting performance reviews

44
.Guidelines for Rewards
 Team membership should be part of an

individual’s performance review
 Along with the team’s overall
evaluation, management should assess
each individual’s contribution to team

45
1.3.Recognition and Rewards
 GUIDELINES FOR REWARDS:

 Team membership should be part of an individual’s
performance review
 Along with the team’s overall evaluation, management
should assess each individual’s’contribution to team
 Types
 Executive recognition
 Monetary bonuses and other one-time cash awards
 Non-monetary rewards
 Merit raises
 Rewards can reinforce desired activity and behavior

46
1.4.Issues for Team Leaders
 Need to give more attention, training,

and support to team leaders
 New set of basic team leadership skills
required
 Advanced team leadership skills
 Too much structure may lead to team
failure

47
.Organizational Commitment
 Evaluate team leader strengths and

weaknesses
 Rank team leaders
 Provide feedback regarding
improvement opportunities
 Allow individual leaders, teams, and
organizations to take corrective action
as required
48
1.5.Importance of Sourcing Team
Performance Goals
 Focus on end results, not desired
activities
 Use goals as basis for assessing team
performance
 Provide a benchmark for assessing
progress, providing feedback, and
allocating performance awards
 Challenging goals vs. “easy” goals
49
.Process of Goal Setting
 Describe team’s task

 Assess team’s ability to achieve certain
outcomes
 Identify those areas offering highest
performance potential and develop
quantified or specific objectives

50
1.6.Supplier Involvement on CFTs
 Rated as more effective
 Put forth greater effort
 Higher quality of information exchange
 Supplier becomes resource
 Fewer coordinating problems
 Greater supplier contribution
 May need to also consider key
customer involvement
51
4.5.Integrating Supply Management,
Engineering, and Suppliers
 Include suppliers early in process
 Design assistance
 Development of material specifications
 Perform early evaluation of supplier
capabilities
 Existing technologies
 Future technologies

52
.Successful Supplier Integration
 Formalized process for selecting items

 Use of CFTs for supplier evaluation and
selection
 Early supplier selection for design and
volume work
 Supplier membership and team
participation
 Direct cross-functional communication
53
.Successful Supplier Integration
 Co-location of buyer and supplier

personnel
 Formal business unit trust
development efforts
 Sharing of technology between buyer
and supplier
 Joint education and training efforts

54
.Risk Assessment Questions
 What is likelihood that supplier has ability to

bring product to market?
 How does this risk assessment compare to
other potential suppliers?
 If there are others
 At what point are we willing to reverse
decision if we proceed?
 What are criteria and measures for doing so?
 What is contingency plan that takes effect in
the event of reversing our decision?
55
.Elements for Consideration
 Targets
 Is supplier capable of hitting affordable
targets regarding cost, quality,
conductivity, weight, and other
performance criteria?
 Timing
 Will supplier be able to meet product
introduction deadlines?

56
 Ramp-up: tăng tốc

 Will supplier be able to increase capacity
and production fast enough to meet our
market share requirements?
 Innovation and technical
 Does supplier have required engineering
expertise and physical facilities to develop
an adequate design, manufacture it, and
solve problems?

57
 Training
 Do supplier’s key personnel have required
training to start up required processes and
debug them?
 Resource commitment
 If supplier is deficient in any of above, is
management willing to commit resources
to remedy problem?

58
.Supplier Involvement in Design
 White box design
 Supplier is given blueprints(bản thiết kế)
and told to make product from them
 Gray box design
 Supplier’s engineers work cooperatively
with buyer’s engineers in joint design
 Black box design
 Suppliers are provided functional
specifications and create design

59
.Extent of Design Responsibility
100%
Buyer
% of Design
Responsibility
Supplier
0%
White Box Gray Box Black Box
60
.Sharing of Technology Roadmaps
 Determine alignment of technology

 Type of buyer-supplier relationship
 Short-term vs. long-term technology
convergence
 Project timing and visibility
 Ongoing set of milestones

61
.Issues in Technology Roadmaps
 Projected performance specifications for

class of products or processes
 Intention to integrate new material or
component
 Development of product to meet customer
requirements that is currently unavailable
 Integration of multiple complementary
technologies that results in radical new
product
 Combination of above as well as variations
62
.Concerns with Joint Education
and Training
 Unwillingness of internal design
personnel to relinquish responsibility
 Concerns over sharing proprietary
information – both parties
 Lack of integrative business processes
 Lack of cultural alignment

63
.Supplier Integration into Customer
Order Fulfillment
 Supplier suggestion programs
 Buyer-supplier improvement teams
 On-site supplier representative
 Supplier-managed inventory

64
.Supplier Suggestion Programs
 Assessment criteria for suggestions

 Feasibility
 Resources required
 Potential savings
 Go/No-go decision
 Feedback to supplier

65
.Elements of Successful Supplier
Suggestion Programs
 Share savings equitably, often 50-50
 Focus on cost improvement, not simply
cutting supplier margins
 Provide prompt feedback to supplier
 Implement good suggestions promptly
 Publically acknowledge supplier’s
contribution

66
.Buyer-Supplier Improvement Teams
 Cost reduction
 Quality improvement
 Material delivery improvement
 Process technology upgrades
 Reduction of material ordering cycle
times

67
Supplier Involvement Outcomes
 Greater satisfaction with quality of

information exchange
 Higher reliance on suppliers to directly
support team’s goals
 Fewer problems coordinating work
activities between CFT and suppliers
 Greater effort put forth on team
assignment
68
.On-Site Supplier Representatives
 Waste management  Uniforms and

 Printing services protective
 Spare parts and equipment
MRO inventories  Process control
 Computer equipment
equipment and  Production parts
software  Transportation
 Office furniture services
 Production
maintenance
69
.Buyer’s Use of On-Site Supplier
Representatives
On-site representatives can be used in a
number of functional areas as well:
 Supply management
 Sales
 Engineering
 Transportation

70
.Potential Benefits of On-Site Supplier
Representatives
 Increased buyer-supplier coordination
and integration
 Supplier personnel work on-site
 Supply management staff increased
 Supplier performs some buying and
planning activities

71
.Potential Benefits of On-Site Supplier
Representatives to Supplier
 Increased supplier insight to customer needs
and access to new designs
 Daily interface with customer
 Increased supplier production efficiency
 Fewer schedule changes and surprises
 Reduced transaction costs
 Reduced inventory
 On-site material plan development in real-
time
72
Win-Win Elements of On-Site
Supplier Representatives
Buyer Wins With
Consignment Direct-Floor Releases from Resident at
Inventory Stocking Rolling Forecast Customer
More Business X X X
Access to New
X
Designs
Supplier Wins With
Stabilized
X X X
Production
Fewer
X X X
Transactions
Quicker Payments X
Less Selling
X X X
Expense
Assured Sales X X X
Access to
X X
Information Earlier

73

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PURCHASING & SUPPLY CHAIN MANAGEMENT, 6e

© 2016 Cengage Learning. All rights reserved. May

 Integration: What is it?

 Professionally managing suppliers and

 People coming together work together

 The ability to … (kĩ năng cần thiết cua

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Consists of many communication flows

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Traditional close relationship through

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 One of most important, yet challenging, linkages

© 2016 Cengage Learning. All rights reserved. May

 Looking for new sources of technology

 Much communication is tactical and electronic

© 2016 Cengage Learning. All rights reserved. May

 Indirect linkage between supply

© 2016 Cengage Learning. All rights reserved. May

Seeking counsel on specific elements of

 Primary external linkage

© 2016 Cengage Learning. All rights reserved. May

 International countertrade issues

© 2016 Cengage Learning. All rights reserved. May

 Control of substantial budget which

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Start with how a firm interacts with

© 2016 Cengage Learning. All rights reserved. May

 Procurement should be key point of

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Reduced time to complete tasks

© 2016 Cengage Learning. All rights reserved. May

 Use does not guarantee success

© 2016 Cengage Learning. All rights reserved. May

 Facing a complex or large-scale

1. Does our organization consider CFT

4. Do we have right person selected as

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

Selecting team members and leaders

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Team member task preparation

© 2016 Cengage Learning. All rights reserved. May

 Authorizing creation of sourcing team

© 2016 Cengage Learning. All rights reserved. May

 Team membership should be part of an

© 2016 Cengage Learning. All rights reserved. May

 GUIDELINES FOR REWARDS:

© 2016 Cengage Learning. All rights reserved. May

 Need to give more attention, training,

© 2016 Cengage Learning. All rights reserved. May

 Evaluate team leader strengths and

 Describe team’s task

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May