8/13/2019 Supplier Networks OS Jan 2014
1/91
Supply Networks
Lean supply networksToyota, Honda, Hero
Agile supply networksNokia, Cisco, Motorola
8/13/2019 Supplier Networks OS Jan 2014
2/91
Elements of process partnership relationships
Attitudes
Actions
Trust
Joint problemsolving
Joint co-
ordination of
activities
Joint
learning
Long-term
expectations
Sharing
success
Multiplepoints of
contact
Few relationships
Informationtransparency
Dedicated
assets
Closeness of
relationship
8/13/2019 Supplier Networks OS Jan 2014
3/91
8/13/2019 Supplier Networks OS Jan 2014
4/91
Kankei Kaisha =dedicated supplier plants, Dokuritsu Kaisha = Independent supplier plants
8/13/2019 Supplier Networks OS Jan 2014
5/91
8/13/2019 Supplier Networks OS Jan 2014
6/91
Agile Networks
Multi -sourcing more prevalent
Through agility in manufacturing facilities
Through network flexibility
Multi -sourcing more prevalent
Quick integration of suppliers (template based) Planned exit at end of contract period
8/13/2019 Supplier Networks OS Jan 2014
7/91
Second-tiersuppliers
First-tiersuppliers
SBU A
SBU B
Plant C
Second-tiercustomers
First-tiercustomers
xx
x
Focallevel
Upstream Downstream
Supply side of the network Demand side of the network
Flow of Products/ServicesFlow of Information
x x
Supply networks agility through change in supplier groups
Various other supply chain flexibilities such postponement, modularization of
products, and more customized products
8/13/2019 Supplier Networks OS Jan 2014
8/91
Design &Development
Distribution
Finished Goods
Manufacturing
Materials
Supply
Components
Supply
Warehousing Retailing
After-Sales
Support
Service
Centers
C
U
S
T
O
M
E
R
S
Promotion
& Sales
Flows of material,
information, money,
and knowledge
R
A
W
M
A
T
L
S
Agile Supply Networks (NOKIA- India)
Plastics
India
Supplier
8/13/2019 Supplier Networks OS Jan 2014
9/91
Quick supplier integration and planned exit
Template based integration of suppliers
8/13/2019 Supplier Networks OS Jan 2014
10/91
8/13/2019 Supplier Networks OS Jan 2014
11/91
Supplier segmentation: identifying strategic suppliers
8/13/2019 Supplier Networks OS Jan 2014
12/91
Network Theory
Network lifecycle: Initiation, Configuration,
Implementation, stabilization,
transformation/dissolution
Network: Mission, Positioning, Resources,
Business Model
Organization: relationship with network
8/13/2019 Supplier Networks OS Jan 2014
13/91
A Network Lifecycle model
8/13/2019 Supplier Networks OS Jan 2014
14/91
Firms view of network management
8/13/2019 Supplier Networks OS Jan 2014
15/91
Network Strategy
8/13/2019 Supplier Networks OS Jan 2014
16/91
Aligning Firm view and Network view
8/13/2019 Supplier Networks OS Jan 2014
17/91
Thenetwork
view -
framewor
8/13/2019 Supplier Networks OS Jan 2014
18/91
IKEA network
8/13/2019 Supplier Networks OS Jan 2014
19/91
IKEAnetwork strategy components
8/13/2019 Supplier Networks OS Jan 2014
20/91
8/13/2019 Supplier Networks OS Jan 2014
21/91
Alkzo Nobel case : Lack table (Future Biz)
8/13/2019 Supplier Networks OS Jan 2014
22/91
Becker Acroma case: IKEA - Network Exit
8/13/2019 Supplier Networks OS Jan 2014
23/91
Toyota Supplier Networks
8/13/2019 Supplier Networks OS Jan 2014
24/91
8/13/2019 Supplier Networks OS Jan 2014
25/91
8/13/2019 Supplier Networks OS Jan 2014
26/91
8/13/2019 Supplier Networks OS Jan 2014
27/91
8/13/2019 Supplier Networks OS Jan 2014
28/91
8/13/2019 Supplier Networks OS Jan 2014
29/91
8/13/2019 Supplier Networks OS Jan 2014
30/91
8/13/2019 Supplier Networks OS Jan 2014
31/91
8/13/2019 Supplier Networks OS Jan 2014
32/91
8/13/2019 Supplier Networks OS Jan 2014
33/91
Partnership relationships are seen as desirable because
they can reduce the transaction costs of doing business
Supply Chain Management
k f
8/13/2019 Supplier Networks OS Jan 2014
34/91
Investment in supplier relationships - some key facts
8/13/2019 Supplier Networks OS Jan 2014
35/91
8/13/2019 Supplier Networks OS Jan 2014
36/91
8/13/2019 Supplier Networks OS Jan 2014
37/91
Elements of process partnership relationships
Attitudes
Actions
Trust
Joint problemsolving
Joint co-
ordination of
activities
Joint
learning
Long-term
expectations
Sharing
success
Multiplepoints of
contact
Few relationships
Informationtransparency
Dedicated
assets
Closeness of
relationship
8/13/2019 Supplier Networks OS Jan 2014
38/91
8/13/2019 Supplier Networks OS Jan 2014
39/91
8/13/2019 Supplier Networks OS Jan 2014
40/91
8/13/2019 Supplier Networks OS Jan 2014
41/91
8/13/2019 Supplier Networks OS Jan 2014
42/91
8/13/2019 Supplier Networks OS Jan 2014
43/91
8/13/2019 Supplier Networks OS Jan 2014
44/91
8/13/2019 Supplier Networks OS Jan 2014
45/91
8/13/2019 Supplier Networks OS Jan 2014
46/91
8/13/2019 Supplier Networks OS Jan 2014
47/91
8/13/2019 Supplier Networks OS Jan 2014
48/91
8/13/2019 Supplier Networks OS Jan 2014
49/91
8/13/2019 Supplier Networks OS Jan 2014
50/91
8/13/2019 Supplier Networks OS Jan 2014
51/91
8/13/2019 Supplier Networks OS Jan 2014
52/91
8/13/2019 Supplier Networks OS Jan 2014
53/91
8/13/2019 Supplier Networks OS Jan 2014
54/91
8/13/2019 Supplier Networks OS Jan 2014
55/91
T p f ppl l ti hip
8/13/2019 Supplier Networks OS Jan 2014
56/91
Types of supply relationship
Partnership supply
relationships
Do nothing Do everything
The character of internal operations activity
Virtual spot
trading
Resource scope
Long-term
virtual operation Verticalintegration
Traditional
market
supplyTypeofinte
r-firmcontact
Transactional
manysuppliers
Close
few
s
uppliers
Wh n is th s f p r m rk t m h nisms ppr pri t in
8/13/2019 Supplier Networks OS Jan 2014
57/91
When is the use of pure market mechanisms appropriate in
buyersupplier relationships?
Low HighCost of changing suppliers
Market
mechanisms
inappropriate
Resource dimension
Marketmechanismsappropriate
Leverage needsuncertainty
Leverage
market
uncertainty
Numberofsupp
lyalternatives
Few
Many
Th l h i
8/13/2019 Supplier Networks OS Jan 2014
58/91
The supply chain
8/13/2019 Supplier Networks OS Jan 2014
59/91
Make-or-Buy Decisions
Criticality of item under consideration
Cost
Capacity issues including industry capacity
Strategic factors and competency buildingTechnology trends and obsolescence
No firm is an island: need for buying components
Factors to consider for make buy decisions
M k B E l t f f t i
8/13/2019 Supplier Networks OS Jan 2014
60/91
Make-or-Buy Examplecost of manufacturing
GE Company Cost of Making Part N900:Total Cost for Cost20,000 Units per Unit
Direct material $ 20,000 $ 1
Direct labor 80,000 4
Variable overhead 40,000 2
Fixed overhead 80,000 4
Total costs $220,000 $11
Another manufacturer offers to sell GE the same part for $10. Should GE
make or buy?
8/13/2019 Supplier Networks OS Jan 2014
61/91
Make-or-Buy Example
If the $4 fixed overhead per unit consists of
costs that will continue regardless of the
decision, the entire $4 becomes irrelevant.
If $20,000 of the fixed costs will be eliminated ifthe parts are bought instead of made, the fixed
costs that may be avoided in the future are
relevant.
8/13/2019 Supplier Networks OS Jan 2014
62/91
Relevant Cost Comparison
Make Buy
Total Per Unit Total Per Unit
Purchase cost $200,000 $10
Direct material $ 20,000 $ 1Direct labor 80,000 4
Variable overhead 40,000 2
Fixed OH avoided by
not making 20,000 10 0 0Total relevant costs $160,000 $ 8 $200,000 $10
Difference in favor
of making $ 40,000 $ 2
Vertically Integrated Products
8/13/2019 Supplier Networks OS Jan 2014
63/91
Vertically Integrated Products
make or buythe value chain design
8/13/2019 Supplier Networks OS Jan 2014
64/91
Make-or-Buy framework
Make or Buy
8/13/2019 Supplier Networks OS Jan 2014
65/91
Make or Buy
8/13/2019 Supplier Networks OS Jan 2014
66/91
Make or Buy
Make or Buy
8/13/2019 Supplier Networks OS Jan 2014
67/91
Make or Buy
Th l i Th IBM PC
8/13/2019 Supplier Networks OS Jan 2014
68/91
The classic case _ The IBM PC
The classic case The IBM PC
8/13/2019 Supplier Networks OS Jan 2014
69/91
The classic case _ The IBM PC
The IBM PC value chain
8/13/2019 Supplier Networks OS Jan 2014
70/91
The IBM PC value chain
8/13/2019 Supplier Networks OS Jan 2014
71/91
8/13/2019 Supplier Networks OS Jan 2014
72/91
8/13/2019 Supplier Networks OS Jan 2014
73/91
Make-or-Buy framework
Make or Buy strategic considerations
8/13/2019 Supplier Networks OS Jan 2014
74/91
Make or Buy strategic considerations
Kraljics Supply Matrix
8/13/2019 Supplier Networks OS Jan 2014
75/91
Kraljic s Supply Matrix
Kraljics supply matrix : Risk Impact Matrix
8/13/2019 Supplier Networks OS Jan 2014
76/91
STR TEGIC SOURCING
8/13/2019 Supplier Networks OS Jan 2014
77/91
8/13/2019 Supplier Networks OS Jan 2014
78/91
C
8/13/2019 Supplier Networks OS Jan 2014
79/91
Consequences
Very long lead time
L1 syndrome (L1 is lowest bid)
Dissatisfied users
Poor exploitation of vendor potential andcommodity knowledge
Savings
- meager, short term and may be negative- based on false or inappropriate comparison
Purchase
R i itiPurchaseGBI
8/13/2019 Supplier Networks OS Jan 2014
80/91
Sales Order
Entry
Check
Availability
Procurement
Process
Pick
Materials
Requisition Order
Goods
Receipt
Invoice
Receipt
Payment
to Vendor
Post Goods
IssueInvoice
Customer
Receipt of
Payment
GBI
Exercise Roadmap
Run MRP
Procure to fulfill customer order
8/13/2019 Supplier Networks OS Jan 2014
81/91
Establish
procurement planning
process
Redesign strategic
sourcing processCreate cross-
divisional, cross-
geography
organization
STRATEGIC
PROCESSES
Commodity strategy
Professional development
Procurement Planning
TACTICAL PROCESSES
Supplier selection/management
Contracting and leverage
Materials management
Market/supplier analysis
TRANSACTIONAL PROCESSESOrder Management
Accounts payable
Inventory control/warehousing
DRIVE ACTIVITY
LEVELS DOWNPUSH SOURCINGFOCUS UP
Fewer spot buys
Fewer invoices
Fewer suppliers
Less manual work
Fewer stocked items
Paradigm Shift
What is Strategic Sourcing
8/13/2019 Supplier Networks OS Jan 2014
82/91
The twin dimensions of strategic sourcing
For commodities of medium spend & low criticality :
Rapid sourcing
Commodity study
For mega commodities :
Focuses on vendor consolidation
And quick hit savings
Focuses on optimizing totalSupply chain costs
sustained savings
8/13/2019 Supplier Networks OS Jan 2014
83/91
8/13/2019 Supplier Networks OS Jan 2014
84/91
/
8/13/2019 Supplier Networks OS Jan 2014
85/91
Fords A/c payable process
8/13/2019 Supplier Networks OS Jan 2014
86/91
p y p
Ford A/c payable process
8/13/2019 Supplier Networks OS Jan 2014
87/91
/ p y p
Process Improvement
8/13/2019 Supplier Networks OS Jan 2014
88/91
Best Practice : Total cost of procurement
8/13/2019 Supplier Networks OS Jan 2014
89/91
p
Total cost of procurementMany
supplierscompetitive market
Cost of goods Other costs*
Total cost of procurementL Trelationships with few suppliers
(Lean manufacturing)
Cost of goods Other
costs*
Elements of process partnership relationships
8/13/2019 Supplier Networks OS Jan 2014
90/91
Attitudes
Actions
Trust
Joint problem
solving
Joint co-
ordination of
activities
Joint
learning
Long-term
expectations
Sharing
success
Multiplepoints of
contact
Few relationships
Information
transparencyDedicated
assets
Closeness ofrelationship
8/13/2019 Supplier Networks OS Jan 2014
91/91