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					    Strategic Purchasing
    and supply chain management




                 By Joseph Ogachi




                        Developed for KISM Workshop by
1                           Joseph Ogachi MCIPS, MBA
    What is a strategy?

    Consists of competitive moves and business
     approaches to produce successful
     performance.
    Management‟s “game plan” for:
     Running the business.
      Strengthening the firm‟s competitive position.
      Satisfying customers
      Achieving performance targets
                                         Developed for KISM Workshop by
2                                          Joseph Ogachi MCIPS, MBA
    Three Strategic Questions

    1. WHERE ARE WE NOW?
    2. WHERE DO WE WANT TO GO?
     Business Positions Management Wants To
       Stake Out
     FINANCIAL Outcome To Achieve
     STRATEGIC Outcomes To Achieve
    3. HOW WILL WE GET THERE?
                               Developed for KISM Workshop by
3                                Joseph Ogachi MCIPS, MBA
    A strategic vision

     Identifies activities the firm intends to pursue
     Sets long-term direction
     Provides big picture perspective of
      Who WE are, what WE do, where WE are
      headed
     Set firm apart from others
     Arouse strong organization identity and
      business purpose
                                     Developed for KISM Workshop by
4                                      Joseph Ogachi MCIPS, MBA
    Developing a Strategic Vision

    ..Begins with thinking strategically:
     About the firm‟s future makeup
     Forming vision of the firm‟s future in 5-10 years
     Inject sense of purpose into firm‟s activity
     Provide LONG TERM DIRECTION
     Give FIRM STRONG IDENTITY
     Decide “WHO we are, WHAT we do &
         WHERE we are headed”

                                         Developed for KISM Workshop by
5                                          Joseph Ogachi MCIPS, MBA
    Specific questions that help in forming
    strategic Vision

       What business are we in now?
       What business do we want to be in?
       What will our customers want in future?
       What are expectations of our stakeholders?
       Who will be our future competitors?
       Suppliers? Partners?
       How will technology impact our industry?
       What environmental scenarios are possible?

                                        Developed for KISM Workshop by
6                                         Joseph Ogachi MCIPS, MBA
    Supply Chain Management

    ..involves managing a series of activities and
       processes ranging from the source of raw
       materials, perform a series of value adding
       activities-procurement, production or
       conversion- of the finished product or service
       purchased by the ultimate customer to
       satisfaction


                                    Developed for KISM Workshop by
7                                     Joseph Ogachi MCIPS, MBA
    Different activities of SCM

       Raw material sources and sourcing
       Procurement and planning
       Inwards materials flow
       Production and conversion processes
       Warehousing of materials and products
       Transport and distribution to end customer
       Satisfying the customer needs
                                     Developed for KISM Workshop by
8                                      Joseph Ogachi MCIPS, MBA
    We focus on Procurement and
    Materials inflow




                        Developed for KISM Workshop by
9                         Joseph Ogachi MCIPS, MBA
     Purchasing Goal

            To manage the supply base
            so as to enable the
            company to maximize
            overall performance and
            competitiveness




                   Developed for KISM Workshop by
10                     Joseph Ogachi MCIPS, MBA
     What is purchasing…and why should it
     be strategic?


     The process by which an organization
       contracts with third parties to obtain the
       goods and services required to fulfill its
       business objectives in the most timely and
       cost effective manner



                                    Developed for KISM Workshop by
11                                    Joseph Ogachi MCIPS, MBA
     Strategic?


        World class purchasing is not about placing orders.
        Involvement in concept, design, justification,
         influencing specifications, and requirements
        Sharing in-depth knowledge of the market
        Look at the future of the organization and change the
         supply market to your advantage
        Then what is Purchasing Strategy?

                                           Developed for KISM Workshop by
12                                           Joseph Ogachi MCIPS, MBA
     Purchasing strategy is concerned with identifying,
       selecting, and implementing an overall change
         program designed to place the purchasing
       process at the heart of a business so enabling
           it to make the maximum contribution to
             corporate profitability while gaining a
                 commercial competitive edge


                                     Developed for KISM Workshop by
13                                     Joseph Ogachi MCIPS, MBA
     It encompasses:

        Defining the mission of the purchasing
         function
        The framework within which to work
        Type of organization & staff employed
        Development of ways of approaching and
         interacting with the supply market, taking into
         account how it would develop in the future.

                                       Developed for KISM Workshop by
14                                       Joseph Ogachi MCIPS, MBA
     Building a Purchasing Strategy

     Contribution and influence:
      raising seniority of key staff
      Increase ability to contribute to strategic decisions
      Extending cross-functional team-works
      Rationalizing and clarifying the authority structures
      Early purchasing involvement
      Effective and realistic means of measurement



                                           Developed for KISM Workshop by
15                                           Joseph Ogachi MCIPS, MBA
         Matching Purchasing Strategy to
         Organization Vision



        Supply planning
        Specification requirements identification
        Contract strategy
        Supplier selection
        Finalize contract

                                       Developed for KISM Workshop by
16                                       Joseph Ogachi MCIPS, MBA
     A: Early purchasing involvement

     Many buyers claim difficulty in being involved
       early enough in the purchasing process.
       Whose fault is it?
      Why don‟t we wait for the requisition?
      Do you wait to be invited to participate?
      What do you do?
      What action do you need to take?

                                     Developed for KISM Workshop by
17                                     Joseph Ogachi MCIPS, MBA
     .. A proactive action to take.

        Review all revenue and capital budgets
        Identify areas of large expenditure
        Initiate debate on their purchase
        While showing your value adding expertise
        Regularly visit those who normally initiate high
         expenditures
        Gain their confidence by talking about their problems
         and opportunities

                                           Developed for KISM Workshop by
18                                           Joseph Ogachi MCIPS, MBA
     .. A proactive action..

        Identify areas of disaffection in their client base and
         offer opportunities and solutions
        What if there are no areas of dis-affection?
        Senior secretaries could tip you off when their
         executives are planning to meet a supplier
        Then send a briefing memo
        Seek invitations to all key planning meetings
        This is better than sitting waiting for a PR

                                             Developed for KISM Workshop by
19                                             Joseph Ogachi MCIPS, MBA
     No amount of supply planning and
     requirements identification can
     compensate for lack of thought
     regarding behaviour when the buyer
     communicates with the supplier

                             Developed for KISM Workshop by
20                             Joseph Ogachi MCIPS, MBA
     B: Supplier-buyer conditioning

     Developing strategies to attract good
       productive suppliers is very important

     Sales people are also developing strategies of
       influencing the buyer to ensure they gain
       advantage


                                    Developed for KISM Workshop by
21                                    Joseph Ogachi MCIPS, MBA
     ..conditioning

        Good sales staff are trained to condition the
         behaviour of buyers so that they could
         behave in a predictable way which is
         favourable to the seller
        Few buyers are aware of this process
        To their disadvantage during negotiations


                                       Developed for KISM Workshop by
22                                       Joseph Ogachi MCIPS, MBA
     What is the normal reaction of a buyer
     when informed by the supplier that there is
     an imminent price increase?

     Place an order to get in ahead of the price
     rise ..
     Which of course is exactly what the sales
     staff want!

                                   Developed for KISM Workshop by
23                                   Joseph Ogachi MCIPS, MBA
     Conditioning the buyer.. tools of
     trade

        The price list: a well printed price list has some
         permanency in it.. challenge it
        Discount: “Special price for special customer”. The
         discount is meant to make the buyer anxious to buy
         and reluctant to question the price further
        Volume purchases: When suppliers want buyers to
         buy larger quantities, they resort to volume discounts
        Bad mistake!


                                            Developed for KISM Workshop by
24                                            Joseph Ogachi MCIPS, MBA
     ..conditioning..

     Sales rep claiming limited authority to give the
       concessions asked by buyer..
     Counter-ploy: Ask who does have the authority
       and then demand to meet that person
     Ploy: Claiming low profits/close to cost
     Counter-ploy: Investigate further


                                     Developed for KISM Workshop by
25                                     Joseph Ogachi MCIPS, MBA
     ..conditioning..

     “You are a small customer”;
     Reaction: Small customers amount to a lot
     Small customers could be paying higher
       margins
     Friendly Interest in the buyer; their interests,
       likes and dislikes, family: creating a sense of
       personal commitment
     Don‟t be fooled!
                                      Developed for KISM Workshop by
26                                      Joseph Ogachi MCIPS, MBA
     ..conditioning..

     Talking to clients and management: “Back door
       selling”
     Then making reference to these meetings
       when talking to buying staff
     Implying agreements have been reached
     Counter-ploy: Manage access of sales people
       to other members of staff; train users on
       basic commercial techniques.

                                   Developed for KISM Workshop by
27                                   Joseph Ogachi MCIPS, MBA
     C: Purchasing and Audit Framework

        Production and dissemination of a mission or role
         statement
        Establishing policy and procedure manuals that are
         user friendly
        Allows for a flexibility in approach in the purchasing
         process
        Empowering purchasing staff to be entrepreneurial
        Provision of adequate controls

                                             Developed for KISM Workshop by
28                                             Joseph Ogachi MCIPS, MBA
D: Functional Organization for
                      Impact
         An empowered, involved, and
     entrepreneurial purchasing team,
        working in harmony with other
functions in the organization, provides
       the key to retaining competitive
                             advantage
             Developed for KISM Workshop by Joseph   29
                      Ogachi MCIPS, MBA
     Organization

        Fundamental review of the organizational structure
        Dichotomy relating to centralization and
         decentralization
        Networking between buyers and buying
         organizations will exist
        Balancing workloads based on supply positioning
        A bias towards upstream activities
        A career path for high quality buyers


                                          Developed for KISM Workshop by
30                                          Joseph Ogachi MCIPS, MBA
     Centralized Procurement

        Centralization is the first step towards creating
         purchasing excellence
        Allowing a total cost picture to be built up
        Creating policy and guidelines, tiers of authority
         delegation
        Feedback mechanisms reporting key expenditures,
         local content monitoring
        Cost and discount incentives for bigger purchases

                                          Developed for KISM Workshop by
31                                          Joseph Ogachi MCIPS, MBA
                         Centralized..


        Call off or umbrella contracts can save time for
         buyers releasing them to focus on more
         strategic issues
        Major computerized purchasing system are
         best handled this way
        Theme: “Purchasing Action at the Working
         Interface”
        Effective planning and research work
                                         Developed for KISM Workshop by
32                                         Joseph Ogachi MCIPS, MBA
     Decentralization; a better option?

        May speed up purchasing response
        Better to satisfy the local end users, through
         effective use of local sources
        Increase visibility for early purchasing
         involvement
        Easier coordination with operating
         departments

                                       Developed for KISM Workshop by
33                                       Joseph Ogachi MCIPS, MBA
     Work on internal & external
     Relationships

        Purchasing should work closely with all parties in
         the supply chain to achieve an overall competitive
         edge
        Early purchasing involvement in buying decisions
        Recognition of the importance of suppliers to the
         success of the enterprise
        Present your orgn as a preferred customer through
         „procurement marketing‟


                                          Developed for KISM Workshop by
34                                          Joseph Ogachi MCIPS, MBA
     Systems

        Computerized systems: real-time info.
        Needs of business drive the systems design
         and operation not vice versa
        EDI links with key suppliers facilitates rapid
         transmissions of orders, stock levels,
         invoices, and payments


                                       Developed for KISM Workshop by
35                                       Joseph Ogachi MCIPS, MBA
     Staffing and Training

        High quality purchasing professionals
        Annual upgrade of knowledge and skills
        High level of educational attainment
        Influential, innovative, change agents,
        Skilled at promoting and selling the benefits
         of the function
        In-depth training of new-comers
                                       Developed for KISM Workshop by
36                                       Joseph Ogachi MCIPS, MBA
     E: Influencing the supply market

     Essence of strategic supply planning is that the
       professional buyer not only must change
       suppliers, but also must change the market
       by finding and developing new products and
       suppliers or by making the existing ones
       behave in a different way.



                                     Developed for KISM Workshop by
37                                     Joseph Ogachi MCIPS, MBA
     ..Influencing the supply market

        Our strategic role: seeking out and trading
         with suppliers of the highest quality in terms
         of product and services offered and cost
         competitiveness
        Our problem: constant firefighting to solve
         current problems as suppliers failed to live to
         their contractual obligations.
        Why?
                                       Developed for KISM Workshop by
38                                       Joseph Ogachi MCIPS, MBA
     ..influencing the supply market

        Inadequate time and resources are applied
         at the earliest stages of the procurement
         cycle
        Upstream management: all the activities and
         functions which take place before the order
         or contract is placed: supply planning,
         product strategy development, supplier
         selection
                                     Developed for KISM Workshop by
39                                     Joseph Ogachi MCIPS, MBA
     ..influencing the supply market

        Downstream management: activities and
         functions that take place after the orders or
         contract is placed: expediting, inspections,
         problem solving, invoice matching,
         emergencies, routine paperwork
        Which of these management functions is
         more strategic? Why

                                       Developed for KISM Workshop by
40                                       Joseph Ogachi MCIPS, MBA
     ..influencing the supply market

        Supply planning: to ensure the existence of a
         supply-market to which the buying company
         has ready access and which enables it to
         succeed as a business both now and in the
         future. How?
        Supply positioning: segmenting purchases
         both in relation to the value and degree of
         risk in the purchase
                                      Developed for KISM Workshop by
41                                      Joseph Ogachi MCIPS, MBA
     ..influencing the supply market

        Supplier preferences: look at transactions
         from the point of view of the supplier. How do
         suppliers view you as their customer?
        Vulnerability management: Buyers examine
         the entire supply chain of the item that they
         are purchasing, identifying future supply
         problems, hence triggering planning activity
         to obviate the problem

                                      Developed for KISM Workshop by
42                                      Joseph Ogachi MCIPS, MBA
     F: Procurement marketing

     A means by which buyers market their company as a
       preferred customer to the supplier hence good
       prices, service, priority. Why?
      A changing market place
      Buyers having a marketing orientation
      Prompt payment of supplier invoices
      Simple procurement systems
      Being straightforward and open minded



                                       Developed for KISM Workshop by
43                                       Joseph Ogachi MCIPS, MBA
     G: Reverse marketing

     : Used in creating a supply capability in the
        marketplace where either one does not exist
        or the market is set up to disadvantage the
        buyer.
      Examining current/future positions
      Key decision point to go ahead
      Organizational support
      Contract administration
                                    Developed for KISM Workshop by
44                                    Joseph Ogachi MCIPS, MBA
     H: Vulnerability Management

     A prime task of an effective purchasing function
       is always to provide the business with a
       secure supply situation irrespective of the
       forces that may be operating in the macro
       environment.
     Fire, earthquakes, floods, strikes, sinking
       boats, etc, do not provide an adequate
       excuse for a failure of supply lines.
                                    Developed for KISM Workshop by
45                                    Joseph Ogachi MCIPS, MBA
     ..Vulnerability assessment

     Assessing vulnerability in:
      Supply-demand balance
      Raw-materials availability
      Raw-materials cost trends
      Rate of technical innovation
      Complexity of the market
      The supplier
      Production, shipping & distribution methods

                                         Developed for KISM Workshop by
46                                         Joseph Ogachi MCIPS, MBA
     I: Strategic Outsourcing

     Strategic outsourcing is the use of outside
        resources to perform activities traditionally
        handled by internal personnel and resources
     “It is the maxim of every prudent master of a
        family, never to attempt to make at home
        what it will cost him more to make than to
        buy..”, Adam Smith

                                     Developed for KISM Workshop by
47                                     Joseph Ogachi MCIPS, MBA
     Bottom-line question

     „Precisely what business do we really want to
       be in to maximize the use of our core
       competences as we proceed into the future?‟




                                   Developed for KISM Workshop by
48                                   Joseph Ogachi MCIPS, MBA
     To create value..

     A company keeps control over a process that is
       necessary and core;
     Has the potential to outsource a process that is
       necessary and core,
     And should not be doing a process that is not
       necessary and not core
     To perform necessary but not core processes a
       company out-sources..

                                    Developed for KISM Workshop by
49                                    Joseph Ogachi MCIPS, MBA
     Driving Forces

        Outsourcing started off on mundane tasks
        Managing for cost reductions in the ‟90s
        A means of sticking to core business: In
         Search of Excellence.. Bob & Waterman
        “Sticking to the knitting”.. Doing what you
         know best
        It is networking and relationships among
         equals.. a new subcontracting
                                       Developed for KISM Workshop by
50                                       Joseph Ogachi MCIPS, MBA
     Effective management of the
     outsourcing relationship

        Define achievable objectives well: What do you hope
         to gain?
        Answer key questions: What are our core
         competencies? What is the cross functional impact?
         How do we deal with the people issues?
        Consider all stakeholders
        Get the right people involved
        Create a shared vision for outsourcing

                                          Developed for KISM Workshop by
51                                          Joseph Ogachi MCIPS, MBA
     Effective outsourcing..

        Clear communication mechanisms
        Develop a clear contingency plan and exit
         strategy
        Hostage taking: companies mutually
         depending on one another for supplies
        Parallel sourcing strategy


                                     Developed for KISM Workshop by
52                                     Joseph Ogachi MCIPS, MBA
     Benefits of strategic outsourcing

        Reducing own cost structure
        Enables company to concentrate resources
         on core activities
        Company becomes more flexible and
         responsive to changing market conditions




                                    Developed for KISM Workshop by
53                                    Joseph Ogachi MCIPS, MBA
     Pitfalls of Outsourcing

        Company loses ability to learn from that
         activity
        Too dependent on particular supplier
        Danger of outsourcing activities central to
         competitive advantage
        Honest suppliers? Legal system?
        Labour relation problem

                                       Developed for KISM Workshop by
54                                       Joseph Ogachi MCIPS, MBA
     Purchasing… the future outlook

        Move towards IT based integrated systems
        Virtual corporations that rely on outsourced
         agencies and other company
        A proactive and value adding supply chain
         function represented at director level
        A highly trained and skilled SCM team
         working in teams

                                       Developed for KISM Workshop by
55                                       Joseph Ogachi MCIPS, MBA

				
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