TU-C2020 OPERATIONS MANAGEMENT (5 cr) Strategic supply management

Transcription

1 TU-C2020 OPERATIONS MANAGEMENT (5 cr) Strategic supply management 23 Sept, 2015 Doctoral candidate, researcher Mervi Vuori Department of Industrial Engineering and Management P(S)LM Capabilities Planning Product Development Process Concept Development Sales & Marketing System Level Design Detail Design Testing & Refinement Production Ramp-up Plan / Source / Make / Deliver / Enable After Sales Service 1

2 What to buy? How to buy? From whom to buy? Strategic purchasing: from transaction processing to managing external resources Supply management has traditionally been viewed as an operational function with focus on clerical tasks Today, supply management has an increasingly strategic role External spend accounts for 50-80% of company turnover Opportunities for new value creation and cost savings Companies seek synergies in and across business units Reducing the supplier base, harmonizing requirements, consolidating volumes, bundling negotiation power 2

3 Strategic purchasing: from transaction processing to managing external resources Due to outsourcing trend and consolidation of supplier base, the significance of individual suppliers has grown. Some examples*: Motorola s top 25 suppliers account for about 50 % of spend HP has centralised its purchasing on small number of suppliers: % of production spend is with 35 suppliers Sun Microsystems outsourced 90 % of it systems in three years Procter and Gamble does innovation collaboration with 15 of its top suppliers What does this development mean for suppliers? What about buyers (customers)? * Gadde et al The role of purchasing Obtaining materials of the right quality in the right quantity from the right source(s) delivering to the right place at the right price (Lysons & Farrington, 2012) Management of external resources in a way that that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company s primary and support activities is secured the most favorable conditions (van Weele, 2010) 3

4 What should be made in-house, and what should be purchased? The make-or-buy question. Important to our customers CORE We cannot be better than others in many areas Not so important to our customers We are not so good in this We are better than others in this We must focus on core competencies and outsource the rest Source: Based on Iloranta & Pajunen-Muhonen, 2012 The make-or-buy question Often considerations stem from cost-savings perspective, this is however short term Strategic issue - risks related to over-outsourcing? Peripheral functions Complementary functions Outsourcing partner Outsourcing object Functions close to the core Core competence Source: Adopted from Arnold, 2000 in Johnsen, Howard and Miemczyk,

5 How much do companies generate value just on their own? ETLA / Seppälä 2013 Direct vs indirect purchasing Direct materials for a manufacturing company are e.g. raw materials, semimanufactured materials/ingredients and components that enter the production and are transformed into products Indirect materials enable the production process, and include for example maintenance, repair and operations (spare parts), office equipment, CAPEX (investment goods, including buildings, machinery) etc. Services are an increasingly growing area of purchases for any company Purchasing category management takes into account the differences between purchase items and requirements for skills and knowledge Source: Johnsen, Howard, Miemczyk (2014) 5

6 Segmenting the supply i.e. sourced product /service groups is key to developing strategy According to use Product / product line / organisational unit / company Market / country/ continent Production related / Non-production related Nature / type of the buy Materials/ components/ systems/services / investments Material / immaterial Tangibles / intangibles Goods / services According to source / supplier / supplier markets Supplier / line of business / geographical area Product / product range / product group Source: Iloranta & Pajunen-Muhonen, 2012 Most companies have organized purchasing around commodity / category teams Centrally co-ordinated team that develops, creates and implements company-wide sourcing strategy for a given product / service Typical assignments of commodity teams (Guinipero & Vogt, 1997): Establish and pursue cost-reduction strategies Evaluate and select suppliers Support sourcing for selected items Teams consists of purchasing professionals (category team leader, sourcing manager) and business unit / function resources; members usually part-time Source: Heikkilä & Kaipia, 2009; Englyst et al

7 P(S)LM Capabilities Planning Product Development Process Concept Development Sales & Marketing System Level Design Detail Design Testing & Refinement Production Ramp-up Plan / Source / Make / Deliver / Enable After Sales Service Product Life Cycle Management The Toyota Way PLM Plan, Collaborate High Utilize Rigorous Standardization to Reduce Variation and Create Flexibility and Predictable Outcomes Cost of change Establish Customer-Defined Value to Separate Value-Added from Waste PDM Define ERP Execute Front Load the Product Development Process to Explore Alternatives Thoroughly Low Fully Integrate Suppliers into the Product Development System Create Leveled Product Development Process Flow Build in Learning and Continuous Improvement Adapt Technology to Fit Your People and Process Ability to effect design Time Concept Design Manufacturing In Service 7

8 Why should companies involve suppliers in new product development? Airbus Industries (Superjumbo 380), Boeing (Dreamliner) and various automakers in Europe, US and Japan have rationalized their supply base and started to involve suppliers early in the development process of new products Supplier involvement refers to the resources (capabilities, investments, information, knowledge, ideas) that suppliers provide, the tasks they carry out and the responsibilities they assume regarding the development of a part, process or service for the benefit of a buyer s current and/or future product development projects (van Echtelt et al., 2008) Early Supplier Involvement Getting it right the first time Product Development Process Planning Concept Development System Level Design Detail Design Testing & Refinement Production Ramp-up Better Earlier Later Supplier involvement Source: Adopted from Monzcka et al

9 Supplier roles in new product development Role Description Responsibilities during NPD Partner (Full service provider) Relationship between equals; supplier has technology, size and global reach Entire subsystem. Supplier acts as an arm of the customer and participates from the preconcept stage onward. Mature (Fullsystem supplier) Child Customer has superior position, supplier takes major responsibility with close customer guidance Customer calls the shots, supplier responds to meet demands Complex assembly. Customer provides specs, supplier develops system on its own. Supplier may suggest alternatives to customer. Simple assembly. Customer specifies design requirements, and supplier executes them. Contractual Supplier is used as an extension of customer s manufacturing capability Commodity or standard part. Customer gives detailed blueprints or orders from catalogue and supplier builds. Kumath and Liker, 1994 Supplier roles, continued Partner Mature Child Contractual Design responsibility Supplier Supplier Joint Customer Product complexity Specifications provided Supplier s influence on specs Stage of supplier involvement Component-testing responsibility Supplier s technological capabilities Entire subsystem Concept Complex assembly Critical specifications Simple assembly Detailed specifications Collaborate Negotiate Present capabilities Simple parts Complete design None Pre-concept Concept Post-concept Prototyping Complete Major Moderate Minor Autonomous High Medium Low Kumath and Liker,

10 SCOR 5 distinct management processes of the firm Source: Purchasing decisions start with these considerations External / Internal Requirements Own core competences Supply market opportunities Business strategy Make-or-buy decisions Category strategy Supplier selection criteria Source: Iloranta & Pajunen-Muhonen,

11 It is important to understand supply market opportunities and develop strategies to utilize them Describe demand Understand supply markets Define sourcing strategy Identify suppliers, evaluate and negotiate Contract and implement Source: Iloranta & Pajunen-Muhonen (2012). Hankintojen johtaminen. As suppliers represent different interests to a company, there is no one-size- fits-all sourcing strategy Portfolio approach (Kraljic) is used to analyze and segment category spend and supply market Managing the portfolio of purchase items according to Supply risk or difficulty of the buy Importance of the purchase Criticism related to missing supplier perspective, model being too simplistic, model not boosting pro-active thinking despite these claims, Kraljic matrix is widely used tool throughout purchasing and supply management functions 11

12 Kraljic matrix illustrates possibilities for how to buy for different categories Importance of purchase Cost, value, profitability Leverage - buyer s market - many alternative products and services Non-Critical - numerous suppliers, - large variety, inefficient processes Strategic - critical to business - unique and customised products Bottleneck - seller s market, complex specifications Supply Risk/Difficulty Number of suppliers, product novelty/complexity Source: Kraljic (1983), Handfield (2006); Johnsen, Howard, Miemczyk (2014) Strategy alternatives Non-critical: Focus on efficient processing Multi-source or out-source Many suppliers, possibly few global suppliers Framework agreement with preferred supplier Leverage: Sourcing focus on price/cost control, logistics, CCC sourcing Many approved suppliers Standardise, bundle demand, create competition Exploit bargaining power; competitive bidding Constant price / cost reduction pressure, short /medium term contracts, e- auctions, aggressive negotiation Source: Johnsen, Howard, Miemczyk (2014), pp

13 Strategy alternatives Strategic: Manage supply chain related costs by joint improvement programs Single or parallel source Consider insourcing if too high risk Few suppliers, look out for new potential ones Nurture and develop strategic partnership: trust, commitment, openness Bottleneck: Secure delivery, reduce dependency and risk by introducing alternative designs Consider options for insourcing (DIY) Very few suppliers, constant search for new suppliers Consider alternative materials Price not an issue Source: Johnsen, Howard, Miemczyk (2014), pp Strategies Importance of purchase Cost, value, profitability Leverage - Exploit purchasing power Strategic - Build partnership, joint development Non-Critical - Efficient processing Bottleneck - Ensure volume, look for alternatives Supply Risk/Difficulty Number of suppliers, product novelty/complexity 13

14 Best practice in purchasing is about building up and maintanining a base of approved and preferred suppliers external resources that can best help our organization to reach our goals - through systematic sourcing process. Systematic sourcing process ensures that supply matches the demand and that we have the best-in-class, most competitive external resources in our supplier portfolio Sourcing Process Create RFQ Review RFQ Supplier Process Review Response Send RFQ to Supplier Enter Quotation Data Review Quotation Submit Quotation Award Business Cancel RFQ

15 Selecting the right supplier - systematic sourcing process Source: Heikkilä, Vuori, Laine (2013) Purchasing Business Services. Teknologiateollisuus. Systematic sourcing process RFI Request for Information (RFI) is the process to collect information from long-listed suppliers according to pre-set questionnaire about their capabilities, skills, offering and financial situation The purpose of RFI is to evaluate suppliers and screen out suppliers who are not fulfilling the selection criteria. As a result of RFI process, supplier will be short-listed RFI includes questions regarding suppliers Financial situation Capacity / facilities / support capabilities Quality Environmental management, sustainability Performance, client references Key resources, expertise Supply chain management 15

16 Systematic sourcing process RFP, RFQ and e-auction RFP Request for Proposal is the process to collect proposals (product and /or service) for a requirement set by the buyer (e.g. in the form of a specification, a project plan); can include also quote information RFQ Request for Quote is the process to collect quotes (prices or costs) from short-listed suppliers with the aim to evaluate and compare them against each other E-auction on-line price negotiation where invited suppliers bid simultaneously without knowing who they are bidding against Why are RFI,RFP and/or RFQ needed? RFI / RFP/ RFQ RFP RFI RFQ Supplier(s) selected Source: adopted from Johnsen, Howard, Miemczyk (2014) 16

17 Thank you! 17