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Plan - strategic design

Source - select suppliers

Make - transformation process optimization
Deliver - logistics optimization
SCM 4 processes
The primary task - "what"
Cost - manufacturing or service cost
Quality - high performance, consistency, durability, exceptional service
Delivery - fast, on time
Flexibility - volume, variety
Competitive priorities - "how" - organization's capabilities and core competencies
Competitive Strategies
A key motivation for implementing an ERP is the ability it provides an organization to
synchronize and automate the flows of material, processes, information and cash throughout
the supply chain

Enterprise Resource Planning System (ERP)

Length of time each activity in the project will take is known with certainty
Critical Path Method
The length of time each activity will take is not known with certainty but is instead

Probabilistic or Stochastic
Program Evaluation and Review Technique
Differentiate CPM or PERT
Make-or-buy decision - a decision that needs to be made by every supply partner in the

Vertical integration - if the firm decides to perform the function internally

Offshoring - where a firm moves an operation to a foreign country, but still retains ownership of
that facility

Outsourcing - a strategic decision whether a firm should make a product internally or utilize an
external supplier or service provider

Virtual or hollow corporations - if a firm has outsourced most of the functions across the supply
chain network, choosing instead to focus their resources on new product development and

Review Outsourcing - key terms

Reliability - the consistency of service, dependability
Assurance - how the company shows it has the skills to do the job
Tangibles - the physical surroundings, fixtures, equipment, and uniforms
Empathy - the care and understanding of a customer's needs
Dimensions of Service Quality
Bolded words, concepts or terms
20 questions on definitions
2 questions on strategic sourcing terms
Exam 1 Review
Monday, October 08, 2012
10:00 AM
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Empathy - the care and understanding of a customer's needs
Responsiveness - timeliness of service
Prevention Costs: planning and design phases of the product and the production process
the production process to put quality into the product before it's made

Appraisal Costs: inspection, testing and data gathering to determine the actual quality of
products throughout all phases of the production process

Costs to Obtain Good Quality

Internal Failure Costs: poor quality that result in scrap, rework, and equipment downtime
and more hidden costs such as increased labor and machine hours increased machine
failures and downtime, and customer delays

External Failure Costs: poor quality products that reach the customer, such as customer
dissatisfaction, product returns, warranty claims, liability claims and lost sales (costliest)

Costs Resulting from Poor Quality

Joseph Juran's Cost of Quality
ISO 9000: a set of quality assurances that applies to all types of companies-large and small - in
both the service and manufacturing sectors
Companies want to improve their internal operating efficiency
Many companies require a company to have ISO 9000 certification before they will do
business with that company
Requires a company to document its quality related procedures and the adherence of those
procedures to standards
Review paragraph ISO 9000
Strategic sourcing: process of evaluating, selecting, and partnering with key suppliers in order
to achieve operational performance improvements that support both the organization's supply
chain strategy
Spend visibility: the amount of the applicable spend data that a firm can access through its
information technology systems
Demand aggregation: where a buying firm consolidates its requirements across the entire
enterprise into a single purchasing request
Supplier rationalization: buying a firm determines the optimal number of suppliers in a
particular supply network and who those suppliers will be

Sole-source: only one supplier

Leverage spend: maximize its buying strength in the marketplace
Maverick Spend: is a non-contract spending, normally prices are a lot higher than if they were
purchased with a contract.
Spend Leakage: The failure of the supplier to adhere to the supply contract terms and
conditions, for example charging for shipping when the contracted stated that shipping would
be covered.
E-procurement systems - reduce costs associated with processing purchase orders by supply
management personnel
Procurement cards: minimize the transaction costs associated with small, miscellaneous

Strategic Sourcing terminologies

Critical: a high value category that has few qualified supplies (normally specialized or
customized parts)
Portfolio Matrix (what quadrants, what is going on)
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customized parts)
Leverage: also a high value category, but has many qualified suppliers (normally parts that are
used across the industry)
Market: a low value category, but with many qualified suppliers. Hard to differentiate one
brand from another.
Transactional: a low value category with few qualified suppliers. They are parts standardized
across the industry but it is normally procured locally. Normally purchased in bulk to limit the
number of transactions.
Direct material spend - expenses that a company incurs in making their product or providing
their service and is captured in the Cost of Goods Sold

Indirect material spend - miscellaneous (overhead) expenses a company incurs that are not
associated with building the firm's core products and is captured in Sales, General,

2 questions - direct vs. indirect spend

Time-to-market: the amount of time necessary to take a product from conception to initial
production continues to drop
First-mover advantages: the competitive advantages that can be gained by getting a new
product to market first
Time-based competition: the need to get new products to the marketplace ahead of one's
Concurrent engineering: the use of these cross0functional, product development teams, at the
very beginning of the design project
Manufacturability: to reduce the complexity of the new product and to eliminate potential
production problem areas from the design
Value engineering: focuses on eliminating or changing product features in the design that do
not add value
Non-value-added: cost more than the value of the feature as perceived by customers
New product design - bold terms
Is detail analytical assessment of how much the company is spending in a particular
category or commodity classification
1. Spend Analysis
A detailed analysis of the current supply market to determine the competitive dynamics
that exist between the relevant suppliers.
2. Supply Market Assessment
A detailed analysis of how much it should cost the supplier to produce the desired
product or service.
3. Total Cost Analysis
A complied list of suitable suppliers who can provide the required products or services
4. Supplier Identification/Evaluation
This is the portfolio matrix
5. Sourcing Strategy
The holding of direct negotiations with the key suppliers. The criteria include: price,
availability, lead time, quality and total cost of ownership
6. Supplier Negotiation/Selection
The documentation of the potential savings that should result from implementation of the
7. Sourcing Strategy Implementation
7 steps strategic sourcing process
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The documentation of the potential savings that should result from implementation of the
supply contract
8. Compliance Assessment/Return to step 1 Periodically
Quality: the totality of features and characteristics of a product or service that bear on its ability
to satisfy stated or implied needs
Customer Manufacturer
External User-based:
Measurable variables (length, width,
Internal User-based:
Fitness for use
Better performance
Relationship of usefulness to price or
Conformance to standards
Zero defects

Definition of quality
Employee Empowerment 85% of quality problems have to do with materials and processes,
not with employee performance. Therefore, bringing in the people who deal with the systems
on a regular basis will help find the flaws of a process faster.
Benchmarking Looking for process leaders (regardless of industries and learning from them)

Tools for continuous improvement - why they're used

Control charts
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is the procedure used to show when the variation in the process is whining the limits of the
natural variation and when it goes out of control.
Control charts
Critical path - greatest length and also earliest time in which the entire project can be
Determine critical path
Which one that costs the least to crash
Which activity will you be crashing that week
What will my cost be if crashed a particular week
Project crashing - crash cost per week = (fully crashed cost - normal cost) / (Normal time - fully
crashed time)

Can any money be saved?

Focus on non-critical path
Know G and N
Building X-bar chart
LCL can be negative but put 0
Calculate P chart
TaGuchi- as Variability goes down, quality goes up and costs go down. As Variability goes up,
quality goes down and costs go up.
LCL is 0
X-bar and R-chart isolation
Is this process under control? Improving?
Do an X-bar chart, R-chart
Tell us about this process - what conclusion can you drive from this process
12 point question
Know how to do these 10:
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