The total material management concept can be applied to enable supply management to become a profit center rather than

a cost center. Discuss this statement focusing on the following, and give examples to support your discussion. Basic concepts Supply management is a process responsible for the development and management of a firm's total supply system-both the internal and external components. (PPT Sep 27 P31). Supply management is a broad term describing the various acts of identifying, acquiring and managing the products and/or resources needed to run a business or other organization. These include physical goods as well as information, services and any other resources needed. The main goals within supply management are to control costs, efficiently allocate resources and gather information to be used in strategic business decisions (http://www.investopedia.com). This may be for the purchasing of supplies for internal use referred to as indirect goods and services, purchasing raw materials for the consumption during the manufacturing process, or for the purchasing of goods for inventory to be resold as products in the distribution and retail process. Supply Management Objectives: - To acquire essential knowledge about all key functional areas of supply management - To develop a systematic framework for analyzing the behavior of large and complex global supply networks - To understand the relationship and motivations of suppliers and distributors to ensure supplies of raw materials and markets for finished goods and services - To acquire the technologies and approaches for improving a supply flow performance
Three critical skill of SM: Management, Knowledge, Leadership

Supply management is a strategic approach to planning for and acquiring the organization's current and future needs through effectively managing the supply base, utilizing a process orientation in conjunction with cross-functional teams to achieve the organizational mission.
Pursuing strategic responsibilities - processes and activities that would have a major impact on

the long-term performance of the organization. The strategic responsibilities should be aligned with the overall mission and strategies of the organization.
Progressive approach to managing the supply base - require purchasing professionals to work

directly with core suppliers to align business operations and produce world-class performance on both the organization and the supplier.
Strategic sourcing - the process of identifying, evaluating, selecting, managing, and developing

suppliers to realize above-average supply chain performance.

 Cross-functional - involves purchasing, engineering, supplier quality assurance, supplier, and

other related functions to work together as one time to pursue mutual goals. The objective is to achieve long-tern win-win relationship and performance. Purchasing management means all activities that are required to manage supplier relationships. (PPT Sep 27 P18). The purchasing function comprises the essential activities associated with the acquisition of the materials, services, and equipment used in the operation of an organization. Procurement process, or concept, encompasses a wider range of supply activities than those included in the purchasing function. and it typically includes a broadened view of the traditional buying role, with more buyer participation in related materials activities. A supply chain is a system whose constituent parts include material suppliers, productions facilities, distribution services and customers linked together via a feed forward flow of materials and the feedback flow of information. Supply chain management (and/or Total Material Management) is the management of all activities, information, knowledge and financial resources associated with the flow and transformation of the goods and services up from the material suppliers, component suppliers and other suppliers in such a way that the expectation of the end users of the company are being met or surpassed. (PPT Sep 27 P18). It is the total approach to manage the end-to-end processes from raw material to the satisfaction of the end consumers, thus enhance coordination and control of the various materials/logistics activities, and provides companies with a boundary-spanning channel focus where "all the steps of a product's movement, regardless of corporate, political, or geographical boundaries, from raw material supply through final delivery to ultimate user to satisfy a particular customer group" are planned and supervised. (PPT Oct4 P10).The goal of SCM is to create competitive advantage by meeting or exceeding customer service demands while achieving optimal operational cost and asset performance. (PPT Oct4 P13). (a) The relationship and linkage of purchasing, procurement, supply management, supply chain management and total material management.

Purchasing

Procurement

Supply

Supply mgt

SM VS SCM

(b) The evolution of procurement professionals from purchasing to world class supply management.

The progression to World Class Supply Management (ppt sep27 p32) Clerical-mechanical-proactive-world class Clerical: process paperwork; confirm action of others; data not available; convenience was emphasized Mechanical: transaction focus; not involved in key source selection; purchase price was emphasized; relationships are transactional; computers process paperwork Proactive: coordinate procurement system; long-term contract; involved in development of requirement; procurement adds value; active in source selecting; cost, quality ,timeless was emphasized; relationships are transactional and collaborative; fulfill social responsibilities; e-commerce was adopted

World Class: supply management is a core competence; strategic sourcing; monitor supply environment; time-based competition; total cost relationships are emphasized; relationships are transactional, collaborative and alliance; e-commerce Development of supply management: The changes in marketplace force in action In 1950's, mass production was pursued; In 1960's, it was driven by R&D(research & development) to bring out the new product; In 1970's, it focus on Low-cost manufacturing through JIT&SME; In 1980's, it was driven by total quality and six sigma was introduced; In 1990's, we focused on speed and customer relationships, through CRM&KM(customer relationship management & knowledge management); In 2000's, we focus on Global Supply Chain Management.(PPTSep6 p17) Customer is one of the key drivers for better supply, in the old days, we considered providing good and cheap products to customers in a fast way, but the new direction has changed to increase customer satisfaction while to reduce total cycle time and cost. (PPTSep6 p20) Characteristics of the 21st Century Winning Corporations (ppt sep20 p5) Old Characteristics: goal-directed; price-focus; product quality mind-set; product-driven; shareholder-focus; finance-oriented; efficient and stable; hierarchical; machine-based; functional; rigid and committed; local& regional& national; vertically integrated Emerging Characteristics: vision-directed; value-focused; total quality mind-set; customer-driven; stakeholder-focused; speed-oriented; innovative& entrepreneurial; flat& empower; information-based; cross-functional; flexible& learning; global; networked & interdependent The progression to World Class Supply Management (ppt sep27 p32) (see above)

(a) Discuss the terms: Strategy, supply management, logistics, and green supply Chain. Give examples to support your answer. Strategy: Strategies are the decisions and actions that determine the long-run performance of an activity or a practice. The best strategy is always to be very strong, first generally then at the decisive point...There is no more imperative and no simpler law of strategy than to keep the forces concentrated (ppt Oct11 p25). It is essential for a business strategy to lead long-term direction, enhance flexibility of responses to changes and particularly beyond control (ppt Oct11 p41). For example, transparency in terms of cost and supplying locally, including local content markets are strategies for applying to be a Volvo Supplier. A trusting relationship between supplier and manufacturer can be built more easily due to the cost transparency. And because of avoiding conflict the efficiency can be greatly improved. As to supplying locally, not only the transportation cost can be reduced but also it is benefit to meet the demand of local market . Supply management (see above) Global Supply Chain Management The management of all activities, information, knowledge and financial resources associated with the flow and transformation of goods and services up from the global raw materials suppliers, component suppliers and other global suppliers in such a way that the expectations of the end users of the company are being met or surpassed in the worldwide. Global supply management may mean the methods and processes of purchase in the whole world. In global supply management, the company will purchase from the suppliers all over the world. It contains supplier relationship management process and supplier selection process just like what is in supply management, difference is that they manage and select the suppliers globally Green Supply chain management The scope of GrSCM ranges from reactive monitoring of the general environment management programs to more proactive practices implemented through various Rs (Reduce, Re-use, Rework, Refurbish, Reclaim, Recycle, Remanufacture, Reverse logistics, etc.). Adding the green component to supply-chain management involves addressing the inuence and relationships between supply-chain management and the natural environment. Similar to the concept of supply-chain management, the boundary of GrSCM is dependent on the goal of the investigator. The denition and scope of GrSCM in the literature has ranged from green purchasing to integrated green supply chains owing from supplier to manufacturer to customer, and even. GrSCM is dened as integrating environmental thinking into supply-chain management, including product design, material sourcing and selection, manufacturing processes, delivery of the nal product to the consumers as well as end-of-life management of the product after its useful life.

Logistics Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and often security. Logistics is a channel of the supply chain which adds the value of time and place utility. (http://en.wikipedia.org/wiki/Logistics). Logistics management includes the management of materials planning, the supply of raw materials and other purchased goods, internal transportation, storage and physical distribution. (b) What are the benefits and challenges of managing effective supply management in global organizations? Give examples to support your answer. (CHECK ASSIGNMENT) Challenges of GSCM: Within a global environment, where most products are made almost everywhere, the competitive edge belongs to companies that are properly organized, enjoy low labor rates and manage big quantities. Except for niche market, a big challenge for survival is the capability to reduce cost. The other challenges of GSCM include: diverse political and industrial environment; diverse business practice; culture/language/law difference; people concern; volatile exchange rates; logistics support; qualitative and JIT sourcing requirement. (PPT Oct4 P6,7,8) Challenges of SCM: intensified, global competition; pressure to improve operations; accelerate time-to-market; create value for business partners; consider what must to do to increase productivity and lower their costs while providing greater value and better customer relationship; solutions often involve changes to multiple functions; functionally focused initiatives address narrow concerns and preempt a broader examination of the issue. (PPT Oct4 P39,40) Benefits of managing effective supply chain in an organization include: reduction in purchase administration cost; reduction in inventory level; improved quality and reduced quality cost; reduction in manufacturing costs through partnership; sharing of the capital investment and risks associated with new product introduction; quicker response to changes in end customers demand; reduce cost when phasing out old products. (PPT Oct4 P35) For example, Coca Cola is the world-renowned soft drink and the company is currently operating throughout the world. The Coca-Cola Company trains its executives in worldwide operations, recruits management from many countries, purchases components such as sugar and supplies where it can obtain them at least cost. Therefore because of the lower costs of labor, service and components in Pakistan, China and India and establishing sources of supply closer to the Asia market which is a potential large market the Coca-Cola Company achieved huge profit in these several years. However, when many firms seek a blend of centralized global control from corporate headquarters with input from local and regional marketers we can find that balance will be tricky.

Coca-Cola's "think local, act local" philosophy, which decentralized much of power and responsibility for operating programs and activities, fell apart because many local managers lacked the necessary skills or discipline to do the effective supply management. Decidedly un-Coke-like ads appeared. The pendulum swung back, and Coke executives in Atlanta began to play a stronger strategic role again. Furthermore the qualities of components come from all over the world are difficult to ensure. So in fact the tastes of Coke product in different area are not same completely. In addition, the Coca-Cola Company spend a lot of money, time and person in culture integration. And they have to adopt different supply strategies fitting the local environment such as the local regulation, custom and supply preference to make sure that their global purchasing is more effective. (c) What are the key success factors in managing effective supply management for the long term? Give examples to support your answer.
(CHECK ASSIGNMENT)

1. Supply management professional should have strategic supply management skills including: - Structuring supplier relationship skills, - Technology skills such as learning Enterprise Resource Planning (ERP) system - The ability to implement cost analysis models - Strategic thinking 2. The active integration of the supply management function in major supply decisions. a strategic supply management function is one that meets the needs of the firm and strives for consistency between its capabilities and the competitive advantage being sought by the firm. 3. The supply management function should develop its strategies and practices that could be used as a valuable inimitable input to the firm's planning process. Nowadays strategic supply management practice need to be primarily developed in the following area: - Collaboration relationship and Strategic Alliances - Small Focused Supply Base - Team-based Decisions - Reduced or Just- In- Time Inventories - Collaboration and Schedule Sharing - E-Procurement 4. As companies attempt to shift the direction of their supply management functions from a clerical to a more strategic organization, they must recognize the importance of updating the body of supply management knowledge. 5. Increase the frequency and the intensity of the interactions between supply management function and the top management team. It enables directing all activities of the supply management function

toward opportunities consistent with the top management vision and firm's capabilities in order to achieve its long-term goals 6. Manage your outsourcing partners: The relationship must yield immediate, short term benefits for the partners, but also they should extend into the future, identifying for parties the new and unforeseen opportunities; successful partner arrangement involve collaboration (creating new value together), rather than just exchange (a return for what is input to the arrangement). They value the skills each brings to the relationship; The relationship can't be "controlled" by formal systems but require an elaborate arrangement of interpersonal connections and internal infrastructures that enhance learning. (PPT Oct 18 P64)

Twelve Principles and Standards of S.M. Practice. What are the Principles and Standards of Purchasing Practice. Give examples to support your answer.
1. Operate Supply Management as an integrated system including customers, operations, quality, demand management, supply management, logistics, and suppliers. 2. Implement continuous improvement in all activities internally and externally. 3. Apply strategic sourcing in the selection, maintenance and development of the supply base. 4. Focus on the total cost of ownership, not only purchase price. 5. Train and educate supply personnel in world-class processes, leadership, and change management. 6. Work in a cross-functional mode with internal functions and with key suppliers. 7. Recognize and reward excellence, both internally and externally. 8. Study and understand supply managements business environment. 9. Involve supply management and external suppliers in the earliest stages of new product development. 10. Develop and manage appropriate supply alliances. 11. Identify, verify, track, and control savings. 12. Foster an environment of collaboration.

1. 2. 3. 4. 5. 6. 7. 8. 9.

Ethical perceptions Responsibilities to the Employer Conflict of Interest Gratuities Confidential information Treatment of suppliers Reciprocity Governing laws Small, disadvantaged, and minority owned businesses

10. Personal purchases for employees 11. Responsibilities to the profession 12. Global supply management 1. Ethical perceptions Avoiding the intent and appearance of unethical or compromising practice in relationships, actions, and communications. The results of a perceived impropriety may become, overtime, more disruptive or damaging than an actual transgression. It is essential that any activity or involvement between a supply management professional and active on potential suppliers that in any way diminishes, or even appears to diminishes ,or even appears to diminish, open and fair treatment of suppliers be strictly avoided. We must consider this and act accordingly. 2. Responsibilities to the Employer Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer, using reasonable care and only the authority granted. The supply management professionals foremost responsibility is to achieve the legitimate goals established by the employer. It is his or her duty to ensure that actions taken as an agent for the employer will benefit the best interests

of the employer, to exclusion of personal gain. 3. Conflict of Interest Refrain from any private business or professional activity that would create a conflict between personal interests and the interest of the employer. Supply management professionals have the right to engage in activities that are of a private nature outside their employment. They must not, however, use their positions in any way to induce another person to provide any benefit to themselves, or persons with whom they have family, business, personal, or financial ties. 4. Gratuities Refrain from soliciting or accepting money, loans, credits, or prejudicial discounts, and the acceptance of gifts, entertainment, favors, or services from present or potential suppliers that might influence, or appear to influence, supply management decisions. 5. Confidential information Handle confidential or proprietary information belonging to employers or suppliers with due care and proper consideration of ethical and legal ramifications and governmental regulations. 6. Treatment of suppliers Promote positive supplier relationships through courtesy and impartiality in all phases of the supply management cycle. 7. Reciprocity Refrain from reciprocal agreements that restrain competition. Supply management professionals must be especially careful when dealing with suppliers who are customers. Cross-dealings between suppliers and customers are not antitrust violations per se. and professional supply manager must be able to recognize reciprocity and its ethical and legal implications. 8. Governing laws Know and obey the letter and spirit of laws governing the supply management function, and remain alert to the legal ramifications of supply management decisions. Supply management professionals should pursue and retain an understanding of the essential legal concepts governing our conduct as agents of our companies. 9. Small, disadvantaged, and minority owned businesses Encourage all segments of society to participate by providing access for small, disadvantaged, and minority-owned businesses. 10. Personal purchases for employees Discourage supply managements involvement in employer-sponsored programs of personal purchases that are not business related. 11. Responsibilities to the profession Enhance the proficiency and stature of the supply management profession by acquiring and maintaining current technical knowledge and the highest standards of ethical behavior. 12. Global supply management Conduct international supply management activities in accordance with the laws, customs, and practices of foreign countries, consistent with your countrys laws, your organizations policies, and these Ethical Standards and Guidelines.

(a) Sourcing, in-sourcing, outsourcing and strategic outsourcing Sourcing: Finding, selecting, contracting and managing the best possible source of supply. In business, the term sourcing refers to a number of procurement practices, aimed at finding evaluating and engaging suppliers of goods and services. In-sourcing is the opposite of outsourcing: The delegation of operations or jobs from production within a business to an internal (but 'stand-alone') entity that specializes in that operation. Insourcing is a business decision that is often made to maintain control of critical production. The provision and delivery of services by internal staff. It concludes the shared services. An internal business unit. Typically operates its profit and loss and a charge back mechanism. Outsourcing means the company divests itself of the sources to fulfill a particular activity to another company to focus more effectively on its own competence. The activities that initially were performed in-house are transferred to an external party. That there will be an extended relationship between the parties involved over a longer period of time. Strategic outsourcing is the process of engaging the services of a provider to manage essential tasks that would otherwise be managed by in-house personnel. This is often done to allow a business to arrange the use of its assets to best advantage, and allow the company to move closer to the achievement of its goals.
a) leadership 1. The companys vision determines where supply support is needed. 2. The supply mission links to the company vision and drives product and supply strategies. 3. The strategies drive buy vs. make decisions, tactics, resource requirements and measurements. 4. Appropriate performance measurements provide for timely, informed supply decisions. Implementation Tools Supply Master Plans; Commodity Plans; Supplier Plans; Strategic Outsourcing; Performance Metrics Objective Guide the total outside supply effort Plan the best way to buy different items Plan your supplier base Facilitate outsourcing decisions Establish meaningful supply metrics b) Reliability 1. Key products, core competencies and capabilities determine the supplier selection criteria. 2. Performance measurements and expectations highlight the suppliers needing development. 3. Quality requirements and desired efficiency dictates the supplier certification criteria. Implementation Tools Supplier identification, screening, and selection; Supplier development and certification; Risk Management Objectives Select appropriate suppliers for the need Groom marginal suppliers into keepers

Consider the risk vs. cost trade-offs and select the least one c) Supplier Base Management 1. Suppliers are classified and stratified to facilitate rationalization and efficiency. 2. Costs are measured and controlled. 3. Supply base optimization

(b) Global Sourcing vs local sourcing: local Single language, local culture Supplier information usually accurate and collection easy Political factors relatively unimportant Relative freedom from government interference Individual corporation has little effect on environment Uniform financial climate Single currency Business rules of the game mature and understood Low admission cost Fits Just-in-time easily Avoids risk of trade rule changes Ease of communication (i.e. face to face) Plant visit and technical support easier Local operations (c) Problems with global sourcing - Culture: it plays a major role in the success or failure of a business relationship with a foreign supplier - Communication: not most of the buyers or engineers can speak foreign language fluently. If a translator is required, he/she must be qualified to comprehend any technical terms. - Currency Exchange Rates: exchange rate shifts will affect prices direct. It is difficult to predict same as interest rate. - Customs Regulations: duty requirements, restricted items, special licenses, documentation certified by the original manufacturing country. - Trading Agreement: government or trading associations may have trade agreements signed with individual countries. - Lead Times and Inventories: distance is another major factor when dealing with foreign sources. global Multilingual/ multinational/ multicultural factors Acquiring supplier information sometimes difficult and requiring more expenses and personnel Political factors frequently vital Involvement in national economic plans, government influence business decisions Gravitational distortion by large companies Variety of financial climates ranging from over-conservative to wildly inflationary Multi-currency (fluctuation exchange rate) Rules may be diverse, changeable, and unclear in some countries Higher transaction cost Capable for different & more advanced technology Logistics issue Require counter-trade credits communication issue, due to time and geographic Need to coordinate international buying activities Global operations

Distance significantly impacts inventory pipelines, transportation costs, traveling expenses. Buyers must continually analyses these various trade-off costs and compare them with domestic buying costs to determine the most advantageous course. - Payment Method: L/C, D/A, D/P, Bank draft, TT, pay in advance.. - Quality Assurance: some foreign suppliers tend to be overconfident about their ability to satisfy a customers quality requirements, failing to first perform the necessary analysis to ensure that the buyers specifications do not fall outside the range of the suppliers process capability. Close monitoring on the supplier side by the engineering people from buyers firm is required especially for newly developed products. - Internal Coordination: there will be a problem in foreign sourcing occurred when all contracts and communications are not channeled through a central office. We have to standardize the companys policy, objective and skills when dealing business with foreign suppliers. (PRC, Japan, UK, USA, German, Indonesia .) - Government Practice: government regulations in some countries can make it very difficult to bring materials in and to ship goods out. (d) Managing china sourcing

Your company has adopted global sourcing as a strategic procurement policy. You have been asked to devise a scheme for identifying and evaluating potential overseas suppliers for your company. Outline the structure of the scheme you would use, paying particular attention to the relevant criteria which feature in such an assessment. (30 marks) P33, 245, 354

Supply Base Optimization: It is frequently said that supply base optimization seems to be an effective strategy in sourcing. (a) Define the term "supply base optimization". (10 marks) Supply base optimization is a key process in Strategic Procurement Management. It is the process of identify how many and which suppliers an organization needs. The optimization is usually an exercise in supply base reduction, particularly during the early phases of the optimization process. It often involves eliminating existing suppliers who are not capable of achieving performance targets, either now or in the future. SBO is a continuous process that strives the ideal number of suppliers capable of achieving the world-class performance - improvements in Total Cost, Quality, Delivery and Information Sharing. The process of SBO involves, - Eliminate marginal suppliers and those who have only small purchases - Replacement of good suppliers with better suppliers - Develop evaluation and performance management methods to identify best performance suppliers, and develop good relationship with them (b) Analyze the advantages and disadvantages of an optimized supply base. How might a purchaser overcome the disadvantages? Advantages: 1. Win-Win mentality and integrity. Buyer and suppliers can align their business strategies and work together to improve product quality. In this way, both companies win. 2. Reduce Supply-Base risk. Better relationship lead to the supplier more willing to put the buyer at a higher priority, and the buyer's commitment in the past provides more confidence to suppliers, which in term decreases the risk that the supplier fails to deliver product. Also, since the supplier is world class, there's less risk that the supplier will go bankrupt. 3. Lower supply-base maintenance cost. No need to communicate and maintain relationship with a lot of suppliers, the organization can employ less effort on manage suppliers, or can be more concentrated on supplier management effort. 4. Leading better supply chain performance. The suppliers have better performance themselves, if the organization commits to SBO, sharing of knowledge and information can make the supply chain even more smooth and efficient. On the other hand, the organization will be able to learn from suppliers their best practice in supply chain management, such that the organization can take full advantage of the suppliers' good performance. 5. Trust and respect among the buyer and suppliers. Trust and respect lead to complete honesty in communication. Thus, they can be able to sharing information and knowledge honestly, which then improves their supply chain performance. Moreover, when they have trust and respect, they can be honest with each other when problems arise, and the problems can be solved much faster and easier. (10 marks)

6. High quality (world class) suppliers. Successful implementation of SBO means the organization will be able to have suppliers who are capable of having world class performance, which then means the supplier can supply high quality products and services to the organization, and the organization benefits from such high quality supplies. 7. Lower total cost of production. The organization purchases a bulk amount from the supplier, thus will be able to take advantage of quantity discount. As a result, the per unit cost of the final product or service decreases. The organization can also be able to get the discount through signing a long-term collaboration contract with the supplier. 8. More important and strong negotiation power 9. Encourage communication

Benefits of Having Reduced the Supplier Number

Disadvantage 1. Supplier dependency Failed to have mutual commitment because the buyer might fear the supplier is over dependent on demand from the buyer. So if the supplier replies too much on the buyer, and the buyer's requirement suddenly changes, the supplier might be bankrupted because of losing the greatest client. This results an unhealthy relationship between them and an unbalance in power. To overcome this, the buyer should work closely with the supplier in aligning their businesses. For example, the buyer participates in the supplier's R&D process, giving out recommendations that would make sure the supplier can catch up with the changing requirement of the buyer. 2. Absence of competition Supplier might not be motivated when there's no competition. Without competition, the supplier may be too content in current situation and have no incentive to improve its quality of products and services. Yet, because the buyer is already too relied on the supplier, thus switching to other suppliers might encounter a huge switching cost. As a result, the buyer is stuck with a supplier who's no long of world class, and it would affect buyer's competitiveness in the market. To overcome this, the buyer should use proper contract terms to avoid this situation. The terms in the contract should state the performance evaluation criteria, and also penalty for not achieving the required performance. It is also important that the buyer communicates with the supplier frequently and effectively about their requirements, and have the supplier informed about meeting their requirements. 3. Supply disruption

Organization could be very vulnerable when there's supply disruption. With only 1 supplier, the buyer can be very vulnerable if there's natural disasters or social instability in the supplier's location; the supply will be down for a long time until the situation improves in the supplier's location, then the buyer's entire operation will be affected or even stopped if the disruption is difficult to recover. To overcome this, the buyer can select suppliers with multiple capability (Cross sourcing). Therefore, when one supply is down, the buyer can increase orders from other suppliers possessing the capability of the disrupted supplier, and the effect of supply disruption can be minimized. 4. Overaggressive supply reduction Overaggressive supply reduction causing the company to have shortage in supply. The chosen supply base may turn out not capable of supplying the required quantity of products or services, and the buyer then still need to find new supply source quickly to make up for the required quantity supplied. Then, the buyer might not have carefully selected the new supplier, and causing the supply base not optimized. To overcome this, the buyer should carefully select suppliers at the beginning stage of supply base optimization, and make sure the suppliers are capable of fulfilling the company's demand. On the other hand, if the buyer is unsure of the true capacity of the supplier, it should seek for sourcing from multiple suppliers and make sure these suppliers are capable of supplying larger quantities to cover the organization's future growth. Overcome - Approach: - Buyer must have a clear commitment and involvement to total quality or any other performance capability critical to the buyer, and must practice what it preaches. - Buyer must have quality professionals who are able to assess a suppliers quality control techniques and the potential to implement continuous quality improvement. - Whenever possible, a potential supplier should be in close physical proximity to the buyer to allow frequent visits. - Buyers management team must be willing and able to develop a closer working relationship with the supplier. A fit between the two organizations must exist. - Suppliers must commit to continuous performance improvement regardless of its current quality performance. - Buyer needs to differentiate between the need to support product sourcing via Multiple, Single or Sole Sourcing Strategies. (c) Comment on the criticality of having a smaller supply base before committing to a supplier management and development program. (10 marks) Effective Strategic Procurement Management begins with determining and selecting the right number of suppliers an organization needs and usually rely on a small number of key suppliers. Reduction is not always the end result for every single family of items. Growth of global-capability suppliers, new enabling technology & innovations, and compression in product life cycles have influenced buyers to rely on smaller but more competent group of supplies.

Negotiation (a) Comment on the negotiation and the needs for negotiation? (10 marks) Negotiation is a process of formal communication, where two or more parties come together to seek mutual agreement about an issue or issues. Each party has its own objectives and has a need for something that the other party has, yet recognizes that an interactive process of compromise or concession is often required to satisfy that needs. Negotiation Objectives (needs for negotiation) To persuade the supplier to give maximum cooperation to the buyer's company To develop a sound and continuing relationship with competent suppliers To create a long-term partnership with a highly qualified supplier To create a meaningful win-win case To obtain the quality specified fair and a reasonable price To get the supplier to perform the contract on time To exert some control over the manner in which the contract is performed Negotiation Process Preparation and Planning Objective Setting Opening Phase Testing Concession Making Conclusion Review (b) What do you think are the major differences between negotiations with European suppliers and negotiations with suppliers from Asia and/or China? Quote examples to support your answer.

(20 marks)

Culture Pace of negotiation Directness ways/procedures of negotiation, mechanism attitude Uncertainty avoidance Views on contract Government involvement Long vs. short term orientation Work pressure

Suppler appraisals, of the assessment of the total suppliers performance, e.g. checklist, supplier visits According to Lysons (2002) the following situations that supplier appraisal is deemed necessary: 1. When potential supplier does not hold ISO9000:2000 or any other world standards certifications; 2. Buying of strategic products, especially high profit impact, high risk; 3. Prior to conclude a contract, especially a long term contract; 4. Buying of capital goods e.g. a mainframe computer, an assembly line, a plant; 5. Supplier development e.g. vertical integration; 6. Purchase of nonstandard items or first time buying; 7. Launching of JIT supply with supplier, mapping or supply process and performance indicators; 8. Engaging in global sourcing i.e. supplier is off shore; 9. Launching of e-commerce platform with suppliers; 10. Outsourcing, TQM assessment, and Service level negotiation etc. Examples of a checklist for supplier visits 1. Personnel - attitudes 1) 2) 3) 4) 5) 6) 7) 8) 9) Atmosphere and harmony of workers at shop floor Level of interest / passions in customer services Enthusiastic in problem solving Innovative thoughts / creative ideas Suitable use of manpower (work and staff) Motivation and morale, Supervisory competence Communication skills Qualifications, Experience in industry Ability to train subordinates and to pursue continuous improvement

2. Production equipment adequacy and maintenance 1) 2) 3) 4) 5) 6) Machine: modern or antiquated, high or low cost Maintenance program in place Cleanness of machine & safety measures Care and protection for operators against Instructions (at work place) for machine operation Machine calibration and testing program

3. Means of quality assurance 1) 2) 3) Quality personnel, roles and responsibilities Total quality concepts I.e. Six Sigma process Frequency of inspection, and inspection criteria

4) 5)

Internal audit records and corrective action evidence External audit records and corrective action evidence

4. House keeping 1) 2) 3) 4) 5) 6) 7) 8) 9) Use of 5S or 7 S Materials handling and storage methods Housing keeping disciplines and regulations Housekeeping visibility (evidence) Competence of management and technical staffs Line of command and span of control Ratio of managerial & technical staff vs. work force (labor) Training program and People development program Green concepts applied

The case studies of supply management in ethics and related issues. (Lily's case, THE BETTER-LATE-THAN-NEVER-BID) Ethical: 1.Having to do with ethics, or morality; or conforming to moral standards. 2. Conforming to the standards of conduct of a given profession or group. (PPT Nov 8 P8) Principles and standards of purchasing practice: 1. Ethical Perceptions: Avoid the intent and appearance of unethical or compromising practice in relationships, actions and communications 2. Responsibilities to the employer: Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer, using the reasonable care and only the authority granted. 3. Conflict of interest: Refrain from any private business or professional activities that would create a conflict between personal interest and the interests of employer. 4. Gratuities: Refrain from soliciting or accepting money, loan, credit, or prejudicial discount, and the acceptance of gifts, entertainment, favors, or services from present or potential suppliers that might influence, or appear to influence purchasing decision. What are the "Code of Ethics for Professionals". Give examples to support your answer. (1) Code of Ethics for Professionals Professionalism: Care and diligence Apply the laws Qualification: Have community mind Responsibility: Respect dignity General Duties: Resolve conflict of interest Exercise discretion Duties to the Profession: Observe code of practice (2) Professional Supply Management Ethics The pressures that the marketplace exerts on supply management departments and on individual buyers make it essential that top management and supply management recognize and understand both the professional and ethical standards required in the performance of their duties (3) Ethical Obligations by Purchasing and Supply Professional Employer Guidance should focus on the characteristics of loyalty, analytical objectivity, and a drive to achieve results that are in the very best interest of the employing organization. Suppliers The essence of the guiding spirit in dealing with the supplier community is honesty and fair play. Colleagues All individuals engaged in purchasing work are regarded by outside observers as members of an emerging profession. As such, they have an obligation to protect and enhance the reputation of that body of professionals.