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Open the file (Homework 2) for instructions and read (Chapter 03 E) you might need it to answer it 

HW 2

What is the effect of Reducing Acquisition Costs on Profit? (2p)

What is the effect of Increasing Sales (volumes) on Profit? (2p)

Which of the above actions (reducing costs or increasing sales) has a stronger/ bigger effect on Profit? Explain why. (2p)

What is the effect of Reducing Acquisition Costs on ROA? (2p)

What is the effect of Increasing Sales on ROA? (2p)

Which of the above actions (reducing costs or increasing sales) has a stronger/ bigger effect on return? Explain why. (2p)

One paragraph per question is usually sufficient. The use of bullet points could keep you on track. (paper organization and presentation count for 2p). I would recommend to include the actual questions in your homework (to help you stay focused on the topic, and to ensure that you address all the questions).

Homework Tips

Try to avoid to …

take a hard approach and try to develop a numerical example (often students forget that the denominator for ROA will change in both scenarios)

create a complicated scenario when cost reduction can result in higher sales or lower quality, etc.

use general true statements about good quality, low price, right quantity

You should stay on point and consider that quality, delivery, efficiency, etc. do not change from one scenario to another

Chapter 3

Supply Organization

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Key Questions Addressed in Chapter 3

What are the objectives/ goals of supply?

What are the activities and responsibilities of supply management?

How might supply be organized to achieve these objectives effectively and efficiently?

What are the relations between SC and other functions of the organization?

©2020 McGraw-Hill Education.

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Nine Goals of Supply

Improve the organization’s competitive position

Provide an uninterrupted flow of materials, supplies and services required to operate the organization

Purchase required items and services at lowest TCO

Keep inventory investment and loss at a minimum

Maintain and improve quality

Standardize, where possible, the items and services bought and the processes used to procure them

Find or develop best-in-class suppliers

Achieve harmonious, productive relationships

Accomplish supply objectives at the lowest possible operating costs

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SC Goals & Responsibilities

Traditional View of Supply (purchasing) Objectives

Obtain the right materials/services

Meeting quality requirements

In the right quantity

At the right price in the short and long-term.

Delivery at the right time and place 5R’s

From the right source (a supplier who is reliable and will meet its commitments in a timely fashion)

With the right service (both before and after the sale)

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SC Goals & Responsibilities

Two Main Groups of Responsibilities*

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SC Goals & Responsibilities

Understand the differences between the two responsibilities. (for sure one question on the exam)

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Operational /Tactical

Strategic

Transactional activities

Managing contracts, blanket orders, supplier relations

Insure the flow of materials and services

Failure will result in Disruptions

and Higher Costs

Developing and Integrating Supply Strategy

Supply chain risk management

Day-to-day operations

Long term perspective

Ensures Competitive Advantage, Maximize Opportunities

Collaborative and Alliance relations

Examples of Supply Chain Activities

Forecasting and planning

Outsourcing and subcontracting

Purchasing/buying

Nonproduction/nontraditional purchases

Purchasing research

Transportation

Inventory control

Investment recovery/disposal

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SC Goals & Responsibilities

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Procurement Involvement Level!

Could be “Æ” – no involvement in a specific process

Documentation only (clerical – keep records, track documents)

Professional – full engagement; provide assistance and expertise

Consultant for developing corporate strategies (mergers; acquisitions; planning; new product development and other corporate activities)

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SC Goals & Responsibilities

Organizational Structures for SC

Small organizations

Few resources

Low (purchasing) specialization

Possible (multiple) secondary responsibilities

Low leverage

Few supply options

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SC Organization

Typical Supply Organization Structure—Medium Sized Company, Single Location

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SC Organization

P/SC – CPO/ CSO

?

CEO

CFO

Marketing

Operations

RD

Structure Options for Large Organizations

Centralized: Authority and responsibility for most supply-related functions assigned to a central organization

Decentralized: Authority and responsibility for supply-related functions dispersed throughout the organization

Hybrid: Authority and responsibility shared between a central supply organization and business units, divisions, or operating plants

May lean toward centralized or decentralized depending on division of decision-making authority

Example: “center-led” organization in which strategic direction is centralized and execution is decentralized

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SC Organization

Potential Advantages and Disadvantages of Centralization

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Advantages!

Strategic focus

Greater buying specialization

Ability to pay for talent

Consolidation of requirements – clout

Coordination of policies and procedures

Effective planning and research

Common suppliers

Proximity to major organizational decision makers

Critical mass

Firm brand recognition and stature

Reporting line – power

Cost of supply relatively low

Disadvantages

Lack of business unit focus

Corporate staff appears excessive

Tendency to minimize legitimate differences in requirements

Lack of recognition of unique business unit needs

Focus on corporate requirements, not on business unit strategic requirements

Even common suppliers behave differently in geographic and market segments

Distance from users

Tendency to create organizational silos

Customer segments require adaptability to unique situations

SC Organization

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Potential Advantages and Disadvantages of Decentralization

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Advantages!

Easier coordination/communication with operating department

Speed of response

Effective use of local sources

Business unit autonomy

Reporting line simplicity

Undivided authority and responsibility

Suits purchasing personnel preference

Broad job definition

Geographical, cultural, political, environmental, social, language, currency appropriateness

Hides cost of supply

Disadvantages

Difficult to communicate among business units

Encourages users not to plan ahead

Operational versus strategic focus

Too much focus on local sources – ignores better supply opportunities

No critical mass in organization for visibility/ effectiveness – “whole person syndrome”

Lacks clout – buying power

Suboptimization

Business unit preferences not congruent with corporate preferences

Small differences magnified

Limits functional advancement opportunities

Limited expertise for requirements

Lack of standardization

SC Organization

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Advantages and Disadvantages of Hybrid, Centralized, and Decentralized Structures

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Hybrid structure

Centralized

Decentralized

Disadvantages

Disadvantages

Advantages

Advantages

SC Organization

At Local Level

Departments or Divisions could operate as profit center

Control for specific divisional needs

At Corporate Level

Establishment of Policies, Procedures, Control, Audit

Recruiting, training

Coordination of purchasing of common items

Establish corporate supply strategy

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Specialization within SC

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SC Organization

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Sourcing

Identify Suppliers

Analyze Suppliers

Materials Mgt.

After Contract

Research

Item Alternatives

Select Suppliers

Prices

Contracts

Orders

Ensures Deliveries

Forecast; Demand

Administration

Performance and Benchmark

Procedure

Budgeting

Reporting

Supplier Relationship

Prices

Transportation

Supply Teams

Cross-functional teams

sourcing, new product development/service development, commodity management

Teams with suppliers or with customers

Supplier councils – key suppliers

Purchasing councils – purchasing personnel from different divisions

Consortia – especially non-profit; concerns – including legal issues

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SC Organization

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Key Success Factors for Teams

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Right Participation

All functional areas involved

The right talent – people with needed skills

Common Purpose

Customer Focus vs. Individual Success Motivation

Measurable Goals, Dedication and Good Communication

Organizational support, Culture

Proper Communication and Resources

SC Organization

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SC and Other Departments^

Complex Relationships

Congruent and/or potential Divergent Positions

Relations determined by Org. Structure

Relations have a Dynamic component

Important to use Teams and to be Process Oriented

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SC and Other Departments

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SC & Marketing

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SC and Other Departments

Marketing:

Customer’s Needs

Forecast volumes

Consumes Advertising

Price information

Generate Sales

Costs

Production Schedule

Identify the needs

Supply Chain:

Awareness of Sales Practices

SC & Engineering

New Product Development: Early Supply(ier) Involvement (ESI)

Concurrent Engineering

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SC and Other Departments

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Engineering:

Technical Specifications

Quality

Safety

Performance

Regulation

Supply Chain:

Cost

Functionality

Availability concerns

Integrating Perspective

Value

SC & Manufacturing/Operations

Material Resource Planning

Enterprise Resource Planning

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SC and Other Departments

Manufacturing/ Operations:

Delivery Time

Quality

Capacity Utilization

Performance

Supply Chain:

Purchase Timing

Tactical Concern

Inventory levels

Quality

SC & Finance/ Accounting

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SC and Other Departments

Finance

Accounting:

Costs – Low Prices

Funds Availability

Treasurer

Accounts Payable

Investment Timing

Supply Chain:

Overall Cost (TCO)

Supplier Relationship

Impact on financial indicators

Operations Concern

Supply Chain and:

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SC and Other Departments

Enforceable contracts

Law:

Litigation

Legal expertise

B2B, e-Commerce

Electronic Purchasing

Electronic Data Interchange

Strategic and Tactical Support

Information Technology:

Tactical Role

Logistics:

Close collaboration required

Part of SC

Recap

SC Goals & Responsibilities

9 Goals and 5 R’s

Tactical and Strategic Responsibilities of SC

Level of involvement

SC Organization

Small vs Medium & Large Organizations

Centralized vs. Decentralized

Teams

SC and other Departments

Chapter Questions: 2; 3; 4; 7; 8

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Director of

Procurement

Commodity

Manager

Buyer

Buyer

Commodity

Manager

Buyer

Buyer

Purchasing and

Materials Analyst

Manager

Administration

and Processes

Manager

Scheduling and

Planning

Inventory Control

Coordinator

Shipping/

Receiving

Manager

Transportation/

Customs Manager

Logistics Manager