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Three core high level process include : CRM, Product innovation and SCM HP focuses on PI , NIKE focuses on CRM, DELL on SCM Core process retain within the company must be ensuring strategic power in the chain. Example ; IBM even though the strategic point in product development became the peripheral due to Microsoft and Intel
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Focus is on sub-system and components of the product. Car Subsystem: Engine, Chassis, Transmission Engine Sub system: power cylinder, fuel system and engine electronics A sub system is strategic if it involves technologies that change rapidly and impact the product on attributes that are important to the customer Sub system internal helps to offer differentiated products and can avoid being commoditized.
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firm is technologically ahead of potential suppliers or can hope to achieve leadership position with some investments are kept internal to the firm.
Eg. Tatamoters buys diesel engine
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Economies of scale
A vertically integrated firm produces only for
its internal need , while and external supplier firm can aggregate demands of many potential buyers and there by enjoy use economies of scale.
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starts coming down if a firm has a large volume of operation so the multiproduct firm may benefit from vertically integrated operations than buying it from other sources .
Third parties will offer services at lower cost , provided there is enough competition in the supplier market .
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Transaction cost
These are cost involves in using market
mechanism , which can be avoided if those relevant activities are brought in house .
It comprises of :
Search and information cost Bargaining and contracting cost Policing and enforcement cost Cost incurred because of loss of control.
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Agency cost
The cost involve in control and coordination of
understanding how aligned are two or more functions in house. For Example Marketing Department (principle)and IT Department (Agent)
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Relationship-Specific Assets
transaction
human capital
Example Wal-mart has made RFID compulsory
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Tapered Integration
Mixture of market and Vertical Integration Part of requirement in-house and procures the
ADVANTAGES
Better understanding of industry cost
structure
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Collaborative Relationship
Supplier is an extension of the firm Treats the suppliers as strategic Partner Firm does not change its partner every year. Needs to ensure supplier works on innovation Supplier does not become complacent Example : Toyota, KIERSTU System
Disadvantage ?
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Disadvantages of Outsourcing
Poor Coordination between the two parties Slows down the speed of Response: Bharti
could not launch the much awaited EDGE (Enhanced data rate for Global Evolution) in 2004, due to suppliers late response.
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Importance of item in terms of value of purchase Supply risk in the market( no of suppliers in the market & demand-supply gap) Packaging and transport service markets low risk item Diesel engine, fuel system, technology items represent high risk supply category
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LEVERAGE
Competitive Bidding
LO W
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Leverage Product
Represents high percentage of the profit of
the buyer and for which there are many suppliers available.
Many suppliers available so less supply risk Easy to switch the supplier Quality is standardized Purchasing Strategy : Float tenders, targeted
Strategic Item
Product that are crucial for the process or for
production
Scarcity of supply and difficulty in delivery Purchasing strategy: Strategic alliances, close
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Routine Products
These are also known as non-critical items They are easy to buy and have low impact on
Bottleneck Item
Can only be acquired through one supplier or
Have low impact on the financial results Supplier dominated with moderate level of
interdependency
Purchasing strategy: Volume insurance
contract, vendor-managed inventory, keep extra stock and look for potential suppliers
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Supplier Development
Supplier Development is the process in which
the firm helps to improve the suppliers capabilities so as to meet the buying firms supply needs.
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Examples
In order to promote their environmental goal
of sustainability companies like B&Q, the Body Shop, and Nike offer education, technical assistance and training to their suppliers in order that they can respond better to the companies environmental requests
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capable of achieving and what they currently demonstrate through their cost controls, delivery schedules, quality performance, customer responsiveness and services
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the buyer decides the performance categories and assigns rating to each selected performance category like
Qualitative performance factors unlike categorical system n VPM= WiSi i=1 Where (i=number of performance category factor)
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doing business with a supplier i.e, it is based on the total cost of ownership (TCO) of a supplier.
The major decision here is to identify and
record the additional costs associated with the suppliers non-performance. Price +
performance
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Cost of non
complacency
the supplier.
volume to one supplier and 30 percent to a second supplier, economies of scale are obtained from the big supplier while the little supplier provides competition. Using the 706/6/12 30 strategy, when the 70 percent supplier
Maintain competition and provide a back up Meet customers volume requirement Avoid complacency on the part of a single
source supplier
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Green Purchasing
It is the process of keeping the purchase
activity more eco-friendly, by using recyclable material and following the environmental standards associated with use, storage and disposal of hazardous materials anywhere in the supply chain.
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E-procurement
The B2B purchases and sale of supplies and
services through the Internet, as well as other information and networking systems, such as electronic data Interchange (EDI) and Enterprise Resource Planning (ERP) is electronic procurement.
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6-types of Eprocurement
Web Based ERP E-MRO E-Sourcing E-Tendering E-reverse Auctioning E-informing
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