Chapter 10 - WRLD Class Supply Base

SOURCING AND SUPPLY CHAIN MANAGEMENT, 5e
Supplier Management
and Development
Chapter 10
© 2012 Cengage Learning. All rights reserved. May

not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part. SOUTH-WESTERN CENGAGE LEARNING
Chapter Overview
 Supplier performance measurement

 Rationalization and optimization
 Supplier development
 Overcoming barriers to supplier
development
 Managing supply base risk
 Managing sustainability in the supply
base
2
a publically accessible website, in whole or in part. Sourcing and Supply Chain Management, 5e
Supplier Performance Management
 How does buyer know how well any

given supplier is performing?
 Consists of methods and systems to
collect and provide information to
measure, rate, or rank ongoing supplier
performance
 Acts as supplier “report card”

3
Supplier Management Issues
 Corporate and business unit goals,

objectives, and strategies must drive
supply management’s goals,
objectives, and strategies
 Supply management must develop
appropriate supplier evaluation
strategies to support the business unit

4
Supplier Management Issues
 Supplier segmentation must consider

supply base risk levels, category spend
amounts, and switching costs
 Must understand …
 Type of information required
 How information will be deployed
 Methods to obtain information in timely
and efficient manner
 What resources will be utilized to collect
5
Supplier Measurement Decisions
 What to measure
 Quantitative variables
 Delivery
 Quality
 Cost reduction
 Qualitative variables
 Compare to standards and goals
 Measurement and reporting frequency
 Uses of measurement data
6
Qualitative Service Factors
Factor Description
Problem
Supplier’s attentiveness to problem resolution
resolution ability
Technical Supplier’s manufacturing ability compared

ability with other industry suppliers
Ongoing Supplier’s ongoing reporting of existing

progress problems or recognizing and communicating a
reporting potential problem
Supplier’s solutions and timely response to
Corrective
requests for corrective actions, including
action response
engineering change order requests

7
Qualitative Service Factors
Factor Description
Supplier cost Supplier’s willingness to help find ways to
reduction ideas reduce purchase cost
Supplier’s ability to help reduce new product

Supplier new
development cycle time or to help with
product support
product design
Subjective rating concerning how well a
Buyer/supplier
buying firm and a supplier work together,
compatibility
a.k.a. “wavelength”

8
Measurement and Reporting
Frequency
 Reporting frequency to buyer
 Day-to-day performance for
troubleshooting and expediting
 Reporting frequency to supplier
 Routinely summarized monthly or
quarterly
 Annual face-to-face meeting
 Never delay reporting supplier’s poor
performance
9
Uses of Measurement Data
 Identify poor performing suppliers

 Support supply base optimization and
rationalization efforts
 Determine future purchase volume
allocations
 Identify performance improvement
opportunities
 Make sourcing decisions
10
Designing a Measurement System
 What data to analyze
 What metrics to use
 What performance categories to
include
 How to weight different categories
 How often to generate performance
reports
 How to use performance data
11
Types of Measurement Techniques
 Categorical system
 Weighted-point system
 Cost-based system
 Each system differs in terms of …
 Ease of use
 Level of decision subjectivity
 Required system resources
 Implementation cost

12
Categorical System
Advantages Disadvantages Users

• Easy to implement • Least reliable • Smaller firms
• Requires minimal • Less frequent • Firms in the
data generation of process of
• Different personnel evaluations developing an
contribute • Most subjective evaluation system
• Good for firms with • Usually manual
limited resources
• Low-cost system

13
Categorical System
 Assign rating evaluation for each

category of performance
 May be completed by buyer, other
internal users, or combination
 Minimal insight provided
 Often significant variance between
subjective ratings

14
Weighted-Point System

• Flexible system • Tends to focus on • Most firms can use
• Supplier ranking unit price this approach
allowed • Requires some
• Moderate computer support
implementation
costs
• Quantitative and
qualitative factors
combined into
single system

15
Weighted-Point System
 Less subjective
 Weighs and quantifies scores across
different performance categories
 Weights can be adjusted depending on
needs
 Need to carefully select categories
 Need to choose proper weights
 Need to develop a set of decision rules
16
Weighted-Point System Example
Weighted
Performance Category Weight Score
Score
Delivery
On time 0.10 4 0.40
Quantity 0.10 3 0.30
Quality
Inbound shipment quality 0.25 4 1.00
Quality improvement 0.10 4 0.40
Cost Competitiveness
Comparison with other suppliers 0.15 2 0.30
Cost-reduction ideas submitted 0.10 3 0.30
Service Factors
Problem resolution ability 0.05 4 0.20
Technical ability 0.05 5 0.25
Corrective action response 0.05 3 0.15
New product development support 0.05 5 0.25
Scale: 1 = Poor; 3 = Average; 5 = Excellent Total Rating 3.55
© 2012 Cengage Learning. All rights reserved.
reserved. May
May
17
Cost-Based System

• Total cost • Detailed cost • Larger firms
approach accounting system • Firms with large
• Specific areas of required supply base
supplier non- • Most complex
performance • Implementation
identified costs are high
• Objective supplier • Computer
ranking resources required
• Greatest potential
for long-range
improvement

18
Cost-Based System
 Most thorough and least subjective
 Seeks to quantify total cost of doing
business with given supplier
 Challenge
 Identifying and recording appropriate
costs that result when supplier fails to
perform as expected
 Logic is based on calculation of
supplier performance index (SPI)
19
SPI Calculation
Total Purchases + Nonperformance Costs

Total Purchases
• SPI has base value of 1.0
• It is total cost index calculated for each
item or commodity provided by supplier

20
Cost-Based System Example
Commodity: Integrated Circuits
Part Number Supplier Unit Price SPI Total Cost
Advanced Systems $3.12 1.20 $3.74 **
04279884 BC Techtronics $3.01 1.45 $4.36
Micro Circuit $3.10 1.30 $4.03
Advanced Systems $5.75 1.20 $6.90 **

04341998 BC Techtronics $5.40 1.45 $7.83
Micro Circuit $5.55 1.30 $7.22
Service Factor Ratings:

Advanced Systems 78%
BC Techtronics 76%
Micro Circuit 87%
** Lowest total cost supplier for item (Unit price x SPI = Total cost)
21
Supplier Performance Example
Supplier: Advanced Systems
Commodity: Integrated Circuits
Total part numbers in commodity: 2
A. Total purchase dollars this quarter: $5,231.67
NONPERFORMANCE COSTS
NUMBER OF AVERAGE COST PER EXTENDED
EVENT
OCCURRENCES OCCURRENCE COST
Late delivery 5 $150.00 $750.00

Return to supplier 2 $45.00 $90.00
Scrap labor costs 3 $30.00 $90.00
Material rework costs 1 $100.00 $100.00
B. Total nonperformance costs $1,030.00
C. Purchase + nonperformance costs (Line A + Line B) $6,261.67
D. Supplier Performance Index (SPI) (Line C / Line A) 1.20
E. Service factor rating 78%

(Ratio of points earned to the total possible points for qualitative or service factors)
not be scanned, copied or duplicated, or posted to 22
Rationalization and Optimization
 Determining optimal number and
quality of suppliers in supply base
 Rationalization
 Analysis of how many and which suppliers
to maintain
 Optimization
 Analysis to ensure that only most capable
suppliers are kept
 Should be a continuous process
23
 Requires supplier evaluation and
measurement system
 Usually results in net reduction of
suppliers
 However, may result in adding new
suppliers in some spend categories
 Key is to determine the “right” number
of suppliers, not to just arbitrarily
reduce the number
24
Rationalization
and Optimization Activities
 Development of supplier evaluation and
measurement systems
 Elimination of marginal and small
volume suppliers
 Replacement of “good” suppliers with
“better” ones
 Initiation of supplier development
activities to improve performance
 Global search for world-class suppliers
25
Advantages
 Buying from world-class suppliers

 Use of full-service suppliers
 Reduction of supply base risk
 Lower supply base administrative costs
 Lower total product cost
 Ability to pursue complex supply
management strategies

26
Buying from World-Class Suppliers
 Concentrate on closer relationships

with smaller core of better performing
suppliers
 Fewer quality and delivery problems
 Access to leading-edge technologies
 Opportunities to collaborate
 Lower total product cost

27
Use of Full-Service Suppliers
 Remaining suppliers are often larger in

size and offer more capabilities
 Offer range of value-adding services
 Provides greater access to supplier’s
engineering, R&D, design, testing,
production, service, and tooling
capabilities
 Allows outsourcing of integrated items
28
Reduction of Supply Base Risk
 Supply base risk defined

 “Magnitude of exposure to financial loss
or operational disruption and stems from
uncertainty”
 Need for carefully selected and
qualified suppliers
 Can actually reduce overall risk
 Results in reduced variability and more
consistent quality
29
Lower Administrative Costs
 Greater information sharing

 Formalized communication processes
 Fewer problem-related interactions with
suppliers
 Joint problem-solving

30
Lower Total Product Cost
 Lower variability in quality and delivery

 Greater production volumes spread
among fewer suppliers
 Supplier’s fixed costs spread out over
greater volumes
 Provides incentive for supplier process
improvement
 Economies of scale and scope
31
Ability to Pursue Complex Supply
Management Strategies
 Supplier development
 Early supplier design involvement
 Just-in-time sourcing
 Development of cost-based pricing
agreements

32
Possible Risks of Maintaining
Fewer Suppliers
 Supplier dependency
 Absence of competition
 Supply disruption
 Overaggressive supply reduction

33
Supplier Dependency
 Overly dependent on buyer for its

economic survival
 Lack of financial viability if purchase
volumes are reduced
 Unhealthy dependence

34
Absence of Competition
 Supplier may hold buyer “hostage”

 Unduly raising prices
 Becoming too complacent in its
performance
 Higher switching costs
 Requires careful selection and
evaluation
 Need for equitable contracts
35
Supply Disruption
 Loss of continuous flow of materials

 Need for multiple production facilities
from a single supplier
 Select suppliers with multiple or
redundant capabilities (cross-sourcing)
 Primary and secondary suppliers

36
Overaggressive Supplier Reduction
 Can result in inadequate supplier

capacity if demand increases
 May cut otherwise qualified suppliers
out of supply base
 May need to identify and qualify new
replacement suppliers

37
Formal Approaches to
Supply Base Rationalization
 Twenty-eighty rule
 Based on Pareto principle
 “Improve or else” approach
 Need to improve quickly
 Triage approach
 Categorization of existing suppliers
 Competency staircase approach
 Series of performance milestones
38
Supplier Segmentation Categories
Candidates for
Development
High World-Class Performance
Supplier Performance
Minimum Minimum
Threshold Threshold
Low
Commodity A Eliminate Commodity B Commodity C

39
Summary of Supplier
 There are a variety of approaches
 Organization may use more than one
approach
 Buyer does not have to limit its
analysis to current suppliers
 May add new suppliers as necessary
 Benefits are real
 Drawbacks are manageable

40
Supplier Development Defined
 “Any activity undertaken by a buyer to

improve a supplier’s performance or
capabilities to meet the buyer’s short-
and long-term supply needs”

41
Supply Development Activities
 Sharing technology
 Providing performance incentives
 Promoting competition among
suppliers
 Providing necessary capital
 Directly involving buyer personnel
 Training
 Process improvement
42
Steps to Supplier Development
1. Identify critical commodities for

development
2. Identify critical suppliers for
development
3. Form cross-functional development
team
4. Meet with supplier’s top management
team
43
Steps to Supplier Development
5. Identify opportunities and probability

for improvement
6. Define key metrics and cost-sharing
mechanisms
7. Reach agreement on key projects and
joint resource requirements
8. Monitor status of projects and modify
strategies as appropriate
44
Supplier Development Process Map
1. Identify critical 2. Identify critical 3. Form cross-
commodities for suppliers for functional
development development development team
6. Define key 5. Identify

4. Meet with
metrics and cost- opportunities and
supplier’s top
sharing probability for
management team
mechanisms improvement
7. Reach
8. Monitor status
agreement on key
of projects and
projects and joint
modify strategies
resource
as appropriate
requirements
45
Identify Critical Commodities
 Do externally purchased products and
services account for > 50% of product
or service value?
 Is supplier existing or potential source
of competitive advantage?
 Does buyer currently purchase or plan
to purchase based on total cost vs.
initial purchase price?
 Can existing suppliers meet buyer’s
competitive needs 5 years from now?
46
Identify Critical Commodities
 Does buyer need suppliers to be more

responsive to its needs?
 Is buyer willing and able to become
more responsive to suppliers’ needs?
 Does buyer plan to treat suppliers as
partners?
 Does buyer plan to develop and
maintain open and trusting relations?
47
Identify Critical Suppliers
 Use formal supply base assessment

system
 Routinely evaluate suppliers and rank
them from best to worst
 Poor performers are candidates for
elimination
 Middle-of-the-road suppliers are
candidates for development
48
Form Cross-Functional Team
 Develop internal consensus and

support
 Improve internal processes first
 Typical members
 Supply management
 Engineering
 Operations
 Quality
49
Meet Supplier’s Top Management
 Establish relational building blocks

 Strategic alignment
 Measurement
 Professionalism
 Establish positive tone
 Reinforce collaboration
 Foster two-way communication
 Develop mutual trust
50
Identify Opportunities and
Probability for Improvement
 May be driven by final customer’s
requirements and expectations
 Determine probability and scope of
improvement
 Jointly agree upon areas of
improvement

51
Define Key Metrics and
Cost-Sharing Mechanisms
 Evaluate project feasibility
 Determine return on investment (ROI)
 Determine if opportunities are realistic
and achievable
 Establish agreed-upon measures and
improvement goals
 Determine equitable cost and benefit
sharing arrangements
52
Reach Agreement on Key Projects and
Joint Resource Requirements
 Identify necessary resources
 Obtain commitment to deploy
resources
 Develop specific measures and metrics
that demonstrate success
 Develop visible milestones and time
horizons

53
Monitor Status of Projects and Modify
Strategies as Appropriate
 Routine monitoring
 Ongoing two-way exchange of
information
 Creating visible milestones
 Posting progress
 Creating new or revised objectives
 Modify plan as necessary to maintain
momentum or address new findings
54
Overcoming Barriers to
Supplier Development
 Direct-involvement activities (hands’ on)
 Shared personnel in joint projects
 Incentives and awards (the “carrot”)
 Increase future order volumes
 Annual award ceremonies
 Warnings and penalties (the “stick”)
 Pull back current business
 Withhold future business
55
Buyer-Specific Barriers
 Barrier
 Buying company’s purchase volume from
supplier does not justify development
investment
 Solution
 Parts standardization across products
 Single sourcing

56
 Barrier
 No immediate benefit is evident to buyer
 Solution
 Pursue small wins to build momentum

57
 Barrier
 Importance of purchased item does not
justify development efforts
 Solution
 Take a longer-term focus
 Include integrated solutions to be used in
future designs

58
 Barrier
 Lack of executive support in buyer
organization for supplier development
 Solution
 Prove benefits
 Document and publicize

59
Buyer-Supplier Interface Barriers
 Barrier
 Supplier is reluctant to share information
on costs or processes
 Solution
 Create ombudsman to deal with non-
contractual issues

60
 Barrier
 Confidentiality inhibits information sharing
 Solution
 Establish confidentiality agreements
 Non-disclosure agreements
 Exclusivity agreements
 Engage in ethical behavior

61
 Barrier
 Supplier does not trust buyer
 Solution
 Spell it out with properly executed written
agreement

62
 Barrier
 Organizational cultures are poorly aligned
 Solution
 Adapt new approach to local conditions
 Supplier partnership manual
 Training

63
 Barrier
 Not enough inducements to participate are
provided to supplier
 Solution
 Designed-in motivation
 Future business
 Financial incentives
 Payment terms favorable to supplier
64
Supplier-Specific Barriers
 Barrier
 Lack of commitment on part of supplier’s
management
 Solution
 Implement only after commitment
 Joint development of goals and objectives
 Determination of potential costs and benefits
to each party and how they will be shared
65
 Barrier
 Supplier’s management agrees to
improvements but fails to implement
proposals
 Solution
 Supplier champions
 Key supplier employee
 Training in tools and techniques
66
 Barrier
 Supplier lacks engineering resources to
implement solutions
 Solution
 Direct on-site support from buyer
personnel

67
 Barrier
 Supplier lacks required information
systems
 Solution
 Direct electronic data interchange (EDI)
support
 Direct financial assistance as required
 Training on hardware and software
68
 Barrier
 Supplier is not convinced development will
provide benefits
 Solution
 Let suppliers know where they stand
 Supplier evaluation and measurement system
 View supplier performance vis-à-vis
competitors
69
 Barrier
 Supplier lacks employee skill base to
implement solutions
 Solution
 Establish training centers
 Develop supplier skill levels
 Provide human resource support
 Co-location and direct involvement
70
Lessons Learned from Development
 Many barriers are interrelated
 Managerial attitude is common and
difficult barrier to overcome
 Requires strategic orientation toward
SCM and alignment of supply
management objectives with business
unit goals

71
Lessons Learned from Development
 Relationship management is critical to
supplier development success
 Supplier development is neither quick
nor easy
 Requires …
 Vision and commitment from both parties
 Open communication
 Equitable sharing of costs and benefits

72
Managing Supply Base Risk
 General risk issues …
 What are common sources of risk?
 How can they be managed effectively?
 Risk must be evaluated relative to cost
exposure and probability of occurrence
 Risk is inherent in all sourcing
decisions
 Risk and uncertainty are not
synonymous
73
Risk Assessment Questions
 Where is organization vulnerable to

potential risk?
 Why is organization vulnerable?
 How will this risk affect organization if
it happens?

74
Risk Assessment Questions
 How will risk affect organization’s …?

 Customers
 Suppliers
 Stakeholders
 What are the causes of risk?
 What should organization do if, and
when, risk occurs?

75
Impacts of Risk
 Expenditures of time, effort, and money

 Negative public relations
 Loss of customer confidence
 Lost sales

76
Categories of Supply Base Risk
Sourcing
risk
Market Financial
risk risk
Political Supplier
Buyer
risk risk

77
Political Risk
 Country stability  Political elections

 Regional stability  Military actions
 Political party and  Civil disturbances
government stability  Terrorism
 Legal differences  Trade balance
 Intellectual property issues
rights  Duties and tariffs

78
Market Risk
 Number of buyers competing for

supplier’s goods, services, and
capabilities
 Increasingly shorter product life cycles
 Threat of emerging technologies
 Maintaining trade secrets and
intellectual properties

79
Sourcing Risk
 Longer supply pipelines

 Potential for supply disruption
 Level of supplier competition
 Communication and time differences
 Suppliers shared with competitors

80
Financial Risk
 Inventory carrying costs

 Currency exchange rate fluctuations
 “Soft” vs. “hard” currencies
 Terms of sale or INCOTERMS

81
Supplier Risk
 Financial stability and future viability

 Early detection
 Sources of information
 Replacement supplier evaluation and
selection
 Supplier capabilities
 Supplier’s own supply chain
 Mergers and acquisitions
82
Contingency Management Tools
Multiple Third-party
Inventory
sourcing intermediaries
Scenario Currency
Insurance
analysis hedging
Automated
visibility
systems

83
Inventory
 Traditional method of dealing with risk

 Expensive
 Requires maintenance of the “right”
mix of products
 Inventory carrying costs
 Reactive, short-term focus only

84
Multiple Sourcing
 More competitive marketplace

 Alternative sources of supply
 Upside volume potential
 Added product variability
 Limited use of more complex sourcing
strategies
 Need for total cost of ownership
analysis
85
Third-Party Intermediaries
 International freight forwarders

 Non-vessel operating common carriers
 Export management companies
 Export packers
 Goods surveyors
 Export trading companies

86
Scenario Analysis
 Attempt to explore and prepare for

possible future risk scenarios
 Not considered forecasting
 “What if” planning or “rehearsing the
future”
 Creation of focused contingency plans
prior to an actual risk occurrence
 Need to periodically review and update
87
Steps in Scenario Analysis
1. Identification of specific issue or risk

situation
2. Classify risk scenarios as to severity
and disruptive impact on operations
3. Create viable working strategies and
plans to allow quick response
4. Identify and implement risk “triggers”
5. Review for continued applicability
88
Currency Hedging
 Managing transaction exposure

 Protects domestic currency value of a
future foreign currency cash flow
 Protects against major swings in
currency exchange rates
 Futures and forward exchange
contracts
 Currency options
89
Choice of Transaction Currency
 Transaction values in buyer’s currency

 Supplier bears currency exchange risk
 Transaction valued in supplier’s
currency
 Buyer bears currency exchange risk

90
Insurance
 Every international shipment should be

insured
 Matter of “when” loss occurs, not “if”
 Goods in international trade subject to
much higher risk of loss or damage
 Insufficient insurance coverage often
discovered only after loss occurs
 Not every loss can be fully covered
91
Insurance
 Some losses are explicitly excluded

from coverage unless additional rider is
attached and extra premiums paid
 Need to pay close attention to choice of
INCOTERMS which specify …
 Who pays insurance premium?
 Who owns the goods and suffers actual
loss?

92
Supply Chain Risk Management
 How supply chain members

communicate and collaborate
regarding sources of risk, utilizing risk
management tools to mitigate and
minimize risk and uncertainty across
supply chain
 Systems approach to identify, assess,
and develop appropriate risk responses

93
SCRM Capabilities
 Visibility
 Integrating with and deploying analytics
gathered from ERP systems data
 Event recognition and early warning
system
 Ability to react quickly and effectively in
early stages of risk event

94
SCRM Capabilities
 Broad mix of real-time supply chain

analytics
 Simulating models of risk events
 Suggesting risk mitigation strategies
 Evaluating different risk responses
 Critical evaluation of competing
scenario responses

95
Managing Sustainability
in the Supply Base
 ISM Principles of Sustainability and
Social Responsibility with a Guide to
Adoption and Implementation
 Sustainability
 “Ability to meet current needs without
hindering the ability to meet the needs of future
generations in terms of economic,
environmental, and social challenges.”

96
Managing Sustainability
in the Supply Base
 Social responsibility
 “Framework of measurable corporate policies
and procedures and resulting behavior
designed to benefit the workplace and, by
extension, the individual, the organization and
the community in the following areas:
community, diversity and inclusiveness-supply
base, diversity and inclusiveness-workforce,
environment, ethics, financial responsibility,
human rights, health and safety, and
sustainability.”

97
Sustainable and Environmental
Activities and Practices
 Material-related
 Climate and energy
 Procurement-specific
 Transportation and logistics
 Metrics and measures
 Appropriate contractual language
 Product life cycle analysis
 Environmental compliance auditing
98

Chapter 10 - WRLD Class Supply Base

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 10 - WRLD Class Supply Base

Uploaded by

Copyright:

Available Formats

SOURCING AND SUPPLY CHAIN MANAGEMENT, 5e

© 2012 Cengage Learning. All rights reserved. May

 Supplier performance measurement

 How does buyer know how well any

© 2012 Cengage Learning. All rights reserved. May

 Corporate and business unit goals,

© 2012 Cengage Learning. All rights reserved. May

 Supplier segmentation must consider

Technical Supplier’s manufacturing ability compared

Ongoing Supplier’s ongoing reporting of existing

© 2012 Cengage Learning. All rights reserved. May

Supplier’s ability to help reduce new product

© 2012 Cengage Learning. All rights reserved. May

 Identify poor performing suppliers

© 2012 Cengage Learning. All rights reserved. May

Advantages Disadvantages Users

© 2012 Cengage Learning. All rights reserved. May

 Assign rating evaluation for each

© 2012 Cengage Learning. All rights reserved. May

Advantages Disadvantages Users

© 2012 Cengage Learning. All rights reserved. May

Advantages Disadvantages Users

© 2012 Cengage Learning. All rights reserved. May

Total Purchases + Nonperformance Costs

© 2012 Cengage Learning. All rights reserved. May

Advanced Systems $5.75 1.20 $6.90 **

Service Factor Ratings:

A. Total purchase dollars this quarter: $5,231.67

Late delivery 5 $150.00 $750.00

B. Total nonperformance costs $1,030.00

C. Purchase + nonperformance costs (Line A + Line B) $6,261.67

D. Supplier Performance Index (SPI) (Line C / Line A) 1.20

E. Service factor rating 78%

 Buying from world-class suppliers

© 2012 Cengage Learning. All rights reserved. May

 Concentrate on closer relationships

© 2012 Cengage Learning. All rights reserved. May

 Remaining suppliers are often larger in

 Supply base risk defined

 Greater information sharing

© 2012 Cengage Learning. All rights reserved. May

 Lower variability in quality and delivery

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

 Overly dependent on buyer for its

© 2012 Cengage Learning. All rights reserved. May

 Supplier may hold buyer “hostage”

 Loss of continuous flow of materials

© 2012 Cengage Learning. All rights reserved. May

 Can result in inadequate supplier

© 2012 Cengage Learning. All rights reserved. May

Commodity A Eliminate Commodity B Commodity C

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

 “Any activity undertaken by a buyer to

© 2012 Cengage Learning. All rights reserved. May

1. Identify critical commodities for

5. Identify opportunities and probability

6. Define key 5. Identify

 Does buyer need suppliers to be more

 Use formal supply base assessment

 Develop internal consensus and

 Establish relational building blocks