CHAPTER 6

1. Profit growth and profitability?

Profit growth refers to the increase in profit over time. This can be done by increasing the
sales of products or services such as increasing the volume and raising the price of products
or services

Profitability refers to the ability of a business or organization to generate profit or financial

gain. It is a measure of how efficiently a company uses its resources to generate revenue
and control costs, such as reducing cost of employees, process and waste, goods and
services

2. What are the 5 main objectives of supply management? Please give examples
of specific supply management goals that are associated with the above
objective.

Cost reduction => Reduce material costs by 15% in 1 year

New product/technology development => Develop formal supplier integration process

manual by December 12

Supply assurance => Reduce cycle time on key parts by 1 week within 6 months

Quality => Reduce average defects by 200 ppm on all material receipts within 1 year

Supply base reduction => Reduce total supply base by 30% in the next 6 months

3. Distinguish Corporate Strategy and Business Unit Strategy.

Corporate strategy

○ Focus on the overall scope of an organization and how to enhance

shareholder value.
○ Handle the acquisition and allocation of resources to these business units.
○ Make decisions about starting new businesses, eliminating existing ones, or
acquiring new ones.

Business unit strategy

○ Define the scope or boundaries of each business and its links with corporate
strategy.
○ Determine how the business unit will achieve and maintain a competitive
advantage within an industry.
○ Involve decisions about product development, marketing strategies,
partnerships, customer service, and more.

4. Difference between Category Management and Sourcing Strategy.

Category management
 ● Ongoing process for managing a specific category of goods or services.
● Focuses on value elements beyond price savings.
● Involves stakeholder engagement, market analysis, supplier evaluation, and
continuous improvement.
● Aim to optimize total cost of ownership and achieve best value.

Sourcing strategy

● One-time event for selecting suppliers to meet immediate sourcing needs.

● Primarily focused on leveraging purchasing power to drive down costs.
● Involves spending analysis, supplier identification, negotiation, and contract award.
● Emphasizes cost reduction and short-term savings.

5. Present all steps and their goals, input, and output in the Strategic Sourcing
Process.

Step 1: Build the team

Goal: Develop a scope of work and plan

Input: The project leader + Other team members

Output: Baseline data, project charter, work plan

Step 2: Market research

Goal: Understand the supply market

Input: Interviews, online research, conferences

Output: Report on supply trends, changes, pricing, capacity...

Step 3: Strategy Development

Goal: Classify supplier and define sourcing approach

Input: Market research, portfolio matrix, forecasted spend

Output: Supplier evaluation tool with the desired relationship

Step 4: Contract negotiation

Goal: Negotiate a win-win contract

Input: Negotiation plan, supplier evaluation tool

Output: Signed contract

Step 5: SRM

Goal: Continuously improve performance

Input: Contract supplier scorecard

Output: Supplier development plan, communication

6. What are the 5 elements of Porter's Five Forces? Explain (Step 2)

● Power of customer: This refers to the bargaining power of the buyers of the
products or services of the industry. The more concentrated and informed the buyers
are, the higher their power to demand lower prices or higher quality from the sellers.
● Power of supplier: This refers to the bargaining power of the suppliers of raw
materials, components, labor, and services to the industry. The more concentrated
and differentiated the suppliers are, the higher their power to charge higher prices or
reduce the quality of their products or services.
● Competitors: This refers to the number and intensity of competitors in the market,
which affect a company's profitability and market share. The more competitors and
the more similar their products or services are, the lower the company's power.
● New entries: This refers to the threat of new competitors entering the market, which
can reduce the market share and profitability of existing players.
● Substitutions: This refers to the availability of alternative products or services that
can satisfy the same needs as the industry’s products or services. The more
attractive and cheaper the substitutes are, the higher the threat to the industry’s
profitability and growth.

7. What are the key activities of a Category Strategy?

● Understand business unit requirements

● Research supply market characteristics
● Evaluate specific suppliers and establish capabilities
● Develop a strategy aligning supply capabilities and demand requirements
● Determine optimal relationship characteristics and price/cost issues
● Develop business case
● Develop negotiation and contract strategy
● Execute the negotiation and develop the contract
● Establish the basis for ongoing management and continuous improvement

8. Supplier Segmentation

● Development: The attractiveness of the buyer as a customer is significant and

important to the supplier, but perhaps the historical volume of business with the
buyer has been relatively low. The goal is to develop these suppliers into strategic
partners in the future.
● Core: are crucial to the day-to-day operations of your organization. They provide
goods or services that are essential for your business to function effectively, and the
spending with these suppliers is typically significant. These suppliers are often long-
term partners with long-term relationships and a proven track record of providing
reliable and high-quality products or services.
● Nuisance: These suppliers are characterized by their low strategic importance and
limited potential for value creation. They often supply non-critical goods or services
and can be easily replaced.
 ● Exploit: These suppliers represent a significant portion of your organization's spend,
but they may not offer unique or differentiated products or services. The goal is to
exploit these suppliers for maximum short-term gain, often through price
negotiations.

9. Explain 4 categories of goods/services that a company requires according to

Portfolio Analysis. Give an example for each category. (Step 3)

Routine

● These are goods or services that are readily available for purchase from multiple
suppliers, with low risk and low impact on the business. They typically represent a
low financial value to the company and require minimal procurement effort.
● Examples: • For example cleaning tools such as brooms, brushes,..., /cleaning
services.

Leverage

● These are goods or services that are readily available from many suppliers but have
a high purchase risk due to their high financial value to the company. They require
careful management of supplier relationships and procurement strategies to ensure
the best value.
● Examples: Raw materials, energy, and marketing services.

Bottleneck

● These are goods or services that are only available from a limited number of
suppliers, creating a bottleneck in the supply chain. They have a high impact on the
business due to their criticality to operations, but a low financial value.
● Examples: Specialized equipment, unique components, proprietary software.

Critical

● These are goods or services that are only available from a limited number of
suppliers and have a high financial value and impact on the business. They represent
the highest level of risk and require strategic management of supplier relationships
and procurement strategies.
● Examples: Research and development services, key manufacturing equipment, legal
services

10. SWOT?

A sample SWOT analysis is a SWOT analysis (Strengths, Weaknesses, Opportunities,

Threats). SWOT analysis is a strategic analysis tool that helps identify internal and external
factors that affect goals. goals and successes of a particular competitor
 ● Strengths: Positive factors, assets, or unique virtues of an organization, project, or
individual. We can demonstrate our strength and competitive interests.
● Weaknesses (Weaknesses): Negative factors, limitations, or exemptions that exist in
the organization, project, or individual. We may reduce performance and efficiency.
● Opportunities: Positive factors in the peripheral environment that can be leveraged to
achieve goals and create benefits.
● Threats (Threats): Negative factors in the external environment that can pose danger
or risk to the organization, project, or individual.

CHAPTER 7

1. Sourcing strategy alternatives? Pros and cons?

❖ Local/National - International

➢ Local/National
■ Pros: Faster delivery times, lower transportation costs, easier
communication, and support for the local economy1.
■ Cons: Limited choices, potentially higher costs, and potential
skill gaps.
➢ International
■ Pros: Access to diverse suppliers, cost-effectiveness, and
multiple supplier choices.
■ Cons: Longer lead times and higher logistic costs.
❖ Small - Large supplier

➢ Small
■ Pros: More flexibility, quicker response to ad hoc or specialized
requests5, and stronger relationships
■ Cons: Limited resources and potential instability
➢ Large
■ Pros: More stability, well-established reputation, and
partnerships that sustain their financial future
■ Cons: Less personal attention and potentially slower response
times
❖ Manufacturer - Distributor

➢ Manufacturer
■ Pros: Control over product quality, potential for customization,
and direct communication
■ Cons: Higher costs, potential minimum order quantities, and
logistical complexities
➢ Distributor
■ Pros: Lower costs, smaller minimum order quantities, and
logistical support
■ Cons: Less control over product quality, potential for stockouts,
and indirect communication
❖ Multiple - Single - Sole

➢ Multiple
■ Pros: Increased competition among suppliers leads to better
pricing and terms, and risk diversification
■ Cons: Increased management complexity, potential for
inconsistent product quality
 ➢ Single
■ Pros: Easier to negotiate a better deal, continuous levels of
quality and price stability, reduced order lead times, and easier
to integrate systems with one supplier
■ Cons: High-risk method as dependency on one supplier
increases your vulnerability of supply
➢ Sole
■ Pros: Stronger relationship with the supplier, leading to better
communication and collaboration
■ Cons: High dependency on a single supplier, potentially higher
costs, and limited alternatives
❖ Single vs. Sole

➢ Single: The org chooses a particular supplier, even when other

suppliers are available. The org has the power to choose the supplier
and has more options to compare prices between multiple suppliers.
➢ Sole: When there is only one supplier available for the required
products or services that the organization needs. The org has no
choice but to select a supplier as only a few or more suppliers provide
products or services.

2. steps of supplier evaluation and selection

○ Recognize the need for supplier selection
○ Identify key sourcing requirements
○ Identify the potential supply sources
○ Determine the sourcing strategy
○ Limited suppliers in the selection pool
○ Determine the method of supplier evaluation and selection
○ Select a supplier and reach an agreement

3. Identify the need for suppliers

● New buy
○ Occurs when an organization is purchasing a product or service for
the first time.
○ Involves a more extensive decision-making process as the
organization needs to evaluate different suppliers, gather information,
and assess various options.
● Straight rebuy
○ Occurs when an organization reorders a product or service from an
existing supplier without any significant changes.
○ Involves a straightforward and routine purchasing process.
● Modify rebuy
○ The purchase of a product or service that has been purchased in the
past but requires some modifications or changes such as quantity,
design, upgrade or higher quality

4. Information search requirements

 ● Minor: This level involves finding readily available information or data that requires
little effort or resources. This could be for products or services not critical to the
organization’s operations. The information required might be basic details about the
supplier and the product/service.
● Minor to moderate: This level requires a moderate amount of effort because these
products or services have a moderate impact on the organization’s operations. The
information required might include detailed specifications of the product/service,
delivery timelines, and cost
● Major: This level can be time-consuming, and extensive research and evaluation of
the supplier's capabilities. This is for products or services critical to the organization’s
operations as well as in creating core competencies or competitive advantages. The
information required would be extensive and might include the supplier’s production
capacity, performance, risk, quality, and environmental impact.

5. Pool of criteria? (List)

○ Primary criteria: Cost/price, Quality, Delivery

○ Management capability
○ Employee capabilities
○ Cost structure
○ Total quality performance, systems, and philosophy
○ Process and technological capability
○ Sustainability and environmental compliance
○ Financial stability
○ E-commerce capability
○ Scheduling and control systems
○ Supplier’s sourcing strategies, policies, and techniques
○ Long-term relationship potential

6. Review of supplier evaluation criteria (step 6)

Build a scoring scale based on the criteria that businesses care about. The total score for
the criteria is 100 points. Each category will be divided into many sub-cates for scoring. Then
add up the scores of all categories and choose the supplier with the highest score.

Categories

Quality (40) Sub-cate 1 (20) Sub-cate 2 (20)

Cost (20)

Delivery (20)

Finance (10)

Management (10)

Total: 100