1

Operations Management
• Teacher : Naheed Ghaffar
• Semester : Spring 2023
• Credit Hours : 03
• Week # :
• Topic : Outsourcing –Supplier’s
Relationship

2
Business Model for Management Process and Organizational Function Matrix
Organizational Functions /
Department Primary Activities - SCOR Model Support Activities
Management Process PLAN SOURCE MAKE DELIVER RETURN ACCOUN IT HR LOGISTIC R&D Etc.,
- POIC (Strategic) TS S
STORE W/HOUSE

CEO, GM, Purchase

/
Productio
n Sales/ Purchase
DIRECTO Store Manager Marketin / Sales Finance - IT HR Logistics R&D
Procurem
R runs ent Mngr Manager runs g Return Accounts Manager Manager Manager Manager
Manager's Designations and JDs Operatio Mngr Manager runs IT runs HR  
runs Pur. runs Prodc. W/House Manager runs runs A/C runs runs R&D
ns of St Store Operatio Mangr runs Sales Returnd Op. Op. Logis. Op. Op.
Dept Operatio
ns Operatio ns runs W/H Op. Op.
Op.
ns Op.
10 Crical and Strategic Decsion
Area of Operations which each
department runs but according                          
to its own domain
1. Product -POIC                          
2. Process -POIC                          
3. Quality -POIC                          
4. HR -POIC                          
5. Capacity -POIC                          
6.Facility/ Location / Layout -
POIC                          
7. Inventory -POIC                          
8. Supply Chain -POIC                          
9. Schedulling -POIC                          
10. Maintainance -POIC                          
3 Flows of SCM                          
1. Material -> Inventory     RM WIP FG                
A/P & Holding Direct Holding A/R &
2. Funds -> Accounts                
O/H cost, O/H Lab. O/H cost, O/H O/H
3. Information-> IT - ERP DSS PS VMI MRP I & WMS CRM   Fin. Sys ERP        
II
HR Teams Teams Teams Teams Teams Teams Teams Teams Teams Teams Teams Teams Teams

SUPPLIER COMPETI CUSTOME

EXTERNAL ENTITIES  S   TOR   RS              
Speaker’s Profile

Ms. Naheed Ghaffar

M. Phil in SCM
Diversified work experience of 20 years with
multiple Supply Chains on various organizational
facet.
Contacts :
Cell # 0321 2336151
Email : naeedghaffar123@gmail.com
LinkedIn :
YouTube :
Facebook :
Outsourcing and Supplier’s Relationship or
Purchasing in Supply Chain
Business Model : Business is the collection of departments which perform specialized
activities. Point out the department where Import and Export Management activities would
be performed?
 Note : it’s a Link of System
with (1-10)10 critical and
strategic Decision Areas of
Activities – the work in each Department Operations
Shown in next slide
Operations – set of related activities to get specific result
and The Operations should be systematic

Why Systematic – systematic work for Excellent Results

What is System

Input Process Output

2 - Process = the 1 = Output is Product or End

3-10 method of doing Result/Solution - For Customer
work
Business Resources
(3-Quality, Dis-satisfy Satisfy
4-HR/manpower, 5-
Inventory, 6-Facility n
Location, 7-SC, 8- Reject – look for feed back Accept
Scheduling, 9- for the required Change
Capacity.10- in Process or Input to
Maintenance Improve the System

Note : Each Department’s Product is Service and this Service Product is Produced as Result of all
Operations in Each Department means Purchasing , Storing, Marketing all are Service Products. So
each department’s operation must be systematic as they contribute to produce the Saleable Product of
Firm to External Customer.
Explore the System – There are 3 Elements of a System –
and various business terms and techniques related to each element
Concept of SCM = ISC +ESC (ISC- Internal Supply Chain and ESC- External Supply Chain)
And different associated operational terms
 Business or Trade’s Supply Chain
ERP – Enterprise Resource Planning
A software is used Giver / Supplier Producer
Product
Taker / Customer

For Integration of Firms Internal Exchanged Internal

Supplier among various Customer
Process as departments
Product
Internal Supply Chain External Exchanged External
Supplier among various Customer
organizations

External Supply Chain

Supply Chain Network helps us to see the both ends of Producer’s operations.
Supply Chain Network = Supplier- Producer – Customers
Note :Supplier- Producer – Customers are different department or different firms. Supplier and
customers are related with Producer. The terms Supplier , producer and customers refer their Roles.
These all firms perform their Role
Internal Supply Chain =Internal Supplier – Producer (means Focus Department)- Internal Customers
Internal Supplier and Internal Customers are the employees, management, or company’s
representatives of Focus firm. They are the directly related with of focus department. They work
together to perform and complete various task/activities. The integration of their functional processes is
call Cross Functional Integration.
External Supply Chain =External Supplier –Focus Firm- External Customers
External Supplier are the persons or firms. The focus firm purchases product (goods or services) against
payment from External Supplier.
External Customers are the persons or firms. The focus firm sells its own product (goods or services)
against payment to external customers. They are the directly related with focus firm.
The integration of these related Firm’s functional processes is call Cross Organization Integration.
What Is Outsourcing?
First seen as a formal business strategy in 1989,
outsourcing is the process of hiring third parties
to conduct services that were typically performed
by the company. Often, outsourcing is used so
that a company can focus on its core operations.
It is also used to cut costs on labor, among
others. While privacy has been a recent area of
controversy for outsourcing contractors, it has
also drawn criticism for its impact on the labor
market in domestic economies

What are examples of outsourcing?

Examples of outsourcing include: call centers,
manufacturing, IT, pensions, and finance, among
many more
14
.
What are the benefits of BPO?
5 Advantages of BPO
•Cost Savings. One of the significant, key
advantages of outsourcing business
functions is the cost savings that come
along with it. ...
•Cost Savings. ...
•Saving Time. ...
•Saving Time. ...
•Greater Efficiency. ...
•Greater Efficiency. ...
•Focus on Core Business Functions. ...

15
What is the business process of outsourcing?
Business process outsourcing BPO) is the
practice of contracting a specific work process
or processes to an external service provider.
What are examples of business process
outsourcing?
Who is the largest BPO in the
The services can include payroll, accounting, world?
telemarketing, data recording, social media Accenture
marketing, customer support, and more.
What are five BPO services? The company provides consulting,
Key BPO Services: technology, and business ops
•Accounting and financial services. services and has been catering to
•Sourcing and procurement. a number of Fortune 100 giants.
•Digital marketing. Accenture is one of the largest
•Supply chain management. professional services companies in
the world and employs more than
•Healthcare and insurance.
500,000 people globally.
•Human resource management.

16
Supply Chain Management
Topics to Cover:
• Purchasing
Importance of Purchasing Today
Purchasing Processes
Import Documentation
• Negotiation skills
Types of negotiation
• Make OR Buy (OUT SOURCE) decision
Purchasing

The acquisition of goods and services needed to

support the various activities of an organization,
at the best possible cost and from reliable
suppliers.
Supply Chain Management
Purchasing professional's goal to a company
should be to provide:
The best pricing
Communication
Research in finding sources
Supplier performance Evaluation
Service level agreements (SLA’s)
Supply Chain Management
Importance of purchasing:
•Competition
•Material cost
•Lead time
•Customer Demand
•Quality
An e-G implementation Strategy
PPRA has developed e-GP implementation strategy which is sensitive to all of the
elements that distinguish one jurisdiction from another including PPRA’ management,
PPRA Ordinance, PP-Rule2004, PP- Regulations 2008, PPRA Guidelines, Infrastructure and
web services, SBDs and Private Sector viz a viz Government Sector active participation
 Supply Chain Management

Single Sourcing Multi-sourcing

Advantages Advantages
Potentially better quality
Purchaser can drive price down by competitive
Strong relationships
Greater dependency encourages more commitment tendering.
and effort. Can switch sources in case of supply failure.
Better communication. Wide sources of knowledge and expertise to
Easier to cooperate on new product/service tap.
development.
More scale economies.
Higher confidentiality.

Disadvantages
More vulnerable to disruption if a failure to supply
occurs.
Individual supplier more affected by volume
fluctuations.
Supplier might exert upward pressure on prices if no
alternative supplier is available.
Disadvantages
Difficult to encourage commitment by supplier.
Less easy to develop effective SQA.
More effort needed to communicate.
Suppliers less likely to invest in new processes.
More difficult to obtain scale economies.
 Purchasing Process
•Recognize, describe and define the need
•Transmit the need (requisitions)
•Determine sources, investigate, and select
supplier/analyze bids
•Prepare and issue the PO
•Follow-up the order (including expediting and
de-expediting) 
•Receive and inspect the material
•Clearance of the invoice and payment to supplier
 
 Supply Chain Management

The S upplie rs Purchas ing Function The inte rnal ope ration

purchasing S upplie rs

function
pre pa re quota tions of Re que s ts P re pa re Re que s ts
 s pecifica tions re que s ts for for products
 price quota tions a nd s e rvice s
 de live ry etc.

brings Quota tions

together
S e le ct Dis cus s with the
the prefe rre d
s upplie r
Ope ra tion

the
operation P roduce
goods /s e rvice s
Orde r P re pa re
purcha s e orde r
Lia is e with the
Ope ra tion

and its
suppliers
De live r Goods /S ervice s Re ce ive
goods /s e rvice s

(Slack, 2001, p417) Inform Purcha sing Input to the

Ope ra tion
Function
Supply Chain Management
Import Documents:
•Bill of Lading
•Commercial Invoice
•Packing List
•Weight Memo
•Certificate of Inspection
•Certificate of Origin
•Insurance Policy
Q2-a) Explain, “What is meant by Services with
Examples of service product which are offered by various organizations “?
 
Service: A service level agreement is an agreement between two or more parties, where
one is the customer and the others are service providers. This can be a validly binding
formal or an informal "contract" (for example, internal department relationships).Service
product is when a business offers a service and a product or a good together as its
practice. This is also called service-good mix, and it can refer to many different types of
businesses in all different industries
 
Example: I’ve given examples of service products (hotel stays, for instance) and goods
products (sneakers and bread, for instance). Service products are reflected by a wide
variety of industries: utilities, restaurants, educational institutions, consulting firms,
hotels, medical care providers, and banking, to name but a few.
 

 
 
 
 b) What are service level agreements and what elements it will cover?
 
A service-level agreement is an agreement between two or more parties, where one is the customer and the others
are service providers. This can be a legally binding formal or an informal "contract" (for example, internal department
relationships). This agreement may include separate organizations, or different teams within one organization.
Contracts among the service provider and other third parties are often (incorrectly) called SLAs – because the level of
service has been set by the (principal) customer, there can be no "agreement" between third parties; these
agreements are simply "contracts.
 
A well-defined and typical SLA will contain the following components:[5]
Type of service to be provided: It specifies the type of service and any additional details of type of service to be
provided. In case of IP network connectivity, type of service will describe functions such as operation and
maintenance of networking equipment, connection bandwidth to be provided, etc.
The service's desired performance level, especially its reliability and responsiveness: A reliable service will be the
one that suffers least disruption in a specific amount of time and is available at almost all times.
Monitoring process and service level reporting: This factor describes how the performance levels are supervised and
monitored. This process involves gathering different type of statistics, how frequently these statistics will be collected
and how they will be accessed by the customers.
The steps for reporting issues with the service: This component will specify the contact details to report the problem
to and the order in which details about the issue have to be reported. The contract will also include a time range in
which the problem will be looked into and when the issue will be resolved.
Response and issue resolution time-frame: Response time-frame is the time period by which the service provider will
start the investigation of the issue.
Repercussions for service provider not meeting its commitment: If the provider is not able to meet the requirements
as stated in SLA then service provider will have to face consequences
c) List the approaches to the provision (providing or delivery) of services
 
A service delivery approach addresses how the following activities should be carried
out:
Delivering services in accordance with an established schedule
Preparing and updating the schedule for daily operations
Making and transferring assignments for performing service delivery operations
Communicating appropriate information to operations staff, management, customers,
and end users
Using methods and tools for performing service delivery operations
Assigning and transferring responsibility for resolving requests
Assigning and transferring responsibility for inspecting the status of requests and for
tracking the progress of actions connected to requests
Enabling customers and end users to submit requests
Categorizing requirements
Supply Chain Management

Negotiation
Supply Chain Management

 
Negotiation Definition and Comments:
The process whereby two or more parties decide what each will
give and take in an Exchange between them.” (Lysons &
Farrinton)

“Negotiation is the process by which we search for terms to

obtain what we want from somebody who wants something
from us.”
(Total Success Training)
 
“Negotiation is discussing or bargaining in order to reach
agreement.” (Owen)
Negotiation: Negotiation is a strategic discussion that resolves an issue in a
way that both parties find acceptable point of situation. By negotiation all
parties involved try to avoid arguing but agree to reach some form of
compromise. It is a give and take condition, which means one party will
always come out on top of the negotiation.
 
Negotiating Aimed: usually the purpose of negotiation is to reach an
agreement to participate in an activity that will result in mutual benefits. Each
party tries to come to an agreement that will serve its own interests.
NEGOTIATION:
A negotiation is a strategic discussion that resolves an issue in a way that both
parties find acceptable. In a negotiation, each party tries to persuade the other to
agree with his or her point of view. By negotiating, all involved parties try to avoid
arguing but agree to reach some form of compromise.

Negotiations involve some give and take, which means one party will always
come out on top of the negotiation. The other, though, must concede—even if
that concession is nominal.

Parties involved in negotiations can vary. They can include talks between buyers
and sellers, an employer and prospective employee, or governments of two or
more countries.
Supply Chain Management
Negotiation (What it isn’t):
 

Negotiation is not selling.

Negotiation is not ‘giving in’ or conceding.
(Owen)
Supply Chain Management
Types of negotiation:
Adversarial Negotiation
Collaborative Negotiation
 Supply Chain Management

Adversarial Negotiation (distributive or win-lose

negotiation)
Is an approach in which the focus is on ‘positions’
staked out by the participants and the assumption is
that every time one party wins, the other loses, so, as
a result the other party is regarded as an adversary
(opponent).
(Lysons & Farrington)
 Supply Chain Management

Collaborative Negotiation (integrative or win

-win negotiation)
Is an approach in which the assumption is that, by means
of creative problem solving, one or both parties can gain
without the other having to lose and, as other party is
regarded as a collaborator rather than an adversary, the
participants may be more willing to share concerns, ideas
and expectations than would otherwise be the case.
(Lysons & Farrington)
Tactics in Purchasing Negotiations
There are number of tactics may be used based on nature of negotiations;
however, few salient tactics are listed below:
• Take-it or-leave-it.
• Steer clear of ranges.
• No range but exact price.
• Right to persist on price reduction
• Good guy-bad guy.
• Know when to walk away
• Auction

Stages in Purchasing Negotiations

Following are the stages can be involved in the purchasing negotiations process:
• Preparation and planning.
• Definition and ground rules
• Clarification and justification
• Bargaining and Problem solving
• Closure and Implementation
Supply Chain Management

Make
OR
Buy (OUT SOURCE)
Supply Chain Management

Why would we buy something

(items, components, services)
when we could provide it ourselves?
Supply Chain Management
Reasons to buy:
The unit cost is cheaper,
We don't use it enough,
We don't have space,
We don't understand the technology,
We don't have the skill,
It's not our core business/expertise,
It's expensive to set up the process,
Supply Chain Management
Reasons to provide in-house:
The unit cost is cheaper,
It's critical to the business,
Retain specialist knowledge/skills,
We have control over the supply,
Quality issues are critical,
No suitable supplier,
It's part of our core business/expertise
Supply Chain Management
Ethics in Buying:
•Legal Requirements
•Child Labor
•Company’s Environment
•Green Supply Chain
•Fair Trade
Supply Chain Management

Supplier Selection
Process and Product Knowledge
Willingness to share technologies and information
Consistent Quality
Over all Cost
Reliability
Order System & Cycle Time
Capacity
Communication capability
Location
Service etc
Thank You

46