F23 Week 05 OPER8340 Lecture

OPER8340
Week 5:
Global Outsourcing;
Developing Supplier
Relationships
Pages: 51 to 101
1
International Procurement: Module 1
Purchasing and Outsourcing in the Global
7.2 Version Marketplace
Week 4
1 The Strategic Procurement Process
Describes the strategic procurement process and how it can serve organizations as they make decisions related to
procurement
Week 4
2 Global Sourcing of Goods
Describes the motivators, considerations and risks that inform the strategic procurement process for global sourcing of
goods
Week 5
3 Global Outsourcing of Manufacturing
Examines critical aspects of the global outsourcing of manufacturing, including the decision making process, the factors to
consider and the inherent risks, in relation to the seven-step strategic procurement process
Week 5
4 Global Outsourcing of Services
Examines critical aspects of the global outsourcing of services, including the motivators, considerations and risks in relation
to the seven-step strategic procurement process
Week 5
5 Developing the Supplier Relationship
Describes the supplier-buyer relationship addressing foundational relationship characteristics, different models and
strategies for developing and maintaining these relationships
2
© 2017 FITT All Rights Reserved
Lecture Related Videos
Videos
BLOCKCHAIN – Walmart Requirement – First in the industry
http://www.supplychain247.com/article/walmart_requires_blockchain_technology_to_be_deployed/one_network_e
nterprises?ajs_uid=9574G2126945G8T&oly_enc_id=9574G2126945G8T&ajs_trait_oebid=8232A5796912A4H
Overhauling Supply Chain

https://www.wsj.com/video/series/news-explainers/how-companies-are-overhauling-supply-chains-to-ease-bottlenecks/A0C8DD54-B7
22-4CFF-A439-869514E66C3F?mod=djemlogistics_h
3
International Procurement: Purchasing and
Outsourcing in the Global Marketplace
UNIT 3
Global Outsourcing of Manufacturing
• Motivators for Global Outsourcing of Manufacturing

• Global Outsourcing of Manufacturing: Considerations and Risks
• The Decision for Globally Outsourcing Manufacturing
4
Why Is This Important?
• Director-General Pascal Lamy, in a speech at the
WTO-MOFCOM-OECD-UNCTAD Seminar on Global
Value Chains in Beijing on 19 September 2012, said
that “the high level of import intensity in export
production has created an unprecedented level of
inter-dependency among countries engaged in
supply chains. It is no longer just about exports.
Imports are essential to export. It is no longer just
about ‘them’. It is about ‘us’. ”
19 SEPTEMBER 2012Pascal Lamy speaking
This is what he said: at the conference on Global Value Chains in

the 21st Century: Policy Implications on
Trade, Investment, Statistics and Developing
“Value chains binding us together” Economies in Beijing, China.
5
https://www.wto.org/english/news_e/sppl_e/sppl245_e.htm
Made
in the
World
FIGURE 3.1 6
Motivators for Global Outsourcing of Manufacturing
Typical manufacturing models in current markets
DECISION MOTIVATORS to
are generally combinations or variations of the globally outsource
following strategies: manufacturing
• Manufacture the product domestically with raw materials or • Access to high value
components: production and cutting- edge
technology
• sourced domestically
• Cost reduction and product /
• sourced internationally and domestically service improvements
• Manufacture the product in another country: • Concentration on core
• by setting up production where the inputs of manufacturing are business
cheaper • Investment reduction
• to manufacture the product, with raw materials and inputs • Restructuring of supply chain
provided by the organization
• to manufacture the product to certain specifications
7
For example: “Boeing Structure Suppliers”
Parts built by the IAM union of Boeing workers

(are virtually nonexistent in the 787 Dreamliner)
Most of the parts used to manufacture Boeing’s

787 are outsourced to foreign manufacturers…
https://www.huffingtonpost.com/2011/01/20/a-wing-and-a-prayer-outso_n_811498.html 8
Boeing 787 Dreamliner
• The 787 was the first airliner with an airframe constructed primarily of
composite materials (Wikipedia)
• But its early planes had quality problems with brakes, fuel leaks, cracked
windshields, an electrical fire, and one emergency landing in Japan
• Soon after, the entire worldwide fleet of 787’s was grounded due to
concerns over the 787’s use of lithium batteries, which showed a
propensity to overheat, causing fires that generated oxygen and were
difficult to put out
Source: eText pg 182
9
Global Outsourcing of Manufacturing: Considerations and Risks
Evaluate:
• Product life cycle
• Total cost of production in-house and costs of outsourcing
• Contract manufacturer availability and reliability
• Production capacity
• Ethics and culture
• Regulatory environment and compliance
• Intellectual property exposure risk…
Before deciding which products to outsource
10
There are 4 Product Life Cycle Periods to Consider:
Product Life Cycle
• Introduction 3. Costs are

lowered, sales
at peak, prices
• Growth drop, more
competitors 4. Costs are
• Maturity 2. Costs are enter the market, counter-optimal,
reduced due to brand sales, prices and
higher profits, new Differentiation is profits decline;
• Decline 1. Costs are high, players enter emphasized to profit comers from
sales are slow, market, more maintain or Distribution
little or no profit competition leads increase market efficiency rather
at this stage to price decreases share than increased sales
FIGURE 3.2
11
Global Outsourcing of Manufacturing: Considerations and Risks, Continued
Production Capacity Cost (in-house)

• Contractor may sub-contract without the buyer’s • Direct materials
knowledge or not? • Direct labour
Contract Manufacturing Reliability • Depreciation of special equipment
• Buyer must be confident the contractor is capable • Variable overhead
will produce desired quantity and quality • Allocated fixed overhead
Culture and Ethics • Supervisory salary and benefits
• Buyer must carefully evaluate the contractors’ Compare your in-house production costs above
ethics; may have to implement a CSR policy to the TAC (Total Acquisition Costs) of
(Corporate Social Responsibility) for contractors to outsourcing production of goods (or services)
adhere to offshore – COST RATIO
12
Bangladesh Garment Factory Disasters
TABLE 3.1
Source: Prakesh, S Sethi, ‘The World of Wal-Mart’
13
Regulatory Environment & Compliance
• Researching laws, regulations and unwritten business practices
• Researching business reputation and legal record
• Researching domestic laws and regulations
Global • Researching export requirements
Outsourcing of • Detailing code of conduct
Manufacturing: Intellectual Property Protection

• Required agreement to IP contract provisions
• Ordering semi-finished goods in foreign market, with final
Considerations production of critical components in domestic market
and Risks • Registering IP in other countries prior to negotiations
• Monitoring contract manufacturer’s markets
• Auditing contract manufacturer’s production and supply records
• Develop strategic alliances and partnerships
• Offshoring manufacturing by acquiring an existing facility or
building a manufacturing facility in foreign country
14
• Globally outsource the manufacturing or
The Decision invest in in-house manufacturing or
for Globally domestic outsourcing?
Outsourcing
Manufacturing • There are many models and processes that
require careful consideration of the costs
and associated risks…
15
The Make or
Buy Decision
FIGURE 3.3
Source: Adapted from Cleverism, ‘Step-by-Step Guide to Make or Buy Decision’
16
UNIT 4
Global Outsourcing of Services
• Types of Outsourcing Services

• Motivators for Global Outsourcing of Services
• Service Delivery Models
• Global Outsourcing of Services: Considerations and Risks
• The Decision for Globally Outsourcing Services
17
3 Groups of Outsourcing Services
Information and Communications Technology (ICT)
Business Process Outsourcing (BPO)
Knowledge Process Outsourcing (KPO)
18
Information and Communications Technology (ICT)
• ICT allow organizations to move data across borders quickly, seamlessly, efficiently and cost-effectively.
• ICT includes products that store, process, transmit, convert, duplicate, or receive electronic information.
Examples are:
• Information technologies (e.g. applications hosting, voice and data telecommunications, logistics), electronics
(e.g. semiconductor chips, high-value microprocessors), and electronic commerce (e.g. PayPal, PayCart, Shopify).
• Software applications and Operating systems
• Web-based information and applications such as distance learning
• Telephones and other telecommunications products; such as Zoom, Teams, video equipment
• Multimedia products that may be distributed on videotapes, CDs, DVDs, email, or the World Wide Web;
• Office products such computer hardware.
• Electronic textbooks, instructional software, distance learning programs
• Email, chat, social media (Twitter, Facebook etc)
https://idahoat.org/services/resources/ICT 19
Business Process Outsourcing (BPO)
• “BPO” is a method of subcontracting various business-related to front and back
office operations to third-party vendors.
• Examples of commonly outsourced Front Office tasks include:
• Customer-related services like tech support • Call Center
• Inbound and outbound Sales • Product Training • Marketing
• Back Office outsourcing refers to contracting a company’s core business operations
to well versed professionals who can ensure that the business runs smoothly
• Logistics • Distribution • Transport
• Accounting • Payment processing • IT services
• Human resources • Regulatory compliance • Quality assurance
• Legal • Web Design • Training etc….
https://www.investopedia.com/terms/b/business-process-outsourcing.asp
20
Knowledge Process Outsourcing (KPO)
• Information to make an informed decision to outsource:
• Involvement of proprietary and/or confidential information
• Investment in infrastructure
• Cost and efficiency
• Impact on the organization and its Customers
• Organization’s desired level of control over the process
Examples:
• Consultants • Project Managers • Coaches
• Financial Institutions • Real estate
https://www.investopedia.com/terms/k/knowledge-process-outsourcing.asp
21
Motivators for Global Outsourcing of Services
Information to make an informed decision to outsource:

• Cost and efficiency
• Impact on the organization and its customers
• Involvement of proprietary and/or confidential information
• Investment in infrastructure
• Organization’s desired level of control over the process
22
Service Delivery Models
1 MODE 1
CROSS-BORDER SUPPLY
2 MODE 2
CONSUMPTION ABROAD
3 MODE 3
COMMERICAL PRESENCE
4 MODE 4
PRESENCE OF NATURAL PERSONS
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Service Delivery Models
1. Mode 1 – Cross-border supply: Services are supplied from one country to another, while each party
remains in its own nation. Also known as “cross-border trade”. Examples include communications
services, such as call centres, and IT services, such as website hosting and BPO services.
2. Mode 2 – Consumption abroad: Consumers or firms use a service provider in the service provider’s
country. Examples include travel services, such as tour guides and local interpretation/translation
services, and business agents.
3. Mode 3 – Commercial presence: A company sets up branches abroad. Examples include law firms, banks
that open branch offices overseas and multinational corporations.
4. Mode 4 – Presence of natural persons: Service providers travel abroad to provide services in another
country. Examples include architects or engineers who travel overseas to design buildings or oversee
construction projects, or training providers who deliver in-person training sessions.
24
Intellectual Assets
“What are intellectual assets?
• Intellectual assets are what we call "intangible" assets. They include
inventions, new technologies, new brands, original software, novel
designs, unique processes, and much more. These assets have value
in the marketplace very much like tangible assets, or assets that you
can hold in your hand.
• In today's knowledge-based economy, it is crucial that you use your
intellectual assets strategically as you run your business. If you protect
them, they can give your business a competitive advantage over other
players in the market. Your intellectual assets have the potential to
make you a great deal of money.”
http://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/wr03585.html
25
Protect Your Intellectual Assets
Patents give you exclusive rights to your innovations

• A patent is granted to you by the government. It gives
you the right to exclude others from making, using or
selling your invention.
• Your Canadian patent applies within Canada for 20 years
from the date you file the application.
• The patent application is available to the public 18
months after you file it.
• Patents cover new inventions (process, machine, product, Example: Horseshoe
composition of matter) or any new and useful made out of tractor tires
improvement to an existing invention. https://www.prv.se/en/patents/why-apply-for-a-
patent/examples-of-patents/rubber-shoes-for-
http://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/wr03585.html horses-health/
26
Protect Your Intellectual assets
Industrial designs relate to the visual appearance of a product

• An industrial design is the visual features of
shape, configuration, pattern or ornament,
or any combination of these features,
applied to a finished article.
• For example, the shape of a table or the
shape and decoration of a spoon may be
industrial designs.
• An industrial design must have features that
appeal to the eye. To be eligible for Nessie Ladle by
Jenny Pokryvailo
registration, your design must be original.
http://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/wr03585.html
https://www.sessions.edu/notes-on-design/8-inspiring-examples-of-industrial-design/
27
Protect Your Intellectual Assets
Trademarks distinguish your product or service

• A trademark may be one or a combination of words, sounds or designs used
to distinguish the goods or services of one person or organization from
those of others in the marketplace.
https://iprs.cbp.gov/#/ US Customs and Border Protection

http://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/wr03585.html . Canadian Intellectual Property Office
28
Copyright gives you the right to copy a work

• In general, a copyright is the sole right to produce or
reproduce a work or a substantial part of it, in any form. It
includes the right to perform the work or any substantial
part of it or, in the case of a lecture, to deliver it.
• If the work is unpublished, copyright includes the right to
publish the work or any substantial part of it. Copyright
provides protection for literary, artistic, dramatic or
musical works (including computer programs) and other
subject matter known as performer's performances, sound
recordings and communication signals.
http://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/wr03585.html 29
Trade secrets include your valuable business information
• A trade secret includes any valuable business information that derives
its value from the secrecy. Trade secrets include various assets such as
sales methods, distribution methods, customer profiles, client lists,
supplier lists, product ingredients and formulas, etc.
Popular examples of trade secrets include the recipe for Coca-Cola

and the formula for WD-40. Trade secrets may also include items that
a person or company has not chosen to patent yet, such as a new plant
hybrid or mechanical invention.
http://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/wr03585.html 30
Due Diligence Monetary Risk
Global
Regulatory
Outsourcing of Ethics, Culture and
Social Risks
Environment and
Compliance
Services:
Considerations Intellectual Property
Quality
and Risks Protection
Safety and Security
31
It is difficult to assess risk factors when services are often not tangible.
Organizations should ensure they use due diligence when investigating
potential service providers to minimize their levels of risk. With sourcing
services, due diligence involves the following practices:
• Thoroughly investigating potential service providers, e.g. references,

sources of word-of-mouth advertising, business reputation
• Conducting an in-depth risk assessment of service providers, including

Due Diligence political stability; civil unrest, war, terrorism, changes to trade policy
and natural disasters can put provision of service at risk
• Reviewing business practices of potential service providers to identify

any possible problems
Accessing resources such as trade commissioners, government agencies,

export credit agencies, agents and business references should be part of
due diligence research.
32
Although the use of international service Monetary risks can be minimized by the
providers can save money due to lower costs of following practices:
labour, there are also factors that can increase • Comparing exchange rates of different
costs: source countries
• Taxation by domestic and foreign governments • Setting fixed costs and timelines for
• Inflation risk in foreign markets, which is often services
higher; consider which party bears this risk • Hedging and factoring
• Exchange rate fluctuations and the stability of • Researching the suppliers’ countries as
Monetary the foreign country’s currency, which can part of due diligence, e.g. monitoring
exchange rates, monetary trends and
Risk affect the economics of the transaction
• Hidden costssuch as severance packages to
policies
• Selecting the appropriate currency for
redundant personnel; examine what issues
contracts
will need to be resolved during the transition
to an outsourcing service provider • Using documentary credit instruments,
e.g. letters of credit
• Rising costs of transactions, contract
• Designating the buyer’s domestic currency
management fees, staff training, third party
supplier audit fees, and wage rates • Securing currency exchange rate insurance
33
Cultural differences can complicate business communications, causing
service delays, errors or inconsistencies, which can make international
outsourcing a negative experience for all parties involved. The following
are examples of culturally sensitive and respectful practices that can
help mitigate issues:
• Researching, as part of due diligence, countries’ cultures, the way
businesses are run, core societal values and communications styles
Ethics, • Keeping track of cultural holidays in suppliers’ countries to help with
scheduling and service time frames
Culture & • Hiring a staff person who can speak the language and who may be
Social Risk familiar with the culture (a tremendous asset for organizations that
trade internationally)
• Using translators familiar with the business type to ensure accurate
translations
• Using local legal counsel and agents when negotiating contracts
Ethical business practices cannot be assumed as a standard practice.
Many countries have different or no regulations regarding labour
standards or working conditions. Most organizations conduct thorough
audits of their service providers to make sure they adhere to company-
specified codes of conduct in addition to other KPIs.
34
Other countries have different standards, laws, regulations
and business practices that can impact sourcing from other
countries, either by adding costs or requirements that would
be considered illegal in one’s own country.
Minimizing this risk can be done by implementing the
following exemplary strategies:
Regulatory • Research laws, regulations and unwritten business practices
Environment in potential suppliers’ countries.
and • Research business reputation and legal record of potential
suppliers.
Compliance • Research domestic laws and regulations to determine
liabilities of conducting business in other countries.
• Research export requirements in potential suppliers’
countries to determine process and costs.
• Detail code of conduct and acceptable business practices as
part of the contract.
35
For services, quality is reflected in KPIs such as consistency, reliability and accuracy.
Organizations can minimize service quality risk through the following actions:
• Define strict quality assurance and change control requirements in the contract.
• Conduct regular assessments of service provider’s compliance with
requirements.
• Ensure selected service provider operates according to industry standards and
has maintained certifications, such as Six Sigma or ISO certifications and SAS 70
or SSAE 16 audits.
• Require transparency of sub-contracting by service provider.
• Require right to remove or replace key service provider’s personnel assigned to
Quality organization’s account.
• Establish meaningful service levels with clearly defined, measurable KPIs,
including a means to add, delete or modify service levels.
• Establish a mechanism for regularly evaluating service provider’s performance
and a requirement for service provider to use root cause analysis for identified
problems.
• Establish enforceable monetary penalties for failure to meet established service
levels.
• Retain the right to terminate contract, with clearly defined termination
criteria, if service quality is consistently unable to meet required service levels
36
In order to provide the contracted services effectively, the organization must
provide proprietary information and technology to the service provider. Having
the information from an intellectual property due diligence inquiry will assist the
organization in determining how to properly manage and protect their IP.
Protection of intellectual property may be subject to both the organization’s and
the service provider’s domestic governments’ regulations. Although there may be
variations depending on the service delivery model and the types of intellectual
property, it is prudent for the organization to entrench IP protection into the
Intellectual contract. The following are examples of these types of contractual IP protection
clauses:
Property • Clearly stipulating the ownership of all provided IP and the outcomes of any
adaptions or modifications to the IP
Protection • Ownership and access rights during the service contract period and after
termination of services
• Requirement for service providers to contractually waive copyright and
ownership of materials developed by service providers
• Non-disclosure requirements and non-compete obligations for service
providers, restricting use of competitors’ technologies or personnel
• However, even with contractual requirements and similar legal requirements in
the service provider’s country, enforcement can be inconsistent, weak or non-
existent, which limits or negates the intent and benefit of contractual
requirements.
37
Safety and security of intellectual property and confidential information is
especially important when outsourcing research and development of technology or
other scientific innovations, and payroll or other financial services. Breaches in
security are a significant risk to the organization’s reputation and may have legal
repercussions.
Offshore, outsourced services that involve confidential information, either personal
or proprietary, need to be properly protected. Organizations must ensure the
selection criteria include an examination of security practices. This will involve
giving thought to the following considerations:
• Safety and security measures are in place, not only at service provider’s main
location, but also in secondary and sub-contractor locations
Safety & • Service providers restrict access and use of the organization’s sensitive customer
Security data, confidential information and proprietary technology
• Location visits verify safety and security practices
• ICT security standards and certifications are up to date and verified with
applicable certifying body, e.g. CMMI appraisals and ratings, ISO/IEC 27001
certification
• Service provider is not involved in any legal disputes regarding IP information
leaks
• Organizations must understand the implications of the legal systems where
potential service providers are located, be careful to comply with their domestic
privacy protection legislation and regulations, and use proper controls and
strategies to mitigate IP and data leakage risks. 38
The organization should be able to:
• Define current needs across the entire organization

and determine whether new sources are required and
The which existing suppliers should be maintained
Decision • Define internal requirements: specifications for what is

Making required by organization for all supplies and services
Process • Conduct a total acquisition costs analysis for each
good
• Assess the social, environmental and financial gains
39
The decision is guided primarily be the
following drivers:
The Decision • Cost-reduction, especially for low

for Globally risk BPO functions
Outsourcing
• Lack of in-house technical expertise,
Services especially for logistics information,
e-commerce requirements and
Information Communication
Technology (ICT) functions
40
Selection Criteria for Global Sourcing of Goods & Services
GOODS SERVICES
• Quality of goods, e.g. consistency of specifications, durability • Defined scope of services, e.g. what is to be provided, potential value-added
(such as innovation), organization-specific service requirements or
• Service follow-up, e.g. product life maintenance and ease of repair, reverse expectations
supply chain
• Financial expectations, e.g. price of services, inflation, wage rates, current
• Reliability, e.g. history of delivery performance, warranty and replacement financial position
policies
• Operational expectations, e.g. capacity, flexibility (such as scale-up or scale-
• Capacity, e.g. consistency of supply quantities, order system and cycle times,
down capabilities), level of technology, current licences, labour turnover
flexibility of supply, management style, labour supply, labour conditions and rates, use of sub-contractors
relations, use of sub-contractors
• Security provisions, e.g. network security, dedicated servers, server firewalls,
• Process technology, e.g. hardware and software capacity of supplier, IT skill
data encryption, employee background checks, facility security procedures,
levels
antivirus applications
• Telecommunications capabilities and infrastructure
• Qualitative expectations, e.g. consistency of service, service level
• Financial stability of supplier, e.g. payment terms used in past, requirement expectations (such as turnaround time, meeting deadlines, efficiency)
for upfront funding management style, labour conditions and relations, sustainability practices
• Relationship building, e.g. supplier attitude, ease of communications and • Technical expertise, e.g. qualified labour pool (such as technical
understanding, ability to develop trust and collaborative relationship, sophistication), up-to-date protection systems infrastructure/facilities,
willingness to share technologies and information, cultural compatibility certifications, data
• Location, geographic distance and time zone • Risks, e.g. potential for cost • Performance, e.g. history of performance delivery, customer references, legal
risk, supply uncertainty and lead time issues
• Security, building, technology • Risks particular to location, e.g. intellectual property protection and tax laws,
infrastructure (such as electrical power)
• Intellectual property rights and protection

UNIT 5
Developing the Supplier Relationship
• Supplier Relationship Management

• Forming Partnerships and Alliances
42
4 Foundation Qualities for SRM
1. Mutual respect
2. Understanding of the mutual benefits of the relationship
3. Trust in each other
4. Fairness and honesty
Supplier SRM requires buyers to get involved with their suppliers, to
Relationship understand how their suppliers work and to make suggestions
for ways suppliers could improve their processes. The purpose
Management is not to manage suppliers’ businesses, but to create value for
both parties. Most models contain the following components:
(SRM)
5. Regular visits or communication with suppliers
6. Regular evaluations with a scorecard or report card of
supplier performance; this reflects expectations and a
supplier’s current status
7. Regular structured meetings to share information and find
ways to improve deficits.
8. Joint improvement activities
43
Nine
Supplier
Interaction
Models
44
Nine Supplier Integrate: This relationship thrives on a shared vision and willingness
Interaction to act as one smoothly running extended enterprise. These relationships
are multi-year, differentiated and comprehensive, adding considerable
Models value to buyers’ organizations.
Influence: This relationship needs regular communications and good

timing to identify opportunities for exclusivity and provide the supplier
Critical with opportunities to identify buyer actions and plans that could be
mutually beneficial. These are dominant suppliers that offer the potential
Cluster to innovate jointly to develop new products or services.
Invest: This relationship needs continued reassurance to develop trust

and overcome takeover fears by investing time, money and resources to
develop capabilities to meet the buyer’s needs. These suppliers offer
great ideas and innovation, but need to consolidate their basic
performance.
45
Harvest: This is a stable, mutually profitable relationship and will
continue as long as it is provided everything it needs to continue
Nine Supplier performing at its current level. This relationship is relatively low cost and
hassle free, but complacency could put the relationship at risk. There is a
Interaction need to ensure the supplier believes it is a valued team member.
Models Sustain: This relationship requires the right balance between

investment and returns. These organizations need incremental
improvements to increase value and performance to world-class levels.
Ordinaries These suppliers recognize the value of the relationship and are willing to
compete and improve to gain more business.
Improve: This is a relationship where suppliers require clear

communication about expectations, how they can be more effective and
their future strategic potential. These suppliers could be replaced by other
suppliers if investment is costlier than potential returns. However, the
preference for the buyer is to provide opportunities for these suppliers to
attain Harvest status.
46
Mitigate: When a supplier has ongoing performance issues and is unable to
improve, it will require implementation of the exit strategy. However, it is still
important to maintain openness and clarity, as there may be opportunity in the
future. Ensure there is a good transition plan in place and manage the transition
Nine Supplier and communications. This supplier relationship is more difficult if the supplier is
involved in multiple lines of business, products or outsourcing agreements. Use this
Interaction opportunity to understand the supplier’s interdependencies and conduct an in-
depth analysis.
Models Develop: This relationship offers the opportunity to develop first class
suppliers. They are willing to collaborate and grow their business, working closely
with the buyer to increase their performance capacity and abilities. These suppliers
are motivated to embrace change. Buyers should engage in open communications
Problematic with employees in both organizations and consistent program oversight as suppliers
aim for a shared goal.
Bailout: This relationship is based on the supplier and the buyer recognizing
when an intervention is necessary. This is significant because issues with this
supplier can jeopardize the buyer’s business. The buyer should provide specific
guidance and expect the supplier to comply with all instructions. Closer monitoring
is necessary. The buyer should also set up contingency plans and bring in third party
experts as needed. Personnel should be dispatched to the supplier to assess and
monitor the situation to resolve problems quickly. Ideally, this should be a short-
term relationship type, with the goal of improving the relationship. If both parties
are keen to maintain the relationship, the situation can be used to strengthen ties 47
Forming Partnerships and Alliances
Various strategies to develop successful and mutually beneficial

supplier relationships:
• Partnerships
• Vendor managed inventory
• Collective planning, forecasting and replenishment
48
FINAL CHECK Test your understanding on the knowledge, skills and concepts
presented in this module and practice for other FITT assessments.
1. Which of the following would be used by an organization to rate the total

acquisition cost for each supplier against the total purchase price?
a) Analytical hierarchy process
b) Categorical rating services
c) Cost ratio method
d) Kraljic Portfolio Purchasing Classification Matrix
2. When is the best time in the product life cycle to outsource to a foreign contract
manufacturer?
a) Just before the maturity period
b) Just before the growth period
c) Just after the launch period
d) Just before the decline
49
3. An organization is considering outsourcing its payroll and benefits to a global

service provider. The employee representative says employees want to know
what happens if payments are late, and how errors will be addressed. What can
the organization do to address employee concerns?
a) Establish enforceable monetary penalties for established service levels.
b) Ensure selection criteria includes ISO certifications, SSAE16 or SAS 70 audits.
c) Ensure the service provider is aware of domestic regulatory requirements and
discuss how they will be enforced.
d) Require the right to remove or replace key service provider personnel
assigned to organization’s account with service provider.
50
4. An Australian high tech company is considering outsourcing product development

to South Korea. The manager of new product development asks how the
company is going to protect its intellectual assets. What can the company do to
best ensure its IP is protected?
a) Ensure that service provider’s security practices are audited regularly.
b) Require security standards are up to date , such as ISO/IEEC 27001
c) Require service providers to restrict access to and use of sensitive customer

data, confidential information and other proprietary information.
d) All of the above.
51
5. A hockey goalie pad manufacturer’s costs are limiting the market. The company
produces a high quality product that is purchased primarily by professionals. The
company wants to expand into the minor hockey league age group, but needs to
produce a good quality, lower cost product with a price point more suited to that
market. The process is proprietary, and the company has the capacity to produce
more. The company finds sources of very low cost leather and stuffing from
China. The company has concerns about quality. What could the company do
before negotiating a major supply contract?
a) Check the supplier’s references.
b) Develop quality criteria.
c) Draft a short contract using an LOI and test their capabilities.
d) Place an initial trial order.
52
• REMINDER: Term Project is due Oct 21 – Any Questions?
• REMINDER: Any missed quizzes – Follow the make up process in
announcements
• This is an open-book, open discussion group quiz.
In-class • All group members must be present (now) to participate – Move and get
together - (Breakout rooms)
Group Quiz • Every Group member needs to submit your own quiz completed with
Week 05 your answers as your may differ from your other group members or the
exact same
Short Answers • This assignment will be marked out of 20 points and is worth 3.75% of
#2 your course grade.

• Answer all questions on the Quiz, it is timed for 60 minutes
• Find it Course Tool – Quizzes - 05 Week - Group - Short Answer - Quiz #2
• Password – __________
• Next week reading: Inventory Management Pages 105 to 145
53

F23 Week 05 OPER8340 Lecture

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OPER8340

Overhauling Supply Chain

• Motivators for Global Outsourcing of Manufacturing

This is what he said: at the conference on Global Value Chains in

Parts built by the IAM union of Boeing workers

Most of the parts used to manufacture Boeing’s

Source: eText pg 182

Product Life Cycle

• Introduction 3. Costs are

Production Capacity Cost (in-house)

Manufacturing: Intellectual Property Protection

• Types of Outsourcing Services

Information and Communications Technology (ICT)

Business Process Outsourcing (BPO)

Knowledge Process Outsourcing (KPO)

Information to make an informed decision to outsource:

• Impact on the organization and its customers

• Involvement of proprietary and/or confidential information

• Organization’s desired level of control over the process

Patents give you exclusive rights to your innovations

Industrial designs relate to the visual appearance of a product

Trademarks distinguish your product or service

https://iprs.cbp.gov/#/ US Customs and Border Protection

Copyright gives you the right to copy a work

Popular examples of trade secrets include the recipe for Coca-Cola

Safety and Security

• Thoroughly investigating potential service providers, e.g. references,

• Conducting an in-depth risk assessment of service providers, including

• Reviewing business practices of potential service providers to identify

Accessing resources such as trade commissioners, government agencies,

• Define current needs across the entire organization

Decision • Define internal requirements: specifications for what is

• Assess the social, environmental and financial gains

The Decision • Cost-reduction, especially for low

© 2017 FITT All Rights Reserved

• Supplier Relationship Management

Influence: This relationship needs regular communications and good

Invest: This relationship needs continued reassurance to develop trust

Models Sustain: This relationship requires the right balance between

Improve: This is a relationship where suppliers require clear

Various strategies to develop successful and mutually beneficial

1. Which of the following would be used by an organization to rate the total

3. An organization is considering outsourcing its payroll and benefits to a global

4. An Australian high tech company is considering outsourcing product development

b) Require security standards are up to date , such as ISO/IEEC 27001

c) Require service providers to restrict access to and use of sensitive customer

d) All of the above.

#2 your course grade.

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