COMP 7880 EBusiness Strategies Interaction with suppliers Dickson

COMP 7880: E-Business Strategies Interaction with suppliers Dickson K. W. Chiu Ph. D, SMIEEE, SMACM, Life MHKCS Jelassi & Enders: Chapter 10 1

Our Roadmap Mobile e-commerce strategy E-business strategy Strategy implementatio Strategy formulation n 12 Strategic analysis 3 External analysis 9 5 Internal organisation Strategy options Opportunities/ threats Strengths/ weaknesses 4 Internal analysis 6 Sustaining competitive advantage 8 7 Exploring new market spaces Creating and capturing value 10 13 Interaction with suppliers Implementation 11 Interaction with users/customers COMP 7880 -IS-2

B 2 B e-commerce matrix classifies different types of B 2 B e-marketplaces MRO hubs Systematic sourcing How do firms buy? Spot sourcing Horizontal markets that enable systematic sourcing of operating inputs Yield managers Horizontal markets that enable spot sourcing of operating inputs Catalogue hubs Vertical markets that enable systematic sourcing for manufacturing inputs Exchanges Vertical markets that enable spot sourcing for manufacturing inputs Operating Manufacturing inputs What do firms buy? Source: Adapted from S. Kaplan and M. Sawhney (2000). COMP 7880 -IS-3

Different B 2 B e-marketplaces display varying degrees of openness Degree of openness of e-marketplace low high 1 Public e-markets Supplier 2 Buyer Consortia Supplier Buyer Fastparts. com Medibuy mondus. com Private Exchanges Supplier Buyer Exchange owner E-market operator Examples 3 Covisint Transora Citius. Net Dell Computer Wal-Mart Source: Adapted from W. Hoffman, J. Keedy and K. Roberts (2002), p. 99. COMP 7880 -IS-4

Source: D. Chaffey, (2006), pp. 320 -321. Integrated e-procurement or ERP system Matching and payment Accounting system Goods received, and delivered Order entry on website Buyer, originator places order E-mail/workflow systems Manager approves order CD/web catalogue Originator selects, requests order Stock control catalogue E-procurement solutions cover different parts of the supply chain COMP 7880 -IS-5

Supplier interaction strategies n Pull n n Push n n n Allocates production to stocking locations based on overall demand Encourages economies of scale in production Just-in-time n n n Draws Comp 7880 -IS into the stocking location Each stocking location is considered independent Maximizes local control of inventories Attempts to synchronize stock flows so as to just meet demand as it occurs Minimizes the need for Comp 7880 -IS Supply-Driven n Supply quantities and timing are unknown All supply must be accepted and processed Inventories are controlled through demand COMP 7880 -IS-6

Importance of suppliers n Inventories is a major use of capital in the supply channel. n n Purchasing and scheduling involve decisions that affect the efficient movement and storage of goods. n n Key tradeoff: lead time, demand, service, cost Key difficulties: demand uncertainty together with lead time Push vs pull Just-in-time scheduling procedures become popular Toyota’s KANBAN and MRP scheduling Combining Distribution and Materials Requirements Planning (DRP and MRP) allows integration of the supply chain from suppliers to customers. Purchasing is important, accounting for 40 -60% of dollar sales typically. n n Impact on the efficiency of logistical activities Key purchasing decision: quantities, timing, and sourcing COMP 7880 -IS-7

IT applications n n n Again much domain knowledge is required. Note the data / information requirements and how IT helps to collect / integrate the data for calculations and decision making. Capture forecasting and ordering signals (either determined by a business analyst or automatically by a sub -system) as events / exceptions / alerts and forward them to the appropriate system and personnel for decision / action. Effective collaboration with retailers and suppliers requires much new IT in the process and information integration, as well as relying on integrating with existing enterprise systems (e. g. , MRP / DRP). Note the difficulties in integrating with multiple suppliers, especially dynamic ones. COMP 7880 -IS-8

Reference COMP 7880 -IS-9

What is purchased? n Price n n Quality n n n Cost of goods Terms of sale Discounts Meeting specifications Conformance to quality standards Service n n On-time and damage-free delivery, order-filling accuracy, product availability Product support Comp 7880 -IS-10

Activities of purchasing n n n Selects and qualifies suppliers Rates supplier performance Negotiates contracts Compares price, quality, and service Sources goods Times purchases n n n Sets terms of sale Evaluates the value received Measures inbound quality if not a responsibility of quality control Predicts price, service, and sometimes demand changes Specifies form in which goods are to be received Comp 7880 -IS-11

Criteria for selecting suppliers n Past or anticipated relations n n Measured performance n n n Honesty Financial viability Reciprocity Price Responsiveness to change or requests On-time delivery Product or service backup Meeting quality goals n Operational compatibility n n n Informational compatibility Physical compatibility Ethical and moral issues n n Minority vendors Lowest price bidding Patriotic purchasing Open bidding but a preselected vendor Weighted average of ratings Comp 7880 -IS-12

Single vs Multiple Vendors Single vendors n n Allows for economies of scale Consistent with the justin-time philosophy Builds loyalty and trust May be only source for unique product or service Multiple vendors n n n Encourages price competition Diffuses risk May disturb supplier relations, reduce loyalty, reduce responsiveness, and cause variations in product quality and service Comp 7880 -IS-13

Finding Suppliers n n n Personal contacts Trade publications Web sites, catalogs, and directories Advertisements and solicitations … Comp 7880 -IS-14

Qualifying suppliers n n n Previous experiences and formal rating schemes Word of mouth Samples of product Reputation Site visits and demonstrations Comp 7880 -IS-15

Allocation to Suppliers n n n Company policy considering risk, fairness, ethics, etc. Definitive methods Is buying based on lowest price a good strategy – consider other costs too… Allocate using linear programming Asking “what if” questions can provide insight into good allocation plans n n weak supplier - perhaps some price concessions can be negotiated valuable supplier and more capacity should be sought Comp 7880 -IS-16

Timing of Purchases n Through just-in-time planning n n n Through Comp 7880 -IS management n n n Material requirements planning for continuous work Gantt charts and CPM/PERT for project work Push methods Pull methods According to market conditions n n n Speculative buying Forward buying Hand-to-mouth buying, or buying to current requirements Comp 7880 -IS-17

Speculative buying n n n Buying more than the foreseeable requirements at current prices in the hope of reselling later at higher prices. Some of the purchased quantities may be used in production and some simply resold. Generally a financial activity, not a materials management one. Comp 7880 -IS-18

Hand-to-mouth buying n n n Buying to satisfy immediate needs such as those generated through MRP. Advantageous when prices are dropping May improve cash flow by temporarily reducing expenses of carrying Comp 7880 -IS-19

Forward buying n Buying in quantities exceeding current requirements, but not beyond foreseeable needs. Takes advantage of favorable prices in an unstable market, or takes advantage of volume transportation rates Reduces risk of inadequate delivery n Dollar Averaging n n n Spend the same amount on each purchase with the idea of buying more when prices are low and less when they are high. This is a good strategy when prices are expected to rise over the long term and there is substantial uncertainty as to the actual price level. Because under-supply may occur, some level of Comp 7880 -IS will need to be maintained. Comp 7880 -IS-20

Effect of Quantity Discounts – Inclusive Price Breaks Price break curves Quantity, Qi 0 < Qi < Q 1 Qi Q 1 Price, Pi P 1 P 2 Curve for Q<500 Total cost $ Feasible curve Curve for Q 500 Q 2 Q 1 500 Order quantity, Q Comp 7880 -IS-21

Effect of Quantity Discounts – Non-inclusive Price Breaks Price break curve: non-inclusive discounts Price discount only applies to the items beyond the price break quantity. Comp 7880 -IS-22

Deal Buying n n A one-time buying opportunity. Determining the quantity to purchase requires balancing the benefits of a price discount against extra Comp 7880 -IS holding costs. Comp 7880 -IS-23