Spring 2014Bus 301

Dr. Gary S. Wilson

The Case Study of the Broken Furniture---What Would You Do?One of your suppliers, Lazy Boy Furniture, has been a preferred partner (of Ashley Furniture) for more than 15 years. Recently, one of the fastest moving SKUs, a red leather recliner, has seen a major increase in the number of returns by customers because of damage. A quick tally of the SKU returns is that 1 in 4 (25%) of all the chairs that are shipped to customers are being returned to either Lazy Boy or back to your warehouse in Chicago. The evaluation of the recliners occurred when the items arrived back into either of the two warehouses. The majority of the damage has been to the back legs which are splitting. In addition it has been noted that the leather was also ripped on many chairs. There was no apparent damage to the cartons (other than simple compression damage) in which the product is shipped either to the customer direct (Lazy Boy) or delivered from the Chicago warehouse on a Ashley’s company truck when it arrived at the customers.

All inventory coming from the Lazy Boy Furniture in Hickory North Carolina (manufacturing facility) to your warehouse is arriving on their private fleet. The Terms of Sale are: FOB Destination: Freight Prepaid. This is really become a major issue from a cost and service viewpoint. How would you resolve this problem with your preferred supplier—Lazy Boy Furniture.

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What Were The Important Management Skills Used In The Case Study

What Was The Motivation (Why Bother…Incentives?)

What Were The Technical Skills that you used? (SCM Knowledge)

Where you Creative? (Think Differently…no constraints on ideas)

What Analytical skills (Connecting the Dots) were helpful?

Experience/Intuition (Gut more than rational …) come into the equation?

Horse sense ..beyond common sense?

What Skills Were You Lacking?

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Creativity is One Of the Most Important Elements of Problem

Solving A simple definition: ability to generate

novel ideas

Clearly important for problem solving

With rapid pace of change in business today, the importance of creativity is increasing

Studies have shown that creativity can be developed

It is reported that creativity training is required by more than half of Fortune 500 companies (J.D. Couger, Creative Problem Solving and Opportunity Finding)

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What Are The Issues That Were Common?

______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________

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What Is The Best Possible Outcome from

this Situation? Based on….. _____________________________________ _____________________________________ _____________________________________ _____________________________________ _____________________________________ _____________________________________ _____________________________________

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Supplier Relationship Management

Transaction Management Processes…What Info Is Needed?

DownstreamProcesses(CRM)

Inte

rphase

Pro

cess

InternalSupply ChainProcesses(ISCM)

Inte

rph

ase

Pro

cess

Upstream Processes

(SRM)

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Adapted from Chopra and Meindl, Supply Chain Management, 2nd Ed., 2004, Pearson Prentice Hall

How Should A Company Choose A Supplier?

What are the key factors that you will use in the partnership selection process? List Most Important First…….

1.

2. 3. 4. 5. 6. 7. 8.

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Eventually….

There may be a clash of both personal amd organizational values because do you…

Go With The Low Cost Provided? or

Select the Not So Low Cost Supplier (but seems more “ethical” in the

manner in which it runs its operation)

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The Dog Toy Marketplace….

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There are three dog toy companies (Barko, Dogs R Us and Killer Toys trying to convince Wal -Mart, Costco and K-Mart to gain more shelf space over their competitors. (Chewy Toys)

The goal is to negotiate a price per toy that will make it worth while for your customer to stock your toys.

The final price needs to have considered transportation to the a central warehouse in Chicago (landed cost per toy).

You have 10 minutes to develop a strategy and 5-8 minutes with each client to finalize a price.

After the meetings, each supply chain entity will chose a one partners to work with (all 3 dog toy companies and 3 retailers).

Good Luck!!

What Were The Results?

Who Did You Chose Why? What Criteria Were Critical? Were the All Weighed the Same? Why or Why Not? What Were You Missing from Your

Decisions? What Would or Could You Have Done

Different?

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SRM Positioning Activities and Processes In Value Chain

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InboundLogistics

(e.g., incomingmaterialstorage, datacollection,on-site customeraccess)

Operations

(e.g.,componentfabrication,assembly,branchoperations)

Outbound Logistics

(e.g., orderprocessing,warehousing,reportpreparation)

Marketing& Sales

(e.g. salesforce, promotion,

advertising,trade shows,

proposalwriting)

After-SalesService

(e.g., installationcustomersupport,complaintresolution,repair

M

A

R

G

I

N

ValueWhat buyers are

willing to pay

Firm Infrastructure(e.g., financing, planning, investor relations)

Human Resource Management(e.g., recruiting, training, compensation systems)

Technology Development(e.g., product design, testing, process design, material research, market research)

Procurement(e.g., components, machinery, advertising, services)

Meaningful competitive positions are reflected in a uniqueconfiguration of activities

Michael Porter, Competition

Primary Activities

Su

pp

ort

Ac

tiv

itie

s

Supply Base Management Activities

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•Supplier Selection Investigation and Implementation (T&S)•New Product Development Involvement (through ESI) (T&S)•Knowledge of Component Life Cycle’s, allocation position, etc•Research Alternative Technologies•Manage Commodity Capability Matrix’s•Initiate Cost Reduction/Avoidance Activities (T&S)•NDA/Purchase Agreements (T&S)•Facilitate EDI/Bar Code Implementation•Supplier and Buyer Training•Maintain Supplier Rating System (T&S)•Find Best In Class Suppliers and Practices (Benchmarking)•Establish Critical Business Reviews•Interface With Corporate Purchasing on SMS Leverage Pricing•Review and Maintain Business Interruption/Risk Plan (T&S)•Develop Procurement 3 to 5 Year Roadmap•Manage Strategic Supplier Alliances•Process Team Leader (cross functional team leader)•New Project and Product Team Leaders/Participants (T&S)

Strategic Sourcing ActivitiesProactive

Tactical Procurement ActivitiesReactive

•Insure Daily Business Requirements Are Met•Analysis of MRP Messages

•Implementation of MRP Actions•Place New P.O.’s•Cancel Excess P.O.’s•Move-out P.O.’s•Move-in P.O’s

•Fix Account Payable Issues•Process Kanban Cards•Attend New Product Meetings (if applicable)•Expedite Hot Part Shortages•Met With Suppliers on Business Issues•Send Out Weekly Forecasts to Suppliers•Implement Cost Reductions

Transitioning to a Longer Term Strategic Focus

Supplier Relationship Management (SRM)

Product Design Partnership

Sourcing Negotiations Purchasing Collaboration

Outsource Decisions

Supplier Certification

Inbound Logistics Global Logistics Supplier Ethics

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Effective strategic supplier alliances for new product development

Appropriate suppliers capabilities & culture

Buyer/supplierinterdependency

Technology alignment &confidentiality

Aggressive targets

Trust & equity

Executive & business alignment

Critical Success Factors in Building Successful Supplier Relationships

Organizational Issues of SRM

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• Boundaries and “Silo’s”• Functional Organizations• Divisions, Groups, Holding Companies• Complicated Work Flows• Improper Metrics

– Sales– Profit– Share Price

• Incomplete Tools– Multiple Suppliers– Multiple Interfaces

• Purchasing Ethics

Example--Purchasing Ethics

What is it and Whom does it affect ?1. Buyers must know the best source, know the supplier industry, and

conduct the purchase decision-making process in an open and fair manner.

2. Any activity or involvement which in any way diminishes this process must be avoided.

3. What is acceptable ? We are expected to avoid even the appearance of an impropriety.

This requires the use of good judgment and commonsense.4. What is not acceptable ?

You may not solicit or accept any favors or gratuities from anyone Siemens does business with or from any of Siemens competitors.

5. What is conflict of interest? You may not engage in any business activity or investment that

could prevent you from impartially discharging your duties at Siemens.

6. Whom does it affect? * ALL OF US.

THREE SIMPLE RULES:

1. Keep job and private life totally separated. 2. Keep relationships with suppliers in balance.

3. When in doubt, ask management.

What is it and Whom does it affect ?1. Buyers must know the best source, know the supplier industry, and

conduct the purchase decision-making process in an open and fair manner.

2. Any activity or involvement which in any way diminishes this process must be avoided.

3. What is acceptable ? We are expected to avoid even the appearance of an impropriety.

This requires the use of good judgment and commonsense.4. What is not acceptable ?

You may not solicit or accept any favors or gratuities from anyone Siemens does business with or from any of Siemens competitors.

5. What is conflict of interest? You may not engage in any business activity or investment that

could prevent you from impartially discharging your duties at Siemens.

6. Whom does it affect? * ALL OF US.

THREE SIMPLE RULES:

1. Keep job and private life totally separated. 2. Keep relationships with suppliers in balance.

3. When in doubt, ask management.

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Let Review……

What Went Wrong?

“ While it is a good notion that suppliers operate consistently with customer’s corporate policies around ethics, operating conditions, sustainability, and other elements, the practicality of such a concept can be elusive”

Source: Supplier Ethics Management, SC Digest (2006)

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When Should A Firm Consider SEM…

Have a large number of suppliers

Maintain a High Profile Possess a Valuable Brand Sell To High Profile Customers Feel Pressure by Regulators Depend On Consumer Trust

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What Might TheyDo

What Can They Do

External EnvironmentExternal Environment

Five Forces AnalysisFive Forces Analysis

Internal EnvironmentInternal EnvironmentResources, Capabilities and Core CompetenciesResources, Capabilities and Core Competencies

Maintaining AMaintaining ASustainableSustainableCompetitiveCompetitiveAdvantageAdvantage

Current State of SEM

88% of Companies Surveyed Do Not Supply A Web Portal To Exchange Information

86% Companies Did Not Include Suppliers In Code Of Conduct

50% Do Not Have A Separate Code Of Conduct For Suppliers

60% Do Not Require Their Suppliers Acknowledge or Certify A Code of Conduct

Source: Integrity Client Survey 2007

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More…… 83% of Companies Reported That Suppliers

Are Not Included In Ethics or Compliance Program

57% Plan To Include Suppliers In Ethics Program within 24 Months (43 % unsure or not)

86% Believe Suppliers or Someone Else Should Drive the Participation In Company Ethics and Compliance Programs

75% Believe That Supplier Should Share or Bear The Cost of Compliance

Source: Integrity Client Survey 2007

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Survey Group

Senior and Compliance Officers at 108 Global 2000 Companies….

Many of the companies we studied are on that list!

So Where Did This Info Come From?

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Ethics In The Supply Chain… Being Ethical Isn’t Enough Brands Are Judged By Company it Keeps Your Whole Supply Chain Must Be Ethical The Biggest Brand In The Chain Will Get

The Most Chain Solution Can and Should Be Implemented

Immediately Penalties for Inaction Cost of Implementation Is Can Be

Affordable Source: Integrity Client Survey 2007

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What Can Be Done Going Forward?

Make Ethic Compliance a Factor for Supplier Selection

Create and Maintain Compliance History of Suppliers

Assign Ethics and Compliance Personnel to Suppliers

Conduct Regular Assessment of Supplier Ethics

Target and Segment Suppliers by Importance and Ethics Risk

Source: How Ethical Is Your Supply Chain, Industry Week, 2010

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Supplier Codes Should Address…

Environmental , Health and Safety

Forced Labor Child Labor Wage and

Hours

Discrimination and Abuse

Free Association and Collective Bargaining

Compliance With Laws

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1. The Toys "R" Us Code of Conduct for Suppliers is inclusive of all Toys "R" Us divisions and  supersedes all previously issued documents and/or procedures relative to the Code of Conduct for Suppliers. 

2. Participation and adherence to the Code of Conduct is mandatory.

3. The effective date for Code of Conduct compliance is upon receipt of the Code and  accompanying supplier acknowledgements.

4. The Toys "R" Us Code of Conduct for Suppliers holds all Toys "R" Us suppliers accountable for compliance to all "Code" provisions. 

5. Toys "R" Us strongly recommends and encourages each supplier to implement their own Code of Conduct insuring their own suppliers meet or exceed the provisions of the Toys "R" Us Code of Conduct for Suppliers program.

6. Toys "R" Us requires each supplier to conspicuously post copies of the Toys "R" Us Code of Conduct for all workers to view, and to communicate all provisions of the Code of Conduct to all employees..

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Supplier Business Reviews and Supplier Development

Based on supplier rating results, we prioritize business reviews, in an effort to improve the supplier’s performance

Establishing action items for continuous improvement is one of the major objectives. Periodic measurement of the action item, allows you to establish if you are improving, but you first need to establish a baseline to measure your performance against

Total cost of ownership is the main theme of the business review. (best price, excellent quality, strong logistics and latest technology)

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Achieving World-Class Supplier Quality

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Accelerated

ImplementationComplexity

High

Low

Basic Advanced

Gradual

ExpectedRate ofQualityImprovement

• Supplier performance measurement•Supply base optimization

• Supplier Certification• Performance improvement awards• Aggressive supplier improvement targets

• Supplier Product and process improvement• Supplier performance development

Achieving world class supplierQuality – Trent & Monzca