SCM 4361 Final

Co= c-s

Cu= p-c

– Increase salvage value Sport Obermeyer sells winter clothing in South America during the summer. Buyback contracts with manufacturer – Decrease margin lost from stockout Arrange for backup sourcing or provide substitute product

Improved forecasting Quick response Postponement Tailored sourcing

A firm off-shores a supply chain function if it maintains ownership but moves the production facility offshore

A firm outsources if the firm hires an outside firm to perform an operation rather than executing the operation within the firm

Supplier scoring and assessment Supplier selection and contract negotiation Design collaboration Procurement Sourcing planning and analysis

Process used to rate suppliers Common fundamental mistake when choosing a supplier Only focus on quoted price Supplier performance should be compared on the basis of the supplier’s impact on total cost

Choose the appropriate supplier(s)

Work together with supplier when designing components for the final product Design collaboration with suppliers can result in reduced cost, improved quality, and decreased time to market

Process placing orders and receiving orders from supplier(s)

Analyze spending across various suppliers, identify opportunities for decreasing cost A firm should periodically analyze its (1) procurement spending and (2) supplier performance and use this analysis as an input for future sourcing decisions Supplier performance analysis should be used to build a portfolio of suppliers with complementary strengths Cheaper but lower performing suppliers should be used to supply base demand Higher performing but more expensive suppliers should be used to buffer against variation in demand and supply from the other source

Lower cost and higher quality Specialized third party is further along the learning curve for some supply chain activity Capacity aggregation Increase SC surplus by aggregating demand across multiple Transportation aggregation Increases supply chain surplus by aggregating transportation across a variety of Shippers Warehousing aggregation Increases SC surplus by aggregating warehousing needs over several customers and lowering facility cost Receivables aggregation Increases SC surplus by aggregating receivables reducing collection cost (especially when retailing is fragmented) Procurement aggregation Increases SC surplus by aggregating procurement for many small players to facilitate economies of scale Information aggregation Increases SC surplus by aggregating information and reducing search cost for the (online) customer

• Less control over the function being outsourced Reduced customer/supplier contact Loss of internal capability and increase in third party’s power • Increases complexity in coordination, and thus increases coordination cost It is easy to underestimate the effort to coordination • Leakage of sensitive information In case intellectual property needs to be shared with third parties, there is the danger of leakage • Ineffective contracts

3PL - provider performs one or more of the logistics activities relating to the flow of product, information, and funds that could be performed by the firm itself • A fourth-party logistics (4PL) provider manages other 3PLs. Whereas a 3PL targets a function, a 4PL targets management of an entire process