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SCM Main Assignment BACHELOR OF SCIENCE Subject: Supply Chain Management Class: Logistics Student: Peng Yu After gone through the case of “designing a hybrid global sourcing strategy” I felt that the hybrid organization and hybrid sourcing is doable and it should look like what I write at the following contents.
Since the task force decided to help Triton transforms into a hybrid organization as well as its purchasing system, they must define what hybrid organization is and what hybrid structure specialize in; advantages of using hybrid structure; how does hybrid organization operates in sourcing efficiency in order to help Triton survives in a behemoth-dominated world. In this case the hybrid structure is attempt to combine the pros of both centralized structure and decentralized structure.
The advantages and disadvantages of centralized versus decentralized organizational structures lies greatly in the inherent qualities and effects of the structures themselves. If top managers make the organization’s key decisions with little or no input from below, then the organization is centralized. Companies which wish to consolidate power and decision-making abilities at the top of the organizational chart, tend to be centralized organizations. As the textbook states, this is helpful for companies who need to be stable or are facing a crisis and need one source of decision-making to lead them.
These sorts of organizations are becoming rarer, as employees become smarter and organizations become larger. Based on my personal opinion centralized structures are becoming rare because of their many disadvantages. Due to power being consolidated at the top of the organization, risk is great if the top of the organization becomes incapable of leading the organization (death, illness, or massive organizational size causing a weak span of control). Employees also will feel less motivated to perform for the organization as they will not have an avenue for sharing their ideas on how to improve the organization.
Decentralized organizations are becoming more popular as the ability for organizations to decentralize increases. Decentralization allows organizations to take advantage of division of labor by sharing decision-making across the organization. It also empowers employees and allows them to improve their performance by being able to act to improve deficient or inefficient areas immediately without approval from the top of the organization. Another advantage of decentralization is allowing for the managers of business areas to actually use their first hand knowledge and experience to improve their areas.
By trusting the individuals within the organization to obtain accurate information and use their minds to provide appropriate analysis. The advantages and disadvantages of centralized structure and decentralized structure can be summarized as follow: The pros of centralized structure are increase leverage; reduced duplication; facilitates standardization; enable specialization; greater control. The cons of centralized structure are increase bureaucracy; reduced flexibility; can lose touch with reality. The pros of decentralized structure are knowledge of local needs; better local relationships; greater responsiveness.
The cons of decentralized structure are reduce leverage; lead to duplication; is relatively inefficient. According to the case the task force had identified several companies that had recently shifted from decentralized to centralize with dramatic cost savings. A consulting study commissioned by Triton revealed that a centralized organization would reduce Triton’s purchasing costs by 7 to 10 percent. However, as the task force started to implement the centralized plan they soon found out that there are many resists came from inside and outside of Triton.
Therefore, the task force now is focusing on how to build a hybrid organization as well as its purchasing system. Therefore, they must identify several key characteristics in order to combine the pros and cons between both structures as follow: 1. facilitate component/ commodity standardization 2. consolidate common requirements 3. enable the use of the best suppliers worldwide 4. allow divisions to control unique purchases 5. allow divisions to schedule receipt of common items 6. take transportation and other costs into account 7. reduce redundancy across global operations 8. retain the passion of local purchasing managers
Based on the criteria above, the hybrid organization structure and its hybrid sourcing system is consist of supply strategies developing, suppliers selection and evaluation and performance measurement. The supply strategic developing includes two main aspects, which are supply objectives and how suppliers’ perceptions and your bargaining position affect your supply strategy. Triton’s supply objectives will relate to issues such as supply quality and innovation, availability and lead-time, supplier service and responsiveness, and cost reduction. Some examples of supply objectives are shown in the following paragraphs. . Quality- ensures an internal customer satisfaction rate at the highest level in terms of compliance of specifications with identified needs. – Always obtain standard materials and components whenever these are capable of fully meeting our requirements. – Implement a system to continuously identify and evaluate the latest materials, components and technologies available for use by our enterprise. – Ensure a performance reliability rate for high priority purchase items at the highest rate. 2. Availability and Lead-time- reduces average suppliers’ delivery lead-time for high priority items. Ensure an availability rate at the highest for high priority items. – Implement a just-in-time system for delivery of materials to our top production line. 3. Supplier service and responsiveness- ensue that all suppliers of equipment and components employed in our products/ services are evaluated as to their abilities to provide satisfactory responses to technical queries within an efficient time. – Ensue that all suppliers of equipment employed in our products/ services are evaluated as to their capabilities to deliver urgently required spare parts within an efficient time. . Cost Reduction- ensure that the average price paid for standard materials is at least 2% below the prevailing market. – Reduce the average administrative cost per order by at least 10%. – Ensure that all equipment purchased for the company’s own use or employed in our products/ services is evaluated before acceptance based on its life-cycle cost. How suppliers’ perceptions and your bargaining position affect your supply strategy. This focuses on suppliers’ perceptions, the effect on supplier relationship, reverse marketing, trade-offs between switching costs.
Suppliers’ perceptions are focuses on two dimensions which consist of the value of the business that your company is offering to suppliers in relation to their own turnover levels and the combination of other factors determine the level of attractiveness of your business to suppliers, such as its payment record, the ease of doing business with your firm, cultural affinities, personal relationship, level of trust for the supplier by being associated with your company. The effect of suppliers’ perceptions of our company’s position will influence our options in terms of the kinds of relationships that we will be able to develop.
However, if your suppliers’ perceptions of your company’s business are likely to be very low, your bargaining position will be weak. The only option then is to try to improve our attractiveness in whichever ways possible. The most important of these is by making a particular effort to become as good a customer as possible. Being a good customer involves: 1. Paying invoices on time. 2. Having efficient and effective processes for handling your business transactions. 3. Controlling the frequency and nature of your interactions with the suppliers. . Having a single “account manager” for the supplier to make it easy for the supplier to deal with our company. 5. Acting in a generally professional and ethical manner. “Particularly when you are purchasing critical items, it is important for suppliers to be as attracted as possible to doing business with your company. Reverse marketing embodies the concept of a buyer trying to attract suppliers by selling itself as a customer as strongly as it possibly can. It is aimed at developing positive relationships with suppliers wherever needed.
Under reverse marketing, instead of waiting for the supplier to promote the business relationship, it is the buyer who takes the initiative. The buyer also employs a considerable amount of persuasion to convince the supplier to sell to it. This is therefore a reversal of the usual purchaser/ supplier marketing practice. The purchaser’s degree of initiative will determine whether or not reverse marketing is effective. In such a situation, the buyer is the one who recommends prices and other terms and conditions to the supplier, rather than merely evaluating suppliers’ offers.
The more attractive these conditions are to suppliers, the greater will be the suppliers’ interest in the business. Under reverse marketing, the buyer is also generally involved in product development with the supplier and in nurturing and improving the supplier’s capabilities (as well as its motivation) to supply the buyer with these products/ services”. (International trade centre) Company may wish to change suppliers either because the supplier is not meeting its current requirements or because its evolving strategy now requires moving to a more qualified supplier to meet higher performance levels.
The alternative to switching to a new supplier is to work with the existing supplier to develop its capabilities or motivation to supply to our company. “Both options involve costs. Switching costs are the costs associated with changing from one supplier to another. These include, for instance, costs of retraining staff, of changed processes, of stock obsolescence, of contract termination penalties, etc. on the other hand, supplier to attain the expertise, systems, tools and other resources”. International trade centre) Buyers are often faced with strategic supplier relationship decisions when a supplier is unable to perform as expected involving the choice of either changing supplier or of working to develop the company’s existing suppliers. To make such decisions, the costs of both options must be carefully assessed. When you have got the quotation, compare the potential suppliers in terms of what matters most to you. For example, the quality of their product or service may be most important, while their location may not matter.
Price is important, but it shouldn’t be the only reason you choose a supplier. Lower prices may reflect poorer quality goods and services which, in the long run, may not be the most cost effective option. Be confident that your supplier can make a sufficient margin at the price quoted for the business to be commercially viable. Check that the supplier you employ is the one that will be doing the work. Some suppliers may outsource work subcontractor to determine if you are happy with this arrangement. Wherever possible it is always a good idea to meet a potential supplier face to face and see how their business operates.
Understanding how your supplier works will give you a better sense of how it can benefit your business. Remember that your business’ reputation may be judged or the labor practices and environmental record of your suppliers. It makes good business sense to consider the ethical and environmental dimensions of your supply chain. Triton should take into account some general selection problems when selecting which suppliers to invite. The main selection problems are the determination of the number of suppliers and the mode of relations with them.
Considering the characteristics of the company, product and market, company’s strategic plan encourage a large number of suppliers or not. Today, we are involved in a co-operative logistics environment. The company seeks a strong co-operative with its principal suppliers. This co-operative requires a low number of suppliers. Indeed, a strong co-operative with high number of suppliers is very difficult to manage. The task force current research is focusing on the classification of components or parts or process to externalize in order to establish a suitable relation with the suppliers of each category.
For example, Triton can consider a relation of partnership or even a strategic alliance with a supplier who provides a part or a component and with which it wishes to have a durable co-operation. On the other hand, Triton can have a hierarchical relation and a significant number of suppliers for the standard parts in order to establish a competition between them and thus to reduce the costs of purchasing. When company is making a significant purchase, it is wise to ensure that you have identified certain number of the potentially viable suppliers for your requirement.
It can be a comfortable experience to make a choice and find a supplier who meets your criteria at the company’s purchasing budget. Triton should take into account some general selection criteria when selecting which suppliers to invite. 1. The net price including discounts and freight charges offered by each supplier. 2. The ability of each supplier to meet quality specifications consistently. 3. The repair service likely to be given by each supplier. 4. The ability of each supplier to meet specified delivery schedules. 5. The financial position and credit rating of each supplier. . The product facilities and capacity of each supplier. 7. The amount of past business that has been done with each supplier. 8. The operational controls including reporting quality control, and inventory control systems of each supplier. 9. The attitude of each supplier toward your organization. 10. The desire for your business shown by each supplier. 11. The warranties and claims policies of each supplier. 12. The ability of each supplier to meet your packaging requirements for his product. Supplier performance management
Managing the performance of suppliers is a strategic focus of purchasing department as supplier performance is critical to a company that needs products and services in order to achieve certain results. If supplier performs well, company can reduce costs and increase profits, but if supplier performs poorly, it can fail the company in the eyes of its customers. Yet, few companies understand the importance of supplier management and fewer companies measure their suppliers’ performance and follow motivation strategy to improve supplier performance. Supplier Management Process consists of 6 main stages:
Selecting the suppliers to evaluate Selecting raters Selecting performance measures Rating supplier performance Correcting supplier performance Motivating supplier performance Selecting suppliers to evaluate When selecting suppliers to evaluate, you should limit the list to a reasonable number of suppliers. The main criteria for adding a supplier to the list are 1) whether a supplier has a great impact on your company operations, 2) whether you spend much money with a supplier because if a supplier deals with a few orders or money from you, most likely there is no need to evaluate this supplier.
Read more Selecting Raters When selecting raters, you shouldn’t ignore any stakeholders or end users in the supplier evaluation process. Raters participate in the evaluation of suppliers to make the suppliers support company’s goals well. The list of raters should include purchasing and supply management staff and may include engineers, quality staff and end users of the products or services because these people are highly interested in the performance of the product or service and are always happy to give their opinions. Read more
Selecting performance measures When selecting performance measures, you need to define the important aspects of your supplier performance. Performance measures will differ from organization to organization based on the needs of each particular organization. However, they usually fall into one of four categories: 1. Cost 2. Delivery 3. Service 4. Quality Each performance measure should be specific and measurable. Read more Rating supplier performance When rating supplier performance, you need to choose the right methods for rating.
These methods should be dependent on the performance measures and the way of acquiring necessary information. The most common ways of acquiring information and converting it into supplier ratings are supplier scorecards and system metrics. Read more Correcting supplier performance If your rating methodology shows that supplier’s performance leaves much to be desired, you should try to improve supplier performance. When correcting suppliers performance, you need to schedule a meeting with supplier and discuss supplier’s poor performance.
Do not end the meeting without agreed action plan that resolves the performance problem. Read more Motivating supplier performance If your rating methodology shows that a supplier performs well, you should reward this supplier to motivate him to continue performing well. It is not a difficult task, yet many companies ignore rewarding good supplier performance and don’t benefit from more competitive pricing, on time deliveries and better services. You need to design a supplier award program that will cost you little money and little effort but will motivate your suppliers to improve their performance.
The program can include various ways. Once the task force has successful implement the supply strategies developing, suppliers’ selection and evaluation and performance measurement from above then they will able to transfer Triton into hybrid organization as well as its purchasing system. References: Stanley E, Lisa M, Jeffrey A/ 2007/ Pearson/ U. S. A http://ecommerce. hostip. info/pages/968/Supply-Chain-Management. html#ixzz0VgJZZiXn www. intracen. org international trade centre unctad/wto 2000