Purchasing and supply chain management 4th edition

PURCHASING AND SUPPLY CHAIN MANAGEMENT Fourth Edition Robert M Monczka Arizona State University and CAPS Research Robert B Handfield North Carolina State University Larry C Giunipero Florida State University James L Patterson Western Illinois University Australia  Brazil  Japan  Korea  Mexico  Singapore  Spain  United Kingdom  United States Purchasing and Supply Chain Management, 4e © 2009 South-Western, a part of Cengage Learning Robert M Monczka, Robert B Handfield, Larry C Giunipero, James L Patterson ALL RIGHTS RESERVED No part of this work covered by the copyright herein may be reproduced, transmitted, stored or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher VP/Editorial Director: Jack W Calhoun VP/Editor-in-Chief: Alex von Rosenberg Sr Acquisitions Editor: Charles McCormick, Jr Developmental Editor: Bryn Lathrop Marketing Comm Manager: Libby Shipp Marketing Manager: Kristen Hurd Marketing Coordinator: Gretchen Wildauer Content Project Manager: Scott Dillon For product information and technology assistance, contact us at Cengage Learning Academic Resource Center, 1-800-423-0563 For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Manager of Technology: John Barans Technology Project Manager: John Rich Prod Technology Analyst: Adam Grafa Sr Manufacturing Coordinator: Diane Gibbons Production Service: Newgen–Austin Art Director: Stacy Jenkins Shirley Cover Designer: Joseph Pagliaro Library of Congress Control Number: 2008926725 Student Edition ISBN-13: 978-0-324-38134-4 Student Edition ISBN-10: 0-324-38134-4 South-Western Cengage Learning 5191 Natorp Boulevard Mason, OH 45040 USA Cengage Learning products are represented in Canada by Nelson Education, Ltd For your course and learning solutions, visit academic.cengage.com Purchase any of our products at your local college store or at our preferred online store www.ichapters.com Printed in the United States of America 12 11 10 09 08 To Shirley, Kathleen, Thomas, and Elliana ROBERT M MONCZKA To Sandi, Simone, and Luc ROBERT B HANDFIELD To Tressa, Jan, Matthew, Michael, and Amanda LARRY C GIUNIPERO To Diane, Lindsay, Karl, Drew, and Seth JAMES L PATTERSON Brief Contents Preface xxiii Part Introduction Chapter Part Part Purchasing Operations and Structure 35 Chapter Chapter Chapter Chapter Chapter Chapter Chapter Chapter Chapter 13 Chapter 14 Chapter 15 Strategic Cost Management 382 Purchasing and Supply Chain Analysis: Tools and Techniques 423 Negotiation 459 Contract Management 496 Purchasing Law and Ethics 538 Critical Supply Chain Elements 583 Chapter 16 Chapter 17 Chapter 18 Chapter 19 iv Supply Management and Commodity Strategy Development 188 Supplier Evaluation and Selection 233 Supplier Quality Management 271 Supplier Management and Development: Creating a World-Class Supply Base 306 Worldwide Sourcing 343 Strategic Sourcing Process 381 Chapter 11 Chapter 12 Part The Purchasing Process 36 Purchasing Policy and Procedures 85 Supply Management Integration for Competitive Advantage 110 Purchasing and Supply Chain Organization 153 Strategic Sourcing 187 Chapter 10 Part Introduction to Purchasing and Supply Chain Management Lean Supply Chain Management 584 Purchasing Services 621 Supply Chain Information Systems and Electronic Sourcing 665 Performance Measurement and Evaluation 705 Brief Contents Part v Future Directions 741 Chapter 20 Purchasing and Supply Strategy Trends 742 Cases 769 Case Case Case Case Case Case Avion, Inc 770 The Global Sourcing Wire Harness Decision 773 Managing Supplier Quality: Integrated Devices 776 Negotiation—Porto 779 Purchasing Ethics 780 Insourcing/Outsourcing: The FlexCon Piston Decision 783 Index 795 v Contents Preface xxiii Part Introduction Chapter vi Introduction to Purchasing and Supply Chain Management A New Competitive Environment Why Purchasing Is Important Understanding the Language of Purchasing and Supply Chain Management Purchasing and Supply Management Supply Chains and Value Chains 10 Supply Chains Illustrated 12 Achieving Purchasing and Supply Chain Benefits 15 The Supply Chain Umbrella 15 Management Activities 15 Four Enablers of Purchasing and Supply Chain Management 17 Capable Human Resources 19 Proper Organizational Design 19 Real-Time and Shared Information Technology Capabilities 20 Right Measures and Measurement Systems 21 The Evolution of Purchasing and Supply Chain Management 21 Period 1: The Early Years (1850–1900) 22 Period 2: Growth of Purchasing Fundamentals (1900–1939) 22 Period 3: The War Years (1940–1946) 23 Period 4: The Quiet Years (1947–Mid-1960s) 23 Period 5: Materials Management Comes of Age (Mid-1960s–Late 1970s) 24 Period 6: The Global Era (Late 1970s–1999) 25 Period 7: Integrated Supply Chain Management (Beyond 2000) 25 Looking Ahead 26 Good Practice Example: Taking an Entrepreneurial Approach to Purchasing at Babson College 26 Contents Part vii Purchasing Operations and Structure 35 Chapter The Purchasing Process 36 Purchasing Objectives 38 Objective 1: Supply Continuity 38 Objective 2: Manage the Purchasing Process Efficiently and Effectively 39 Objective 3: Develop Supply Base Management 39 Objective 4: Develop Aligned Goals with Internal Functional Stakeholders 40 Objective 5: Support Organizational Goals and Objectives 40 Objective 6: Develop Integrated Purchasing Strategies That Support Organizational Strategies 40 Purchasing Responsibilities 41 Evaluate and Select Suppliers 41 Act as the Primary Contact with Suppliers 42 Determine the Method of Awarding Purchase Contracts 42 E-Procurement and the Procure to Pay Process 42 Forecast and Plan Requirement 44 Needs Clarification: Requisitioning 46 Supplier Identification and Selection 54 Approval, Contract, and Purchase Order Preparation 58 Receipt and Inspection 65 Invoice Settlement and Payment 67 Records Maintenance 68 Continuously Measure and Manage Supplier Performance 68 Re-engineering the Procure to Pay Process 68 Types of Purchases 69 Raw Materials 70 Semifinished Products and Components 70 Finished Products 70 Maintenance, Repair, and Operating Items 70 Production Support Items 71 Services 71 Capital Equipment 71 Transportation and Third-Party Purchasing 73 Improving the Purchasing Process 74 Online Requisitioning Systems from Users to Purchasing 74 Procurement Cards Issued to Users 74 viii Contents Electronic Purchasing Commerce through the Internet 75 Longer-Term Purchase Agreements 75 Online Ordering Systems to Suppliers 75 Purchasing Process Redesign 77 Electronic Data Interchange 77 Online Ordering through Electronic Catalogs 77 Allowing Users to Contact Suppliers Directly 78 Good Practice Example: Sourcing Process at Federal Express 78 Conclusion 82 Chapter Purchasing Policy and Procedures 85 Policy Overview 87 What Are the Advantages and Disadvantages of Policies? 87 What Makes for an Effective Policy? 88 Purchasing Policies—Providing Guidance and Direction 89 Policies Defining the Role of Purchasing 89 Policies Defining the Conduct of Purchasing Personnel 91 Policies Defining Social and Minority Business Objectives 94 Policies Defining Buyer-Seller Relationships 98 Policies Defining Operational Issues 100 Purchasing Procedures 103 Purchasing Procedural Areas 105 Good Practice Example: Best Practices in Diverse Supplier Development 106 Conclusion 108 Chapter Supply Management Integration for Competitive Advantage 110 Integration: What Is It? 114 Internal Integration 116 Supply Management’s Internal Linkages 116 External Integration 121 Supply Management’s External Linkages 121 Collaborative Buyer-Seller Relationships 122 Advantages of Closer Buyer-Seller Relationships 122 Obstacles to Closer Buyer-Seller Relationships 123 Critical Elements for Supplier Relationship Management 125 Contents ix The Critical Role of Cross-Functional Sourcing Teams 127 Benefits Sought from the Cross-Functional Team Approach 128 Potential Drawbacks to the Cross-Functional Team Approach 130 When to Form a Cross-Functional Team 131 Improving Sourcing Team Effectiveness 132 Integrating Supply Management, Engineering, and Suppliers to Develop New Products and Services 137 Common Themes of Successful Supplier Integration Efforts 137 Supplier Integration into Customer Order Fulfillment 143 Supplier Suggestion Programs 143 Buyer-Seller Improvement Teams 144 On-Site Supplier Representative 145 Potential Benefits of On-Site Supplier Representatives 146 Good Practice Example: Caterpillar Works with Delco to Achieve Mutually Beneficial Outcomes 148 Conclusion 150 Chapter Purchasing and Supply Chain Organization 153 Purchasing’s Position within the Organizational Structure 156 Factors Affecting Purchasing’s Position in the Organizational Hierarchy 156 To Whom Does Purchasing Report? 157 Organizing the Purchasing Function 158 Specialization within Purchasing 158 Purchasing Department Activities 161 Separating Strategic and Operational Purchasing 163 Placement of Purchasing Authority 164 Factors Influencing Centralized/Centrally Led or Decentralized Structures 166 Advantages of Centralized/Centrally Led Purchasing Structures 167 Advantages of Decentralized Purchasing 169 A Hybrid Purchasing Structure 170 Organizing for Supply Chain Management 174 A Supply Chain Management Structure 175 Using Teams as Part of the Organizational Structure 175 Creating the Organization of the Future 178 796 Index Break-even analysis, 404–408, 407 Brenntag North America, 241–243 Bribery, 568 Bridging solutions, 482 Briefings on negotiation, 474 British Airways, 276 Brokers for transportation, 628–629 Brown, Louis, 500 Brown, Mark, 709 Budgeting, 650–651, 720–721 Bungo, Mike, 267 Burns, Mike, 227–228, 389 Business Directory of Hong Kong, 353 Business modeling and complexity decisions, 611–612 Business models for e-sourcing, 687 Business processes and e-SCM systems, 676 Business strategy and organizational structure, 167 Business to business (B2B) platforms, 254 Business unit strategies, 192, 195 Buy-back, 363 Buy.com, 440 Buyer-seller relationships advantages of closer relationships, 122–123 collaborative, 122 obstacles, 123–125 Suncor Energy example, 124 traditional vs collaborative characteristics, 123 See also Supplier relationship management (SRM) systems; Supplier relationships Buyer’s rights, 561 Buying channels, reducing complexity in, 54 Buying function, 161 Buy-side systems, 687 C CAD (computer aided design), 141, 254, 351, 746 Cadbury Schweppes, 575 Calderón, Roy, 250 Camp, Robert, 731 Cancellation of orders, 549–550 Canon, 70 Capability variable, 631 Capital equipment purchase, 71–73 Capital-intensive plant and equipment, 466 CAPS Research, 731 Carbon Disclosure Project (CDP), 575 Cardinal Health, 585–586 Carrier selection, 638, 638–640 Carrier types air carriers, 634–635 common carriers, 639 contract carriers, 639 exempt carriers, 640 motor carriers, 633 private carriers, 639–640 rail carriers, 633–634 water carriers, 635–636 See also Transportation Carrying costs, 589, 589 Carson, Scott, 189 Cash discounts, 397 Catalogs electronic, 77–78 online, 525 reducing complexity in, 54 supplier-managed e-catalogs, 652 Categorical system, 311–312 Category, defined, 190 Category strategy development overview, 203, 203 contract negotiation, 215–217 market research on suppliers, 204–210, 207 portfolio analysis, 211, 212–213 supplier evaluation, 213–215 supplier relationships management, 217–218 team building and project charter, 204 trends, 746–750 See also Strategy development and category management Caterpillar, 102, 148–149 Caucus tactic, 479 Census of U.S Manufacturers, 205 Center for Advanced Purchasing Studies (CAPS), 157, 648, 650, 661, 731, 744, 754, 756, 760, 763 Center for Advanced Supply Management Studies, 209 Centers of Excellence, 78 Centralized structure Con-way example, 172–173 defined, 164 factors influencing, 166–169 history of, 165 trends, 761 worldwide sourcing and, 360, 361, 371 Certified Professional in Supply Management (CPSM) designation, 28 Certified Purchasing Manager (C.P.M.) designation, Cessna Aircraft Co., 454–456, 764–765 Change, resistance to, 125, 351 Change management, 169 Change notices, 67 Charge-back costs, 101 Chemical industry, 97 Cheung Shu-Hung, 352 Chicago and Northwestern Railroad, 22 Chief executive officers (CEOs), 80, 107, 158, 180, 193 Chief financial officers (CFOs), 196 Chief procurement officers, 180 Chief purchasing officers (CPOs), 156, 157–158, 166 China Brenntag North America and, 242 conflicts of interest and, 578 Gap and, 93 GM and, 748 heparin from, intellectual property and, 563 negotiation in, 487 project management and, 428–429 toy quality and, 272 worldwide sourcing and, 352–353, 359, 360 Chinnici, Fran, 3–4 Chopra, S., 670, 673 Chrysler, 7, 262, 275, 510, 714, 754 Cialdini, Robert, 480 CIF (cost, insurance, and freight), 560 Cisco, 70, 157 CISG (UN Convention for the International Sale of Goods), 360, 566 Citizenship, corporate, 94 Clarity, 724–725 Clauses in contracts, 502 Clayton Antitrust Act (1914), 565 Clean Air Act (1990), 97, 214, 251 CLM (Council of Logistics Management), 285 Closed-loop systems, 605 Code of conduct at Caterpillar, 102 See also Ethics Coercive power, 475 Colgate-Palmolive, 170 Collaboration in buyer-seller relationships, 122, 123 in cost management, 412–417, 415, 417 negotiation and, 466 trends, 754–755, 756–757 Collins & Aikman Corp., 510–511 Co-location of buyer and supplier personnel, 141–142, 145 with internal customers, 180, 181 quality and, 290–291 Commercial law, 544 Commitment management, 120 Commodities bottleneck, 213 cost management and, 388 critical, 212, 325–326 global markets, shifting, 389 leverage, 213 price analysis and, 397 price forecasting, 226–229 price information sources, 398 routine, 212 Commodity coding for indirect spend, 652 Commodity rotation, 574 Commodity strategies, 192 Commodity strategy development See Strategy development and category management Commodity teams, 195–196, 263–264, 652–653 Common carriers, 639, 640 Common costs, 364–365 Common law, 562 Communication e-SCM systems and, 675 negotiation and, 462 performance measurement and, 709 Index quality and, 279 worldwide sourcing and, 356, 371–373 Communications EDI and, 77 external linkages, 121 internal linkages, 116–118, 117 teams and, 129 Companywide purchase volumes, leveraging, 612 Compensation trading, 363 Competency staircase approach, 322 Competent parties, 546 Competition, perfect, 391 Competition pricing model, 397 Competitive advantage collaboration and, 757 organizational design and, 155 procure to pay cycle and, 43 supplier development and, 335 supply networks and, 753 Competitive bargaining See Win-lose negotiation Competitive bidding See Bidding, competitive Competitive environment, 5–6 Competitors as suppliers, 262 Complexity, reducing, 54 Complexity management, 611–612 Component market uncertainty, 512 Computer aided design (CAD), 141, 254, 351, 746 Concealed damages, 66 Concessions, 476–478, 477, 479 Concurrent processes, 450 Conditions and instructions, 60 Confidentiality, 123 Confidentiality agreements, 142, 564, 565 Confirming order requisitions, 49 Conflict of interest issues, 100 Conflict resolution See Dispute resolution Conflicts of interest, financial, 570–571 Connelly, Peter, 226–227, 389 Consequential damages, 552 Consideration, 546 Consignment, 612 Consistency principle, 480 Consolidation, 167–168, 648 Consortiums, 650 Construction contracts, 523–524 Consultant evaluation and selection, 655–656 Consulting contracts, 521–523 Contacts with suppliers, policies on, 92 Container Security Initiative (CSI), 635 Content-enabled analytics, 696 Continuity, supply, 38–39 Continuous improvement in Deming’s 14 points, 281–282 kaizen, 281, 330, 331, 439–440 supplier quality and, 275 trends, 745 as way of life, 289–290, 290 Continuous measurement of supplier performance, 68 Contract carriers, 639, 640 Contracted services process, 27, 30 Contract management and compliance modules, 692–693 Contract price, 64 Contracts overview, 499–501 breach of contract, 550–551, 553 buyer-seller relationships and, 123 cancellation of orders, 549–550 clauses, 499, 502–504, 506–507, 508, 513, 514, 516, 517–518, 522–523, 524, 528, 548, 553, 558, 656 construction contracts, 523–524 consulting contracts, 521–523 cost-based, 64–65, 509–511 currency adjustment clauses, 368 damages, 551–552 determining methods of awarding, 42 development of, 544–546 dispute resolution, 506, 510–511, 526, 526–532 e-commerce contracts, 501, 525–526 electronic manufacturing service (EMS) example, 556 elements of, 501–506 fixed-price, 64–65, 507–509 honest mistakes, 553–554 how to write, 506–507 international, 360, 507 IT systems contracts, 518–520 law of, 541, 544–554 leaking capacitors example, 530–531 longer-term contracts with alliances and partnerships, 513–518, 514 long-term, 513–518, 514 minority and women-owned business contracts, 520 need for, 63–64 negotiation of, 215–217 nonperformance of, 466, 541 offer, acceptance, and consideration, 60–61, 544–546 predefined language and shorter contracts, 264 preventive contracting, 499 principles and guidelines for awarding, 98–99 procedures, 105–106 process of contracting, 547, 547 for professional services, 656 purchase orders as, 547, 547–549 purchasing agreements as, 524–525 Roche Diagnostics example, 497–499 schedules, 502, 503, 504, 505–506, 507, 510 services contracts, 505 short-term, 512, 513 supply management, role of, 120 top 10 most frequently negotiated terms, 532–534, 534 types, comparison and selection of, 507, 508, 512, 512–513 Control, as supply chain management activity, 17 Control ratios, 721 Control systems and supplier evaluation, 253 Convenience of the purchaser, cancellation for, 550 Convenience ordering systems, 78 Con-way Inc., 172–173 Cooperation and teamwork, 759 Coordination, 156 Copyright law, 561–562, 563 Copyright ownership, 521–522 Corcoran, Tom, 241–242 Core competencies, 749 Corporate agreements, 525 Corporate purchasing councils, 172 Corporate purchasing office policies, 90–91, 91 Corporate social responsibility, 574–576, 576 Corporate steering committees, 172 Corporate strategies, 190–191, 192, 193 Corporate supplier diversity committees, 97 Corrective action requests, 285, 286, 517–518 Cost accounting system, 119, 590 Cost analysis, defined, 384 Cost analysis techniques, 399–404, 402, 403 Cost avoidance, 715–716 Cost-based contracts, 64–65, 509–511 Cost-based measurement system, 313, 313–315, 314, 315 Cost-based pricing models, 400, 414–415, 415, 417 Cost-change measures, 715–716 Cost cutting for compliance, 482 Cost-effectiveness measures, 715–716 Cost management, strategic break-even analysis, 404–408, 407 collaborative approaches, 412–417, 415, 417 cost analysis techniques, 399–408 definitions, 384 e-SCM and, 676 pipeline costs forecast example, 394–395 price analysis, 390, 390–399, 393, 396, 398, 399 Southwest Airlines example, 383–384 structured approach to, 385, 385– 390, 386, 387, 388 total cost of ownership (TCO), 221, 397, 408–412 trends, 745 voice of the factory (VOF) example, 417–419 welder cost example, 405 Cost markup pricing model, 400 Cost of quality, 289 Cost per transaction, 74, 365–366 Cost plus fixed-fee contracts, 511 Cost plus incentive fee contracts, 508, 509 Cost reduction purchasing and, quality and, 291 strategic planning and, 191, 191 supplier measurement and, 309 supply base and, 318 797 798 Index Cost reduction (continued) worldwide sourcing and, 345–346, 348–349, 376 See also Cost management, strategic Cost-reduction measures, 719 Cost-savings sharing pricing, 414, 416–417 Cost sharing, 327, 515 Cost-sharing contracts, 510 Cost structure of suppliers, 214, 250–251 Council of Logistics Management (CLM), 285 Council of Supply Chain Management Professionals (CSCMP), 623 Counteroffer, 545, 547 Counterpurchase, 363 Countertrade, 162, 262, 362–363 Cousins, P., 125 CPM (Critical Path Method), 430, 431 Critical commodities, 212, 325–326 Critical Path Method (CPM), 430, 431 Critical suppliers, 326 CRM (customer relationship management) systems, 669, 673, 673, 695 Crosby, Philip, 273, 275, 288 Cross-cultural skills, 760 Cross-functional sourcing teams overview, 127–138, 128 at Air Products, 183 benefits, 128–130 drawbacks, potential, 130–131 effectiveness, improving, 132–136 project management and, 433 trends, 758–759 when to form, 131 Cross-functional supply management, 10 Cross-functional teams, 51, 137–139, 326, 451 See also Teams CSCMP (Council of Supply Chain Management Professionals), 623 CSI (Container Security Initiative), 635 CSM Worldwide, 511 CSX Transportation, 3–5, Culture, 356 Cultures, organizational, 332 Culture shock, 485–486 Cummins, Tim, 120, 532–533 Cumulative knowledge database, 654–655 Currency adjustment clauses, 368 Currency risk, 351, 367–369 Current budget plus adjustment measure, 720 Customer-centric supply measures, 762 Customer defects per supplier, 717 Customer orders measures, 720 Customer relationship management (CRM) systems, 669, 673, 673, 695 Customer satisfaction, 722 Customer service, 17, 594 Customer service management, 175 Custom items for standard applications, 598 Customization, premium pricing for, 610 Customs laws, 567 Customs-Trade Partnership Against Terrorism (C-TPAT) program, 636 Cutler, Alexander (Sandy), 264–265, 577–578 Cycle counts, 51 Cycle time, 262–264, 597, 612–613, 745–746 Cycle time reduction measures, 718 D DaimlerChrysler, 157, 714 Damages, 551–552 Databases, 239–240, 654–655, 681–683 Data buckets, 693 Data collection, 205–206, 648 Data information management, 675–676 Data sources See Information sources and gathering Data warehouses, 263, 682 Davis, Russ, 165, 166 Decentralized structure advantages of, 169–170 defined, 164 factors influencing, 166–167 policies and procedures manual and, 86 trends, 761 worldwide sourcing and, 360, 361, 371 Decision Analysis, 264 Decision making complexity management, 611–612 cost and quality, 281 groupthink and poor decisions, 131 hybrid structure and, 170 performance measurement and, 709 routine, 670 strategic, 670 teams and, 129 transportation strategy development, 626, 627 Decision support systems (DSSs), 670 Deere and Company, 332–333 Default, cancellation for, 550 Defective material policies, 101 Defects, 285, 552–553 Defects per million opportunities (DPMOs), 292–293 Deficiency vs problem, 259–260 Delaney, Wayne, 460 Delco Electronics, 148–149 Deliverables, focus on, 125 Delivery performance, 309 Delivery uncertainty, 596–597, 598 Dell Computer, 15, 52, 119, 276, 320, 485, 599, 611–612, 697, 743, 753 Delphi, 148–149, 212, 511 Demand forecasts, uncertain, 597 Demand management, 175, 657, 659, 695 Demand planning, 16 Deming, W Edwards, 279 Deming’s 14 points, 279–283, 280 Deregulation of transportation, 625–626, 640 Description by brand, 52 Description by industry standard, 52 Description by market grade, 52 Description by performance characteristics, 52 Description by specification, 52 Descriptions, 51–52 Design for supply, 695 Design of new products See New product development (NPD) DHL Corp., 336, 598–599 DiMicco, Dan, 227, 389 Direction of linkages, 670 Disaster relief and inventory, 598–599 Discounts, cash, 397 Dispute prevention, 529 Dispute resolution overview, 526, 526 arbitration, 506, 528, 556 dispute prevention, 529 Ford and C&A example, 510–511 legal alternatives, 526–527 mediation, 528–529 minitrials, 529 online, 527 rent-a-judge, 529 Disruptions of supply, 99, 142, 218–219, 319–320, 593 Distribution as supply chain management activity, 17 Distribution requirements planning (DRP) systems, 668 Distribution resource planning (DRP) systems, 614 Distributive bargaining See Win-lose negotiation Distributors vs manufacturers, 243 Diversity and minority suppliers, 94–97, 106–107 DMAIC, 294 Document management, 658–660 Douglas Aircraft Company, 441 Dow Chemical, 97 DPMOs (defects per million opportunities), 292–293 Dragnis, John P., 202 DRP (distribution requirements planning) systems, 668 DRP (distribution resource planning) systems, 614 DSSs (decision support systems), 670 Dun & Bradstreet (D&B), 247 Duplication of effort, 168 DuPont, 252 Dynamic systems, 726 Dynamic trading networks, 696 E Early supplier design involvement (ESDI), 284 See also New product development (NPD) Eaton Corporation, 264–267, 451, 577–578 E-auctions, 58 See also Reverse auctions (e-RAs) eBay, 440 E-bid optimization, 689 Index E-catalogs, supplier-managed, 652 E-commerce contracts, 501, 525–526 E-commerce supplier capabilities, 254 Economic Cycle Research Institute, 227, 389 Economies of scale, 115, 208, 318, 633, 640, 642, 643, 748 EDI See Electronic data interchange Edmisten, Brent, 454 Education and self-improvement, 283 Effectiveness, 708 Efficiency, 599–600, 708, 720–721 Efficient and effective purchasing process, managing, 39 EFT (electronic funds transfer), 68 ELAMS system, 80 E-Learning Scorecard, 264 Electronic capability, expanded, 613 Electronic catalogs, 77–78 Electronic competitive bidding, 58 Electronic data interchange (EDI) B2B platforms vs., 254 cycle time and, 65 Internet EDI, 685–686, 686 process of, 684–685 in purchasing process, 77 supplier development and, 333 system components, 683–684 Electronic funds transfer (EFT), 68 Electronic procurement See E-procurement Electronic purchasing commerce through the Internet, 75 Electronic Signatures in Global and National Commerce Act, 501 Elm, Tyler, 745 Emergency planning, 113 Emergency policies, 99 Employee capabilities of suppliers, 249 Emptoris, 693 EMSs (environmental management systems), 100–101 End-of-life costs, 408, 411, 412 Engineering, 118, 146 Enterprise resource planning See ERP (enterprise resource planning) systems Entry barriers, 392 Entry qualifiers, 245 Environmental issues policies on, 97 S.C Johnson sustainability example, 750–751 social responsibility, 575–576 supplier regulation compliance, 214, 251–252 Environmental management department, 121 Environmental management systems (EMSs), 100–101 EPIC, 20, 33n14 E-procurement definition and benefits of, 44 electronic purchase requisition systems, 49 at FedEx, 80 negotiation and, 467–468, 490 reorder point systems, 50 traveling requisitions, 50 See also Automation; Supply chain information systems and e-SCM E-RAs See Reverse auctions ERFx modules, 689 ERP (enterprise resource planning) systems overview, 676–678, 677 advantages of, 671–673, 673 expediting and, 161 history of, 668 implementing, 678–679 integration with e-sourcing, 694 Premier International example, 679–681, 680 Escalation clauses, 508 Escape clauses, 63, 518 E-SCM See Supply chain information systems and e-SCM ESDI (early supplier design involvement), 284 See also New product development (NPD) E-sourcing See Supply chain information systems and e-SCM E-sourcing business models, 687 E-sourcing suites, 686–687 Essar Global, 346 Ethics overview, 567–568 Caterpillar’s code of conduct, 102 Eaton example, 577–578 influence and, 571, 572 Iraqi food services example, 539–541 ISM Standards of Conduct, 571–573 policy, 92, 573–574 risks of unethical behavior, 568 supporting ethical behavior, 573–574 types of unethical behavior, 569–571 E-transactions measures, 720 European Common Market, 294 Evaluation of suppliers See Supplier evaluation and selection Evergreen clauses, 517 Excellence, striving for, 586 Execution software, 20 Execution systems, 674 Executive orders, 520 Exempt carriers, 639, 640 Exhortations, 282 Exit barriers, 207 Expand the pie method, 481–482 Expectancy, 551 Expediting function, 161 Experience curves, 438 Expertise, development of, 168–169 Expert power, 476 Export Administration Act, 566–567 Expressive bidding, 689 Express warranties, 557 Extended enterprise concept, 12 Extended value chains, 11, 12 External integration linkages, 121–122 External strategic integration, 675 F Facts, in negotiation, 472 Failure costs, 289, 589 external, 289 internal, 289 Fanning, Bill, 76 Favors, 570 Fax systems, automatic, 77 Fear, 282 Federal Trade Commission (FTC), 565, 569 Federal Trade Commission Act (FTCA, 1914), 565 FedEx Corporation corrective action, 285 indirect spending and, 648, 649 international negotiation and, 486 sourcing process, 78–80, 81 Staples and, 71 supplier measurement, 336–337, 338 Feedback, 709 Fiegenbaum, Armand, 273 Field failure rates by purchased item and by supplier, 717 Finance department, 368 Financial condition of suppliers, 214, 252–253, 253 Financial conflicts of interest, 570–571 Financial risk analysis, 244 Finished-goods inventory, 588 Finished products purchase, 70 Firm fixed price, 64, 507–508 First insight measure, 718 Five Forces model, 206–207, 207 Fixed-price contracts, 64–65, 507–509 with escalation, 508 with incentives, 509 with redetermination, 508–509 Flow, 586 FOB destination, 626, 627, 628, 644, 648, 560 FOB (free on board), 560, 626–628, 628 FOB origin (or shipping point), 627, 628, 644, 560 Forbes, Nathaniel, 112 Force majeure, 503, 506, 507 Ford Motor Company, 7, 23, 100, 142, 194, 241, 262, 272, 510–511, 595, 685, 697, 752 Ford, William Clay, Jr., 100, 194 Forecasts of commodity prices, 226–229 demand forecasts, uncertain, 597 improving, 53 market forecasts and customer orders, 50 price forecasting models, 693–694 product forecasting improvement, 609 purchasing responsibility for, 162–163 of requirements, 44–45 Foreign Corrupt Practices Act, 360, 566, 568 Foreign laws, 567 Former employees representing suppliers, 92 Forms, procedures on, 105 Fortune magazine, 172 Forward exchange contracts, 368 Founder’s philosophy, 157 Fourth-party logistics (4PL), 645–646 France, 488 799 800 Index Freight bills, 559 Friedman, Thomas, 5, 345, 485 Fritz, Lynn, 599 Fronckoski, Jim, FTC (Federal Trade Commission), 565, 569 Fuji Heavy Industries Ltd., 142 Full-service suppliers, 317–318 Future contracts, 551 G Gantt charts, 430, 431 Gap Inc., 93–94 Garrigus, Shondra, 242–243 GDP (gross domestic product), 6, 357 General agent, 541, 542, 557 General damages, 552 General Electric (G.E.), 23, 168, 575 General Motors (GM), 7, 70, 218, 262, 321, 510, 575, 595, 600, 601, 645–646, 697, 748, 755 Geographic-specific options and standards, 610–611 Germany, 488 Gillette, James, 511 Giunipero, Larry, 760 GlaxoSmithKline, 212 Global buying committees, 172 Global engineering and procurement process, 182 Globalization, 345–346, 346, 675 Globalization managers, 183 Global Outlook, 205 Global positioning systems (GPSs), 20, 644, 674 Global sourcing, defined, 347 See also Worldwide sourcing Goals aligning with internal functional stakeholders, 40 expanding, 744–746 performance goals for teams, 135–136 supply management objectives translated into, 193–195 supporting organizational goals, 40 Government linkages, 121–122 Gray box design, 140, 140 Greater team concept, 124 Greif, 228 Gross domestic product (GDP), 6, 357 Groupthink, 131 Guest engineer program, 141 Guided buying, 695 Guide to Supplier Development, 324 Gutierrez, Marshall, 539, 540–541 H Hammer, Gregg, 266 Handfield, Robert, 125 Harley-Davidson, 154–155 Harris, 755 Harvard Business Review, 24 Hazardous waste policy, 97, 100–101 H.B Fuller Corporation, 250 Health and safety departments, 121 Hedging, 368, 594–595 Hefley, Stan, Henderson, Bruce D., 23 Heparin, Herman Miller Inc., 157, 252 Hewlett-Packard (HP), 70, 157, 168, 387, 722 High ball tactic, 479 Hill, John A., 23 Hoffman, Debra, 613 Hofstede, G H., 178 Hold-harmless clauses, 524 Holzman, Carey, 531 Honda, 7, 99, 142, 157, 212, 324 Honda of America, 67, 330, 331, 333, 335, 413–414 Honda of America Manufacturing (HAM), 307–308, 333, 413–414 Honest mistakes, 553–554 Honesty and openness tactic, 478– 479 Honeywell, 45, 145 Horizontal portals, 687 Horizontal vs vertical organization, 178, 179 Hours of service rules, 630 Huber, Mike, 72 Human resources, 18, 19 Husain, Aasim, 226 Hybrid structure, 165, 170–172, 171 Hyundai Motor Company, 332, 334 I IACCM (International Association of Commercial and Contract Managers), 120, 532, 533, 534 IBM, 70, 76, 119, 157, 254, 329, 357, 518, 743 ICC Termination Act, 625 ICE, 205 IMF (International Monetary Fund), 226 Immelt, Jeffrey, 575 Implied warranties, 557–558 Improvement, continuous See Continuous improvement Improvement teams, buyer-seller, 144–145 “Improve or else” approach, 321 Inbound logistics, 623 Incentives and rewards, 328, 509 Incidental damages, 552 Incoterms, 357, 358 Indemnification, 563 Independent demand systems, 614 India, 488, 563 Indirect information, 240–241 Indirect spending overview, 622–623, 646–648, 647 Bayer example, 651 enabling tactics and strategies, 650–653 external management methods, 650 FedEx example, 649 internal management methods, 648–650 at Microsoft, 72 Saab example, 622 See also Logistics; Services; Transportation Individualistic national culture, 178 Industrial directories, international, 353–354 Industry standard, description by, 52 Industry Week, 291 Inefficient production and inventory, 599–600 Influence, 571, 572 Informal policies, 87 Informational power, 475, 476 Information flows in e-supply chains, 669–674, 671, 673, 686, 697 Information sharing, 331, 373, 683 See also Electronic data interchange (EDI) Information sources and gathering for benchmarking, 730–731 cost analysis and, 401 data warehouses, 263 external or third-party, 247 negotiation and, 471 for supplier evaluation, 238–241 supplier-provided, 245 value analysis and, 446 Information systems See Supply chain information systems and e-SCM Information technology (IT), 18, 20–21, 248, 518–520 Information visibility, 694–700 Infringement, warranty of, 558 Innovation, 129, 745, 753, 757 INSEAD, 196 Innovation measures, 718 Insight, 718 Insourcing and outsourcing as purchasing activity, 162 Inspection, 281 Institute for Supply Management (ISM), 8, 240–241, 391–392, 571–573, 574–575, 576 Insurance protection for international shipments, 366 Integrated supply, 243 Integrated supply chain management measures, 719 Integrated supply chain management strategies, 454–455 Integration overview, 112–116 of accounts payable processes, 652 Apple example, 112–113 benchmarking and, 731 buyer-seller improvement teams, 144–145 Caterpillar and Delco example, 148–149 cross-functional teams (CFTs), 127–136 for customer order fulfillment, 143 cycle time and, 263 defined, 114–115 of ERP and e-sourcing, 694 external, 121–127 forms and methods, 115–116 Index greater team concept, 124 internal, 116–121, 117 internal and external strategic integration, 675 of logistics and other SCM applications, 674 Manitowoc example, 111–112 of marketing and purchasing, 181–182 Motorola example, 743 in new product development, 99, 137–143, 138, 140 on-site supplier representatives, 145–147, 148 in strategy evolution, 224–225 supplier suggestion programs, 143–144 Integration clauses, 507 Integrative bargaining (win-win negotiation), 461, 481–482, 482 Integrative strategy development, 191–193, 192 Intel, 275, 277, 485 Intellectual property (IP), 561–565 Intellectual property law, 359, 561–565, 564 Interest, financial, 570–571 Interest of negotiators, 462 Intermodal transportation, 637 Internal customers, 12, 180, 181, 263, 657 defined, 39 purchasing process and, 38–46, 43, 51, 54, 69 satisfaction measures, 722 Internal customer satisfaction measures, 722 Internal functional stakeholders, 40 Internal integration, 116–121, 117 Internal relationships, building, 130 Internal strategic integration, 675 Internal supply chain management, 670 International Association of Commercial and Contract Managers (IACCM), 120, 532, 533, 534 International industrial directories, 353–354 International laws, 567 International Manufacturing Technology Show, 354 International Monetary Fund, 226 International Organization for Standardization (ISO), 251, 273, 294 International purchasing, defined, 347 See also Worldwide sourcing International purchasing offices (IPOs), 345, 360, 361, 374 Internet-based reverse auctions, 467 See also E-procurement Internet commerce law, 501 Internet EDI, 685–686, 686 Internet searches, 241 Intraorganizational movement, 623 Intuit, 505 Inventory control, 16, 24, 161, 162, 599, 615, 680 Inventory management overview, 586–587 Amazon.com example, 592, 592–593, 593 Cardinal Health example, 585–586 costs, 588–590, 589 cycle time reduction, 612–613 disaster relief example, 598–599 financial impact, 590, 590–592, 591 JIT and lean supply chains, 600–607, 601, 602, 603, 606 kanban systems, 606–607 lean supply chains, 586, 600 leveraging companywide purchase volumes, 612 measures, 719 palladium market example, 595 perfect customer order, delivering, 613–615 product design standardized and simplified, 610–612 product forecasting improvement, 609 as purchasing activity, 162 record integrity, 608–609 right reasons for inventory investment, 593–596 stock checks, 51 suppliers, on-site inventory management by, 612 as supply chain management activity, 16 three-V model, 607, 608 transportation system, 605–606, 606 traveling requisitions and bar codes, 49–50 types of inventory, 587–588 wrong reasons for inventory investment, 596–600 Inventory turnover, 253, 593, 593, 719 Invoice settlement and payment in P2P cycle, 67–68 IP (intellectual property), 121, 357, 360, 466, 503, 521, 532, 561–565, 577 IPOs (international purchasing offices), 345, 360, 361, 374 Irregularbusinessdealings,reporting,94 Irrevocable letters of credit, 366 ISM (Institute for Supply Management), 8, 240–241, 391–392, 571–573, 574–575, 576 ISM Standards of Conduct, 571–573 ISO (International Organization for Standards), 251, 273, 294 ISO 9000:2000 registration, 294–296 ISO 9000 criteria, 251 ISO 14000 standards, 100, 296 Issues, in negotiation, 472 IT (information technology), 18, 20–21, 248 Itani, Samir, 540 IT systems contracts, 518–520 I2 Technologies, 45, 697 J Jackcon Capacitor Electronics Co., 530 Jacobs, Irwin, 88 Jacobs, Rick, 265, 266 Jaffray, Piper, 670 Japan, 488–489 JCI Corporation, 333, 334 JC Penney, 672 Jeffcott, Bob, 93–94 JIT See Just-in-time (JIT) approach John Deere, 648 John Michael Personnel Group, 467 Johnson, Charles B., 764 Johnson & Johnson, 181–182 Johnson Controls, 291 Joint ownership of decisions, 129 Joint participation, 726 Jones, D T., 586 Jones, Don, 72 JP Cannon Associates, 467 Juran, Joseph, 273, 296 Just-in-time (JIT) approach overview, 600–601, 601 defective shipments and, 101 on inventory, 602, 602–604, 603 in P2P cycle, 67 purchasing system, 604–605 on waste, 601–602 K Kahl, Steven, 670 Kaizen, 281, 330, 331, 439–440 See also Continuous improvement Kanban systems, 606–607 Kaplan, Robert S., 733 Katzorke, Michael R., 764 Keefe, Rod, Kelly, Gary, 383 Kelly-Green, Edith, 649 Kempler, Robert, 88 Key performance indicators (KPIs), 126, 504, 591, 641, 693, 733 Kirkendoll, Teresa, 455 Klingman, Dennis, 405 Knowledge networking, 696 Kolchin, M G., 74 KOTRA, 354 KPIs (key performance indicators), 126, 504, 591, 641, 693, 733 L Labor costs, 403, 404 Labor issues, 93–94, 99 Language issues, 356, 486 Latent defects, 552 Law and legal issues agency law, 541–542, 543 antitrust and unfair trade practices, 565–566 authority and liability of purchasing managers, 541–544, 543 common law, 562 contract law, 541, 544–554 electronic manufacturing service (EMS) example, 556 global purchasing laws, 566–567 intellectual property, 561–565, 564 Iraqi food services example, 539–541 seller’s and buyer’s rights, 560–561 trade diversion laws, 569 801 802 Index Law and legal issues (continued) transportation terms and risk of loss, 559–560 UCC as source of, 554–561 warranties, 556–559 in worldwide sourcing, 357–360 Lawsuits, 500, 522 Lead division buying, 171 Leadership, 106–107, 135, 282 Lead times and worldwide sourcing, 351 Lean supply chains, 586, 600 See also Just-in-time (JIT) approach Lean techniques at Cessna, 454–456 Lear Corp., 100 Learmonth, Art, 410 Learning-curve analysis, 438–442, 441, 443 Learning-curve effect, 404 Learning rate, 438 Leenders, Michiel, 324 Legacy systems, 676, 678 Legal authority, of purchasing manager, 542 Legal barriers to closer buyer-seller relationships, 125 Legal department, 119–121, 264 Legal issues See Law and legal issues Legal subject matter, 546 Leggett & Platt, 226–227, 389 Legitimate power, 475 Lemon, Dennis, 45 Less-than-truckload (LTL) shipments, 633 Letters of credit, 365–366 Levels of functionality, 669–670 Levels of service, 519 Leverage commodities, 213 Lewis, Harold T., 23 Liability, 99, 542–544 Liking principle, 480 Limits of authority, 574 Liquidated damages clauses, 524 Litigation, 500, 522 Little r, 125–126 Local community linkages, 122 Locke, Dick, 356 Lockheed Martin Energy Systems (LMES), 615–617 Logistics defined, 623 GM 4PL joint venture, 645–646 outsourcing of, 624 performance-based logistics (PBL), 640–642 third-party logistics (3PL), 623, 641–646, 643 transportation linkages, 623–624, 624 See also Transportation Logistics applications, 670, 673–674 Logroll method, 482 Long, Gene, 196 Longer-term contracts benefits, 513–515, 514 buyer-seller relationships and, 123 contingency elements, 517–518 definitions, 513 risks of, 515–517 Longer-term purchase agreements, 75 Longer-term supplier relationships, 215, 220, 254–255 Long-term contracts, 513–518, 514 Longs Drug Stores, 609 Lopez de Arriortua, J Ignacio, 321 L’Oreal, 345 Low ball tactic, 478 Low-dollar systems, 78 Low-level negotiation, 461 Low-value purchase process, 77 LTL (less-than-truckload) shipments, 633 Lucent Technologies, 360 M Mack Trucks, 482–485, 483 MacLean, John, 461 Maintenance, repair, and operating (MRO) inventory, 588, 594, 612 Maintenance, repair, and operating (MRO) items, 70–71 Maintenance, repair, and operating (MRO) suppliers, 615–617 Major information search, 239 Malcolm Baldrige National Quality Award (MBNQA), 251, 296–298, 297 Management, executive, 133–134 Management capabilities of suppliers, 214, 249, 404 Manitowoc Co., 111–112, 747 Manufacturers vs distributors, 243 Manufacturing flow management, 175 Manufacturing processes, inefficient, 599–600 Marconi’s International Register, 353 Margin pricing model, 400 Market-based pricing, 390, 390–391 Market-driven pricing models, 393–397 Market grade, description by, 52 Marketing and sales department, 119, 181–182 Marketplace uncertainty and material hedging, 594–595 Market prices, 64 Market research on suppliers, 204–210, 207 Market-share model, 393–395 Market skimming model, 395 Market structure, 391 Markup pricing, 400 Master Service Agreements (MSAs), 505 Material control, 16, 644 Material discrepancies, 67 Material handling, efficient, 605–606 Material hedging, 594–595 Material packing slips, 66 Material pipelines, extended, 598 Material purchase releases, 63 Material requirements planning (MRP) systems, 50, 614, 668 Materials handling, 16 Materials management concept, 24 Material Specification Management, 666–667 Material specifications See Specifications Material yield, 596 Mattel, 272, 352 Maverick buying and selling, 41, 54 Maverick spend, 648–649, 652 Maytag Corp., 410 McDonald’s Corporation, 316, 352 McNerney, Jim, 189 Meaningful tasks, 132 Measurement as enabler of supply chain excellence, 18, 21 by objective, 283 objective vs subjective, 284–285 See also Performance measurement and evaluation; Supplier measurement Mediation, 528–529 Meindl, P., 670, 673 Merchantability, warranty of, 558 Merrill Lynch, 576, 655 Metrics, 21, 327, 697–698, 706–708, 710, 718, 733 Mexico, 489 Microsoft, 72 Miles, Larry, 442 Minitrials, 529 Minor information search, 239 Minority- and women-owned business enterprise (MWBE), 504, 722 Minority business suppliers contracts and, 520 leadership and, 106–107 measures, 722 policies on, 94–97 Minor to moderate information search, 238, 239 Misrepresentation, 570 Mission, expanding, 744–746 Mistakes, honest, 553–554 Mitchell, Pierre, 695–696 Mitsubishi Motors Corp., 142 Modular approach, 519 Monczka, Robert, 132, 135 Monopolies, 391 Most Favored Customer clauses, 514 Motor Carrier Act, 625 Motor carriers, 633 Motorola, 743 MRO inventory, 588, 594, 612 MRO items, 70–71 MRP (material requirements planning) systems, 50, 614, 668 MSAs (Master Service Agreements), 505 Multiple vs single sourcing, 244 Munoz, Oscar, Mutual assent, 546 Mutual consent, cancellation by, 550 MWBE (minority- and women-owned business enterprise), 504, 722 N NAFTA (North American Free Trade Agreement), 346, 348 Nardone, J., 157 Index National Association of Purchasing Agents, 23 National buying agreements, 525 National contracts, 525 National Science Foundation (NSF), 137 National Surface Transportation Board (NSTB), 559 Natural disasters, 113, 218–219, 598–599 NCR Corporation, 333–334 Needs identifying requirements, 44–45, 237, 464 in negotiation, 462–463, 471–472 Negotiated Rates Act, 625 Negotiation overview, 460–461 American Airlines example, 461 bidding vs., 55–56 of blanket purchase orders, 63 Boulwarism, 478 concessions, 476–478, 477, 479 of contracts, 215–217 definitions, 461–463 effective negotiators, 468 e-sourcing systems and, 692 five-phase process, 464–470, 465 international, 485–491 low-level, 461 Mack Trucks example, 482–485, 483 planning, 467–468, 470–474, 473 power in, 474–476 principle-based, 461 railroad example, 460 strategy, 473 tactics, 468, 473, 478–481 Texas Instruments example, 491 of transportation rates and services, 640 Triangle Talk tool, 463, 463–464 win-win, 461, 481–482, 482 Nelson, Dave, 212 Network design applications, 674 New product development (NPD) Chrysler example, 753 cross-functional teams, 51, 139–140 early supplier involvement as strategy, 221 introduction ramp-up schedules and dates, 718 kaizen and, 439 policies on early supplier involvement in, 99 quality and, 284 supplier integration best practices, 137–143, 138 target pricing and, 413 white, gray, and black box design, 140, 140 Nike Inc., 93 Nissan, 7, 99, 142, 324 Nolting, Bruce, 234–235 Non–core competencies, outsourcing of, 749 Nondisclosure or confidentiality agreements, 142, 564, 565 Nonmanipulable measures, 727 Nonspecific compensation method, 482 Nortel Networks, 157 North American Free Trade Agreement (NAFTA), 346, 348 Norton, David P., 733 NPD See New product development NSF (National Science Foundation), 137 NSTB (National Surface Transportation Board), 559 Nucor, 227, 389 Nunn, Sam, 100 O Oakhurst Dairy, 575 Objective measurement, 284–285 Objectives defined, 470 minority- and women-owned business enterprises, 722 for negotiation, 470 organizational, 40 for performance measures, 727–728 policies on, 90 purchasing objectives, 38–41 supply management and enterprise objectives, 190–195 supply management goals and, 193–195 Objectivity, 724 Occupational Safety and Health Administration, 121 Ocean Shipping Reform Act (OSRA), 625 Ocean shipments, 636 O’Connor, J O., 132 OEMs (original equipment manufacturers), 243 Offers, contractual, 60–61, 544–545 Offset, 363 Oligopolies, 391 Ombudsmen, 331 OneSource, 45 Online dispute resolution, 527 Online ordering systems to suppliers, 75–77 Online ordering through electronic catalogs, 77–78 Online purchasing See E-procurement Online requisitioning systems, 74 On-site inventory management, 612 On-site relationship managers, 53 On-site supplier representatives, 145–147, 148 On-time delivery/responsiveness measures, 717–718 Open-ended orders, 525 Open price term clauses, 548 Open systems, 696 Operating policies, 100–103 Operational benchmarking, 729 Operational procedures, 106 Operational support and follow-up group, 160–161 Operational vs strategic purchasing, 163, 164 Operations, 116–118, 594, 714 Opportunism, 516 Opportunity costs, 409–411 Optimization See Supply base rationalization and optimization Option requests database, 611 Options, frequently requested, 611 Oracle, 4, 45, 198, 518, 673, 687, 696 Order-cycle time measurement, 613 Order fulfillment on-site supplier representatives and, 145–147, 148 perfect orders, 613–615, 721 supplier integration into, 143 Ordering costs, 588 Order processing, 16–17 Organizational cultures, 332 Organizational design and structure overview, 155–156 centralized, decentralized, and hybrid structure, 164–172, 171 definition and features of, 19 as enabler of supply chain excellence, 18, 19–20 future of, 178–181, 179, 180, 181 Harley-Davidson example, 154–155 indirect spending and, 651 purchasing department activities, 161–163 purchasing’s position, 156–158, 159 specialization within purchasing, 158–161 for supply chain management, 174–175, 176 trends, 761, 761–762, 762 Tyco example, 165–166 worldwide sourcing and, 360, 361–362 Organizational goals and objectives, 40, 726 Organizational strategies, integrating with, 40–41 Original equipment manufacturers (OEMs), 243 OSRA (Ocean Shipping Reform Act), 625 Outbound logistics, 624 Output vs process, 285–287 Outsourced environment integration and, 116 non–core competencies and, 749 quality assurance and, 119, 276 risk exposure and, 219–220 See also Worldwide sourcing Outsourcing, 6, 39, 218–219, 346, 385, 653 China example, 359 vs insourcing, 162 of logistics to third-party providers, 642–646 of non–core competencies, 749 of purchase requirements, 276 of services, 647 of supply management, 650 Overhead costs, 403, 523 Overseas factories, labor abuses at, 93 Owens, Jim, 102 Ownership, 170, 290–291 803 804 Index P P2P cycle See Procure to pay (P2P) cycle and process Packaging for foreign purchases, 366 Packing slips, 66 Pareto charts, 199, 199–200, 200, 201, 204 Partners, strategic, 751 Partnerships, 15, 291, 310, 320, 324, 612 long-term contracts in, 513–518 Parts per million, 716–717 Parts standardization, 748 Patent indemnification clauses, 563 Patent infringement, 558 Patent law, 561, 563 Patents, 558, 561–565, 564 Paterson, John, 76 PBL (performance-based logistics), 640–642 Pekman, Robert, 254–255 Penalty clauses, 524 Penetration pricing, 393–395 Pennsylvania Railroad, 22 Perfect competition, 391 Perfect-launch revenue, 716 Perfect orders, 613–615, 721 Performance-based logistics (PBL), 640–642 Performance characteristics, description by, 52 Performance expectation trends, 744–746, 746 Performance goals for teams, 135–136 Performance improvements and longterm contracts, 517 Performance measurement and evaluation overview, 708–711 Accent Industries example, 735– 736 administration and efficiency measures, 720–721 asset and integrated supply chain management measures, 719–720 benchmarking, 729–733, 732 categories overview, 711, 712 continuous, 68 cost-effectiveness measures, 715–716 DaimlerChrysler example, 714 global automotive parts example, 706–708 government and social measures, 722 human characteristics, 735 internal customer satisfaction measures, 722 physical environment and safety measures, 719 price performance measures, 713, 713–715 Procter and Gamble perfect order example, 721 professional services and, 656–657 quality measures, 716–717 revenue measures, 716 semiconductor case example, 734 in SRM systems, 693 strategic performance measures, 722–723, 723 supplier performance measures, 722 supplier selection and, 244–245 system characteristics, 734–735 system development, 724–728, 725, 726 technology or innovation measures, 718 time/delivery/responsiveness measures, 717–718 trends, 762–763 Performance-reporting frequency, 728 Personal buying, 569 PERT (Program Evaluation and Review Technique), 430, 431, 435 Peters, L H., 132 Philosophy of a founder, 157 Philosophy of management, 167 Physical environment measures, 719 Physical on hand (POH), 51, 608–609 PIE Nationwide, 366 Pipeline/in-transit inventory, 588 Pipelines, 636 Plaat, Mitch, 172–173 Place, Jeff, 267 Planned concessions, 479 Planning advanced supply planning, 695 benchmarking and, 731 contracts and, 515 cross-functional teams and, 132–133 distribution resource planning (DRP) systems, 614 for emergencies, 113 integrating with organizational strategies, 40–41 MRP systems, 50, 614 for negotiation, 467–468, 470–474, 473 production planning, 17 in project management, 427–428 sales and operations plans, 116–117 supply chain inventory planners, 615 supply planning, 16 work team planning guide, 177 Planning and control systems, 214 Planning and control techniques for project management, 430–431, 431 Planning software, 20 Plant utilization and cost reduction, 403–404 POH (physical on hand), 51, 608–609 Policies advantages and disadvantages of, 87–88 on buyer-seller relationships, 98–100 decentralized cement company example, 86 defined, 87 effective, 88–89 emergency, 99 on ethics and behavior, 91–94, 573–574 informal, 87 on operational issues, 100–103 professional services and compliance with, 657 on related-party transactions, 100 review and updating of, 87 for role of purchasing, 89–91, 91 on social and minority business objectives, 94–97 supplier relationship policies at WalMart, 88 Pollak, Lindsey, 575 Pollution, industrial, 97 Porter, Anne Millen, 654 Porter, Michael, 11, 206 Porter Five Forces, 206–208, 207 Portfolio analysis, 211, 212–213 Portfolio management, 696 Port terminal and handling fees, 367 Positions in negotiation, 462, 472–473, 473 Power in negotiation, 474–476 Power spenders, 652 PPI (Producer Price Index), 396, 397–399, 398, 399 Pratt Industries, 266 Prebudget savings, 651 Preferred customers, 274 Preferred suppliers contract negotiation and, 216 cycle time and, 264 database of, 655 defined, 54–55 information from, 239 leverage commodities and, 213 relying on, 58 use of, 246 Premier International, 679–681, 680 Premium pricing, 610 Prevention costs, 289 Prevention of defects, 285 Prevention of disputes, 529 Prevention of unethical behavior, 574 Preventive contracting, 499 Price-adjustment mechanisms in contracts, 517 Price analysis defined, 384 economic conditions, 391–392 market-driven models, 393–397 market structure, 391 pipeline costs forecast example, 394–395 Producer Price Index (PPI), 396, 397–399, 398, 399 reverse price analysis, 388, 401–404, 402, 403 seller pricing strategies, 392, 393 supply and demand, 390, 390–391 Price discrimination, 565–566 Price forecasting, 226–229, 693–694 Price increase tactic, 479 Price performance measures, 713, 713–715 Price term, 548 Price volume model, 393 Pricing cost-based pricing models, 400, 414–415, 415, 417 cost-savings sharing pricing, 414, 416–417 fixed-price contracts, 64–65, 507–509 Index open price term, 548 premium pricing for customization, 610 product specifications and, 400–401 target pricing, 385–387, 413–414, 416–417, 715 Pricing agreements, 525 Pride, Steve, 234 Principals, 541–542, 543, 546 Principle-based negotiation, 461 PrintSmart, 659–660 Private carriers, 627, 639–640 Proactive purchasing, 51 Problem identification and resolution, 129–130 Problem vs deficiency, 259–260 Procedures and procedure manuals areas covered, 105–106 decentralized cement company example, 86 definition and overview, 103–105, 104 systems contracts and, 519–520 Process and technological capabilities of suppliers, 251 Process approach, 9, 28 Process capability, 214, 287–288, 404 Processes, standardized, 53 Process focus, 285–287 Process loss, 130–131 Process mapping, 263, 447–453, 452, 453 Process or technological uncertainty, 513 Procter and Gamble, 721, 755 ProctorLink, 366 Procurement cards issued to users, 74, 212 Procure to pay (P2P) cycle and process approval, contract, and purchase order preparation, 58–63, 59, 62 contracts and, 63–65 cycle, 42–44, 43 invoice settlement and payment, 67–68 needs clarification and requisitioning, 46–52, 47, 48 needs forecasting and planning, 44–46 receipt and inspection, 65, 65–67, 66 records maintenance, 68 re-engineering, 68–69 subject matter insights into, 53–54 supplier identification and selection, 54–58, 57 supplier performance measurement, 68 Producer Price Index (PPI), 396, 397–399, 398, 399 Product and process technology, international, 349 Product development See New product development (NPD) Production and support items purchase, 71 Production outputs of a new supplier technology, 718 Production planning, 17 Production scheduling, 253 Product life cycle management, 754–755 Product specifications See Specifications Professional services sourcing, 653–657 Program Evaluation and Review Technique (PERT), 430, 431, 435 Project, defined, 425–426 Project 10X, 731, 763 Project charters, 204 Projections See Forecasts Project charter, 203, 204 Project leads, 204 Project management China and, 428–429 defined, 425–426 house-building example, 424–425 network rules, 431, 432–433 phases of a project, 426–430, 427 planning and control techniques, 430–431, 431 sourcing strategy example, 433–434, 434 success, measuring, 426 with time estimates, 435–437, 437 Promotional pricing model, 395–397 Proprietary supplier technology, 514 Prototypes, 52 Public Warehousing Company, 539–540 Pull, 586 Pull systems, 720 Purchase agreements See Purchase orders Purchased item comparisons, 101–103 Purchase order issuance modules, 692 Purchase orders, 59 blanket, 61–63, 62, 75, 78, 525 conditions and instructions, 60 as contracts, 547, 547–549 invoices, matching to, 37 longer-term purchase agreements, 75 monitoring, 65, 67 process of, 60–61 purchasing agreements as contracts, 524–525 Purchase price to market index, 713–714 Purchase price variance from plan, 713, 713 Purchase requisitions, 47 description of, 46–49 flow of, 48, 49 traveling, 49–50 Purchase volumes, annual, 205 Purchasing defined, evolution of, 21–25 importance of, 6–8 as supply chain management activity, 15 supply management vs., 8, 10 as support activity, 12 Purchasing administrative budget, 720–721 Purchasing authority, 89–90, 164–173, 171 Purchasing cycle, 44, 55, 65, 68, 105, 464, 687 Purchasing department activities, 161–163 See also Organizational design and structure Purchasing efficiency and cost reduction, 404 Purchasing magazine, Purchasing Medal of Excellence, 264–267 Purchasing managers authority and liability of, 541–544, 543 ethics and, 568 in organizational structure, 166 Purchasing process defined, 38 FedEx example, 78–80, 81 flow chart, 43 improvement of, 74–78 objectives, 38–41 procedures, 105 types of purchases, 69–73 See also Procure to pay (P2P) cycle and process Purchasing research group, 160 Purchasing workload in/out, 721 Pyzdek, Thomas, 292 PZL Swidnik, 455 Q QDA (quantity discount analysis), 446, 448, 449–450 Qualification of suppliers, 54 See also Supplier evaluation and selection Quality defined, 273 inventory and, 596 JIT purchasing and, 605 measures of, 716–717 supplier quality and product quality, supply chain management activity, quality control as, 16 worldwide sourcing and, 349 See also Supplier quality management; Total quality management (TQM) Quality assurance, 118 Quality at the source, 283–284 Quality control, 16, 444–445 Quality costs, 589–590 Quality management of suppliers, 251 Quality performance, 309 Quantity discount analysis (QDA), 446, 448, 449–450 Quantity discounts, 595–596 Questions tactic, 479 Quotas, 283 R Radio frequency identification (RFID), 20 Rail carriers, 633–634 Rank reverse auctions, 689 Rate-of-return pricing model, 400 Rationalization See Supply base rationalization and optimization 805 806 Index Raw material and semifinished item inventory, 587 Raw material costs, 202 Raw materials purchase, 70 Raytheon, 323 Reactive purchasing, 51 Real-time updating, 693 Receiving, 16, 65, 65–67, 553 Receiving and inspection modules, 692 Receiving discrepancy reports, 67 Reciprocation principle, 480 Reciprocity, 92, 569 Record integrity, 608–609 Record on hand (ROH), 51, 608–609 Records maintenance, 68 Recovery and recycling (reverse logistics), 624 Redesign of the purchasing process, 77 Redetermination, fixed-price contracts with, 508–509 Re-engineering, 68–69, 678–679 Referent power, 476 Regan, Rich, Regional buying groups, 171–172 Regular reverse auctions, 689 Rejection of goods, 552–553 Related-party transactions, 100 Relationship management (RM), 115, 335 See also Supplier relationship management (SRM) systems Relationship managers, on-site, 53 Reliability variable, 631 Reliance, 551 Rent-a-judge, 529 Reorder point systems, 50–51 Reporting frequency, 309–310, 728 Reporting of unethical behavior, 574 Reputation, 568 Requests for information (RFIs), 209–210 Requests for proposal (RFPs), 58, 79, 97, 468 Requests for quotation (RFQs) in Babson College example, 29 competitive bidding and, 55 contracts and, 547 defined, 689 form, 56, 57 online, 468 RFQ modules, 689 supplier selection, final, 216 Requirements, 44–45, 237, 464 Requisitioning overview, 46 automation of, 649 online systems, 74 purchase requisitions and statements of work, 46–49, 47, 48 requisitioners, 51 traveling requisitions and bar codes, 49–50 Research function, 162–163 Residuals, 521 Resin Technology Inc., 227, 389 Resistance to change, 125, 351 Resource support for teams, 132–133 Responsibilities of purchasing, 41–42 Responsible Care program, 97 Responsiveness, 746 Restitution, 551 Results-monitoring process, 217–218 Return channel processes, 175 Return on investment, 591 Return on net assets (RONA), 460 Revenue measures, 716 Revenue pricing model, 395 Revenues, increasing, 191, 191 Reverse auctions (e-RAs) as category strategy, 221–222 defined, 58 e-SCM and, 689–692 indirect spending and, 650 Internet-based, 467 portfolio analysis and, 213 rank, 689 regular, 689 Reverse logistics, 624 Reverse price analysis, 388, 401–404, 402, 403 Reverse supply chains, 11 Revocable letters of credit, 366 Reward power, 475 Rewards and recognition, 134 RFID (radio frequency identification), 20 RFIs (requests for information), 209–210 RFPs (requests for proposal), 58, 79, 97, 468 RFP software, 264 RFQ modules, 689 RFQs See Requests for quotation Rightsizing, 218 Rights of buyer and seller, 560–561 Riken Corp., 142 Rio Tinto, 346 Risk China and risk management, 359 currency risk, 351, 367–369 defined, 318 with fewer suppliers, 319–320 financial risk analysis, 244 identifying and mitigating, 745 long-term contracts and, 515–517 supply base risk, 318 supply risk management, 218–220 systems contracting and, 518–519 of unethical behavior, 568 Robert Morris Associates, 402, 403 Robinson-Patman Act (1936), 566 Roche Diagnostics, 497–499 Rockwell Collins, 455–456 Roehm, Julie, 88 ROH (record on hand), 51, 608–609 Rohan, Kevin, 467 Rolls-Royce, 666–667 RONA (return on net assets), 460 Ronchetto, Dan, 228 Routine commodities, 212 Routine decision making, 670 Royalty revenues, 716 Rules of action, 87 Russia, 489, 595 Russo, Peter, 26–31 S Saab, 622 Safety measures, 719 Safety requirements, 523 Salaries, Sales, general, and administrative (SGA) expenses, 402 Sales and operations plans, 116–117 Sales representatives, 146, 239 SAP, 37, 45, 53, 72, 198, 518, 673, 687, 696, 708 Sara Lee Corporation, 540 Sarbanes Oxley Act, 197 Saudi Arabia, 489 S.C Johnson, 750–751 Scarcity principle, 480 Schedules in contracts, 502, 505–506 Scheduling, 17 SCM See Supply chain management Scope creep, 653–654, 657–658 Scope of agreement, 502 Scorecards, balanced, 733, 734 Scorecards, supplier, 215, 217, 693 Scott, H Lee, 88 Scrase, Kerry, 456 Second-party information, 240–241 Security, maritime, 635–636 Selection of suppliers See Supplier evaluation and selection Selex, 344–345, 349 Seller’s rights, 560–561 Sell-side systems, 687 Semifinished products and components purchase, 70 Sensitivity analysis, 405, 749 Sequential processes, 450 Service-level agreements (SLAs), 641 Services attention to purchases of, 71 category strategies and, 202 contracts, 505, 518–520 document management at Bank of America, 658–660 indirect spending, 647, 647 inventory and, 586 Iraqi food services example, 539–541 IT suppliers, 248 monitoring purchases orders or SOWs, 67 professional, 653–657 Settlement zones, 472 Shared approach, 519 Shared schedules measures, 720 Sharp practices, 570 Sherman Antitrust Act (1890), 565 Shipmaster, 366 Shipment tracking systems, 644 Shipping, 17 See also Transportation Shook, John, 586 Short-term contracts, 512, 513 “Should cost” analysis, 401 Shull, Jana, 72 SIC (standard industrial code), 397, 403 Signatures, electronic, 501, 526 Silence tactic, 479 Index Single vs multiple sourcing, 244 Site visits, 245–246, 246, 250 Six Sigma, 292–294, 293, 323 Size relationship with suppliers, 261 SLAs (service-level agreements), 641 Small business enterprises, 722 SME Initiative, 329 Smith, Frederick W., 174 Social measures, 722 Social objectives, 262 Social proof principle, 480 Social responsibility, corporate, 574–576, 576 Soft-side skills, 760 Software, 20, 696 See also Supply chain information systems and e-SCM Solectron, 157, 330, 332 Sony, 119, 348 Sourcing councils, 76 Sourcing strategy See Strategy development and category management Sourcing teams See Cross-functional sourcing teams Southwest Airlines, 383–384 SOWs (statements of work), 49, 67 Span of control, 41, 42 Special agent, 542, 557 Special Edition, 264 Specifications authority to review, 42 description by specification, 52 negotiation and, 466 pricing and, 400–401 quality and, 279 RFQs and, 56 Speculating, 368 Speed variable, 629–631 Spend analysis at category level, 204 consolidation of purchase volumes, 167–168 defined, 68 Honeywell’s OneSource, 45 at IBM, 76 Pareto charts, 199, 199–200, 200, 201 SRM and, 688–692 strategy development and, 196–202, 197, 198 trends, 754 SPEX evaluation kits, 264 Spot buys, 61 Spot contracts, 513 Spreadsheet, spend analysis, 198, 198– 202 SRM See Supplier relationship management (SRM) systems Staggers Rail Act, 625 Stakeholders internal, 40 interviews with, 205 joint ownership of decisions, 129 Porter Five Forces and, 206 strategic sourcing and, 203 Standard industrial code (SIC), 397, 403 Standardization measures, 718 Standardization of direct spend, 649– 650 Standardization of parts, 748 Stanford University, 196 Staples, 71 Starkweather, Jim, 410 Statement of responsibility, 280 Statements of work (SOWs), 49, 67 Steering committees, 172, 182–183 Stevens, John, 72 Stewart, Shelley, Jr., 165, 323 Stock checks, 51 Storage, 16 See also Logistics Strategic benchmarking, 729 Strategic business units (SBUs), 646– 647, 763 Strategic cost management See Cost management, strategic Strategic decision making, 670 Strategic negotiation, 473 Strategic resourcing process, standardized, 166 Strategic responsibilities, Strategic sourcing See Category strategy development; Supply management Strategic sourcing matrix See Portfolio analysis Strategic suppliers, 212 Strategic vs operational purchasing, 163, 164 Strategies, purchasing and organizational, 40–41 Strategy development and category management Boeing example, 189 category strategy and commodity teams, 195–196 category strategy development, 203, 203–218 commodity forecasting, 226–229 cycle time and, 263–264 evolution of strategy, 222–225, 223 integrative strategy development, 191–193, 192 organizational structure and, 168 project management and, 433–434, 434 spend analysis, 196–202, 197, 198, 199, 200, 201 supplier evaluation process and, 237–238 types of strategies, 218–221 Strategy trends Bosch parts standardization example, 748 category strategies, 746–750 Cessna example, 764–765 Chrysler design process example, 753 collaboration, 754–755, 756–757 cooperation and teamwork, 759 Ford’s Aligned Business Framework, 752 GM and China sourcing example, 748 Harris’s EXPO program, 755 Manitowoc global sourcing example, 747 mission, goals, and performance expectations, 744–746, 746 Motorola supply chain integration example, 743 organization and measurement, 761, 761–764, 762 S.C Johnson sustainability example, 750–751 supply base management, 750–753 supply management talent, 757–761, 758 supply networks, multiple, 753 technology enablers, 754–756, 756 Strengths and weaknesses, analysis of, 470–471 Strikes, 99 Striving for excellence, 586 Strömer, Magnus, 622 Subcategories, 203 Subjective measurement, 284–285 Subject matter experts (SMEs), 53–54, 69 Suggestion programs, 143–144 Sultan Center, 539 Sun, 70, 157 Suncor Energy, 124 Supplier analysis, 209–210 Supplier catalog, 212, 388 Supplier certification, 285, 298–300, 301 Supplier Champions Program (SCP), 333 Supplier coding, 652 Supplier Continuous Quality Improvement (SCQI) program, 277 Supplier dependency, 319 Supplier development See Supplier management and development Supplier diversity programs (SDPs), 94–97 Supplier evaluation and selection overview, 236 category strategy and, 213–215 chemical distributors example, 241–243 competitors as suppliers, 262 for consultants, 655–656 countertrade requirements, 262 cross-functional teams for, 137–139 cycle time, reducing, 262–264 Dun & Bradstreet example, 247 Eaton example, 264–267 final selection process, 216–217, 247 identification and selection process, 54–58 international suppliers, use of, 261 IT suppliers, 248 key criteria, 248–255 key requirements, identifying, 237 long-term contracts and, 516 method, determining, 245–247 potential sources, identifying, 238–241 as purchasing responsibility, 41 quality and, 284 recognizing need for, 236–237, 238 807 808 Index Supplier evaluation and selection (continued) selection pool, limiting, 244–245 seven-step process, 236, 237 size relationship, 261 social objectives, 262 sourcing alternatives, 243–244 sourcing strategy, determining, 237–238 survey development, 255–261, 256, 257, 260 Toyota Industrial Equipment Manufacturing example, 234–235 worldwide sourcing and, 355–356 Supplier managed inventory (SMI) measure, 720 Supplier management and development overview, 308 applications, history of, 324–325 barriers to, 328–335 at Cessna, 455 FedEx example, 336–337, 338 Honda of America Manufacturing example, 307–308 inventory management and, 613 process map for, 324, 325–327, 328 results, 327, 328 supplier measurement, 308–315, 310, 311 as supply management strategy, 221 See also Supply chain management (SCM) Supplier measurement overview, 308–309 decisions in, 309–310, 310 types of techniques, 311, 311–315, 312, 313 Supplier measurement and control modules, 693 Supplier opportunism, 516 Supplier performance index (SPI), 313–315, 315 Supplier performance measurement See Performance measurement and evaluation Supplier quality, defined, 274 Supplier quality management overview, 273–276 Boeing B-777 aircraft example, 276 continuous improvement, 275 ISO standards and, 294–296 Malcolm Baldrige National Quality Award, 251, 296–298, 297 Six Sigma, 292–294, 293, 323 supply management’s role in, 276–278 toys example, 272–273 from TQM perspective, 278, 278–291, 280, 286, 290 Supplier relationship management (SRM) systems category strategy development and, 217–218 contract management and compliance, 692–693 critical elements for, 125–127 ERP and, 669 e-sourcing suites, 686–687 functionalities of, 673, 673 relationship management (RM) skills, 115 sourcing modules overview, 687–688 spend analysis, 688–692, 754 supplier performance measurement and control, 693 total cost reporting, 693–694 trends, 751–752 Supplier relationship managers, 217 Supplier relationships longer-term, 215, 220, 254–255 policies on, 88, 92, 98–100 Supplier Relations Working Index, Supplier research, 210 Suppliers competitors as, 262 critical, 326 defective material policies and, 101 environmental policies of, 97 external linkages with supply management, 121 former employees representing, 92 full-service, 317–318 as information sources, 239 irregular business dealings, reporting, 94 labor issues and, 93–94, 99 large vs small, 244 limited interest by, 123–125 local, national, or international, 243–244 manufacturers vs distributors, 243 market research on, 204–210, 207 minority business suppliers, 94–97, 106–107 number of, 218 online ordering systems to, 75–77 for on-site inventory management, 612 performance measurement and management, 68 primary contact with, 42 selection criteria policies, 98 strategic, 212 transactional, 212 users allowed direct contact with, 78–80 See also Preferred suppliers Supplier scorecards, 217, 693 Supplier selection scorecards, 215 Supplier suggestion programs, 143–144 Supplier surveys, 255–261, 256, 257, 260 Supplier value improvement process (SVIP), 455 Supplier visits, 245–246, 246, 250 Supply and demand, 390, 390–391 Supply base management, 39–40, 750–753 Supply base rationalization and optimization overview, 316–317, 322 advantages of, 317–319 Cessna example, 764–765 formal approaches to, 320–322 measurement data and, 310 for professional services, 656 quality and, 288 risks with fewer suppliers, 319–320 supply management strategy and, 218, 224 Supply chain information systems and e-SCM overview, 667–668 automotive example, 698–700 databases, 681–683 drivers of new e-SCM systems, 675–676 EDI and, 683–686, 686 emerging technologies, 695–696 ERP systems, 668, 671–673, 673, 676–681, 677 e-sourcing business models, 687 e-sourcing suites, 686–687 evolution of, 668, 668–669 information flows, 669–674, 671, 673 information visibility, 694–701 integration of ERP and e-sourcing systems, 694 JC Penney example, 672 Premier International and ERP, 679–681, 680 Rolls-Royce example, 666–667 SRM systems, 687–694 technology trends, 754–756, 756 Supply chain inventory See Inventory management Supply chain inventory planners, 615 Supply Chain Leadership Council, 575 Supply chain management (SCM) activities of, 15–17 Bose and international purchasing, 366 defined, 10 design trends, 753 electronic (see Supply chain information systems and e-SCM) emergence of concept, enablers of excellence, 17–21, 18 evolution of, 21–25 at FedEx, 78 integrated, 25 integrative strategies, 193 internal, 670 map of systems, 670–674, 671 organizational structure and, 174– 175, 176, 180 origins of, 174 supplier diversity programs and, 97 by suppliers, 254 See also Supplier management and development Supply chain orientations, 10 Supply Chain Resource Cooperative (SCRC), 96, 106–107 Supply chains benefits of, 15 cost management and, 385, 385 defined, 10 disaster relief and, 599 disruptions in, 99, 142, 218–219, 319–320 emergence of concept, illustrated, 12–15, 13, 14 Index Iraqi food services example, 539–541 maritime security, 635–636 processes, 10–11 relationships in, 13–15 reverse, 11 at risk, 112–113 service challenges, 657–658 value chains vs., 11–12 Supply continuity objective, 38–39 Supply disruption, 275, 318, 319–320, 353, 514, 593–594 Supply integration, 114 See also Integration Supply management contracts, role in, 120 cross-functional, 10 definitions, 8–9, emerging technologies in, 695–696 enterprise objectives, aligning with, 190–195 external linkages, 121–122 FedEx strategic sourcing process, 81 internal linkages, 116–121, 117 objectives translated into goals, 193–195 on-site representatives and, 146 outsourcing of direct spend, 650 process approach, product development, role in, 137 as purchasing activity, 163 purchasing vs., 8, 10 quality management and, 276–278 strategic and operational purchasing, separating, 163, 164 suggestion programs, 143–144 supply integration (see Integration) transportation, role in, 626 trends, 757–761, 758 Supply management strategy See Strategy development and category management Supply market intelligence, 41 Supply networks, 748–749, 751, 753 Supply planning, 16 Supply risk management, 218–220 Support-activity benchmarking, 729–730 Sustainability, 750–751 Suzuki Motor Corp., 142 SVIP (supplier value improvement process), 455 Sweatshops, 93 Switching costs, 207, 208, 221, 319 Switch trading, 363 SWOT analysis, 208, 209 Synergies with team interaction, 129 Systems contracts, 518–520 Systems outsourcing See Systems contracts T Tactical vs strategic purchasing, 163, 164 Tactics in negotiation, 468, 473, 478–481 TAL Apparel Ltd., 672 Tamimi Global, 540 Target pricing, 385–387, 413–414, 416–417, 715 Tariffs, 73 Task selection in teams, 132 TaylorMade adidas, 20 TCO See Total cost of ownership Teams buyer-seller improvement teams, 144–145 category/commodity teams, 204, 215 commodity teams, 195–196, 263– 264, 652–653 greater team concept, 124 for new product development, 51 organizational design and, 20 organizational structure and, 174–178 process mapping and, 451 quality and, 282 for supplier development, 326 for supplier evaluation, 137–139 voice of the factory (VOF), 418 work team planning guide, 177 See also Cross-functional sourcing teams Technical requirements and negotiation, 466 Technology, proprietary, 514 Technology measures, 718 Technology roadmaps, 141, 143 Technology systems See Supply chain information systems and e-SCM Technology trends, 754–756, 756 Texas Instruments (TI), 275, 491 Textron Production System, 454 Third-party information, 247, 263 Third-party logistics (3PL), 623, 641–646, 643 Third-party marketplaces, 687 Third-party purchasing, 73 Third-party support for worldwide sourcing, 354–355 Third-party transportation brokers, 628–629 Thomas Register of American Manufacturers, 240 Three-V model of inventory management, 607, 608 Thyssen Krupp, 346 Tier and Tier suppliers, 254, 613 Time and materials contracts, 510–511 Time/delivery/responsiveness measures, 717–718 Time reduction, 129, 745 See also Cycle time Time-to-market targets, 717 Title, warranty of, 558 Total cost analysis, 384 Total cost of ownership (TCO) overview, 408 building a TCO model, 408–409 complexity decisions and, 611–612 example of model, 412 factors to consider, 411–412 opportunity costs, 409–411 promotional pricing and, 397 as strategy, 221 Total cost reporting, 693–694 Total cost support models, 692 Total cost variable, 629 Total quality management (TQM) communication and, 279, 280 continuous improvement and, 289–290, 290 cost of quality, 289 Deming’s 14 points, 279–283, 280 disillusionment with, 292 objective measurement and analysis, 284–285 ownership for, 290–291 prevention, 285 principles, 278, 278–279 process capability, 287–288 process focus, 285–287 quality at the source, 283–284 in strategy evolution, 223, 224 zero defects, 288–289 Tower Automotive, 511 Toyota, 7, 99, 142, 234, 291, 324, 454, 600, 601, 755 Toyota Industrial Equipment Manufacturing, 234–235 Toys “R” Us, 352 TQM See Total quality management Trade consulates, 355 Trade directories, 240 Trade diversion laws, 569 Trade journals, 240 Trade secret law, 562, 563–565 Trade shows, 240, 354 Trading companies, 354 Training cross-functional teams and, 132 ethical, 573–574 joint buyer-supplier efforts, 143 for performance measurement, 728 quality and, 282 re-engineering and, 69 standardized, 53 Transactional suppliers, 212 Transaction level data, 68 Transaction processing, 669 Transportation bills of lading, 66–67, 559 brokers, 628–629 carrier selection, 638, 638–640 data, critical and timely, 644 decision-making strategy development, 626, 627 deregulation of, 625–626, 640 federal hours of service rules, 630 FOB designations, 560, 626–628, 628 freight bills, 559 insourcing vs outsourcing, 628 international costs, 365 just-in-time, 605–606, 606 logistics linkages, 623–624, 624 measures, 719 mode selection, 632, 632–638, 637 negotiation of rates and services, 640 on-site representatives and, 146 performance variables, 629, 629–632 as purchasing activity, 162 809 810 Index Transportation (continued) as purchasing category, 73 as supply chain management activity, 15–16, 17 supply management and, 626 terms and risk of loss, 559–560 third-party logistics (3PL), 623, 641–646, 643 worldwide sourcing and, 357, 358 Transportation and warehouse planning systems, 674 Transportation department, 626 Transportation Industry Regulation Reform Act, 625 Traveling requisitions, 49–50 Trends See Strategy trends Trent, R J., 74, 132, 135 Triage approach, 321, 321–322 Trial balloons, 479 Triangle Talk, 463, 463–464, 472, 474, 482 Triangulation, 205 TRInternational (TRI), 242–243 Trust, 123, 142, 513 Turnkey approach, 519 Twenty/eighty rule, 320 Tyco International, 165–166 Tyson Foods, 540 U Unfair trade practices laws, 565–566 Uniform Commercial Code (UCC) overview, 554–555 on acceptance and rejection of goods, 552 acceptance under, 545 on damages, 551, 552 on open price term, 548 seller’s and buyer’s rights, 560–561 transportation terms and risk of loss, 559–560 warranties, 556–559 on written and verbal contracts, 549 Unique products and cost management, 388 Unit costs, 588 United Nations Convention for the International Sale of Goods (CISG), 360, 566 United Nations Standard Products and Services Code (UNSPSC), 72 United Technologies, 21 Unsolicited proposals, policies on, 99 UPS, 274, 336, 599, 642, 646 U.S Air Force, 329 U.S Bureau of Labor Statistics, 397, 398 U.S Constitution, 561 U.S Department of Defense (DOD), 641 U.S News and World Report magazine, 27 U.S Postal Service, 336 Use of industry standards measure, 718 V Value-added activities and negotiation, 466 Value-added networks (VANs), 684 Value analysis (VA), 23–24, 162, 289–290, 442–446 Value chain analysis, 210 Value chains, 11, 11–12 Value engineering (VE), 289–290, 442 Value of inventory, 607, 608 Values, worldwide, 356 Van der Knapp, Adrian, 599 Varity Perkins, 330, 331, 334 Vector SCM, 645–646 Velocity of inventory, 607, 608 Vendor managed inventory, 145, 243 Venue tactic, 479 Vertical portals, 687 Vertical vs horizontal organization, 178, 179 Vietnam, 489–490 Virtual private networks, 685, 686 Visibility systems See Information visibility Visibility to material shipments, 644 Vision, 281 Voice of the factory (VOF), 417–419 Volkswagen, 142, 291 Volume leveraging, 515 Volume of inventory, 607, 608 Volume purchasing, 167–168 Volume uncertainty, 516 W Walberg, Richard, 599 Walker, Tim, 383 Wall Street Journal, 100, 241, 440 Wal-Mart Corporation, 4, 27, 88, 352, 440, 575, 593, 599, 615, 630, 743, 745, 753 Wants, in negotiation, 462–463 Ward, N., 125 Ward, Robert, 111 Warehousing, 17 See also Logistics Warnings and penalties, 328 Warranties, 556–559 Warranty of infringement, 558 Warranty of merchantability, 558 Warranty of title, 558 Waste elimination, 601–602 Water carriers, 635–636 Wavelength, 656 Web-based business and kaizen, 439–440 Weeks, Chris, 598, 599 Weighted-point system, 312, 312–313 West, Jack, 295 Whalen, Susan, 451 What-if analysis, 405, 670, 749 Whirlpool, 745 White box design, 140, 140 Win-lose negotiation, 481, 481 Win-win negotiation, 461, 481–482, 482 Win-win sourcing optimization, 695 W.N Proctor Company, 366 Womack, J P., 586 Women-owned businesses, 95, 520, 722 Wood, Paul, 510 Work-in-process (WIP) inventory, 587 “Works made for hire” concept, 522 Work team planning guide, 177 The World Is Flat (Friedman), 345, 485 World Marketing Directory, 353 World Trade Organization, 360 Worldwide sourcing overview, 345–348, 346 Air Products example, 376–377 barriers to, 350–351 Bose Corporation example, 366 chemical distributors and, 241–243 China and risk management, 359 contracts, 360, 507 costs, 364–365, 364–367 countertrade requirements, 362–363 cross-cultural skills, 760 cultural understanding and, 356 definitions, 347 future trends, 375–376 global sourcing benefits, 374–375, 374–375 GM and China example, 748 implications of choice, 261 information for, 353–355 inventory and, 597 language and communication differences, 356 laws affecting, 566–567 legal issues, 357–360 levels I to V, 369, 369–370 logistical issues, 357, 358 Mack Trucks example, 482–485, 483 Manitowoc example, 747 negotiation, international, 485–491 organizational issues, 360, 361–362 reasons for, 348–350 risk exposure and, 219–220 Selex example, 344–345 shifting commodity markets, 389 Sony example, 348 as strategy, 220 success factors, 370–374, 371, 372 supplier selection issues, 355–356 X Xerox, 284, 387 Y Youssef, Joseph, 316 Z Zenger, J., 135 Zero-based budgeting, 650–651 Zero defects, 288–289 Zobro, Emery J., 467 Zogbi, Dennis, 531 ... and Supply Chain Management Purchasing and Supply Management Supply Chains and Value Chains Supply Chains Illustrated Achieving Purchasing and Supply Chain Benefits The Supply Chain Umbrella Management. .. Environment Why Purchasing Is Important Understanding the Language of Purchasing and Supply Chain Management Purchasing and Supply Management Supply Chains and Value Chains 10 Supply Chains Illustrated... Understand the differences between purchasing and supply management Understand the differences between supply chains and value chains Identify the activities that are part of supply chain management