Learner Guide TLIR5014 Manage suppliers TLIR.docx

Learner Guide: TLIR5014
Manage suppliers
TLIR5014 LEARNER GUIDE 2 | P a g e Version 2.5
Version control
Version No. Date Dept. Change
1.0 06/06/2016 Training Original
2.0 06/06/2016 Training Updated content
2.5 18/11/2016 Training Updated content

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Contents

TLIR5014 Unit Description
...............................................................................................
....................... 5
Application of Unit
...............................................................................................
................................... 5
Element and Performance Criteria
...............................................................................................
.......... 5
Performance Evidence
...............................................................................................
............................. 6
Knowledge Evidence
............................................................................................. ..
................................ 6
Manage Suppliers Introduction
...............................................................................................
............... 7
Role of Supply or Contract
Manager..................................................................................
..................... 7
Contract Management Plan
...............................................................................................
..................... 8
Probity
Check.....................................................................................
..................................................... 8

Section 1 Assess Suppliers and Build Productive Relationship
..............................................................9
Be Trustworthy with Suppliers
...............................................................................................
................ 9
Care about the Other Person
...............................................................................................
................... 9
Commit to Excellence in Your Process
...............................................................................................
... 10
Use Adventure to Grow a Relationship
...............................................................................................
. 10
Be Honest and Trustworthy in All Discussions
...................................................................................... 10
Financial Viability Must Be Considered
...............................................................................................
.. 11
Terms and Conditions of Supply
...............................................................................................
............ 11
Policy and Procedures Review
...............................................................................................
............... 11
Have a Firm Knowledge of Your Suppliers
............................................................................................

11
What is
‘KEIRETSU’?.........................................................................
..................................................... 12
Section 2 Evaluate Delivery of Goods and/or Services against
Agreements ........................................ 13
Establish Performance Indicators
...............................................................................................
.......... 13
Possible Numeric Ranking System
...............................................................................................
......... 14
Classify Multiple Suppliers and Vendors
...............................................................................................
15
Develop an Evaluation Method
...............................................................................................
............. 15
Maintain Good Relationships
...............................................................................................
................ 16
Decide When to Issue a Warning or Red Flag
....................................................................................... 16
Remove Poor
Suppliers.................................................................................
........................................ 17

Monitoring by Customers a Good Process
...........................................................................................
17
Independent 3rd Party
Monitoring..............................................................................
......................... 17
Section 3 – Negotiate Arrangements with Suppliers
.......................................................................... 18
Manage Your Time in Negotiation
...............................................................................................
......... 18
Prepare Open Questions
...............................................................................................
....................... 18
Design a Strategy Route Map
...............................................................................................
................ 19
Consider Style & Personality
...............................................................................................
.................. 19
Define Your Targets
...............................................................................................
............................... 19
List Your Tactics

...............................................................................................
..................................... 20
Rehearse Your Opening Statement
...............................................................................................
....... 20
Section 4 Resolve Disagreements or Conflict with Suppliers
.............................................................. 21
Move from ‘Arm’s length’ deals to Alliance Relationships
................................................................... 21
Trust in the Relationship
...............................................................................................
........................ 22
Fail to Supply
...............................................................................................
......................................... 22
Model of Buyer Supplier Conflict
...............................................................................................
........... 23
Government Legislation
...............................................................................................
........................ 24
Competition and Consumer Act
...............................................................................................
............ 24
Fair Trading Laws in Your State or Territory
......................................................................................... 24

Laws Affecting International Contracts
...............................................................................................
. 24
Code of
Practice...................................................................................
................................................. 25
Section 5 – Review Performance of Suppliers
.................................................................................... 26
The Auto Industry Comments
...............................................................................................
................ 26

TLIR5014 Unit Description
Application of Unit
This unit involves the skills and knowledge required to manage
suppliers in various contexts within the
transport and logistics industry.
It includes assessing and building productive relationships with
suppliers, and evaluating the delivery of
goods/services against agreements. It also includes negotiating
arrangements, resolving disagreements with
suppliers and reviewing supplier performance.
The unit generally applies to those who lead individuals or
teams.
No licensing, legislative or certification requirements apply to
this unit at the time of publication.
1. Assess
suppliers and
build productive
relationships
1.1 Criteria to effectively evaluate supplier services are
developed and
documented
1.2 Existing suppliers are assessed against criteria
1.3 Availability and suitability of alternate suppliers who can
meet the service
support requirements within legislative requirements are

identified
1.4 Terms and conditions of suppliers to achieve service
requirements are
established and communicated
1.5 Cooperative relationships are developed with suppliers in
accordance with
organisational policies and procedures
2. Evaluate
delivery of
goods and/or
services against
agreements
2.1 Quality of goods and services supplied is assessed against
criteria
2.2 Non-compliance is identified, documented and corrective
action is
implemented within the terms of contractual arrangements
2.3 Contingency plans are developed should suppliers fail to
deliver
2.4 Relationships with suppliers are managed to support
effective delivery
3. Negotiate
arrangements
with suppliers
3.1 Arrangements with suppliers are negotiated and
implemented in accordance
with organisational policies and procedures
3.2 Market factors that may affect the supply of goods and

services are
identified and communicated to relevant personnel
3.3 Immediate corrective action is taken in consultation with
suppliers where
potential or actual problems are indicated
4. Resolve
disagreements
with suppliers
4.1 Disagreements with suppliers are investigated to identify
validity and causes
4.2 Disagreements are negotiated and resolved
4.3 Amendments to agreements, as a consequence of the
resolution of
disagreements, are documented
4.4 Approval is sought and obtained for amendments
4.5 Approved amendments are communicated to suppliers and
relevant
personnel
5. Review
performance of
suppliers
5.1 Suppliers are continuously reviewed for quality,
profitability, service, delivery
status and other relevant performance indicators
5.2 Supplier performance is evaluated against purchasing
agreement
requirements
5.3 Suppliers are informed of evaluation outcomes as required

5.4 Recommendations about future use of suppliers are made to
relevant
personnel
5.5 Suppliers are deleted from supplier shortlist according to
criteria
Evidence of the ability to:
working effectively with others when
managing suppliers
risk situations and environments
and prioritising work activities in terms of
planned schedule
protocol
and signs relevant to managing
suppliers
nd/or rectifying identified problems, faults or
malfunctions promptly, in accordance
with regulatory requirements and workplace procedures

Knowledge Evidence
To complete the unit requirements safely and effectively, the
individual must:
rding, reporting and statistical analysis
systems and resources
code of conduct relevant to
procurement and supply contracts
suppliers
equipment
tory regulatory
requirements and codes of practice
related to procurement

Manage Suppliers Introduction
It makes no difference what business you are in, suppliers and
vendors play a key role in a company’s
success. Having a formalised system in place to track and
evaluate supplier and vendor performance is
essential to the smooth operation and profitability of the
company.
Successful companies embrace their suppliers and vendors,
viewing them as partners in helping to grow
the business. Making sure that this is a mutually beneficial
partnership will impact the price you are
negotiating today and the quality of service you get in future.
If a supplier/vendor is a key part or
service to your operation invite that supplier or vendor to
strategic meetings that involve the product
they sell. A common mistake companies make is to have a
combative relationship with their suppliers
and vendors.
Who manages suppliers in the organisation?
In a small company the owner of the business will
probably manage and negotiate with all suppliers in
both a formal and informal manner. In a medium sized
business, a nominated person or group of persons will

be responsible for managing all purchasing and supplier
relationships.
In government at all levels, the process could be
handled at multiple levels by multiple departments.
Managers of government departments will have
government credit cards to allow a purchased up to
$25,000 while a government Ministers may have a level
of $50,000 or similar credit card authority levels. All
government departments will have a group of persons
responsible for purchasing and tendering or contracting
purposes. These persons may be referred to as a
purchasing officer, procurement analyst, and supply
officer, item clerk, buying manager, supply manager or
contract manager.
Large mining companies may have a procurement department or
supply department that covers a large
region such as the Asia Pacific basin. With the internet and
reliable communication and lower labour
cost in third level countries, this is becoming a common
occurrence.
Role of Supply or Contract Manager
The supply or contract manager is responsible for ensuring that
the contracted goods and/or services
are delivered in accordance with the specification and the terms
of the contract, that all associated risks
are identified and managed and that effective communication is
maintained between all parties. The
supply or contract manager is also required to make
arrangements for the routine contract with the
supplier, administration functions, such as processing requests
for variation to the contract, handling

bank guarantees and security deposits and processing claims for
payment supported by invoices and
receiving documents. Processes will vary with different
organisations.
Contract Management Plan
A contract management plan contains all of the key information
about how the contract should be
managed. A contract management plan is an
essential tool in the proper management of
contracts. The contract manager should
regularly refer to the contract management plan
and should ensure that the plan is amended if
the circumstances change. Like all plans, it
should be a living document that changes to
reflect any changes in circumstances during the
operation of the contract.
The contract management plan should initially be
developed during the procurement or project
planning phase. It is usually further developed
and refined during contract formation activities
and may continue to be modified throughout the
period of the contract to reflect changes of
circumstances. Contracts may be for short,
medium and long term timeframes.
Probity Check
The buyer of goods or services should perform a probity check

that investigates the background of an
organisation (company or other corporate body) or individual to
determine their fitness to undertake a
specified activity for which authorisation is required.
Probity checks investigate the previous history and activities of
organisations and individuals, especially
but not only in respect of financial records and legal
involvements. The nature and detail of information
required for probity checks varies according to legislative
requirements and the type of activity for
which authorisation is required.
Section 1 Assess Suppliers and Build Productive Relationship
Most work environments require interacting with others. Some
people view these interactions as
separate events while others view them as enriching, ongoing
relationships. The truth is you get out of
your work relationships what you put into them.
There are four key behavior traits that contribute to building

strong relationships. You need to be
trustworthy, care about the other person, be committed to
excellence in your performance, bond
through adventure and be trustworthy.
Let’s look at each of these in more detail.
Be Trustworthy with Suppliers
It is important for you to do what you say. When you commit to
something others listen and then watch. They want to know if
you
can be trusted to deliver on your commitment or will you
dismiss
it. When delivering something will you deliver it as requested
and
on time or will it be incomplete or late.
Others also want to know if you are going to attempt personal
gain
at their expense. They will watch how you go about getting
things
you want, looking for methods or actions that take advantage of
others. Even if they are not involved, it will be a tell-tale sign
that
they need to watch their back when working with you.
Care about the Other Person
People want to know if you care about them as a person or see
them as an object or a means to an end.
No one wants to be viewed as a resource for someone else’s
consumption. They want to be known as a
unique individual with life experiences, emotions, and a choice

in their work demands. Showing
someone you care about them requires showing respect
regardless of their position in the company and
gaining general knowledge of who they are and what they like
and dislike.
In practice, this means scheduling a meeting or conversation
instead of just dropping in or calling.
Schedule in advance so you do not interrupt an ongoing
conversation or politely wait and then ask if it is
a good time to chat. Before you discuss any business
discussions ask them about their personal life.
When you are first building the relationship, ask general
questions
about their past and current experiences. Topics could include
family, hobbies, vacations, pets, past jobs, etc. As time goes on,
you can ask more specifics questions, but wait until you sense
trust
developing between the two of you.
Another way to show you care is to reflect back the information
you receive. If Sally tells you she has a big holiday starting
tomorrow, then make sure you ask her about it the next time you
see her. If Bill tells you his dog died, don’t forget about it and
then
ask him if he took his dog to the park a few weeks later. This is
all
part of caring for the other person.
Commit to Excellence in Your Process

Very few people like to work with low performers. You can’t
help but get a little upset from someone
else’s deficiencies and poor results. Working with a person who
is a low performer requires twice the
effort and time of a competent worker.
This is why your work attitude and quality of work affects your
work relationships. Committing to
excellence means showing initiative and not waiting for
someone else to point work out to you.
Having a can-do attitude signals you are not afraid of a
challenge and that you will carry your weight
when times get tough. Remember to be thorough and complete
when you declare something finished.
This will not only make you pleasant to work with, but it will
also inspire others to follow your
commitment to excellence.
Use Adventure to Grow a Relationship
Adventures are not all good or all bad; they are a mixture of
both. In a work environment, they are
always experienced with a group of people and have a general
beginning and end. Adventures never kill
us nor take us to nirvana and they usually have a central theme.
In our personal lives, adventures may
be vacations, kid’s sports teams, neighborhoods, community
efforts, etc.
In work environments, they may be projects, departments in
transition, recessions, building moves,
working with a very difficult person, etc. Adventures almost
always develop deeper bonds because they
are shared experiences that we get to survive together, laugh

and cry about, reminisce about, and to
some extent relive the emotions again.
Be Honest and Trustworthy in All Discussions
This sounds basic, but it goes beyond not lying to your
customers and employees. It’s about owning a
mistake when you make a mistake or mess up and admitting
when you’re wrong. It’s also about refusing
to pretend that you’re something you’re not. It requires
acknowledging the state of the business to your
employees and to customers.
It requires selling only what you can deliver effectively and
always living up to your word. Done
properly, this kind of honesty begets a tremendous amount of
loyalty from both customers and
employees. Both groups know they can trust you and more
importantly, that you value the integrity of
the relationship.
Asking who benefits from business honesty can explain why
virtue is also important. Examining the
negative effects of dishonest business practices provides insight
into the importance of honesty. In fact,
it is as helpful as looking at the benefits of business honesty.
Doing what is ethical because it is the right
thing to do is as essential as practicing ethical behaviour for the
positive consequences
Financial Viability Must Be Considered

Big companies can get into financial difficulties as quickly as
small
companies. When selecting a supplier for the organisation you
need
to determine if the supplier will be in business in both the short
and
long terms of the supply arrangements. With some commodities,
there may be a number of alternative suppliers that can fill in
the
supply gap. It the product is a specialised product or one that is
a
specialised manufacturer or supplier, financial viability is a key
decision to make. The process may be to have an accountant’s
opinion or and external credit agency provide an opinion on
their
financial viability.
Terms and Conditions of Supply
As a Purchasing person, you will need to determine the required
terms
and conditions of purchase. These organisation’s trading terms
are
usually printed on the back of a purchase order and covers most
legal
aspects of supply.
In contracts for major works the tender documents will set the
terms
and conditions that the buyer organisation requires. These
conditions
are used if there is a dispute for a delivery problem or issue.
Payment terms are mostly 30 or 60 days from date of purchase

while
delivery timeframes will usually set a date such as 25 November
or
seven (7) days from date of purchase. For purchased overseas
the lead time or delivery time will be
longer compared to a local supply and delivery.
Policy and Procedures Review
As part of selecting a supplier the purchasing officer should
ensure that the supplier has policy and
procedures to cover their business operations. This should
include legislation requirements, insurances,
customer service, quality control and other processes covering
their operations.
Have a Firm Knowledge of Your Suppliers
Do you have good knowledge of your suppliers? It is important
to have a wide range of knowledge and
skills to be involved in purchasing and be aware of your
business environment. Some suppliers’ operate
under different business names but are all owned by a single
parent company. An example is where
there may be three suppliers of personal protective equipment
(PPE) all trading under different names
and addresses. When further investigation is done they are all
owned by the same head office company.
If you are working on a larger or global purchasing environment
such as a mining company, the
purchasing department needs to be aware of the global
structures of the supplier. The information
about “keiretsu” in Japan is most interesting.

What is ‘KEIRETSU’?
This is a Japanese term describing a loose conglomeration of
firms sharing one or more common
denominators. The companies don’t necessarily need to own
equity in each other’s organisations.
Copyright © 1996 Zona Research Inc.
This term has been in the business news every now and then,
especially when they talk about Silicon
Valley. One example would be the close relationship between
AOL (America on Line) and Sun Micro. The
two firms don’t have ownership in each other, but they work
closely on various projects.
Japan’s corporate governance system known as a “keiretsu’
dates back to the 1600s, but was propelled
by the Japanese government’s newly formed Meiji Restoration
in 1866 as the world entered the
industrial revolution. These early corporate formations were
termed “zaibatsu,” translated to English as
monopoly.
Zaibatsu’s began as small, family-owned enterprises that formed
in various Prefectures across Japan to
specialize in the separate business needs of the nation. As
Japan’s economy grew, zaibatsu grew to later
form into holding companies.

When the U.S. rewrote the Japanese constitution after World
War II, the United States and the Allies
eliminated zaibatsu holding companies because of their
undemocratic nature as monopolies, and
Japanese governmental policies that perpetuated their existence.
Under a zaibatsu, the largest industrial groups allowed banks
and trading companies to be the most
powerful aspects of each of the cartels and sit at the top of an
organizational chart. Banks and trading
companies controlled all financial operations and the
distribution of goods. The original founding
families were in full control of all “Cartel” operations.
Typical of a Japanese horizontal keiretsu is Mitsubishi where
the Bank of Tokyo-Mitsubishi sits at the top
of the keiretsu. Also part of the core group is Mitsubishi Motors
and Mitsubishi Trust and Banking
followed by Meiji Mutual Life Insurance Company which
provides insurance to all members of the
keiretsu. Mitsubishi Shoji is the trading company for the
Mitsubishi keiretsu. Their purpose of this
structure is to manage the distribution of goods around the
world.
As a person responsible for managing suppliers you need to
understand relationship of your potential or
current suppliers and who they may be linked to or not linked
to. You may find that your current PPE
Physical
and
Broadcast

Info Keiretsu Structure
Sofware and
Hardware
Passive
Chaos
Content Delivery Consumption
supplier will be linked to another PPE supplier although trading
under different names. Within the hotel
chains there are five hotel groups all in competition with each
other and who trade under different
trading names. The parent company is the Accor group. Their
names are Mercure, Pullman, Formula 1
and others in their chain.
Section 2 Evaluate Delivery of Goods and/or Services against
Agreements
A lot of companies will actually have an adversarial
relationship where they hire purchasing people who
have on brass knuckles and try to beat up on suppliers or
vendors to get better prices or trading terms.
This is a very short sighted way to do business.
Instead of getting stuck on price, focus on quality of service or
value adding. A supplier can have the
lowest price and the lowest quality of work too. Your goal is
understand what value-adding the supplier

is bringing to the company. Your business should have a system
in place for evaluating, selecting and
benchmarking all suppliers. Here are some methods to
effectively rate your suppliers and vendors, track
their performance, and ultimately increase the company’s
overall productivity.
Establish Performance Indicators
At the onset of the supplier relationship you have to determine
what characteristics a vendor needs to
have, demonstrate, or maintain to continue doing business with
the company. Create specific
performance criteria for tracking and evaluating your suppliers
and vendors on a regular basis.
Considerations include the:
enquiry
conditions
advice
systems

Your own processes and needs will dictate what criteria you
apply. For a business owner who is looking
for a shipping or transport company, the biggest concerns might
revolve around what is that supplier’s
on time delivery track record, how many trucks they own, how
many accidents have their drivers
reported, and what insurances do they hold.
Possible Numeric Ranking System
The supplier with the highest points is better for the company
compared to a supplier with a low
number.
Range of products provided by
supplier
A – Large company with 2500 products
B – Medium company with 1000 products
C – Small company with less than 200 products
Quality assured management
system
10 point has ISO QA

8 points for Australian Standards QA
5. Has in house quality standards
0. Has no quality control systems
Suppliers response time from
initial or other enquiry
10 points if response is in 4 hours
2 points if response is in 5 days
0 points if no response received
Trading terms and conditions 30 days credit – 10 points
14 days credit – 5 points
7 days credit – 2 points
Financial stability supported
by financial reports
20 points for a financial report
10 points supported by a credit rating agency
5 points based on past trading history
0 points for no financial information

Engineering or technical
advise
Depends on the industry requirements.
Manufacturing will have a different requirement compares to a
café.
Delivery in full on time 10 points – delivery to requested
timeframe
5 points is 4 hours late regularly
2 points if delivery is late consistently
Transportation systems and
technology systems
10 points – trucks well maintained and fully equipped
8 points – trucks well maintained but not fully equipped
2 points – trucks not reliable or fully equipped
Drivers are trained 5 points for trained drivers
3 points for partially trained drivers
1 point for some training provided
Online ordering and payment
systems

5 points for payment and online ordering system
3 points for some systems
1 point for payment gateways
Transport availability 5 points for transport available on
request
3 points for transport in 24 hours
1 point for transport in 48 plus hours
Product delivered damaged 1 point for 20% of deliveries have
damage
5 points for 5% of deliveries have damage
10 points for 2% or less damage
A basic consideration for every business owner should be
whether the supplier has management system
in place. This doesn’t just apply to a particular industry but all
industries.
Classify Multiple Suppliers and Vendors
If you have a huge number of suppliers and vendors and you
intend to develop a survey to evaluate all
of them, it will be cumbersome to apply the same survey to each
and every one.
It is better to separate suppliers into levels (1, 2, and 3) based
on how critical they are to the business.

Decide the classification that is best for you and evaluate
suppliers according to the effect they have on
your product or service in order of importance. If you apply the
Pareto principle 80% of your purchasing
needs will come from 20% of your suppliers. Some will be
critical to the business while others will not
be critical.
An example of classification
Company Level of service Trained Staff Hourly rate
Plumber 1 Good history of service All staff qualified $70.00
Plumber 2 Poor level of service Some qualified and some in
training
$65.00
Plumber 3 No knowledge of service
provided. New company
Master plumber with trained staff $50.00 with a $15.00
call out fee.
From the information in the table the purchasing officer will
need make an informed decision as to
which plumber bests suits the organisations need.
Develop an Evaluation Method
There are common techniques for rating a supplier’s
performance including evaluation forms, surveys,
benchmarks, system metrics, and software applications.

Accounting systems can quickly provide reports of purchases
from one or many suppliers in a month, a
quarter or year.
to answer questions and
rate suppliers and vendors. You can report to determine;
quality
not to specification
Your business may already have an analysis process to rank
good from poor suppliers or vendors that
works to achieve a desirable outcome.
Determine who is the Decision Maker?
Once you establish the criteria for evaluating suppliers and
vendors, who in the
company will be responsible for reviewing the data. It will
depend on how many
resources you have to dedicate to the evaluating process.
You may want to assign one person or a team with the task. For

instance, selecting
and evaluating level 1 or critical suppliers and vendors, might
require the chief
financial officer or someone from the finance department with
accounting
knowledge to do the analysis.
In small companies this may be the owner of the business to
decide. With level 2 and 3 suppliers and
vendors, it may be the purchasing or procurement officer who
approves the supplier and monitors their
performance. In both analysis, the end users should have input
to the decision making process.
Maintain Good Relationships
Communicate often and openly with your suppliers and vendors
as part of
the team and treat them as such. Be upfront and transparent with
suppliers
and vendors and make sure they understand the needs of the
business and
expectations.
Using technology to communicate is great but don’t overlook
the personal
touch of a phone conversation or face to face meetings. Try to
avoid
supplier and vendor conflicts by paying your invoices on time
or at least
honestly addressing the reasons for a late payment of an
invoice.
If your purchasing specification require two layers of bubble
wrap or an extra layer of padding between

each part in a carton so that there is no scratching and it’s not
happening, advice the supplier and
request that it happens with the packing process for your
business. Discuss the level of detail requested
so that your business is not disappointed when parts come in.
Decide When to Issue a Warning or Red Flag
As you monitor a supplier’s performance, you have to decide
when to praise them and when to issue a
warning or red flag. Show appreciation for a job well done and
give a supplier additional business
because of excellent performance. A poor or bad supplier will
provide you with mediocre or poor
products and services and could cause a problem with your
business and your customers.
You can delete a supplier for poor performance but strategically
it is better to retain your supplier or
vendors and not to move around all of the time to replace them.
By giving a warning, you give the
supplier or vendor an opportunity to correct the problem and
improve their level of service. Use data
that you have collected such as on-time delivery, return rate and
number of incorrect prices on invoices
or applicable discounts.
The process is not just about reviewing your suppliers and
deleting them but helping them to improve
their performance and in turn help you.

Remove Poor Suppliers
No business or individual should tolerate poor or ongoing bad
or poor service.
There may come a time when you have to let go of an
underperforming
supplier or vendor. The price may be much lower with this
suppler compared
with a more expensive supplier but often there are some reasons
as to why
they are so low.
If they are not responsive to phone calls, suggested meetings,
written complaints, digital pictures,
quality reports or examples on where they are not performing,
perhaps the only outcome is to remove
them as a supplier.
The relationship with your supplier is a business partnership
where both parties are working to make
sure that the partnership is a success. It must be a win-win
supplier and vendor relationship.
Monitoring by Customers a Good Process
If your business is in retail or you are a distributor of goods, not
a consumer, a good approach is to
monitor a supplier’s performance by regular feedback or
following up of your customers. This approach
can be most effective in gaining an accurate perception of the
real quality of a supplier’s performance
under actual service delivery conditions. However, it can be
costly and time-consuming to apply.

Independent 3rd Party Monitoring
Independent third party monitoring can be performed directly,
by giving the responsibility over to an
external monitoring body, or indirectly through an accreditation
process. In an accreditation process,
service standards are set, reviewed and monitored normally
through an independent body. This
approach is often used by the community welfare sector.
Accreditation programs can be expensive for the business or
third party to implement but is an effective
way to ensure accuracy in a supplier’s performance. Potential
costs incurred would need to be weighed
against the potential benefits of accreditation to determine if
this method of monitoring is the most
appropriate for a contract.
The large mining companies in Australia have a supplier
accreditation process where a supplier is
required to provide a wide range of documentation or
accreditation to be considered for a supply
contract. The accreditation is revisited every two years to
ensure its currency.
Section 3 – Negotiate Arrangements with Suppliers
Without adequately defining your supplier objectives and
preparing for the negotiation, your chances of
achieving your objectives in a negotiation are minimal. One of

the things to stress is if you “fail to plan
you will plan to fail”. This is an old cliché, but one with a
strong correlation to negotiation results.
Putting it another way, those who plan better do better.
Manage Your Time in Negotiation
A staggering two-thirds (62% percent) of the people questioned
about preparing for a negotiation spent
one hour or less preparing for a negotiation. Sixty-eight per
cent admitted that better preparation for
their last deal would have produced a better outcome. This
information was supplied by Supply Chain
Management UK.
Negotiation is a performance; it is during the planning phase
that the stage is set and expectations
managed. Effective negotiators envisage a far wider range of
potential variables, openings and
outcomes than the average negotiator.
They also spend more time considering areas of common
interest between the parties. Average
negotiators discuss item A then B, followed by C and D. If the
business is in any other order, they are
thrown off balance. Effective negotiators are able to discuss
items in any order, enabling flexibility in
their approach. When preparing for negotiations remember to:
how attractive this business is to the other
party.

negotiation
– the longer and more creative the list
of variables, the more flexible your strategy will be.
Prepare Open Questions
Of those surveyed, only 1 per cent would typically prepare 20
‘open’ questions for a negotiation, with
44 per cent relying on only 0-5 planned questions. Closed
questions can be answered with “yes/no” or a
short phrase, whereas open questions demand more information
– for example, “Will you innovate for
us?” versus “How will you innovate for us?”
If we ask open questions, it is difficult for the other party to
evade and therefore puts the asker in a
position of control. Many people believe that talking gives you
control. In fact, it is the person asking the
open questions and listening to the responses who will be in
control.
If you talk too much and are under-prepared, the other party
will put you on the spot with a well-chosen
question. If you have planned properly, you will know what
information you require and what
assumptions you have made concerning you, your business and
the other party. Proper use of questions
allows you to check out all of this preparation before you move
into the next phase of the negotiation.

Design a Strategy Route Map
A negotiation has clear phases and these must be planned.
Avoid entering one without having drawn up
a careful map of the direction and destination of the meeting
and any subsequent events. The route
may not be completely sequential – you may have to backtrack
– but at least you will be prepared.
Skilled negotiators will be in a better position to manage time
more effectively, which will result in
delivery of a better deal.
A quarter thought that the other party was more prepared than
the buyer, with 48 per cent saying that
both parties were equally prepared. Our research, which was
based on the responses of 90 delegates on
our courses, would suggest that a lack of preparation and
planning is putting the buyer’s questions in a
weaker negotiation position before they even go in to do the
deal.
Consider Style & Personality
Personality type, negotiating styles and interests are all key
factors in
building rapport and managing behaviour during a negotiation.
It is
important these areas are considered in the planning stage. The
research found 43 percent ‘sometimes’ consider these aspects,
and 4
per cent ‘never’ consider it.

It is important to be unpredictable within a negotiation to
prevent
the other party reading you too well. Maybe they are skilled and
they
will also be unpredictable. You need to prepare and plan for a
plethora of tactics, approaches and questions because not all
techniques will work all of the time on every one. So, when
you’re
planning, consider the responses the other party is likely to
give.
Over half the people interviewed in the survey said that ‘mostly
to always’ they consider the other
party’s response. This will put them in control and help them
deal with the unexpected that can
sometimes arise during a negotiation.
Define Your Targets
Another part of the strategy should be setting well-defined
targets for each issue or variable. The
research showed that negotiators often lose sight of their
objectives. Keep these in mind and set well-
defined goals from the outset. If we don’t know where we are
going, how will we know when we’ve
arrived?
Setting objectives from ‘ideal’ and ‘realistic’ to ‘walk away’ is
paramount.
It will help to control the extent to which you move from your
ideal settlement point and to understand
the cost implications of any movement.
Skilled negotiators know the specific objectives for each

variable: what must they get? What might they
achieve in an ideal world? And what is realistic? Make sure that
the ideal is a stretching objective and
that you have clear targets for each variable.
The longer and more creative your give and take list of
variables, the more flexibility you will have in
your negotiation. One recent study found 79 per cent either
‘always’ or ‘sometimes’ dedicated
preparation time to getting their objectives clear.
List
Your Tactics
There are more than 75 tactics that are used during negotiations.
Some will work on certain personality
types, but not on others. Skilled negotiators are unpredictable in
their use of different approaches. If
you continue to use a pattern of the same tactics in each
negotiation, the other party will prepare to
counter them next time. It is important, therefore, to list and
carefully plan the tactics you will use in
each negotiation.
Rehearse Your Opening Statement
A clear, well-defined and well-rehearsed opening statement is
crucial. The first thing you say should

condition the other party and manage their expectations.
Skilled negotiators rehearse their opening statement several
times before entering the negotiating room. Rehearse and
then ask yourself: “If I heard this statement would it
encourage me to walk towards or away from my ideal
objective?” This will help you check you’re managing the
expectations of the other party positively towards your ideal.
The study showed that just 2.5 percent of people surveyed
‘always’ rehearsed their opening statement, with a huge 54
per cent ‘rarely’ or ‘never’ rehearsing. Without doubt, what
you do or don’t do in preparation and planning will
determine the outcome of all negotiations. The more you
plan and prepare, the more efficient you will be as a
negotiator.
Section 4 Resolve Disagreements or Conflict with Suppliers
In some businesses, a small conflict had ruined a relationship
for life
between the parties while in others the cost can be very large
and
very expensive to have conflict. In large construction projects,
conflict between contractors can cost millions of dollars to
settle or
resolve, often through the legal process and possible settlement
damages. This is a cost to both parties, the supplier and the
receiver.
J. David Alewine of Fluor Corporation in his opening address at
a
USA conference covering conflict with suppliers and

contractors
advised the delegates that there are a number of areas where
conflict can happen. He then talked about his experiences in
Fluor, a
multi-national construction company.
Every business or organisation, whether operated for profit or a
not for profit business, must purchase
goods or services to meet the needs of its customers, clients,
and stakeholders.
As a result of the dynamics that occur in this process, the
potential for buyer-supplier conflict is
extremely high and is in fact a very common occurrence. Proper
identification, assessment, and
management of buyer-supplier conflict can lower the cost of
conflict and improve the efficiency and
effectiveness of the relationship or partnership.
The dollar costs associated with buyer and supplier conflict
includes lost productivity, strained
relationships, poor resource utilization, and unfulfilled potential
of the joint business undertaken by the
parties.
The model of buyer-supplier conflict presented to delegates at
the conference consists of seven (7)
distinct types of conflict.
They are;
-specific

The source for each event, the duration, ease of resolution, and
impact on the alliance characterize each
conflict type. Identifying and understanding a particular type of
conflict is a prerequisite to resolving or
managing it. Because each conflict type is different it must be
addressed in a manner best suited to its
resolution.
Move from ‘Arm’s length’ deals to Alliance Relationships
‘Arm’s length’ transactions are characterized by a minimal
amount of interaction between the buyer and
supplier. These transactions are generally rights based
agreements, which are strictly governed by a
document setting forth the rights of all the parties.
Occasionally, one party has more power than the
other and is in a position to dictate the terms of the agreement.
The buyer and supplier both have a short-term perspective of
the transaction. Both parties are primarily
interested in meeting business obligations at the lowest possible
cost and with the least amount of
interference from the other party. In this type of transaction,
only essential information is shared
between the parties. The limited amount of communication that
does exist between the parties is often
used to determine if the other party is in compliance with the
purchase order contractual obligations.

Trust in the Relationship
Trust is generally low in arm’s length transactions and there is
little interest or incentive by the supplier to invest in specific
assets that could serve the needs of both parties. There is little
interdependence between the buyer and supplier except that
which results from any power imbalance.
Competition among suppliers is seen as the best way to
achieve lower prices, which is also the primary aim of buyers in
these transactions. Frequent multiple bidding by buyers is the
norm in the quest for the lowest price.
Conflict resolution in arm’s length transactions is a combination
of rights and power based strategies.
The rights stem from the purchase agreement itself, which
clearly states the responsibilities and
obligations of each party. If there is a breach of the agreement,
the other party seeks compliance by
coercion, which often takes the form of threats related to future
business and adjudication of disputes.
There is little incentive in rights based agreements for
collaboration. If one supplier fails to perform,
another will usually be waiting for the opportunity.
Fail to Supply
If one supplier fails to perform, another will usually be waiting
for the opportunity of additional
business. In alliance relationships there is more information
sharing and communication. The parties are
not as independent as before as each sees the other as important
and necessary if it is to meet its own

strategic and competitive goals.
A longer-term perspective replaces the short term outlook and
power becomes less of a factor in dictating the terms of the
agreement. All of these factors serve to build the trust and
confidence necessary for the development of a cooperative
buyer-supplier alliance.
Alliance relationships are characterized by open
communication,
information sharing, and joint risk taking. Buyers and suppliers
are dependent on one another to meet individual and collective
goals. Dependence is the result of having made an investment in
the working relationship. The buyer and supplier are moving
toward a longer-term perspective of their
relationship and a strategic perspective regarding the goods
being exchanged.
Both parties understand that identifying, assessing, and
managing conflicts are long-term interests
shared by each party. Success is a product of information
sharing, shared expectations, and trust. The
key to resolving conflict in an alliance is collaboration
according to Patterson (1999).
Model of Buyer Supplier Conflict
When people work together, conflict is often unavoidable
because of differences in work goals and personal styles.
Conflict
must be understood as an opportunity to improve relationships
with the supply community and our internal customers.

Moreover it provides the impetus for an examination of
policies,
procedures and work processes throughout the supply chain.
We must develop organizations and supply chains that are
conflict friendly in that they recognize conflict, its affects and
how it can be managed.
The goal is to understand conflict and its basis in order to better
resolve and manage it to the benefit of the entire supply chain.
Follow these guidelines for handling conflict in the workplace.
1. Talk with the other person
o Ask the other person to name a time when it would be
convenient to meet.
o Arrange to meet in a place where you won’t be interrupted.
2. Focus on behaviour and events, not on personalities
o Say “When this happens …” instead of “When you do …”
o Describe a specific instance or event instead of generalizing.
3. Listen Carefully
o Listen to what the other person is saying instead of getting
ready to react.
o Avoid interrupting the other person.
o After the other person finishes speaking, rephrase what was
said to make sure
you understand it.
4. Ask questions to clarify your understanding.
o Identify points of agreement and disagreement
o Summarize the areas of agreement and disagreement.
o Ask the other person if he or she agrees with your assessment.
o Modify your assessment until both of you agree on the areas

of conflict.
5. Prioritise the areas of conflict
o Discuss which areas of conflict are most important to each of
you to resolve.
6. Develop a plan to work on each conflict
o Start with the most important conflict.
o Focus on the future.
o Set up future meeting times to continue your discussions.
7. Follow through on your plan
o Stick with the discussions until you’ve worked through each
area of conflict.
o Maintain a collaborative, “let’s-work-out-a-solution” attitude.
8. Build on your success
o Look for opportunities to point out progress.
o Compliment the other person’s insights and achievements.
Congratulate each other when you make progress, even if it’s
just a small step. Your hard work will pay
off when scheduled discussions eventually give way to ongoing,
friendly communication.
Government Legislation
All purchasing officers or managers must comply with federal,
state and local government legislation when selecting and
negotiation with suppliers. If the item being purchased is an
electrical item, then knowledge of the Electricity Act may be of
assistance. If buying food stuffs then knowledge of the Foods

legislation is a must. I
In all buying processes the buyer must be aware of work health
and safety legislation (WHS 2011) to include fatigue, load
restraint, chain of responsibility and relevant legislation for
their industry.
Competition and Consumer Act
The main federal law covering consumers is the Competition
and Consumer Act 2010 (CCA) ensures that
all trading is fair for your business and your customers.
The CCA covers most aspects of the marketplace: dealings with
suppliers, wholesalers, retailers,
competitors and customers. It deals with unfair market
practices, industry codes of practice, mergers
and acquisitions of companies, product safety, collective
bargaining, product labelling, price monitoring,
and the regulation of industries such as telecommunications,
gas, electricity and airports.
The Australian Competition and Consumer Commission (ACCC)
administer the CCA. It promotes good
business practices for a fair and efficient marketplace. For
further information about federal
competition, fair trading and consumer protection laws visit the
ACCC website. Each State and Territory
has similar or supporting legislation covering consumer
protection.
Fair Trading Laws in Your State or Territory
Consumer protection is governed by state and territory laws (in

the form of a Fair Trading Act in most
cases). Familiarise yourself with the laws in your region.
See your state or territory fair trading offices for advice on
business rights and obligations under fair
trading laws. If you’re unsure how fair trading laws apply to
your situation or job role, think about
seeking independent legal advice.
Laws Affecting International Contracts
If your contract is with a hirer based in another country or some
of the work will be done in another
country, you may be required to comply with the laws of that
country. Some international contracts
specify which country’s laws will apply in deciding future
disputes.
It is a good idea to consider including a clause like this so you
don’t waste time and money deciding
which court in which country will hear the dispute. You should
bear in mind that should a dispute arise
in relation to a contract that applies the law of another country,
any claim you make in that country is
likely to be very expensive for you.
Australia may also be a party to a free trade agreement with the
country, which may impact on the
contract. The law of other countries maybe different from
Australian law in areas such as import

procedures, taxation, employment practices, currency dealings,
property rights, the protection of
intellectual property and agency/distributorship arrangements.
It is strongly recommended that the buyer gets advice from a
lawyer in the relevant country of purchase
or Austrade. The Australian Government’s trade and investment
development agency, has a number of
overseas offices that can help you find a legal representative.
Code of Practice
Codes of Practice set out industry standards of conduct. They
are guidelines for fair dealing between
you and your customers, and let your customers know what your
business agrees to do when dealing
with them.
Codes of Practice can relate to a single business, or represent a
whole industry. You can decide to
establish your own Code of Practice, or to adopt an industry
specific Code of Practice (in some cases this
is mandatory).
Usually, Codes of Practice are established through consultation
with industry representatives and the
community. They can be mandatory or voluntary:
Mandatory codes provide a minimum standard of protection to
the consumers. They are prescribed as
regulations under fair trading laws and can be enforced.
Voluntary codes are a form of industry self-
regulation. They can be sponsored by an industry association or
can be in partnership with a
government agency (membership of an industry association is

often a condition of the code). Voluntary
industry codes are usually flexible and can be altered quickly in
response to changing industry/consumer
needs.
Section 5 – Review Performance of Suppliers
This information is a process where the Japanese auto
manufacturers check the performance of their
suppliers in America. More and more businesses are
counting on their suppliers to lower costs, improve
quality, and develop innovations faster than their
competitors’ suppliers can meet.
The 100 biggest U.S. manufacturers spent 48 cents out
of every dollar of sales in 2002 to buy materials,
compared with 43 cents in 1996, according to
Purchasing magazine’s estimates.
Most suppliers in the auto manufacturing industry
believe that Toyota and Honda are their best and
toughest customers to deal with. The two companies
set high standards and expect their partners to rise to
meet them. However, the carmakers help suppliers
fulfil those expectations. Clearly, Toyota and Honda
want to maximize profits, but not at the expense of their

suppliers.
Toyota would help suppliers achieve cost reduction targets by
making their manufacturing processes
leaner, and because of Toyota’s tough love, they would become
more competitive and more profitable
in the future.
Honda, for instance, uses a report card to monitor its core
suppliers, some of which may be even
second- or third-tier vendors. Unlike most Fortune 1,000
companies, which send reports to suppliers
annually or biannually, Honda sends reports to its suppliers’ top
management every month.
A typical report has six (6) sections:
-conformance delivery
document
rformance history – are they consistent
– damage when delivered or wrong product
The incident report section has a subcategory for quality and
another for delivery.
The Auto Industry Comments
Honda uses the comments section to communicate how the
supplier is doing. We’ve seen comments
like “Keep up the good work” and “Please continue the effort; it
is greatly appreciated.” Honda also uses
this section to highlight problems. For instance, Honda will

write, “Label errors recorded on [part
description and number]. Countermeasures presented weren’t
adequate.”
So how do Toyota and Honda do it? The authors, who have
studied the American and Japanese
automobile industries for more than 20 years, found that Toyota
and Honda have built great supplier
relationships by following six steps.
1. They understand how their suppliers work.
2. They turn supplier rivalry into opportunity
3. Third, they monitor vendors closely
4. Fourth, they develop those vendors’ capabilities
5. They share information intensively but selectively.
6. They help their vendors continually improve their processes.
Some U.S. auto corporations created supply chains that
superficially resembled those of their Japanese
competitors, but they didn’t alter the nature of their
relationships with suppliers. As a result, relations
between U.S. auto manufacturers and their suppliers have sunk
to the lowest levels in decades.
In the U.S. automobile industry, for instance, Ford uses online
reverse auctions to get the lowest prices
for components. General Motors writes contracts that allow it to
shift to a less expensive supplier at a
moment’s notice. Chrysler tried to build a keiretsu model but
the process unraveled after Daimler took
over the company in 1998.

Not surprisingly, the Big Three US auto manufacturers have
been more or less at war with their
suppliers. Having witnessed the American automakers’ abject
failure to create keiretsu models, most
Western companies doubt they can replicate the model outside
the culture and society of Japan. While
U.S. automakers take two to three years to design new cars,
Toyota and Honda have consistently been
able to do so in just 12 to 18 months.
Honda expects its core suppliers to meet all their targets on
metrics like quality and delivery. If a vendor
misses a target, the company reacts immediately. In early 1998,
a tier-one supplier didn’t meet an on-
time-delivery target. Within hours of missing its deadline, the
vendor came under intense scrutiny from
Honda. It had to explain to the manufacturer how it would try to
find the causes, how long that might
take, and the possible measures it would employ to rectify the
situation. Until it did that, the supplier
had to promise to add extra shifts at its own cost to expedite
order delivery.
Both Toyota and Honda teach suppliers to take every problem
seriously and to use problem-solving
methodologies that uncover root causes. If suppliers aren’t able
to identify the causes, the
manufacturers immediately send teams to help them. The
manufacturers’ engineers will facilitate the
troubleshooting process, but the suppliers’ engineers must
execute the changes.
In contrast with most American
companies, Toyota and Honda expect
their suppliers’ senior managers to get
involved whenever issues arise. That

expectation often causes problems. For
example, in 1997, when a North American
supplier ran into a design-related quality
issue, the vice president of the Toyota
Technical Center immediately invited his
counterpart for a visit to discuss the
matter. When the executive arrived, it
became clear that he didn’t understand
the problem or its causes. “I don’t get into
that kind of detail,” he stated. He was
apologetic about the problem, however,
and firmly assured his counterpart that he
would take care of it.
Congratulations!
You have now finished the unit ‘Manage suppliers’

Learner Guide: TLIL5055
Manage a supply chain
TLIL5055 Manage a Supply Chain
TLIL5055 LEARNER GUIDE 2 | P a g e Version 2.0
National Training Pty Ltd TOID 21792
Version control
Version No. Date Dept. Change
1.0 11/07/2016 Training Original
2.0 18/11/2016 Training Moodle update
Copyright Statement
© Copyright National Training
Disclaimer
All rights reserved. No part of this publication may be
reproduced or

transmitted in any form or by any means, electronic or
mechanical,
including photocopying, scanning, recording, or any
information storage
retrieval system without permission in writing from National
Training. No
patent liability is assumed with respect to the use of information
used
herein.
While every effort has been taken in the preparation of this
publication,
the publisher and authors assume no responsibility for errors or
omissions. Neither is any liability assumed for damages
resulting from the
use of information contained herein.
Contents
TLIL5055 Unit Description
...............................................................................................
................. 5
Application of Unit
...............................................................................................
............................ 5

...............................................................................................
... 5
...............................................................................................
...................... 6
Knowledge Evidence
...............................................................................................
......................... 6
What is Supply Chain Management?
...............................................................................................
7
Legislation
...............................................................................................
......................................... 8
Australian consumer law
...............................................................................................
................10
Supply Chain Management Jobs
...............................................................................................
.....11
Section 1 Implement demand-driven supply chain management
strategy .................................... 12
Supply chain strategies
...............................................................................................
.......................12
Supply chain strategies generally conform to one of six types.

Choose the best one for your
organisation, and you'll manage your business more effectively.
................................................12
The four elements of supply chain strategy
..................................................................................12
Industry framework.
...............................................................................................
.......................12
Unique value proposal.
...............................................................................................
...................13
Internal processes.
...............................................................................................
..........................13
Managerial focus.
...............................................................................................
...........................14
Six generic supply chain models
...............................................................................................
.....14
Supply chains oriented to efficiency
..............................................................................................
14
The "Efficient" Supply Chain
Model.....................................................................................
..........15

The "Fast" Supply Chain Model
...............................................................................................
......15
The "continuous-flow" supply chain model
..................................................................................16
Supply chains oriented to responsiveness
....................................................................................16
The "agile" supply chain model.
...............................................................................................
.....17
The "custom-configured" supply chain model
..............................................................................17
The "flexible" supply chain
...............................................................................................
.............18
Simultaneous capabilities or multiple supply chains?
...................................................................19
Section 2 Manage supply chain
...............................................................................................
.... 20
Supply Chain Management
...............................................................................................
................20
Lower Costs –
...............................................................................................
..................................20

Improved Collaboration –
...............................................................................................
...............20
Cycle Times –
...............................................................................................
..................................21
Response to Conflict –
...............................................................................................
....................21
What do we really mean by supply chain management?
.............................................................21
SCM is what you make of it
...............................................................................................
............21
What does supply chain management software do?
....................................................................22
What is the goal of installing supply chain management
software? ............................................22
Supply Chain
Collaboration..........................................................................
..................................23

Levels of Collaboration
...............................................................................................
...................23
Benefits of Supply Chain Collaboration
.........................................................................................24
Section 3 Evaluate and improve supply chain effectiveness
......................................................... 26
How to Evaluate, Improve & Manage a Supply Chain
Management
Solution
.................................26
Defining Your Requirements and Expectations
.............................................................................26
Benchmarking Your Current Operation
.........................................................................................26
Evaluating Your Choices Capabilities, Competencies, and
Highest Total Value............................27
Obtain “Buy in” and Manage Change

............................................................................................2
7
Implement a Successful Improvement Plan
..................................................................................28
How to Ensure Long-Term Success
...............................................................................................
.28
Conclusion
...............................................................................................
.......................................29
Acknowledgements:.................................................................
.................................................. 30

TLIL5055 Unit Description
Application of Unit
This unit involves the skills and knowledge required to manage
a supply chain within various
contexts in the transport and logistics industry. It covers the
relationships between an organisation
and its supply and demand partners along the chain.
It includes implementing a demand-driven supply chain
management strategy, managing the supply
chain, and evaluating and improving supply chain effectiveness.
The unit generally applies to those who lead individuals or
teams.
No licensing, legislative or certification requirements apply to
this unit at the time of publication.

1. Implement
demand-
driven supply
chain
management
strategy
1.1 Responsibility for supply chain management within the
organisation is
assigned in accordance with the strategy interpreted
1.2 Technology and software for implementing the strategy is
accessed and
operationalised within the requirements of the strategy and
budgetary
allocation
1.3 Policies and procedures are designed to guide business
relations and
operations in accordance with the strategy
1.4 Supporting business processes are designed or re-designed
to support
implementation of the strategy
1.5 Support is provided to staff, customers and supply chain to
assist in

implementation of the strategy
2. Manage
supply chain
2.1 Communication and information exchange with strategic
partners and
suppliers is managed in accordance with the supply chain
management strategy
2.2 Collaboration with supply chain organisations is facilitated
to determine
demand at each level of the supply chain in accordance with the
strategy
2.3 Sales and payments are managed in accordance with supply
chain and risk
management strategies, and legal and ethical requirements
2.4 Actions to build trust and foster a supply chain culture are
implemented in
accordance with the strategy
2.5 Opportunities are identified to adjust policies and
procedures to respond to
the changing needs of customers, supply chain and the
organisation
3. Evaluate

and improve
supply chain
effectiveness
3.1 Demand chain management and supply chain management
are monitored in
accordance with the supply chain management strategy
3.2 Effectiveness of the supply chain is reviewed with each
level of the supply
chain, including staff and customers, and areas are identified for
improvement
3.3 Business data and reports are used to compare outcomes,
budgets, timelines
and forecasts to actual performance
3.4 Technology performance is reviewed and recommendations
are made for
improvements to hardware, software and/or their use, in
accordance with
strategy and budget
3.5 Feedback and evaluation results are used to plan and
improve future supply
chain management strategies

Evidence required demonstrating competence in this unit must
be relevant to and satisfying all of
the requirements of the elements and performance criteria on at
least one occasion and including:
➢ applying relevant legislation and workplace procedures
➢ developing and implementing policies
➢ focusing on the customer
➢ implementing, managing and reviewing management
strategies

➢ implementing contingency plans
➢ negotiating and liaising with suppliers and relevant
stakeholders, verbally and in writing
➢ using appropriate technology, including software
➢ working collaboratively with others
➢ working with attention to detail and thoroughness.
Knowledge Evidence
Evidence required to demonstrate competence in this unit must
be relevant to and satisfy all of the
requirements of the elements and performance criteria and
include knowledge of:
➢ business terms and conditions for purchasing, tendering and
contracting
➢ ethical behaviour

➢ legislation related to importing commodities
➢ legislation, codes of practice, national and international
standards applicable Acts and
contract law
➢ organisational policies and procedures related to supply chain
management, purchasing,
contracting and tendering
➢ procedures for operating electronic communications
equipment
➢ product knowledge related to goods and services required by
the organisation
➢ requirements for completing relevant documentation
➢ ways to build trust and collaboration as opposed to
competition.

What is Supply Chain Management?
Supply chain management includes all the activities a business
employs to keep its products flowing,
from sourcing raw materials, to delivering finished goods at the
point of purchase. Top firms in

industries such as automotive, food and beverage, computer
hardware, electronics, and
pharmaceuticals practice supply chain management to deliver
goods consumers want or need at a
price the market will support.
Businesses from manufacturers, wholesalers and retailers, to
warehouses, healthcare providers and
government agencies use supply chain management principles to
plan, assemble, store, ship, and
track products from the beginning to the end of the supply
chain.
Supply chain management encompasses collaboration with
suppliers, intermediaries, third-party
service providers, and customers, and includes:
➢ Sourcing raw materials and parts
➢ Manufacturing and assembly
➢ Warehousing and inventory tracking
➢ Order entry and order management

➢ Delivery to the customer
Supply chain management, is the active management of supply
chain activities to maximise
customer value and achieve a sustainable competitive advantage
Supply chain activities cover everything from product
development, sourcing, production, and
logistics, as well as the information systems needed to
coordinate these activities.
The organisations that make up the supply chain are “linked”
together through physical flows and
information flows.
Physical flows involve the transformation, movement, and
storage of goods and materials. They are
the most visible piece of the supply chain.
Information flows allow the various supply chain partners to
coordinate their long-term plans, and to
control the day-to-day flow of goods and material up and down
the supply chain.
Commonly accepted definitions of supply chain management

include:
➢ The management of upstream and downstream value-added
flows of materials, final goods,
and related information among suppliers, company, resellers,
and final consumers.
➢ The systematic, strategic coordination of traditional business
functions and tactics across all
business functions within a particular company and across
businesses within the supply
chain, for the purposes of improving the long-term performance
of the individual companies
and the supply chain as a whole]
➢ A customer-focused definition is given by Hines (2004: p76):
"Supply chain strategies require
a total systems view of the links in the chain that work together
efficiently to create
customer satisfaction at the end point of delivery to the
consumer. As a consequence, costs
must be lowered throughout the chain by driving out
unnecessary expenses, movements,
and handling. The main focus is turned to efficiency and added
value, or the end-user's

perception of value. Efficiency must be increased, and
bottlenecks removed. The
measurement of performance focuses on total system efficiency
and the equitable
monetary reward distribution to those within the supply chain.
The supply chain system
must be responsive to customer requirements."
➢ The integration of key business processes across the supply
chain for the purpose of creating
value for customers and stakeholders (Lambert, 2008)
➢ According to the Council of Supply Chain Management
Professionals (CSCMP), supply chain
management encompasses the planning and management of all
activities involved in
sourcing, procurement, conversion, and logistics management. It

also includes coordination
and collaboration with channel partners, which may be
suppliers, intermediaries, third-party
service providers, or customers. Supply chain management
integrates supply and demand
management within and across companies. More recently, the
loosely coupled, self-
organizing network of businesses that cooperate to provide
product and service offerings
has been called the Extended Enterprise.
A supply chain, as opposed to supply chain management, is a
set of organizations directly linked by
one or more upstream and downstream flows of products,
services, finances, or information from a
source to a customer. Supply chain management is the
management of such a chain.
Legislation
It is essential that all sales involves and records are kept and
tracked appropriately according to the
range of legislation that applies to supply chain management
and financial transactions that taken

place within a business environment.
Relevant legislation may include:
Relevant WHS/OH&S legislation
Within each state there will be a range of WHS/OH&S
legislation that will need to be complied with
in order to ensure that all of the practices that are carried out
within the entire supply chain process
including the process of tracking supplies and payments within
the organisation in order to ensure
that all actions that are taken within the organisation are safe
and compliant with WHS/OH&S laws.
Environmental Protection Legislation
The environmental protection Act is imposed on all businesses
in Australia to ensure that the actions
of the organisation do not place undue stress or damage onto the
environment. It will be necessary
to ensure that all processes and practices are assessed and
designed to ensure that they comply with
all of the needs of the environmental protection act.
Trade Practices Act
The trade practices Act has been put in place to ensure that all

of the actions and transactions that
take place within the marketplace are fair and just, this includes
ensuing that all codes of practice
and product safety and price guidelines.
Sales of Goods Act
The sales of goods act is put in place to ensure that all of the
products that are bought and sold
within the Australian marketplace are safe and compliant with
all Australian standards and
requirements.
Taxation Act
The taxation act is in place to ensure that all of the taxation
requirements that must be complied
with for each organisation can be enforced as required; this will
include a range of tracking reporting
and information storage and processing procedures in relation to
sales and invoices within the
organisation.
Financial Transaction Reports Act 1998
AUSTRAC collects and monitors all financial transaction
activity within Australia, as a matter of
notational security, protecting Australia’s assets, preventing

money laundering, terrorism and other
crimes such as tax evasion. All transaction must be handled,
structured, processed and reported in a
certain manner. All variations to this must be reasonable and
will be monitored separately.
If an organisation is found to be deliberately not reporting
transactions or structuring the transaction
in a manner that changes its monetary value in any way, then an
individual can be placed in prison
for up to 2 years. Due to the serious nature of the consequences,
should a transactional breach
occur, there will need to be a series of monitoring activities
conducted.
All transactions must be completed, and reported in accordance

with legislative requirements that
maybe dependent on the type of transaction. Different
transactions require different levels of
security, reporting and approval.
Australian contract law
Australian contract law may be broadly divided into five
categories
➢ Formation: dealing with the requirements for making a valid
contract scope and content:
dealing with identifying contractual terms and their scope
➢ Avoidance: dealing with how a party may avoid performing
an otherwise valid contract (this
overlaps with consumer law)
➢ Performance and termination: dealing with what is required
to fully perform a contract and
the other circumstances that might bring a contract to an end
(including breach)
➢ Remedies: setting out the damages and other remedies that
might be available to a
contracting party as a result of a breach of contract by the other

party.
These categories are described briefly below. More detail can
be obtained by selecting from the
category links to the left or from the sub-category links below.
Formation
A contract is a promise or a set of promises that is legally
binding. In this context a promise is an
undertaking by one person to do something or refrain from
doing something if another person does
something or refrains from doing something or makes a promise
in return. A promise or set of
promises will be legally binding if certain criteria are met. In
Australia this requires that there be an
agreement (comprising an offer and acceptance), consideration,
intention to create legal relations,
compliance with any legal formalities and that the parties have
the legal capacity to contract.
➢ Agreement: The first requirement for a valid contract is an
agreement, which normally
consists of an 'offer' and an 'acceptance' (although the parties
may not articulate their
arrangement in these terms) and involves a 'meeting of the

minds' - or consensus - between
two or more parties. Whether or not there is a consensus is
determined 'objectively'.
➢ Consideration: Consideration is the price that is asked by the
promisor in exchange for their
promise – the price for a promise. In many jurisdictions
consideration is not an essential
element of a contract – it is sufficient that parties have reached
a binding
agreement. However, the common law requires that, for an
agreement to be binding, the
promisee (or promisees) must provide consideration (payment
of some kind) for the
promise they have received. Thus, gratuitous promises are
generally not enforceable,
subject to the limited exceptions.
➢ Intention: For a contract to exist the parties to an agreement
must intend to create legal
relations. Usually, the presence of consideration will provide
evidence of this - if the
promisor has specified something as the price for the promise
this - in most cases - carries
with it an intention that the parties be bound. Intention remains,

however, an independent
requirement and must be separately demonstrated and there are
cases in which
consideration has been present but no contract found to exist
because this pre-condition
has not been fulfilled. In determining if there is contractual
intent and objective approach is
taken.
➢ Capacity: For a contract to exist the parties must have
contractual capacity. There are
certain persons and classes of persons that lack the capacity to
enter into a contract with the
consequence (normally) that resulting contracts will not be
enforceable against them. Lack
of capacity now often stems from a fear of vulnerability to
exploitation. This area has

become more complex as a result of statutory developments at a
state level (calls for
national law reform have not yet met with success) which result
in a variety of different
rules.
➢ Formalities: As a general rule contracts do not need to
comply with any sort of formalities.
Thus, while it is more difficult to prove contracts that are
entirely or partly oral, this is a
matter of evidence and procedure only and is not relevant to the
validity of a contract. There
are, however, some exceptions to the general rule, so that some
contracts require essential
terms to be recorded in writing and signed. These requirements
generally derived from
the Statute of Frauds 1677 (UK) (which still applies in WA) and
were principally designed to
reduce fraudulent contractual claims.
Scope and Content
A contract is generally only enforceable by and against parties
to the contract. This section considers
the issue of privity of contract.

This section also considers the content of a contract; once
formed, how do you determine what the
terms of the contract are? How should the various terms by
classified and how should they be
interpreted in cases of ambiguity? Exclusion clauses are given
special attention here.
Avoidance / Vitiating Factors
A contract validly formed may nevertheless be avoided as a
result of a number of possible 'vitiating
factors'. Most of these involve some form of unfair or
unconscionable dealing by one of the parties.
Performance and Termination
Most contracts come to a natural end as a result of the parties
performing their respective
obligations. The requirements for 'performance' to discharge
contractual obligations are discussed in
this section. A contract may also come to an end by agreement
between the parties or as a result of
the breach of contract by one of the parties. Finally, a
frustrating event might prevent parties from
performing as planned and this may have the effect of
terminating a contract.

Remedies
Where a breach of contract has occurred the non-breaching
party is entitled to remedies; in
particular, they are entitled to damages as a matter of right. The
procedures for determining the
extent of damages available are discussed in this section.
Parties may also make provision in their
contract for the payment of a liquidated sum upon breach; the
effect of these clauses will be
discussed.
In addition to common law remedies, parties may seek the
equitable remedies of specific
performance or injunctions for contractual breach (or threatened
breach) - these are not available as
a matter of right but are awarded at the discretion of the court.
Australian consumer law
For a more detailed discussion select the relevant topic from the
left hand menu. Below you will find
a brief overview of each broad topic - Australia's consumer law
regime is currently undergoing
significant change. One major bill has already passed through

Parliament and another has recently
been introduced. Throughout 2010 this site will provide details
of these changes.
Consumer guarantees
A set of nationally consistent consumer guarantees replaced the
previous set of federal, state and
territory implied terms on 1 January 2011.
http://www.australiancontractlaw.com/legislation/ukstatuteoffra
uds.html
http://www.australiancontractlaw.com/legislation/ukstatuteoffra
uds.html
Unfair terms
A national unfair terms regime came into operation in 2010
which renders void unfair terms in
standard form consumer contracts.

Unconscionable conduct
In addition to unconscionable conduct in equity, which may
vitiate a contract, statutory rules
prohibiting unconscionable conduct exist. They now form part
of the Australian Consumer Law.
Manufacturers' liability
Contractual liability (save for special cases) extends only to
parties to the contract. Consequently,
consumers generally cannot sue manufacturers at common law
directly. However, statute has
imposed direct liability on manufacturers in some cases. These
provisions now form part of the
Australian Consumer Law.
Supply Chain Management Jobs
Skilled logistics managers are in demand because of their
ability to spot complications and create
effective solutions — all in support of a company's objectives.
Supply chain management
professionals fulfill roles that offer a multitude of employment
opportunities, which can be divided
into two general areas:

1. Planning. Working in office environments, these supply chain
managers are involved in
areas such as inventory control, forecasting demand, and
handling customer service issues.
2. Operations. Often located in distribution facilities, port
terminals and operations centres,
these jobs involve day-to day management of people and the
flow of products.
Specific job titles fall into one of several categories; among
them are:
3. Forecasting. This specialty includes supply chain analysts,
planners, and project managers,
who use analytical and quantitative methods to manage the
supply chain process. They
typically focus on performance improvements and identifying
potential problems.
4. Fulfilment. Job titles include fulfilment supervisor,
distribution centre supervisor or
distribution team leader. They are often responsible for
receiving, storing and shipping

products, and typically supervise teams focused on these
activities.
5. Purchasing. Roles include purchasing manager, acquisitions
manager and buyer.
Professionals in these positions typically direct buying
activities, locate suppliers, negotiate
contracts, and coordinate materials management.
6. Storage and Distribution. Known as warehouse operations
managers, directors of
logistics, or warehouse and delivery managers, these supply
chain management
professionals are skilled in inventory management; from
receiving and storing goods, to
filling orders across town or around the globe.
7. Customer Service. Also known as customer order managers
and logistics or distribution
coordinators, these professionals plan and direct activities of
customer service teams, to
ensure accurate orders, efficient shipments, and timely delivery
of products.

Section 1 Implement demand-driven supply chain
management strategy
Supply chain strategies
Supply chain strategies generally conform to one of six types.
Choose the best one for
your organisation, and you'll manage your business more
effectively.
Supply chains encompass the end-to-end flow of information,
products, and money. For that reason,
the way they are managed strongly affects an organisation's
competitiveness in such areas as:
➢ product cost,

➢ working capital requirements,
➢ speed to market, and
➢ service perception.
In this context, the proper alignment
of the supply chain with business
strategy is essential to ensure a high
level of business performance.
The four elements of supply chain strategy
Supply chain strategy defines the connection and combination
of activities and functions throughout
the value chain, in order to fulfil the business value proposal to
customers in a marketplace.
Accordingly, an organisation's supply chain strategy is shaped
by the interrelation among four main
elements:
➢ the industry framework (the marketplace);

➢ the organisation's unique value proposal (its competitive
positioning);
➢ its internal processes (supply chain processes); and
➢ Its managerial focus (the linkage among supply chain
processes and business strategy).
➢ Although each of these elements includes multiple factors,
only some of those factors are
relevant drivers for the formulation of a supply chain strategy.
Industry framework.
"Industry framework" refers to the
interaction of suppliers, customers,
technological developments, and
economic factors that affect competition
in any industrial sector. Within this
framework are four main drivers affecting
supply chain design, all of them
interrelated:

1. Demand variation, or demand profile, influences the stability
and consistency of the
manufacturing assets' workload, and consequently is a main
driver of production efficiency
and product cost.
2. Market mediation costs. Market mediation costs, as defined
by Marshall Fisher, are costs
associated with the imbalance of demand and supply. Examples
include product price
markdowns to compensate for excess supply, and lost sales
when demand exceeds supply.
These costs, which reflect the unstable and fragile balance
between lost sales and product
obsolescence, arise from the consequences of the degree of
demand predictability.

3. Product lifecycle, which is continually getting shorter in
response to the speed of change in
technology, fashion, and consumer product trends, affects the
predictability of demand and
market mediation costs. Consequently, it pushes companies to
increase the speed of
product development and to continuously renew their product
portfolios.
4. Relevance of the cost of assets to total cost becomes critical
in industrial sectors where
business profits are highly correlated with the asset-utilization
rate. Companies fitting this
profile must assure high utilization rates, often to the detriment
of working capital and
service levels. In industries where the relevance of the cost of
assets is low, companies may
choose strategies that focus on responsiveness. In these cases,
the asset-utilization rate falls
between high and low, but responsiveness to unexpected
demand is high, increasing
customer satisfaction and reducing market mediation cost.
Unique value proposal.

The second element, the unique value proposal, requires a clear
understanding of the organisation's
competitive positioning in terms of its supply chain.
These concepts define, respectively, the minimum requirements
for being considered as a relevant
option by customers, and the performance aspects that best
differentiate the company from its
competitors and therefore help to win customer orders.
Recognising the main "order winners" (in terms of product
features and service) in a company's
value proposal allows the enterprise to shape the connection and
combination of the key drivers
that must be incorporated into supply chain processes in order
to ensure the fulfillment of that value
promise to customers.
Internal processes.
The third element, internal processes,
provides an orientation that ensures a proper
connection and combination within the supply

chain activities that fall under the categories of
source, make, and deliver.
Among the many factors encompassed by this
element, the most important are asset
utilisation and the location of the decoupling
point. The decoupling point is the process in
the value chain where a product takes on
unique characteristics or specifications for a
specific customer or group of customers.
There is a high degree of interdependence between these two
factors, and they in turn govern other
factors:
1. When the business framework is characterised by a high
degree of relevance of the cost of
assets to the total cost, and/or when the unique value proposal is
oriented to low cost, the
high utilisation of assets is mandated. Consequently, the
location of the decoupling point

should be at the end of the transformation process, or at least at
the output point for the
most relevant manufacturing asset in terms of cost.
2. Prior to the decoupling point, processes are "push," therefore
the workload levelling is
smoothed by the forecast, the production cycle tends to be long
in order to increase
production efficiency, and the asset-utilisation rate is high.
3. After the decoupling point, processes are "pull," therefore
asset utilisation hovers around
the medium level, the workload is driven by demand and is
therefore highly variable, and
the production cycle tends to be shorter in order to reduce the
order cycle time and increase
customers' positive perception of service.
4. The largest portion of the inventory, which is partially
manufactured and ready to configure

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