CHAPTER 4Distribution and Omni-Channel Network DesignSu.docx

CHAPTER 4
Distribution and
Omni-Channel Network Design
Supply Chain Management: A Logistics Perspective (10e)
Coyle, Langley, Novack, and Gibson
© 2016 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
Discussion Outline
© 2016 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
2
Drivers of supply chain network redesign
Process of comprehensive supply chain network design
Major locational determinants
Modeling approaches for supply chain network design
Omni-channel network design
Drivers of Supply Chain Network Redesign
3

Supply Chain Network Redesign
Changes in global trade patterns
Changes in customer service requirements – The emergence of
omni-channel supply chains
Shifts in customer and/or supply market locations
Changes in corporate ownership/merger and acquisition activity
Competitive capabilities
Cost pressures
Corporate organizational change
1
2
3
4
5
6
7
Supply Chain Network Design Process
4
1. Define Process Steps
2. Perform Supply Chain Audit
3. Examine Network Alternatives
4. Facility Location Analysis
5. Network Decision-Making
6. Develop Implementation Plan
Location Selection Team
Continuous Improvement
Network Transformation Team Involved in All Steps

Source: Figure 4-1
Step 1: Define the Supply Chain Network Design Process
Form a supply chain network transformation team.
Establish the parameters and objectives of the network design or
redesign process.
Evaluate the potential involvement of third-party suppliers of
logistics services.
5
Image courtesy of DynamicCIO
Step 2: Perform a Supply Chain Audit
6
1. Fundamental Business Information
2. Logistics/Supply Chain System
3. Key Logistics/Supply Chain Activities
4. Measurement and Evaluation
5. Strategic Logistics/Supply Chain Issues

6. Logistics/Supply Chain Strategic Plan
Source: Figure 4-2
Step 3: Examine the Supply Chain Network Alternatives
Apply suitable quantitative models to the current logistics
system and to the alternatives under consideration.
Identify preliminary supply chain network design solutions
consistent with the key objectives identified during the audit
phase.
Conduct “what-if” analysis to test the sensitivity of
recommended network designs to changes in key variables.
7
Image courtesy of line-of-sight
Step 4: Conduct a Facility Location Analysis
Form a location selection team.
Qualitatively and quantitatively analyze the attributes of

specific regions and locales.
Identify recommended specific sites for logistics facilities.
8
Step 5: Make Decisions Regarding Network and Facility
Location
Evaluate the recommended network and specific sites for
logistics facilities (Steps 3 and 4) for consistency with the
design criteria identified in Step 1.
9
Image courtesy of decisionnel.info
Step 6: Develop an Implementation Plan
Develop a “blueprint for change” as a road map for moving
from the current supply chain network to the desired new one.
Commit the resources necessary to assure a smooth, timely
implementation, and the continuous improvement of the network

decisions.
10
Major Locational Determinants
Broad Geographic and Site-Specific Locational Determinants
12
Transportation access
Truck
Air
Rail
Water
Inside/outside metropolitan area
Availability of workforce and needed skill sets
Land costs and taxes
Utilities
Global/National/ Regional Determinants
Site-Specific
Determinants
Labor climate
Transportation services and infrastructure

Proximity to markets and customers
Quality of life
Taxes and industrial development incentives
Supplier networks
Land costs and utilities
IT infrastructure
Company preference
Current Trends Governing Site Selection
13
Site Selection
Strategic positioning of inventories
(fast-moving, profitable items vs. slower-moving, less-
profitable items)
Greater use of “Customer-direct” delivery from manufacturing

Growing use of and need for strategically located cross-docking
facilities
Greater emphasis on access to major airports and/or ocean ports
for import and export shipments
Greater use of providers of third-party-logistics services
Modeling Approaches for Supply Chain Network Design
A Network Design Model
The Challenge of Supply Chain Complexity
15

A Network Design Model
Objective and Need for Decision Support Tools
16
Answering network design questions today is virtually
impossible without the help of very powerful decision support
tools.
Today’s Objective
Expanded Scope & Complexity of Network Design Model
Procurement
Various Stages of Manufacturing
DCs
Transport Flows
Classic Objective
Finished Goods DCs
Types of Modeling Approaches
17

Modeling Approaches
Optimization Models
Designed to find the “best,” or optimum solution, while
recognizing relevant constraints.
Simulation Models
Designed to develop a computer representation of supply chain
network & observe changes as cost structures, constraints, and
other factors are varied.
Heuristic Models
(e.g. grid technique)
Designed to reduce a problem to a manageable size and search
automatically through various alternatives in an attempt to find
a better solution.
Potential Supply Chain Modeling Pitfalls to Avoid
Short-term horizon
Too little or too much detail
Thinking in two dimensions
Using published costs
Inaccurate or incomplete costs
Fluctuating model inputs
Use of erroneous analytical techniques
Lack of appropriate robustness analysis
18

Omni-Channel Retailing Defined
“A direct to consumer (D2C) business model where all sales
channels ranging from online, mobile, telephonic, mail order,
self-service, and physical retail establishments are aligned and
fulfillment processes integrated to provide consumers with a
seamless shopping experience in alignment with the company’s
brand proposition.”
20
Omni-channel strategy must align with the firm’s “go to
market” strategy.
The fulfillment processes must be integrated regardless of order
entry point.
“Ease of shopping” for the consumer is a priority regardless of
where or how the order is placed.
Three Important Elements
Marketing Channel vs. Logistics Channel
21

Source: Figure 4.7
Typical Retail Logistics and Marketing Channels
Logistics Channel
Marketing Channel
Supplier
Transport
Manufacturer
Transport
DCs/Fulfillment center
Transport
Retail store
Consumer
E-Procurement
National account sales
Wholesale/Distributor
Internet site
Retail customer

Cost Consideration
Fixed Cost and Variable Cost Consideration:
A Rule of Thumb in Channel Design
“Assuming that the origin and destination remain the same, the
more intermediaries used to deliver the product the higher the
fixed cost and the lower the variable cost, and vice versa.”
22
Customer Order Fulfillment Models
23
Integrated Fulfillment
Dedicated Fulfillment
Flow-Through Fulfillment
Pool Distribution
Store Fulfillment

Direct Store Delivery (DSD)
Customer Fulfillment Models (continued)
24
Source: Figure 4-9
Pool Distribution
Direct Store Delivery (DSD)
Store Fulfillment
Flow-Through Fulfillment
1
2
3
4
5
6
Retail DC
Fulfill-ment Center
DC
DC
Supplier DC
Retail Store
Retail DC
TL, LTL
TL, LTL, Parcel

Store
TL, LTL
Parcel
Parcel
TL, LTL
Third Party
LTL
Delivery or Pick up
Delivery or Pick up
Store
Con-sumer
Con-sumer
Store
Store
Store
Consumer
Consumer
Omni-Channel Customer Fulfillment Models
25
Source: Figure 4-10
Integrated fulfillment means the retailer operates one
distribution network to service both “bricks-and-mortar” (retail
stores) and “clicks-and-mortar” (Internet sites) channels.
Advantages: Low start-up costs for retailers, Workforce
efficiency
Disadvantages: Order profile changes, Unavailability of
products in eaches, “Fast pick” or broken case operation

requirements for unit pick (each pick)
Supplier Distribution Center
Picking
Ship truckload, LTL
Retailer Distribution Center
Picking
Pallet, Case, Each
Consumer
Ship Case
Retail Store
Ship truckload, LTL
Delivery
Pick-up
Consumer
26
Source: Figure 4-11
Dedicated fulfillment means the retailer operates two separate
distribution networks to service “bricks-and-mortar” (retail
stores) and “clicks-and-mortar” (Internet sites).
Advantages: Elimination of most of the disadvantages of
integrated fulfillment

Disadvantages: Duplicate facilities and duplicate inventories
Picking
Ship truckload, LTL
Ship truckload, LTL
Retail Store DC
Picking
Pallet, Case, Each
Retail Internet DC
Picking
Each
Consumer
Consumer
Ship truckload, LTL
Retail Store
Pick-up
Ship case
Delivery
Pool Distribution
27
Source: Figure 4-12

In pool distribution, small retailers use third party logistics
companies, or pool distributors, for store delivery, allowing
them to achieve efficiency of a truckload shipment for the line
haul and the effectiveness of allowing stores to receive LTL
orders on a regular schedule
Picking
Ship TL, LTL
Retail Distribution Center
Picking
Pallet, Case, Each
Ship TL
Multiple LTL
Third Party DC
Mixing
Ship LTL
Ship LTL
Ship LTL
Ship LTL
Consumer
Delivery
Pick-up
Delivery
Pick-up
Pick-up
Delivery
Pick-up
Delivery
Stores

Direct Store Delivery
28
Source: Figure 4-13
Direct store delivery involves a manufacturer delivering its
product directly to a retailer’s stores, bypassing the retailer’s
distribution network.
Advantages: Reduction of inventory in the distribution network
Disadvantages: Possible reduction of inventory visibility of the
products to the retailers, Requirements of close collaboration
and agreement between the manufacturer and retailer
Picking
Ship TL
Supplier Required DC
Mixing
Multiple LTL
LTL
LTL
LTL
Stores
Consumer
Delivery
Pick-up
Delivery
Pick-up

Delivery
Pick-up
Store Fulfillment
29
Source: Figure 4-14
In store fulfillment model, the order is placed through the
Internet site. The order is sent to the nearest retail store where
it is picked and put aside for the customer to pick up or the
store can arrange for delivery.
Advantages: Short lead time to the customer, Low start-up costs
for the retailer, Returns handled through the retail store,
Product available in consumer units
Disadvantages: Reduced control and consistency over order fill,
Conflicts between store and Internet order inventories,
Requirements of real-time visibility to in-store inventories,
Requirements of stores’ space to store and stage products for
pickups
Picking
Ship TL
Retail DC
Picking

Pallet, Case, Each
Ship TL, LTL
Retail Store
Picking
Each
Consumer
Delivery
Pick-up
Flow-through Fulfillment
30
Source: Figure 4-15
In flow-through fulfillment, the product is picked and packed at
the retailer’s distribution center and then sent to the store for
customer pickup or delivery.
Advantages: Eliminates the inventory conflicts between store
sales and Internet sales, No cost of the “last mile”
transportation, Store-level inventory status not required,
Returns handled through the retail store,
Disadvantages: Storage space at the store for pickup items,
Longer fulfillment lead time
Retail DC
Ship TL, LTL

Retail Store
Consumer
Delivery
Pick-up
Picking
Picking
Pallet, Case, Each
Picking
Each
Ship TL, LTL
Summary
The strategic importance of supply chain network design
decision is growing with the increasing globalization of
manufacturing, marketing, sourcing, and procurement.
A formal, structured process for network design or redesign is
preferable to an informal, unstructured one.
Numerous factors may affect the design of a logistics network
and the location of specific facilities within the context of the
network.
Principal modeling approaches to gain insight into the topic of
supply chain network design include optimization, simulation,
and heuristic models.
In an omni-channel environment, many network models exist
that can be used to service retail stores and Internet consumers,
each of which has its advantages and disadvantages. Trade-offs
must be taken into consideration when deciding which network
model to use.

MSEL Strategy Mid-term Instructions
Miguel Rivera-Santos
Due by e-mail on or before Sunday, March 15, 2020, at
midnight EST
General Instructions
- You have over one week to complete this mid-term, but it is
designed to only take a few
hours. The reason why you have over one week to complete it is
to make sure that time
constraints are not an issue and that this mid-term does not
interfere with other courses or
assignments.
- This mid-term is an individual assignment. You should not
discuss it or consult with
anybody.
- The mid-term is due before midnight EST, on Sunday, March
15, 2020, and should be
sent by e-mail to [email protected]

- Mid-terms received after midnight will be penalized, the
penalty being one full letter
grade for finals received on March 16, 2019 between 12:01am
and 12:30am, two full
letter grades for finals received between 12:31am and 1:00am,
etc.
- The subject line of the submission e-mail should read “MSEL
Strategy Mid-term”. The
mid-term should be attached to the e-mail and consist of a
single pdf document, titled
“lastname_firstname.pdf”, e.g., “rivera-santos_miguel.pdf”.
Format of the Mid-term
- You will find three recent newspaper articles describing a
strategic move or a strategic
decision in this document. Choose two out of these three
articles and, for each of the two
articles you have selected, answer the following two questions:
- Q1: What is (are) the issue(s) for the main company in the
article? How do you
assess the company’s strategic decision(s)? What additional
information and what
specific analyses would you conduct to fully understand the
issue(s) and the
decision(s)?
- Q2: What alternative recommendation would you consider in
response to the
issue(s)? What additional information/analyses would you need
for this
alternative recommendation? How could it be implemented?

- For each article, the combined answers to these two questions
should be no longer than 2
single-spaced pages, in 12-point Times New Roman, with a 1-
inch margin all around.
You can add as many appendices as you feel necessary, but
remember that the page limit
for the mid-term (excluding exhibits) is 4 pages, i.e., 2 pages
per newspaper article.
- You do not need to seek additional information beyond what is
provided in the articles.
GOOD LUCK!
Automobiles
CHRISTIAN SHEPHERD — BEIJING
Geely is aiming to be the first China carmaker to design and
build satellites to support its autonomous
driving programme, the latest step by founder Li Shufu in his
bid to build an industry leader.
Geely, which owns Swedish brand Volvo Cars, Malaysia’s
Proton, and a stake in Mercedes-Benz owner
Daimler, will invest Rmb2.27bn ($325m) in a new development
centre and factory to manufacture
satellites this year, the company said yesterday.
The announcement makes Geely the first known Chinese
carmaker with plans to build its own satellites.
Mr Li’s move sparked comparisons in China media with Elon
Musk, founder of electric carmaker Tesla

and private space exploration company SpaceX.
Last month Geely drew comparisons with Volkswagen when Mr
Li’s holding group announced plans to
merge Geely Automobile and Volvo Cars, moving the company
towards becoming the first global Chinese
carmaker.
Che Jun, Communist party boss of China’s eastern Zhejiang
province, where Geely is based, said that the
complex would be built in Taizhou city and that construction
had begun.
The centre will design, test and manufacture low-orbit
communication satellites, purpose-built to improve
geolocation of vehicles and to support their connected
functions, Geely said.
Geely has been pouring money into new technologies from self-
driving cars to flying taxis, spending
Rmb20bn on research and development in the past year.
The investments are part of the group’s spend on global
expansion, such as buying a $9bn stake in
Daimler.
The announcement comes as the coronavirus outbreak in China
has deepened a downturn in its car market,
setting it up for a third consecutive year of declining sales.
Geely to build satellites for self-driving cars - Financial Times
(US), 3/4...
https://digital.olivesoftware.com/Olive/ODN/FTUS/PrintArticle.
aspx?d...
1 of 1 3/5/2020, 11:45 AM

Google is exploring
financial deals to
license news and help
develop new
products to benefit
media brands
ALEX BARKER — LONDON
Google is talking to some of France’s biggest news publishers
about making
direct payments for content, a potentially significant shift by
the search platform
towards a model used by Facebook in the US.
Exploratory discussions with media groups including Le Monde
and Le Figaro
have touched on developing new products that would include
financial deals to
license news. Google has also spoken to some US media groups
about the plans,
according to people familiar with the matter.
“We want to help people find quality journalism — it’s
important to informed
democracy and helps support a sustainable news industry,” said
Richard Gingras,
Google vice-president for news, who said the group was
“looking at more ways to
expand our ongoing work with publishers”.
While the discussions are at an early stage and several models
are being considered, there are echoes with

Face-book’s recent shift in approach. In October the social
media platform launched a news tab feature in
the US following multimillion-dollar deals with outlets
including BuzzFeed, the New York Times and the
Wall Street Journal.
After years of lambasting big internet platforms for failing to
pay for content, Robert Thomson, the chief
executive of News Corp, described Facebook’s move as a
“powerful precedent that will echo around
editorial newsrooms”.
France is a test ground for Google’s change of approach because
of the fierce political reaction to its
response to the EU’s new copyright directive, which the country
is the first member state to implement. To
the anger of French ministers who denounced the approach as
against “the spirit and letter” of the law,
Google said it would show only headlines to news stories in
France, sidestepping the need to reach
licensing deals to pay for snippets of journalism. In the past the
group has warned that aggressive
application of the copyright directive could force it to withdraw
its news service from Europe altogether.
Google insists it will, on principle, refuse to “pay for links”.
But it has privately acknowledged to French
publishers that it wants to extend its support for journalism,
potentially through new products that would
give some brands greater prominence and reach as well as direct
income.
Additional reporting by Leila Abboud
Google in talks to pay French media for news - Financial Times
(US), 2/...

aspx?d...
1 of 1 2/16/2020, 4:27 PM
Seconds away: AEW says it aims to attract a younger fan base
and advertisers
Travel & leisure. Sport
RHODRI MORGAN — LONDON
When
Shahid Khan, the Pakistani-American billionaire, took his 13-
year-old son to an Extreme Championship
Wrestling event in Philadelphia in 1996, he did not envisage
they would be launching their own wrestling
business 23 years later.
Tony Khan, with his father’s backing, launched All Elite
Wrestling in January 2019. A year on and the
Jacksonville-based organisation is proving a worthy opponent to
industry behemoth World Wrestling
Entertainment.
AEW aims to offer fans a calendar of compelling storylines
supported by a smaller roster of fighters,
relative to the WWE, featuring both big names and the next
generation of would-be superstars.
The approach has helped AEW win US and UK ratings battles
and secure big rights deals.

All Elite Wrestling enters the ring to grapple with WWE -
Financial Time...
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1 of 3 2/16/2020, 4:57 PM
“Tony’s always been a big wrestling fan. A few years ago he
said it was the perfect time to start a
wrestling organisation. I thought the odds were very much
against us,” said Shahid Khan, owner of
English Premier League football club Fulham and the
Jacksonville Jaguars NFL team.
“As a parent, this is one of those times you’re glad you were
totally wrong.”
The sport’s dominant force is WWE, a listed company with a
history dating from the 1950s and annual
revenues of $1bn. It has had several incarnations, rode high in
the Attitude Era in the 1990s and last year
signed record broadcasting rights contracts.
But WWE lost more than $1bn in market value last month after
Vince McMahon, chief executive, fired
two top executives, citing “different views on how to best
achieve strategic priorities” in a move that
pushed the stock to its lowest level since May 2018.
In results this month WWE said annual revenues had climbed to
a record high driven by rights deals —
but revenue from live events fell 13 per cent to $125.6m from
$144.2m in 2018 as it cut the number of
events and average attendance fell.

Raj Giri, president of WrestlingInc, a website covering the
sport, said that “what AEW has been able to do
in its short time is unprecedented. But it’s not significantly
responsible for WWE’s waning popularity —
that was happening long before AEW was formed”.
Tony Khan said AEW was not seeking market hegemony,
instead offering a “different take on wrestling”
that had attracted a “fan base that is significantly younger than
our competitors” and which is “very
appealing to advertisers”.
AEW hosts live events and airs quarterly pay-per-view shows as
well as a weekly primetime Wednesday
slot for Dynamite, its flagship offering. Launched on TNT in
October, the show attracts an audience of
about 905,000, according to Nielsen data.
In anticipation, WWE moved NXT, which focuses on younger
fighters and is its third significant offering
alongside Smackdown and Raw, from its subscription streaming
service to USA Network, the national
broadcaster, in September. It has claimed viewership victory in
only two to three weeks since going head
to head, however.
“The old established competitor is now counter-programming
us,” said Shahid Khan. “It’s great, they’re
helping to grow the audience, which is what it’s all about. We
want to create a bigger pie and get a piece of
it.”
AEW last month announced an extension of its $175m deal with
WarnerMedia’s TNT to the end of 2023
and plans for another show. “I never believed we would be in

this position so early into year two,” said
Tony Khan.
He sees a lot to learn from industry forebears, particularly,
World Championship Wrestling. “I’m not
taking positive business lessons from other companies,” he said.
“Most of the lessons I’m taking are
examples of what not to do.”
Funded by Ted Turner, the CNN founder, WCW resurrected
wrestling’s southern style in the 1990s; an
antithesis to the borderline slapstick WWE (then WWF)
offering. Despite its flagship show Nitro winning
the Monday night ratings war against WWE’s Raw for 84
consecutive weeks from June 1996, its
popularity plummeted and the company was bought by WWE in
2001.
Financial Time...
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“The audience was there for those wars to go on for decades if
they had produced competitive shows and
run them logically, but that didn’t happen,” said Tony Khan.
“WCW was badly mismanaged. They teased
audiences with matches that never materialised and lost tens of
millions of dollars on talent, some earning
six figures without ever working. It was a real disservice to
fans.”

Ex-WWE stars such as Chris Jericho, Jon Moxley and Cody
Rhodes have joined AEW, with others set to
follow. But AEW is having to confront early mistakes. A large
talent roster so early on has led to criticism
of reduced exposure for some stars, particularly female, and
with a second show will have to avoid
oversaturated programming.
The Khans know the honeymoon does not last and must work
hard to keep an unforgiving audience. “It
costs millions of dollars a month for production before factoring
in employees, week to week is high six
figures and the touring costs are millions alone,” said Tony
Khan. “But we have a very good chance to be
profitable in 2020 and beyond. It’s very exciting.”
Financial Time...
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0 - MSEL Strategy mid-term instructions1 - Geely to build
satellites for self-driving cars - March 42 - Google in talks to
pay French media for news - Feb 153 - All Elite Wrestling
enters the ring to grapple with WWE - Feb 15
CHAPTER 5
Sourcing Materials and Services
Supply Chain Management: A Logistics Perspective (10e)
Coyle, Langley, Novack, and Gibson
© 2016 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a

publicly accessible website, in whole or in part.
Discussion Outline
The role and nature of purchasing, procurement, and strategic
sourcing
Strategic evolution of sourcing process
Types of purchasing activity and quadrant technique
Strategic sourcing process
Total landed cost concept
E-sourcing, e-procurement, and e-commerce
2
Purchasing vs. Procurement vs. Strategic Sourcing
3
Strategic Sourcing
Procurement
Purchasing
Managing procurement priorities such that they are well-aligned
with goals and objectives of the supply chain and of the overall
organization.
Managing a broad range of activities within the procurement
process (e.g. supplier selection, price negotiation, contract
management, supplier performance management).

Managing a firm’s acquisition procedures and standards,
involving largely transactional activity of the buying of
products & services.
Purchasing is an activity that follows conduct of a formal
sourcing process, while procurement and strategic sourcing are
best described as processes.
Consolidation and leveraging of purchasing power
Emphasis on value
More meaningful supplier relationships
Attention directed to process improvement
Enhanced teamwork and professionalism
1
2
3
4

5
Unique Aspects of Strategic Sourcing
4
Images courtesy of HRPeople
Strategic Evolution of Sourcing Process
5
Source: Figure 5.2
1
2
3
4
TRADITIONAL SOURCING
E-ENABLED PROCUREMENT
STRATEGIC SOURCING
INTEGRATED SOURCING/
SUPPLY CHAIN

Tactical sourcing
Functional purchasing
Limited, known supply base
Multiple quotes
Search for best price
E-sourcing
E-procurement
E-commerce
Supplier relationships
Expanded, non-traditional supply base
Total cost or Total Cost of Ownership
Sourcing a strategic supply chain process
Supply chain visibility of sourcing decisions
Seamless, integration of sourcing and supply chain activity
Three Types of Purchasing Activity
6
1
Capital Goods
Maintenance, Repair,
Operations (MRO)
3
2
Rebuy

Standard
Modifed
Types
of Buys
Types and Importance of Purchases –
The Quadrant Technique
7
Not all items /services purchased are of equal importance,
requiring varying procurement strategies based on their value
and risk.
Source: Figure 5.3
Distinctives
Engineered Items
Criticals
Unique Items
Items Critical to Final Product
Generics
Office Supplies
MRO Items
Commodities
Basic Production Items
Basic Packaging
Logistics Services
High Risk

Low Risk
Low Value or Profit Potential
High Value or Profit Potential
Strategic Sourcing
Core Principles & Process
Strategic Sourcing – Five Core Principles
9
1
2
3
4
5
Assess total value
Emphasis beyond acquisition cost, evaluating total cost of
ownership and the value of the supplier relationship.
1

Individual spend categories need customized sourcing
strategies.
2
Requirements and specifications thoroughly assessed and
rationalized as part of the sourcing process.
3
Suppliers’ economics understood before identifying buying
tactics (e.g. volume leveraging, price unbundling, price
adjustment mechanisms).
4
Strategic sourcing initiatives as subset of continuous
improvement process for procurement and sourcing
organizations.
5
Develop individual sourcing strategies
Drive continuous improvement
Focus on supplier economics
Evaluate internal requirements
Strategic Sourcing Process
10
1
Develop Strategic Plan
2
Understand Spend

3
Evaluate Supply Sources
4
Finalize Sourcing Strategy
5
Implement Sourcing Strategy
6
Onboarding and Transitioning
7
Collaborative Process Improvement
Step 1: Develop Strategic Plan
11
Create cross-functional planning committee
Identify key members of sourcing team
Agree on scope of sourcing processes
Images courtesy of MPA Exhibits
Step 2: Understand Spend

12
Refine understanding of sourcing needs of process-owners, with
the nature of the requirement being represented by some type of
measurable criteria
Images courtesy of Farol Consulting
Perform spend analysis to:
Understand spend by supplier, category, and internal user
Profile current sourcing approaches and areas for improvement
Address issues of make vs. buy
Strategic Sourcing
Steps 3–5: Supplier Portfolio Screening
13
Initial Supplier Research and Screening
(Market Analysis & Alternative Supplier Evaluation)
Request for Information (RFI)
Request for Proposal (RFP)
Supplier Site Visits
Supplier Selection
Source: Figure 5.6
Strategic Sourcing

Steps 3–5: Supplier Portfolio Screening (continued)
14
Source: Figure 5.7
Quality
Technical specifications
Design
Product life
Ease of repair
Maintenance
Dependability
Reliability
On-time delivery
Performance history
Warranty and replacement policies
Risk
Lead time risk and uncertainty
Potential for supply uncertainty
Cost risk
Capability
Production capability
Technical capability
Management
Information
Operating controls
Labor relations
Financial
Price of products
Financial stability
Desirable Qualities
Cultural compatibility and supplier attitude
Supplier locations
Packaging
Repair and return capabilities

Training aids
Sustainability
Commitment to sustainability
View sustainability as a potential driver of increased efficiency
and effectiveness
Supplier Selection Criteria
Step 6: Onboarding and Transitioning
15
Finalize understandings and agreements with suppliers
Create management processes for new suppliers
Conduct transition and onboarding processes
Images courtesy of showd.me
Step 7: Collaborative Process Improvement
16
Regular feedback and communications
Analyze net savings and compare with goals and objectives
Process improvement for both suppliers and customers

Images courtesy of comindware
Total Landed Cost
Total Landed Cost (TLC)
18
Source: Figure 5.8
Tangible,
Visible
Cost
Additional
Relevant
Costs
Purchase/ Acquisition Cost
Life-Cycle Costs
Inventory Costs
Other Logistics
Costs
Strategic Sourcing Costs
Quality Costs
Costs of
Disposition

Management Costs
Technology Costs
Cost Impacts on
Other Functional
Areas
Transaction Costs
TLC Example: Cost Comparisons of Alternative Sourcing
Options
19Destination Country – SwitzerlandCountry of OriginPrice
Components – all prices in EurosChinaVietnamEUNet
purchasing price for a specific volume of the product from 3
different suppliers10,0008,00012,000Total transportation cost
to Switzerland (Ocean freight from China/Vietnam – Road
freight within Europe)4,0006,0001,200Customs according trade
agreement1,0001,500n.a.VAT (Switzerland 7.6%) based on
value of goods1,1401,1781,003Total Landed
Cost16,14016,67814,203
Source: Figure 5.9
E-sourcing,
E-procurement, and E-commerce

E-sourcing and E-procurement Functionality
21
Online negotiations
Process automation
Collaboration tools
Management of RFI/RFP processes
Analytical tools
Project management
Logistics procurement
Contract management
Knowledge management
3
5
7
8
10
4
6
9
Industry analysis and supplier identification
1
2

Advantages and Concerns
of Electronic Procurement
22
Concerns
Advantages
Cyber-security
Lack of face-to-face contact between the buyer and seller
Technology-related concerns (lack of standard protocols, system
reliability, time & money investment)
Lower operating costs (reduce paperwork & sourcing time,
improve control over inventory & spending)
Improve procurement and sourcing efficiency (find new supply
sources, improve communications, improve personnel use,
lower cycle times)
Reduce procurement prices (improve comparison shopping,
reduce overall prices paid)
Four Basic Types
of E-commerce Business Models
23
Images courtesy of UMeXX (United States Mexico Market
Exchange)

Sell-side system: Online businesses selling to individual
companies or consumers. Examples: Staples (www.staples.com),
Wal-Mart (www.walmart.com), CNET (www.cnet.com)
Electronic marketplace: A seller-operated service that consists
of a number of electronic catalogs from suppliers within a
market (one-stop sourcing site for buyers). Examples:
Expedia.com (www.expedia.com), Amazon (www.amazon.com),
eBay (www.ebay.com)
Buy-side system: A buyer-controlled e-procurement or e-
commerce service that is housed on the buyer’s system and is
administered by the buyer. Example: Elemica (elemica.com)
Online trading community: A system maintained by a 3rd party
technology supplier where multiple buyers & sellers in a given

market can conduct business. Examples: Travelocity
(www.travelocity.com), Priceline (www.priceline.com)
Summary
Different procurement and sourcing strategies devised based on
the risk and value or profit potential from needed
products/services that can be classified into: generics,
commodities, distinctives, and criticals.
Strategic sourcing process includes: develop strategic plan,
understand spend, evaluate supply sources, finalize sourcing
strategy, implement sourcing strategy, transition and
onboarding, and collaborative process improvement.
The concept of total landed cost is a highly-valuable element of
the overall procurement process.
Advantages of e-sourcing and e-procurement include lower
operating costs, improved efficiency, and reduced prices.
Four popular e-commerce model types are: sell-side, electronic
marketplace, buy-side, and online trading community systems.

CHAPTER 4Distribution and Omni-Channel Network DesignSu.docx

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