Part 1Question 1You are the Chief Purchasing Officer of a .docx

Part 1
Question 1
You are the Chief Purchasing Officer of a company with World
Wide Production and buying locations. Design an organizational
structure that allows you to compete effectively. Describe the
reporting structure, the physical placement of personnel, the
placement of purchasing authority and the coordination of
activities with other functional groups.
Question 2
Discuss the sources of Information available to a buyer when
seeking information about potential sources of supply. When do
you think it is appropriate to use different sources?
Question 3
Please Answer the following questions :
1) Provide reasons why most firms do not have an adequate
supplier measurements system.
2) What is a full service supplier ? What are the benefits of
using full –service suppliers?
3) Of the barriers to supplier development mentioned in this
chapter, which ones are the most difficult to overcome in you
opinion?
4) Why should a buyer be concerned with supplier quality
performance?
5) How can early supplier design involvement contribute to
higher levels of product quality?
6) What are the differences between TQM and Six sigma
quality approaches?
Question 4

Please read the following case on Air Products and answer the
questions at the end of the case. Please see attachment.
Question 5
Discuss whether the growth in worldwide sourcing will have a
positive or negative effect over the long run in the United
States. Why? What alternatives exist to world wide sourcing?
Question 6
Discuss why it is important for buyers to have knowledge of a
supplier's learning rate when preparing to negotiate a purchase
contract.
Question 7
Please Read both cases and respond to the case questions.
Please see attached.
Case 1: Supply Chain Management at Bose Corporation (see
attachment)
Case 2: Strategic Sourcing and Supply at Federal Express (see
attachment}
Question 8
Discuss concept of ethics and discuss the reasons why some
issues that confront a buyer are not often clear from an ethical
perspective.
Question 9
Please turn in any portion of your assignment. It does not have

to be complete and it can be a draft. I am only looking to see
your progress.
Part 2
Project – Term Paper
· Due the last day of class:
You have been hired as a purchasing/procurement Manager for a
large US based automotive manufacturer. You have been
assigned the responsibility of evaluating current supplier
relationships and developing relationships with new supplier for
automotive parts.
Go through the process, policy and procedures to evaluate
current suppliers and select new suppliers. This should include:
1) Negotiations
2) Purchasing relationships
3) Purchasing strategies
4) Insourcing and outsourcing
5) Supplier quality management
6) Supplier evaluation, selection and measurements.
Give examples of some current best practices that are being
used in the economy today to evaluate and manage suppliers.
Please use standard formatting for your paper and must be
between 4 to 8 pages, double spaced. Please use reference
where applicable.

Strategic Sourcing and Supply at Federal Express
Prepare a set of detailed responses to the following questions
after reading the case:
1. What are the key elements that must be completed at each
stage of the strategic sourcing process?
2. How does the governance structure for supply chain
management at Federal Express support the strategic sourcing
process?
3. Are there elements of the strategic sourcing process used at
Federal Express that apply to other companies?
Background – Federal Express
FedEx Corporation is a $20 billion market leader in
transportation, information, and logistics solutions, providing
strategic direction to the five main operating companies. These
include:
· FedEx Express: The world's largest express transportation
company. Leveraging its unmatched air route authorities and
extensive air/ground infrastructure, FedEx Express connects
markets, within just 1 to 2 business days that comprise 90% of
the world's economic activity.
· FedEx Ground: North America's second-largest ground carrier
for business-to-business small-package delivery. Provider of
innovative new residential delivery service – FedEx® Home
Delivery – in key U.S. cities and a pioneer in applying advanced
information technology to meet customer needs

· FedEx Freight: A $1.9 billion leading provider of next-day
and second-day regional LTL freight services. FedEx Freight is
comprised of two independent yet complementary operating
companies, American Freightways and Viking Freight, known
for exceptional service, reliability and on-time performance.
· FedEx Customer Critical: North America's largest time-
specific, critical-shipment carrier provides exclusive-use, non-
stop, door-to-door delivery throughout the U.S. and Canada and
within Europe – 24 hours a day, 365 days a year.
· FedEx Trade Networks: A full-service customs brokerage,
trade consulting, and e-clearance solutions organization
designed to speed shipments through customs using advanced e-
commerce programs.
· FedEx Services: Provides customer access to the full range of
FedEx transportation, logistics, e-commerce and information
services by integrating sales, marketing and information
technology
FedEx Center-Led Initiative
Prior to the purchase of the Ground, Freight, and other non-
express based services, Federal Express had re-organized all of
its major indirect spend in information technology, aircraft,
facilities/business services, vehicles/fuel/ground service
equipment, and supply chain logistics groups under the
“Strategic Sourcing and Supply” group, led by Edith Kelly-
Green. After the purchase of these different businesses
occurred, the supply management function was re-organized
into a Center-led Supply Chain Management sourcing model.
Over the last two years, FedEx Supply Chain Management has
been focusing on leveraging sourcing and contracting for all of
the Fedex family of companies. For office supplies, instead of
having each company run a contract, SCM has a single

corporate contract for all of the negotiation effort, but allowing
for different transactional approaches. It has been a gradual
migration to getting to a centralized view to how procurement
will happen. It is central for the larger spend areas, and
different policy requirements.
A big component of this model is the integration of Ariba Buyer
– expanding the use of it to other operating companies, and
processing requisitions within the SCM group. Most of the best
practices discussed in this case are associated with FedEx
Express, but is slowly being migrated across all of the operating
companies.
108319_Macros
2
ILLUSTRATIVE
FedEx is much more than your typical air express carrier
The world's largest express transportation company. Leveraging
i ts unmatched
air route authorities and extensive air/ground infrastructure, F
edEx Express
connects markets, within just 1 to 2 business days, that compris
e 90% of the
world's economic activity.
North America's second-largest ground carrier for business-to-
business small-
package delivery. Provider of innovative new residential delive
ry service –
FedEx® Home Delivery –in key U.S. cities and a pioneer in
applying advanced
information technology to meet customer needs
North America's largest time-specific, critical-shipment carrier
provides
exclusive-use, non-stop, door-to-door delivery throughout the

U.S. and Canada
and within Europe –24 hours a day, 365 days a year.
A full-service customs brokerage, trade consulting, and e-
clearance solutions
organization designed to speed shipments through customs
using a dvanced e-
commerce programs.
Provides customer access to the full range of FedEx transportati
on, logistics, e-
commerce and information services by integrating sales,
marketin g and
information technology
A $20-billion market leader
in transportation,
information, and logistics
solutions, providing strategic
direction to the five main
operating companies
FedEx Freight is a $1.9 billion leading provider of next-day and
second-day
regional LTL freight services. FedEx Freight is comprised of
two independent
yet complementary operating companies, American Freightways
and Viking
Freight, known for exceptional service, reliability and on -time
performance.
The Sourcing Process
FedEx established a seven step sourcing process.
Step 1: First step is an assessment of the category that profiles
that industry and commodity. The team will ensure that they
are clear on the user requirements from the corporation, and try
to define what that category amounts to. For example, on
promotional items – where should the boundaries be drawn?

How does the team define these? This involves doing a lot of
research on the nature of existing purchasing activity, how
much, who is it with, what are the issues with existing
suppliers, how does the marketplace function, what are drivers
of competition.
Step 2 Based on this research, the team goes into a process to
select the sourcing strategy, in essence taking all of the
information they have and deciding how they will approach that
marketplace. Is a Request for Proposal appropriate? Do they
need to maintain existing relationship and re-visit negotiation,
develop a strategy regarding the sourcing strategy.
Step 3 Assuming they are going beyond a negotiation, they do
an in-depth research with suppliers in that area, including
qualification of the suppliers. Can the suppliers satisfy user
requirements, service aspects, etc.? The end goal is to develop
a list of who they would like to send RFP’s to. The team will
conduct a supplier portfolio analysis.
Step 4 A second phase of this implementation pass is to re-visit
this strategy, and have the team take another look at it – have
they uncovered something that will cause them to change
negotiation – they develop a strategy for negotiation, do they
want to use a reverse auction or use a conventional RFP, as well
as criteria for supplier evaluation. Is this still something they
want to do?
Step 5 is the negotiation and supplier selection. The team sends
out the RFP, negotiates with suppliers, and selects supplier(s).
Step 6 Once the team has made the selection, they need to do
the integration. This is done by applying the Ariba toolset with
the supplier, and identifying integration conflicts to be solved
to make the contract workable.

Step 7 Benchmark the supply market – on-going monitoring of
the supplier(s) through the FedEx Supplier Scorecard system.
108319_Macros
4
ILLUSTRATIVE
Selected Activities
•Confirm user requirements
•Develop category definition
•Define basic characteristics
•Understand industry and supply markets
•Assess bargaining position
•Evaluate alternative strategies
•Select appropriate approaches and techniques
•Identify qualified suppliers
•Determine supplier value-added capabilities
•Develop supplier “short list”
•Verify and adjust sourcing strategy
•Develop implementation plan
•Plan negotiation strategy
•Evaluate supplier proposals
•Conduct negotiations with suppliers
•Recommend sourcing decision
•Plan and implement transition to new suppliers relationships
•Link key processes
•Conduct joint process improvement activities
•Monitor market conditions
•Assess new technology and best practices impact
•Conduct benchmarking activities
•Determine appropriateness for reexamining category
Benchmark the Supply Market
Select Sourcing Strategy
Generate Supplier Portfolio
Select Implementation

Path
Negotiate and Select Suppliers
Operationalize Supplier
Integration
Profile the Sourcing Group
Sourcing Process
The sourcing process applies a rigorous, proven methodology to
c ategories
selected during an opportunity diagnostic
108319_Macros
5
ILLUSTRATIVE
1. Assessment
1. Assessment
The Center Led Sourcing process includes documented business
cas es that are
scrutinized by Stakeholders, Legal, and Finance and approved
by the FedEx
Corporation Sourcing Council
•Finance, Legal,
Stakeholders, CSO,
and CFO review
and validate
Business Case
assumptions and
results
•Business Case
Review Team
•Approve business
Case
•Authorize
implementation of
sourcing results

based on Business
Case (or)
•Recommendations
to SMC
•Corporate Sourcing
Council
2. Sourcing
2. Sourcing
3. Business Case
Review
3. Business Case
Review
4. Sourcing Council
Approval
4. Sourcing Council
Approval
•Detailed market
assessment
•Define sourcing
strategy
•Identify potential
suppliers
•Execute sourcing
strategy to exploit
opportunity
•Cross-functional,
cross-OpCo
Sourcing Team
5. SMC Update
5. SMC Update
•Move CSC issues
beyond impasse
•Support
implementation
•Applause
•Strategic

Management
Committee
Center Led Sourcing Process
•Evaluation of
spend category
and marketplace
to determine
savings
opportunity
(FedEx spend,
supply market
dynamics, FedEx
specs, etc)
•Assessment Team
of FedEx
sourcing, finance,
and stakeholders
6. Implement &
Manage
6. Implement &
Manage
•Integrate with
selected
supplier(s)
•Communicate
new suppliers,
benefits, and
process changes.
•Report benefits.
•Continuously
monitor the
supplier and
marketplace
•Stakeholders and
Supply Chain
Management staff

Membership
Functions
Two aspects of how this is done are important: first, a central
sourcing group leads company-by-company specific sourcing
initiatives. This is a team of sourcing analysts who lead these
sourcing initiatives, and once they get through the process –
this hands off from the sourcing advisor to a supply chain
associate. These associates are spend-category associated (e.g.
aircraft components, IT contracts, etc.) Their role is to take the
arrangement with the supplier and ensure that it is implemented
and see that it goes on within that marketplace. They are
responsible for completing the scorecard with the supplier to
ensure that it is completed thoroughly and accurately. This
handoff occurs in Step 6 during integration.
108319_Macros
3
ILLUSTRATIVE
The FedEx Center Led Sourcing organization combines central
sour cing with
Opco-specific supply chain management
Strategic Management
Committee (SMC)
Corporate Sourcing
Council (CSC)
Chief Sourcing Officer
(CSO)
Strategic
Sourcing (Center
Led Sourcing)
Business
Systems
Support

Supply Chain
Management
Facilities/
Business
Services
Vehicles/
Fuel/GSE
Information
Technology
Aircraft
Supply
Chain
Logistics
There is also a set of reviews that takes place within the
sourcing process. When the team arrives at the fifth stage, one
of the requirements is that they define the business case for the
strategy. The team will summarize the work done in the
initiative – business case goes into an extensive review.
Initially, it goes to finance and legal – and validate assertions of
savings, working with finance to ensure that savings are valid,
with legal chiming in to ascertain that the assumptions used are
acceptable. If the strategy is approved, then it proceeds to the
final step, which is a review by a corporate sourcing council,
consisting of high level execs from each of the divisions (COO,
CFO from each business unit) – chaired by Chief Sourcing
Officer. The council will review and/or reject the strategy for
additional work, or approve it. If they approve, the council has
an obligation to help the sourcing team implement it. They
have some strong advocates to help with the implementation and
ensure compliance with the terms of the agreements.
Dollar thresholds on deals that go to the sourcing council tend
to be larger dollar items, or also occur when there is an impact
based on the nature of spend, or level of impact on the brand
image or other areas. Fuels, contract trucking (more than $10

million range) goes to the Sourcing Council. Things like a
change in the nature of the supplier for FedEx boxes involving a
specification change may not necessarily provide a big cost
impact ($2M cost savings) but may go before the council for
other reasons (to ensure it doesn’t affect other things such as
market image or customer preferences). This is a largely a
judgment call on the part of the Chief Sourcing Officer (Edith
Kelly-Green).
FedEx does not have any Service Level Agreements in place.
They have informal agreements – each of the SC groups has a
director, matrixed to the primary user vice president. Facilities
director is matrixed with the VP of Properties and Facilities –
dotted line reporting relationship.
Supplier Scorecard
For the scorecard, FedEx has employed a generic scorecard that
pertains to most of the supply relationships – they have the
capability to add some unique metrics (see Appendix). The
SCM group determines the threshold limits for the scorecard –
but most items are NOT part of the contract. Instead, the
scorecard is viewed as a way to manage the relationship, and
award future business. An SCM associate will manage the
performance assessment for a given supplier, and convert it into
a score of 1 through 5 based on available data and input from
user groups.
The idea behind the scorecard was to adopt a methodology that
could be applied to compare “apples to apples” across the
supply base. Associates tasked with managing the supplier are
given the authority regarding where to draw the lines – relating
percentage weights to different elements of the scorecard, and
converting it to a 1 through 5 metric. The user requirements are
incorporated into the contract through the statement of work.
Factors that may or may not be included in a specific scorecard

may include the following: overall strategy, resources, customer
service responsibility, gratis service, number of complaints,
post sales support, knowledge of Fedex, of product, upgrades,
return time on warranty, bad from stock items (don’t meet
quality), certification, cost trends, discrepancy rate, financial
stability, mean time between failures, on-time delivery, delivery
cycle time, cycle time improvement, their use of diverse
suppliers, frequency of value of cost reductions, etc. These
items are tied into the scorecard, with SCM associate
responsible for converting raw data and input from users into a
score based on the supplier’s performance associated with that
contract.
The scorecard is tied to certain business rules. If the score on a
scorecard becomes very low, FedEx has established different
stratifications for the scorecard. If they fall below 350 on the
scorecard, then the team will seriously re-evaluate their supply
strategy in that market. This occurs particularly at the end of
certain agreements. There are no specific criteria on guidelines,
other than monitoring the scorecard and re-evaluating it on a
periodic basis as necessary. The decision tends to come up on a
three-year cycle, which is when most commodity groups are re-
evaluated by a sourcing team. Each category has a sourcing
evaluation approximately every three years, with most contracts
lasting three years with an option for a three-year extension.
This can vary; for example, on PC’s Fedex will re-visit the
strategy much more frequently, because the dynamics of that
market change much more frequently. The nature of what PC
purchases may change over the course of a single year!
Supplier management is based on the SCM teams and
individuals that have been established for each role. For each
supplier and contract, there is an individual assigned
responsibility for managing that relationship. There is rarely
just one supplier – but often there is only one FedEx associate
responsible for all ground support, janitorial contracts, etc.

Their job is a mixture of strategic and tactical elements. For
example, an associate may be responsible for catalog updates
into Ariba, but also responsible for updating pricing changes.
This poses a challenge to the organization: should individuals
focus on the day in- day out functioning of the contract? Do
they get involved in strategy-level work? How do they get
involved in strategic-level issues? Associates are responsible
for keeping track of what is happening in that market – so they
may re-initiate a negotiation with that company, and re-visit
what is happening and how that contract is set up. They are
responsible for business process issues – if they have a unique
element with that supplier, they may be responsible. They get
into specification management as well. This may not involve a
lot of high-level strategic work, but may require a good deal of
coordination work between the supplier and the engineering
group. The challenge of how to skill/deskill associates in this
area remains problematic.
Business Rules: Controlling Maverick Spend through
EProcurement
There are several different avenues regarding how purchasing
occurs across FedEx. From a services perspective, there may be
several different purchase methods. For a product purchase,
there are currently three different methods of buying that
prevail across all of the operating companies.
1. The most simple is a convenience purchase – an individual
goes into a local store and buys something on their badge, takes
the invoice back to their manager, and sent in for a repayment.
There is not a lot of control, and the manager MUST give
approval prior to purchase.
2. The next area (preferred) is the Ariba buyer system. This is
set up so that users have an online catalog for contracts that are
in place – several thousand office supplies are established on
the catalog. Requisitioners can find they want, and once

submitted, it is bounced against a purchase approval policy.
For example, if a FedEx associate needs a PC in their area, they
will select a PC online, and requisition it. Depending on the
threshold, they may need a supervisor’s authorization, and may
need a higher level as well. If the spend goes into capital
range, there are another set of approval rules to ensure that
people who approve capital purchases sign off. The process
also draws on the business rules from the IT group, which may
be contradictory in some cases. Business rules can be enforced
within the Ariba Buyer system depending on the category of
spend taking place.
108319_Macros
6
ILLUSTRATIVE
Supply chain technology solutions complement the Center Led
Sour cing process
enabling greater savings, improved data management, and
transact ion processing
at ‘e’ speed
Center Led Sourcing Process
3. Business
Case
Review
3. Business
Case
Review
4. Sourcing
Council
Approval
4. Sourcing
Council
Approval

5. SMC
Update
5. SMC
Update
Enabling Technology Tools
1. Assessment
1. Assessment
•Spend
analysis (A,E)
•ID potential
savings
opportunities
(A,C,E)
•Benchmarking
data and
trends (A,C,E)
•Mapping
current
contracts
(C,E)
2. Sourcing
2. Sourcing
•eRFPsand electronic
collection and
analysis of responses
(S,E)
•Online reverse
auctions (S,E)
•Analysis of sourcing
results (S,E)
•Electronic
negotiation and
communication
(S,E)
•Contract tracking
and analysis (C,E)

6. Implement & Manage
6. Implement & Manage
•Complete automation of
purchase-to-pay process
•Intranet based
requisitioning, on-line
catalogs, and requisition
approvals (B,E)
•Electronic matching and
payment of invoices
(B,E,I)
•ERP connectivity to inventory,
AP, Accounting, and HR (B,P)
•Continual tracking, analysis, and
reporting of spend (A,B,C,E,P)
•Management of supplier and
supply chain performance
(A,C,E,P)
P2P
P2P
SCM
SCM
The value of this approach is that if FedEx supply management
establishes a change on the control levels, it is easy to do. For
example, if the CEO mandates a spending freeze (i.e. “No PC’s
without VP level approval”), SCM can change the business rules
on the system. (SCM does not handle travel authorization,
although it has that capability. FedEx is tied in with airline
agreements, so the nature of travel agreements are based on a
different set of contracts.) FedEx also has another information
system for temp labor, contract programmers (ELAMS). The
Elams system allows online requisition for contract
programmers or temp labor person based on contracts that are in
place – FedEx control the rate and type of individual sent out by
the supplier, and can approve the invoices online. They have

issues with a temp labor contract – Clerk1 or Clark2 at a higher
rate – and can ensure that if they request a Clerk 2, once they
send the individual out, they can come back and tell them that
they are only going to pay at a certain rate and for certain hours
based on performance. This enables users to control the type of
person that they actually pay for (in the past, this wouldn’t
catch this until much later in the process).
All of FedEx’s spending is indirect – due to the nature of their
business. A lot of their focus is on indirect materials.
However, in MRO and facility parts, they struggle in terms of
controlling spend in this area. Depending on product area, they
have a greater or lesser ability to control maverick spend. The
information they have about spending or indirect items tends to
be something that is based on how much they know about the
company they are purchasing from, and the length of our
contract with them. They have a consolidated contract with
paper, so they have good data on this spend. On MRO, they
have only done our first set of national contracts, it has been
out of control for us, it is difficult to get a handle on our
baseline spend. They need to do more in terms of understanding
this, by linking into internal accounting codes and understand
what is represented by that spend.
FedEx will often do an RFI before they initiate the sourcing
process. One of the first things they will do is get a handle on
our accounts payable information, who are the largest suppliers,
and please give us your sales to FedEx with information on line
items. They are doing that with MRO, and have contracts
established with MRO contracts. If it goes through Ariba, they
have great information on that.
Areas where they have had the most problems are with
convenience purchases (Joe Mechanic buys it over the counter
at the hardware store). To control this, FedEx is now going to a
monthly electronic report by purchase by avenue. If Grainger

gets 600 orders from Ariba, 100 from invoices, they have a
purchase summary that shows all of them. (Convenience means
that the individual has an account with that store, and it goes on
their account. FedEx does have a p-card that has not been
extensively implemented – their internal controls group still has
a lot of issues – even though they have convenience purchase
problems.
Convenience purchases are still not well controlled. Because of
the diversity and geographic dispersity of FedEx locations, it is
still the most popular and easiest way of buying things. This
has been a problem within the operations side of the business,
who insist that the sheer simplicity of the process is a good
reason for them to continue with the status quo. Convenience
purchases has, however, become a number that has grown and
caught the attention of senior management. The individual
transactions are low, but many, many transactions, particularly
in the MRO area, have grown to epidemic proportions. The
total convenience spend is about 5 to 10 percent of all
purchases, but 25-30% of all total number of transactions.
Guidelines for Controlling Maverick Spend
Although FedEx has not yet established a defined spend limit
for all categories, certain category limits have been deployed.
In office supplies, 60% compliance was the initial number, with
a target of 80% first year, (achieved 78% compliance in 2002).
This was a concerted effort to go after businesses that were not
complying.
One SCM associate noted that “If our corporate program is at
Corporate Express, it is easy to see when the spend is going to
Office Depot. Getting support from business people was key in
reducing maverick spend. It started off with having SCM
people responsible for that area make some calls to purchasers
that were using different suppliers. Depending on the nature of

their response, different actions would follow. In many cases,
the problem may have arisen due to a training issue, as people
didn’t know how to use Ariba. In other cases, people had a
competitive purchase, and didn’t wan’t to go through Ariba to
purchase those items.”
Continuing, this associate commented that “The approach to
influence business units through the Sourcing Council is less of
an autocratic approach, but has been moving more to a mandate
approach. In the past this has been done on a product by
product area basis, but the level of maturity of the program we
have had in place is increasing. PC’s have been on Ariba for
some time, so there hasn’t been a lot of volatility with respect
to who they buy from. It has been taken to a mandate level,
whereby accounts payable can actually agree NOT to pay the
invoice. That mandate becomes something that affects the
supplier – so they must take the risk when they send something
to supply management for payment. If they have an agreement
with Dell, and someone buys from IBM, they are in trouble.
That individual may be responsible for paying this with their
own personal funds! (This has been announced, but not yet
deployed!)
Different mandates have gone out with different people. How
do you determine if something is worth addressing at all, or
worth putting a strategy around? There is a dollar criteria – is
it worth putting a resource on this initiative? In presenting the
sourcing process, there are different levels on how extensive the
process should be. If FedEx has large spend in a particular
area, they will put more resources on doing an in-depth market
assessment. For something that turns out to be a $2M per year
spend – the payback on it may not be worth the resources
required to do it. So it becomes a mini-sourcing initiative done
by the Supply Chain group.
System tools can really help in this area. We need to ensure

that a solid business case is put together before presenting to
the Sourcing Council. We can also ensure compliance on
smaller purchases through Ariba Buyer, which is the avenue for
receipts. Users must follow-through on receiving of goods at
many different geographic locations worldwide; yet Ariba
Buyer can ensure compliance. When an order is received, users
have an obligation to enter it into the system, which generates
an acknowledgement and an invoice matching on the system. If
an individual does not receive it, Ariba will develop email
reminders that will escalate eventually to senior management.
Moving Forward
Most of the sourcing dashboards to measure performance going
forward are primarily cost-focused based metrics. The group
tracks the results from sourcing initiatives: cost savings,
performance relative to market pricing (fuels relative to market
pricing), monitoring at an individual, director, and CSO
savings, including diverse supplier development, savings
amount, and ROI based on staff and budget. These results are
compared in terms of generating savings from one group
relative to other directors. Another metric is sourcing
timeframes – how long is it taking to implement the sourcing
initiatives.
The associate concluded: “One of the biggest challenges in the
Center-Led Initiative is: How to get people involved? FedEx
had an extensive communications campaign where the strategy
is communicated to people, including the long-term vision on
where FedEx SCM is headed in the longer term. Within the
original FedEx organization, there were not dramatic changes in
how things were being done. However, for each of the new
operating companies acquired, we are still going through a
transition period in which we are allowing people to continue
doing business through localized contracts. However, this is
changing, as we are slowly moving towards a homogeneous

approach from an operating standpoint. Many of the newly
acquired operating companies have not done this type of
communication, training in core supply chain skills, and other
elements. Most of these people are totally unfamiliar with the
seven-step process. Making this change is probably going to be
our biggest challenge in the next five years.”
Prepared by Robert B. Handfield, North Carolina State
University
Appendix: Supplier Scorecard
Supplier Scorecard
Company A
Total Score: 491 (Performance Level: Platinum)
Click here for a printer-friendly version of this card.
SUPPLIER INFORMATION
Supplier #:
123456
Supplier:
Company A
Address 1:
Address 2:

City/State/ZIP:
Supplier Rep:
FSC:
SCORECARD INFORMATION
Eval Period:
From 6/1/2002 to 11/19/2002
Eval Date:
11/20/2002
FedEx Rep:
Joe Suppychain
Manager:
Jane Manager
Department:
SFSCM, ITSCM
Discussed With Supplier: Yes
Revietheyd by FedEx Manager: Yes
Measurement
Theyight
Score
Theyighted
Score
Add-ons
3
5
15
Price Competitiveness
6
5
30
Average Score for Strategy

5.0
Customer Service Responsiveness
4
5
20
Flexibility
2
5
10
Gratis Service (no incremental costs)
2
5
10
Number of Customer / Quality Complaints
6
5
30
Post Sales Support
4
5
20
Sales Person Knowledge of FedEx
2
5
10
Sales Person Product Knowledge
2
5
10
Technology Upgrades / Enhancements
6
5
30
Turn Time on Warranty Claims

2
5
10
Average Score for Resources
5.0
Bad From Stock
5
5
25
Certification
3
4
12
Cost Trends
5
5
25
Discrepancy Rate
3
5
15
Financial Stability
3
5
15
MTBF
4
5
20
No. of Warranty Claims
5
5
25
On-Time Delivery Performance

5
5
25
Average Score for Processes
4.9
Cycle Time Improvement
2
5
10
DSD - Direct Reporting
0
na
0
DSD - Indirect / Tier Reporting
2
5
10
DSD - Use of Local Suppliers
0
na
0
FedEx Cost of Quality (or benefit)
6
4
24
Frequency / Value of Cost Reduction Ideas
6
5
30
Supplier Savings Sharing
5
5
25
Average Score for Optimization

4.8
Operational Compatibility / Coverage / Accessibility
2
5
10
Average Score for Globalization
5.0
Offered new product-XXXXX caster- for testing
5
5
25
Average Score for Other/Supplier Specific
5.0
TOTAL SCORE
100
491
Scorecard Comments
XXXXX caster offered for total cost reduction. Provides reports
on timely basis. Sent engineer to Salt Lake City to research
problem. Reps Visited Memphis. Spend June - Oct. $934,454.
XXXXXX receives many small orders from the field through
Ariba. XXXXX, MI plant received ISO 9001/2000 certification.
One invoice duplicated and paid, but may have been FedEx
problem. Diverse spend $6672. Total spend June -October
$934,454. GSE requests link from Ariba to XXXXXX catalog,
and ANSI X12 version of EDI.
Performance Levels
Level
Platinum

Gold
Silver
Bronze
Unacceptable
Score
450 - 500
400 - 449
350 - 399
300 - 349
0 - 299
This page last updated Tuesday, April 01, 2003.
Feedback
Copyright © 2001, Federal Express Corporation. All rights
reserved. ISO 9001 controlled document. Contents subject to
change. Printed and other static representations of this
document are classified "for reference only."
G U I D E L I N E S A N D E T H I C S F O R B E N C H M A
R K E R S
I N T E R N AT I O N A L B E N C H M A R K I N G C L E A
R I N G H O U S E
� This case was developed by Robert Handfield of NC State
University based on interviews with Federal Express associates,
working with Brenda Liker and Jaymie Mitchell in developing
best practices in sourcing for the Bank of America.
SUPPLY CHAIN MANAGEMENT AT BOSE CORPORATION
Bose Corporation, headquartered in Framingham,
Massachusetts, offers an excellent example of integrated supply
chain management. Bose, a producer of audio premium

speakers used in automobiles, high-fidelity systems, and
consumer and commercial broadcasting systems, was founded in
1964 by Dr. Bose of MIT. Bose currently maintains plants in
Massachusetts and Michigan as well as Canada, Mexico, and
Ireland. Its purchasing organization, while decentralized, has
some overlap that requires coordination between sites. It
manages this coordination by using conference calls between
managers, electronic communication, and joint problem solving.
The company is moving toward single sourcing many of its 800
to 1,000 parts, which include corrugated paper, particle board
and wood, plastic injected molded parts, fasteners, glues,
woofers, and fabric.
Some product components, such as woofers, are sourced
overseas. For example, at the Hillsdale, Michigan, plant,
foreign sourcing accounts for 20% of purchases, with the
remainder of suppliers located immediately within the state of
Michigan. About 35% of the parts purchased at this site are
single sourced, with approximately half of the components
arriving with no incoming inspection performed. In turn, Bose
ships finished products directly to Delco, Honda, and Nissan
and has a record of no missed deliveries. Normal lead time to
customers is 60 working days, but Bose can expedite shipments
in one week and airfreight them if necessary.
The company has developed a detailed supplier performance
system that measures on-time delivery, quality performance,
technical improvements, and supplier suggestions. A report is
generated twice a month from this system and sent to the
supplier providing feedback about supplier performance. If
there is a three-week trend of poor performance, Bose will
usually establish a specific goal for improvement that the
supplier must attain. Examples include 10% delivery
improvement every month until 100% conformance is achieved,
or 5% quality improvement until a 1% defect level is reached
over a four-month period. In one case, a supplier sent a
rejected shipment back to Bose without explanation and with no

corrective action taken. When no significant improvement
occurred, another supplier replaced the delinquent supplier.
Bose has few written contracts with suppliers. After six months
of deliveries without rejects, Bose encourages suppliers to apply
for a certificate of achievement form, signifying that they are
qualified suppliers. One of the primary criteria for gaining
certification involves how well the supplier responds to
corrective action requests. One of the biggest problems
observed is that suppliers often correct problems on individual
parts covered by a corrective action form without extending
these corrective actions to other part families and applicable
parts.
Bose has adopted a unique system of marrying just-in-time (JIT)
purchasing with global sourcing. Approximately half of the
dollar value of Bose’s total purchases are made overseas, with
the majority of the sourcing done in Asia. Because foreign
sourcing does not support just-in-time deliveries, Bose “had to
find a way to blend low inventory with buying from distant
sources,” says the director of purchasing and logistics for Bose.
Visualizing itself as a customer-driven organization, Bose now
uses a sophisticated transportation system—what Bose’s
manager of logistics calls “the best EDI system in the country.”
Working closely with a national less-than-truckload carrier for
the bulk of its domestic freight movements, including shipments
arriving at a U.S. port from oversees, Bose implemented an
electronic data interchange (EDI) system that does much more
than simple tracking. The system operates close to real time
and allows two-way communication between every one of the
freight handler’s 230 terminals and Bose. Information is
updated several times daily and is downloaded automatically,
enabling Bose to perform shipping analysis and distribution
channel modeling to achieve reliable lowest total cost scenarios.
The company can also request removal from a terminal of any

shipment that it must expedite with an air shipment.
This state-of-the-art system provides a snapshot of what is
happening on a daily basis and keeps Bose’s managers on top of
everyday occurrences and decisions. Management proactively
manages logistics time elements in pursuit of better customer
service. The next step is to implement this system with all
major suppliers rather than just with transportation suppliers.
In the future, Bose plans to automate its entire materials system.
Perhaps one of the most unique features of Bose’s procurement
and logistics system is the development of JIT II. The basic
premise of JIT II is simple: The person who can do the best job
of ordering and managing inventory of a particular item is the
supplier himself. Bose negotiated with each supplier to provide
a full-time employee at the Bose plant who was responsible for
ordering, shipping, and receiving materials from that plant, as
well as managing on-site inventories of the items. This was
done through an EDI connection between Bose’s plant and the
supplier’s facility. Collocating suppliers and buyers was so
successful that Bose is now implementing it at all plant
locations. In fact, many other companies have also begun to
implement collocation of suppliers.
Assignment Questions
The following assignment questions relate to ideas and concepts
presented throughout this text. Answer some or all of the
questions as directed by your instructor.
1.
Discuss how the strategy development process might work at a
company like Bose.
2.
What should be the relationship between Bose’s supply

management strategy and the development of its performance
measurement system?
3.
Why is purchased quality so important to Bose?
4.
Can a just-in-time purchase system operate without total quality
from suppliers?
5.
Why can some components arrive at the Hillsdale, Michigan,
plant with no incoming inspection required?
6.
Discuss the reasons why Bose has a certificate of achievement
program for identifying qualified suppliers.
7.
Bose is moving toward single sourcing many of its purchased
part requirements. Discuss why the company might want to do
this. Are there any risks to that approach?
8.
Discuss some of the difficulties a company like Bose might
experience when trying to implement just-in-time purchasing
with international suppliers.
9.
Why does Bose have to source so much of its purchase
requirements from offshore suppliers?
10.
What makes the JIT II system at Bose unique? Why would a
company pursue this type of system?
11.

Why is it necessary to enter into a longer-term contractual
arrangement when pursuing arrangements like the one Bose has
with its domestic transportation carrier?
12.
Why is it important to manage logistics time elements
proactively when pursuing higher levels of customer service?
13.
What role does information technology play at Bose?
14.
What advantages do information technology systems provide to
Bose that might not be available to a company that does not
have these systems?
15.
Why has Bose developed its supplier performance measurement
system?
16.
Do you think the performance measurement systems at Bose are
computerized or manual? Why?
INTEGRATING GLOBAL ENGINEERING AND
PROCUREMENT
AT AIR PRODUCTS
Air Products, an industrial chemical producer headquartered in
the U.S., designs, builds, and operates air separation facilities
worldwide. Unfortunately, industrial buyers increasingly view
the company’s primary products as commodity items, which,
along with intense global competition, have created extensive
downward price pressures. Product prices in real terms are
equivalent to levels not seen since the early1980s. This has
created the primary challenge that Air Products faces—margins
are declining yet the company has made strong performance

commitments to investors and financial analysts. Executive
management has concluded that the company must lower
facility-related costs by 30% to meet financial and operating
targets.
Air Products has historically operated as an engineer-to-order
company, which implies a great deal of design work customized
to each new project. New facilities have largely been
engineered without considering previous designs or leveraging
commonality across the company’s two major design and
procurement centers. The company’s objective has now shifted
to entering the global marketplace as a single integrated
company. Pursuing this objective resulted in the development
of an integrated engineering and procurement process involving
U.S. and European centers. Even if the U.S. and Europe
required a similar or same item (which was often the case) or
designed the same facility in terms of process technology, each
would have separate material specifications and contracts
developed by engineers and procurement specialists who did not
coordinate their efforts.
During the latter part of 1999 Air Products introduced a global
process that proactively integrates and coordinates common
items, processes, designs, technologies, and suppliers across
two worldwide buying and engineering centers (North America
and Europe). This case reports on the efforts of Air Products to
pursue a globally integrated approach to engineering and
procurement.
Development of the Air Products Global Engineering and
Procurement Process The primary driver behind Air Products
global engineering and procurement process is the need for cost
reduction. This process evolved as senior engineering managers
expressed a desire to gain advantages from “globalization” but
were not sure what this meant or required. The vice president
of engineering believed that the potential benefit of

standardizing component designs and then using the
procurement process to realize performance gains through
leveraged sourcing with global suppliers could be significant.
Recognizing the important linkage between engineering and
procurement resulted in the development of the Air Products
global engineering and procurement process.
Responding to the call to “globalize” engineering and
procurement, a director of global projects and logistics supply
assembled a leadership team to develop, sell internally, and
launch a global process. This leadership team has evolved into
a corporate steering committee with a full-time globalization
manager assigned to oversee the process. A major part of the
process development effort involved several procurement
managers working together to define the concept of
globalization and assume responsibility for creating a global
engineering and procurement process, which required 3-4
months.
The global process at Air Products involves more than
identifying similar items or commodities that have a global
application. Each project involves an extensive analysis
between the U.S. and European design centers to determine
areas of commonality and synergy. A cross-locational team,
with members from the U.S. and Europe participating, develop
specifications that satisfy the needs of both design centers.
While the process started with focused commodities, subsequent
projects have become broader in scope once the cost-saving
possibilities became obvious. Although the primary focus of
the global sourcing effort involves commodities associated with
plant and technical processes, telecommunications, travel, and
some purchased chemicals are now part of the global process.
Exhibit 1 highlights the main features of Air Products’s nine-
step global engineering and procurement process.
Air Products has several advantages that increased the chances

of global engineering and procurement success. This company
has historically organized its purchasing group by commodity
with a strong central focus. Although it operates facilities
around the world, the practice of making decisions at one or
several locations is not usually resisted. Decentralization,
which often affects how well global sourcing contracts are
accepted at site locations, is fortunately not a concern at Air
Products.
Air Products is also quite effective at sourcing and supply chain
measurement. The company assesses the effectiveness of its
global engineering and procurement process in four ways: direct
savings realized from global agreements, ratings of global
supplier performance, supplier ratings of Air Products as a
customer, and evaluations of team members and team
performance.
Global Engineering and Procurement Contracts The first round
of global projects involved twenty agreements, ranging in value
from several hundred thousand dollars to $5 million, with total
annual expenditures of $25 million. These agreements, which
are three-year single source contracts, are providing 20% cost
savings on average compared to previous contracts. Managers
view the global process as continuous because agreements will
be renewed on a predictable basis. The company’s aggressive
three-year goal at the start of the process was to reach 20, 50,
then 80 new global agreements over a three- year period.
Organizational Support Mechanisms The Air Products global
engineering and procurement process has been successful due to
the organizational support mechanisms put in place to guide the
process. An executive steering committee, an operating
steering committee, a globalization manager’s position, and
cross-locational teams have all been established to support the
process. The executive steering committee consists of senior
managers from engineering, procurement, and operations with a

finance representative participating as required. This
committee, which brings higher-level commitment and exposure
to the process, has responsibility for allocating the budget that
supports the globalization manager’s staff along with travel and
living expenses for team members incurred during the
development of global agreements.
A full-time globalization manager, a procurement manager (who
commits 15% of his time to the global process), and a director
of worldwide sourcing (who commits 50% of his time to the
global process) comprise the core operating steering committee.
This committee is joined in a weekly teleconference by a capital
equipment supervisor from the U.S., a control systems
(instrumentation) supervisor from the U.S., a capital equipment
supervisor from Europe, and the globalization manager’s
counterpart in Europe. Global sourcing project teams do not
talk with the committee at this time—this meeting involves the
internal steering committee only. Committee members maintain
that this group has a good fit between the managers and areas
represented. While the group communicates formally each
week, informal communication occurs daily to address a broad
range of issues.
Consensus exists throughout Air Products concerning the
importance of the globalization manager, a position created
specifically to oversee the global engineering and procurement
process. This manager, who is also the operating steering
committee leader, is a well-respected engineer, not a
procurement manager, with 25 years of experience. He reports
to the vice presidents of engineering in Europe and the U.S.
This is important since the two design centers must work
closely during global projects. He has located his office and
staff with the procurement group at U.S. headquarters, which
facilitates teamwork and trust between functional groups. The
manager’s salary, along with that of his staff, is charged
directly to the globalization manager’s account number. While

his account also pays team member travel and living expenses
incurred during a project, member salaries remain an obligation
of the members’ procurement or engineering group. The budget
committed to support the global process has recently doubled as
the number of new projects increases dramatically.
Air Products relies extensively on cross-functional/cross-
locational project teams to support its global projects. Teams
are formed and chartered by the operating steering committee to
develop global strategies and contracts. These teams, each
consisting of 4-6 members, have responsibility for determining
which suppliers will receive formal proposals or bids and then
proposing and negotiating a global sourcing strategy. An
engineering representative from the U.S. and one from Europe,
called specifiers, work full-time to develop standardized
specifications between design centers. Time commitment can
be an issue for the two buyers since team assignments are in
addition to regular job responsibilities.
The globalization manager solicits team participation through
each member’s functional manager, a responsibility that he feels
is one of his most important duties. If a steering committee
selects a commodity for a global sourcing project, then the
buyer and engineer closest to the commodity are invited to
become team members. Engineering is responsible for
developing specifications and evaluating the technical responses
from suppliers while procurement evaluates the commercial
issues.
Each project team works directly with the globalization manager
to develop milestones and expected completion dates. Teams
meet face to face on a monthly basis, which is impressive
considering that each team has members from two continents.
At these meetings, and informally throughout the process, teams
update their milestones. Updates may also occur through team
conference calls. A steering committee member receives

regular team updates and reports the status of each project on
the Air Products intranet.
Project teams perform supplier site visits as necessary using an
ISO 9000 procedure and internal support documents to guide
these visits. Perhaps the most important responsibility
performed by these project teams is the development of a
hypothetical best material cost model that identifies where
savings can be realized. Savings occur primarily in three areas:
material design savings, currency savings, and savings due to
leveraging and opening the commodity to competition. The on-
line manual available through the company’s intranet provides a
cost reduction methodology to support this exercise.
Project teams disband after negotiating a global agreement. At
that point the buyer who is closest to the commodity has
responsibility for executing and maintaining the agreement.
This buyer may have been a part of the team that crafted the
strategy. Disbanding a team at this point of the process is not
unusual. Many of the companies visited during this research
assigned another group or manager the task of executing and
managing the global agreements.
Use of Information Technology The global engineering and
procurement process has benefited directly from information
technology support. Project teams can easily retrieve historical
purchase data for a commodity from a data warehouse and
evaluate volumes given new plant requirements, alleviating
some of the data collection burden typically faced during global
aggregation efforts. Air Products has been recognized as a
world leader in its innovative use of information technology
systems.
The operating steering committee, with support from
information technology personnel, has placed a number of
global sourcing support documents on the Air Products intranet.

A sample of these on-line documents include a global
engineering and sourcing process outline; a procurement
strategy development template; a contract terms and conditions
checklist; a global status report on completed, in-process,
authorized, and future ideas; a request for proposal template;
and currency risk-management guidelines.
Global Engineering and Procurement Risks and Benefits
Managers who are most familiar with this process have
identified some major benefits and risks to global engineering
and procurement. The primary benefit, of course, is material
cost savings that are averaging 20% compared to regional
agreements. Managers also argue that transaction costs savings,
not easily measured like material costs savings, have been
realized due to maintaining fewer suppliers and less competitive
bidding and analysis over the three-year agreements.
Furthermore, engineering design savings are being realized as
the process fosters a common set of specifications between
design centers. Part number specifications are also becoming
better known as they are communicated throughout the
company. This allows site users to order requirements directly
from suppliers without procurement involvement, allowing
procurement to focus on other value-added activities.
The communication and integration required during a global
project has positively changed the perspective of the European
design and procurement center. The Europeans now examine
initiatives in terms of cost reduction, supplier accountability,
and procurement process productivity, which are the three
criteria used by the U.S. center. Previously, the European
center took a more limited cost perspective.
Global engineering and procurement also presents risks.
Shifting from a regional to a global perspective almost always
results in the use of supply sources that are unfamiliar to some
or all of the company. These agreements often feature a change
of supplier, which requires the development of new supply

chain relationships. Furthermore, transitioning from one
supplier to another, or from one set of part numbers to another,
requires time and creates administrative and transaction costs.
The company is also increasing dramatically the number of
global projects it expects to undertake, which some managers
fear will be difficult to support. Finally, it is also not unusual
for companies to budget anticipated savings from global
contracts when developing capital plans for future facilities.
What are the effects if the savings are not realized at the
budgeted or anticipated level?
Those involved with the development of global agreements have
found that a higher level of learning is required to initiate a
process as complex as this one. Global agreements demand
greater expense and time to prepare for and negotiate, contain
additional terms and conditions, require detailed analysis of
supplier proposals, and require a major effort to standardize and
communicate specifications between worldwide design and
procurement centers.
Even with these issues executive leadership at Air Products
considers this process to be one of the key internal processes
the company has in place today. This perception has elevated
senior management’s expectations, which partly explains the
aggressive global sourcing improvement targets established for
2004 and beyond.
Assignment Questions
1. Why was it important for Air Products to develop a global
engineering and procurement process? What are the primary
objectives of the process?
2. What are some of the disadvantages that Air Products has
realized from viewing its European and U.S. procurement and

engineering centers as separate operations?
3. Discuss the role of the corporate steering committee as it
relates to global engineering and procurement. Discuss the
other organizational support mechanisms the company has put
in place to support its global process.
4. Describe Air Products global engineering and procurement
process.
5. What are some organizational advantages that Air Products
has that facilitated the development and execution of a global
sourcing process?
6. When forming cross-functional/cross-locational teams, what
are some of the planning and team formation issues that Air
Products executive managers must consider?
7. What are some of the potential risks that Air Products faces
due to its global engineering and procurement process?
8. What will it take for Air Products to achieve its aggressive
target in terms of new global contracts?
9. Discuss how Air Products Chemical has used information
technology to support its global efforts.
10. Create a job description for the globalization manager’s
position. Be sure to be explicit about his or her responsibilities.
Exhibit 1
Air Products Nine-Step Global Engineering and Procurement
Process
STEP

DESCRIPTION
FEATURES
Step 1
Identify Global Sourcing Opportunities
· When identifying specific commodities, the steering
committee and globalization manager consider the following
criteria:
· What businesses require the largest cost reductions?
· What does Emory currently buy?
· How is the commodity currently specified?
· How much effort will it take to create a global set of
specifications for the commodity?
Step 2
Establish and Charter a Global Sourcing Development Team
· Operating steering committee charters cross-functional/cross-
locational teams to pursue specific global sourcing projects
· Team charter provides the teams with significant
responsibility, including proposing the global sourcing strategy
Step 3

Propose Global Sourcing Strategy
· Teams validate the original assumptions underlying the
project, including current volumes, expected savings, and that
the project is a global rather than regional opportunity
· Specific team responsibilities during this phase include:
· Perform detailed fact finding and cost analysis
· Identify potential suppliers to bid
· Invite potential suppliers to the U.S. to confer and verify
expectations and data
· Establish timings, milestones, and targets
· Document team activities
· Use the negotiation check-list from the on-line manual to
identify contract issues
· Make strategy recommendations
· Write and distribute the proposed strategy to purchasing and
engineering
Step 4
Develop Requests for Proposal Specifications
· Develop the proposal that suppliers receive
· The competitive bid model created previously at Emory is a

major enabler to this step
· Suppliers are asked for suggestions concerning how to
improve specifications in the proposal
Step 5
Release Requests for Proposal to Suppliers
· Six suppliers on average receive detailed proposals
· Suppliers have four weeks to respond
· Face-to-face negotiation occurs after analyzing the returned
proposals
Step 6
Evaluate Supplier Proposals
· Commercial and technical evaluation of supplier proposals
occurs
· Key output is a short list of technically qualified candidates
· Team asks each supplier for best and final prices---Emory
considers this part of the negotiation process even though
minimum face-to-face negotiation has yet occurred
Step 7

Conduct Face-to-Face Negotiation
· A smaller team negotiates directly with suppliers
· For complex or large contracts a steering committee member
will support the negotiation by becoming involved in person
· All negotiations are conducted at U.S. corporate headquarters
· Typical issues that are addressed include price, delivery, terms
and conditions, support outside the letter of the contract,
commitment and accountability, currency issues, and after sale
service
· Negotiation process lengthens if the team does not achieve its
price targets
Step 8
Award Contract
· Communicate information about the contract throughout the
company via e-mail distribution
· Steering committee publicly recognizes the team and informs
users of project success
· Steering committee maintains a continuous tally of agreements
and savings
Step 9
Implement and Manage Global Agreement

· Load global agreements into the appropriate corporate systems
· Manage the transition to new suppliers (if switching occurred)
and new part numbers
3
8

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