Modern Procurement.ppt

C Yossi Sheffi, MIT Modern Procurement Yossi Sheffi Outline Role of procurement “Make vs. buy” Strategic considerations Commitment vs. variable buy e-Procurement Combinatorial procurement Example: transportation RFP – system RFP – lane Spot market Components of US Corporate Purchases The Leaders Leading companies have unique business design requiring innovative procurement capabilities The Leverage The Leverage Procurement Trends Parts partners Increased outsourcing across the value chain Purchased components subassemblies More highly engineered technical purchases in the mix of the buy Increasing reliance on global supply chain Use of the net for RFP/RFQ and public/private exchanges The Decisions: “Make” vs. “Buy” “Make” vs. “Buy” Advantages of Outsourcing Flexibility: convert fixed costs to variable costs Providing flexibility in adjusting capacity both up and down Balance work force requirement Reduce capital investment requirements Accelerate new product development Reduce costs via suppliers’ economies of scale and lower wage structure Gain access to invention and innovations from suppliers Focus resources on high value-added activities core competencies Problems with Outsourcing Labor advantages shrink as countries mature and as direct labor continues to become a smaller part of the total cost Supply chain management is more difficult with off-shore suppliers Lead time may be a problem with suppliers The Strategic Risk Creating a competitor 1914 – The Dodge Brothers turn from a Ford engine supplier to a competitor Japanese consumer electronic industry – started with contracting for US firms for radio receivers also adopted transistors faster Japanese aircraft industries? Losing control of the channel to a supplier IBM in 1980 designed the PC, the manufacturing process and the value chain Contracted to Microsoft and Intel “Window Machine” and “Intel Inside” Losing control of the channel to a customer PG and Wal-Mart “Wal-Mart Outside”? Relation