Operations and Supply Chain Management The Core

446 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
CONCEPT CONNECTIONS
LO13–1 Explain what strategic sourcing is.
∙ Sourcing is a term that captures the strategic nature of purchasing in today’s global and
Internet-connected marketplace.
∙ The sourcing/purchasing design matrix captures the scope of the topic that ranges from onetime
spot purchases, to a complex strategic alliance arrangement with another firm.
∙ A phenomenon known as the bullwhip effect has been observed in many industries. This is
when changes in demand are magnified as they move from the customer to the manufacturer.
The phenomenon is caused by long lead times and the fact that there are often multiple
stages in a supply chain.
∙ Supply chains can be categorized based on demand and supply uncertainty characteristics.
Four types of supply chains are identified: (1) efficient, (2) risk-hedging, (3) responsive, and
(4) agile.
Strategic sourcing The development and management of supplier relationships to acquire goods
and services in a way that aids in achieving the needs of a business.
Sourcing A process suitable for procuring products that are strategically important to the firm.
Specificity Refers to how commonly available the material is and whether substitutes can be used.
Request for proposal (RFP) A solicitation that asks for a detailed proposal from a vendor
interested in supplying an item.
Vendor managed inventory When a customer allows the supplier to manage the inventory
policy of an item or group of items.
Forward buying A term that refers to when a customer, responding to a promotion, buys far in
advance of when an item will be used.
Bullwhip effect The variability in demand is magnified as we move from the customer to the
producer in the supply chain.
Continuous replenishment A program for automatically supplying groups of items to a
customer on a regular basis.
Functional products Staples that people buy in a wide range of retail outlets, such as grocery
stores and gas stations.
Innovative products Products such as fashionable clothes and high-end personal computers that
typically have a life cycle of just a few months.
Stable supply process A process where the underlying technology is stable.
Evolving supply process A process where the underlying technology changes rapidly.
LO13–2 Explain why companies outsource processes.
∙ Outsourcing is when a firm contracts with an outside provider for activities essential to the
firm’s success.
∙ The transportation of a firm’s products (referred to as logistics) is often outsourced.
∙ Whether an activity is outsourced or not often depends on criteria related to (1) coordination
requirements, (2) strategic control, and (3) intellectual property issues.
∙ Green sourcing has become an imperative for many firms and it may create new markets for
a firm’s products.
Outsourcing Moving some of a firm’s internal activities and decision responsibility to outside
providers.