ISSUES IN GLOBAL SOURCING

Good morning/evening everyone.

Global sourcing simply means you use other party service or product in your company. But what we gonna tell you today is about some issue when you are global sourcing. Those issue is not really a big deal but must take care of.

There are some issue that we are going to discuss about;   

1. Distance
2.  Communication 
3. Time value of money 
4. Quality issue 
5. Pipeline inventory 
6. Staffing 
7. The impact of increased competition

First is distance, the distance between the buying and selling firm is significant in time zones and physical location. When both party is far away usually the will communicate each other using technology such as telephone and internet. But it is better to face-to-face when you are going to start to outsource, you must go to that supplier place to make sure their product can meet our objective.

Second is communication, like I had told you above how they will communicate. You should know that communication is very important, when there is miscommunication, it will be a giant problem to your company. Your whole production might not run for certain period and will affect your profit definitely. So you should have a good communication with the party involve with a good relationship perhaps.

Third is time value of money. When you are doing some process, it might cost you. Especially when it were your first time to deal with foreign company. This means you will use bank service when you use “letter of credit”. The bank will pay first to that foreign company bank to make sure you receive the product safely.

Forth is quality issue. Before you make contract with the other company to outsource, the most important thing you should do is quality expectation. Don’t be ridiculous , it not because you are selfish but it was your right. So here, company should spend some necessary time and money to do those expectation.  If there are some problem that you think not suitable with your company you can straight tell them to change them.

Fifth is pipeline inventory. Pipeline inventory is you should make sure that there is stock available every time there is demand or to run production. When there is stock available, it will decrease the lead time. This issue usually occur when a third party is involved. The problem become pronounce when offshore sourcing is used.

Sixth is staffing. When company outsource from foreign company, that means there is no that source in local. Outsourcing will become ineffective if there is no one who can handle that process, equipment and so on. So we must hire someone who have the specialty in that course.

Last one is the impact of increased competition. The above direct and indirect cost tend to add unexpected cost to purchase items. However, the significant benefit associated with offshore sourcing to enable the buying firm to gain leverage over domestic supplier. Domestic firms are well aware that some firm are considering offshore firms in long term strategies.

Well, that all for my explanation about issue in global sourcing. Hope some of the point can help you to know about it better. Thank you,,,

DISCRETE VERSUS RELATIONAL BUSINESS STRATEGIES

Assalamualaikum and very pleasant day for all viewers.

On this post, we will discuss about discrete versus relational business strategies.

But, what is discrete arm's length transaction?

A transaction in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm's length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress from the other party.

Next, what is relational business strategies?

Relational business strategies is a long-term relation between the companies that move beyond special influences transaction by involving effort of both firm to coordinate functional activities.

We will discuss about the difference of both of this contractual element based on:
1. Duration
2. Transferability (switching parties)
3. Attitude
4. Communication
5. Information

DURATION

As you know, if you choose discrete orientation, the duration transaction is only one time. After the transaction, you have no relation. Different with relational orientation, the duration is long time. The transaction is not limited to  one task only, but continuously as stated in the contract.

TRANSFERABILITY (SWITCHING PARTIES)

For discrete orientation, they completely easy to switch to another party as they are independent and not directly tied with contract. You can change supplier easily but for relational orientation, it is extremely difficult to change the party as they have contract stated.

ATTITUDE

As you have single transaction with discrete orientation, you must have suspicious and independent as they have no trust between each other. But, if you have relationship between each other, the attitude must be open, trusting, cooperative, and easy to communicate.

COMMUNICATION

There is very little communication between discrete orientation as they make transaction with different parties and always changing while relational orientation is more complex and a lot of things they want to share.

INFORMATION

The information between discrete orientation is limited and proprietary as they have no relation. Contrast to relational orientation, information are need to be shared as it involved directly to the business. Information such as technology used and labor management are those for examples.

Conclusion is, there are lot of benefits in doing partnership rather than do it alone (discrete orientation). They can gain high quality, reduce cost, quantity discount, market stability for both parties. This also will enhance sales as both parties need each other to make profitable business.

PURCHASING PROCEDURES, E-PROCUMENT AND SYSTEMS CONTRACTING

PURCHASING PROCEDURES

What is purchasing procedures? Purchasing procedures is cycles which involve a lot of document and department before the purchasing will be done to make the production run the product.

The things that included in purchasing procedures:
1. Work area involved
2. Material required
 3. Specification
4. Point of need
5. Procedure –  the departments that handle the documents

The objective of purchasing is to get the right material, right quality, right quantity, right place and the right time.

Why purchase procedure important?

·         1. To eliminate waste

·         2. Purchase with the 5 right

·         3. Reduce lead time

·         4. Smooth the management

·         5. Reduce the ordering cost

 6. Purchasing also to determine the supplier, negotiate with supplier and choose the delivery date.

SYSTEM CONTRACTING 

What is System Contracting? 

·         System contracting is a stockless inventory method for ordering and stocking MRO and related items.

·         The systems contracting will aid the firm in reducing ordering and inventory costs.

·         The systems contracting process require the use of a negotiated agreement between buyer and sellers.

·         Systems contracting are an efficient form of purchasing.

The total cost of ownership (TCO)

·         The true cost of an item is its purchase price, plus fixed, variable, and overhead costs.

·         Beyond the direct costs are the total procurement costs.

·         The costs of procurement include:

1.  Identify need

2.  Requisition material

3.  Inquire with the potential suppliers

4.  Evaluate bids

5.  Issue purchase order

6.  Expedite order

7.  Document receipt of material

8.  Receive and handle invoice

9.  Issue payment 

E- PROCUREMENT

What is E-procurement?

·         The commercial purchasing literature on e-procurement has suggested that significant savings for business.

·         The organizations can be realized by migrating to electronic procurement systems for all of their purchasing requirements.

Categories of broad  E-procurement purchasing.

·         Indirect Materials Purchasing.

1. Operating resource management (ORM)

- Use for purchasing office equipment.

2. Maintenance repair and operations (MRO)

-  Concerned with critical maintenance and replacement parts.

·         Direct Materials Purchasing.

1.  Critical items.

2. The systems that not the first place to apply a new e-procurement system.

WHY DO COMPANY OUTSOURCE BUSINESS PROCESS

Assalammualaikum and good evening to all of our readers.

So today we are going to discuss about why company outsource their process.  As you can see in a modern organization all the other company is related as also play vital role in running the production after we outsource.

It is depend from the decision of top management either they want do all the activities or just focusing on what they want known as their objective by hiring other company to do the other process such as proton which they does not produce tires, but they hiring Silverstone to supply the tires and the process of proton company is only to assemble it to the car.

As you can see, this will lead to a lot of benefits as example is reducing cost and shorter the lead time.

Here are some of generic strategic benefits of outsourcing:
1. COST MINIMIZATION
2. FOCUS THE ORGANIZATION OBJECTIVE
3. IMPROVE PERFORMANCE
4. OBTAIN CASH INFUSION

I will explain about the first benefits which are the cost minimization.

For your information, as you hiring other company to do your process in your company it will lead to reduce the cost of operating such as transportation cost and labor cost. It will transform the fixed cost to variable cost. For example if you own your truck in your company you will liable for the maintenance and tooling cost. But if you used other company transportation such as Tiong Nam, you only need to pay them the cost you used their services.

Second, I will explain about focus the organization objective.

By focusing what organization does, it will avoid company to think about the other process that is not related to the objective. Company will be more focus on what they’re doing. For example, Proton is a well-known car brand in Malaysia. They producing a lot of design and the car must be expensive. So, they need to secure their company from being pilferage as they hiring security services as they are more expert on this job.  

Third, I will explain about the improve performance.

This will lead the company to improve their quality, increasing their productivity and obtain new technologies from external sources. Just now I have told you about the Proton who hires Silverstone to supply them tires. Because Silverstone focusing on producing tires. They have skilful labor which more experts. If Proton produces the tires itself, they might be a problem regarding the quality as they don’t specialize in producing the tires. 

Last, I will explain about the obtain cash infusion. 

I will give you an example, at first your company own 8 truck for deliver your goods to all your retailers. As a top management saw that the transportation will incurred a lot of cost such as maintenance. So, they make a decision to sell all the trucks to other company. After the trucks were sold they get cash infusion. They can use the cash to hire other company transportation services to deliver your goods as it will reduce the fixed cost.

Finally, I have told you all the benefits for outsource. As the conclusion, nowadays in modern organization by being selfish are not going to give you a lot of opportunity but if you make relationship with other company will make your company more better.

MANAGING QUALITY

Assalammualaikum. Today we are going to discuss about managing quality. What do you understand about quality? Why quality is important? Have you ever bought a product but you don’t satisfy with the goods? Do you feel regret after you paid with expensive price and yet the goods is damage. That shown that quality is very important role to satisfy customer requirements. As you know, quality is very vital to organization which quality will affect the perception of customers. If the goods is low quality and easy to defect, customers will easily substitute to other products with product more high quality.

MANAGING QUALITY

What is quality?

Quality is a totality of features and characteristics of a product or service that bring satisfaction ability to customer.

There are 9 key dimensions of quality which are;
1. Performance
2. Features
3. Reliability
4. Conformance
5. Durability
6. Serviceability
7. Aesthetics
8. Perceived quality
9. Value

The quality is a vital to improves profit which will gain more sales by improved response, flexible pricing and improved reputation. The cost also need to be reduced while increased the productivity, lower the rework and lower warranty costs. This will gain more profit.

Implications of quality?

Will improve company reputation that based on the perception of new products, employment practices and supplier relations. Second, will improve product liability that can reduce risk. Third, global implications that improves ability to compete with other companies.

The relationship between quality and JIT?

Just in time cuts the cost of quality, Just in time improve quality. Better quality means less inventory and easier to use Just in time system.

Six sigma in quality?

This means a program which design to reduce defects, lower costs and improve customer satisfaction. What have six sigma do? By implement this six sigma, it will emphasize defects per million opportunities as standard metric, provide extensive training, focus on corporate sponsor support and create process improvement.


Since 85% of quality problem are due to process and material, this will getting the employees to involve in product and process improvements. There are 5 techniques to improve product and process which are;

1. Communication networks
2. Supportive supervisors
3. More responsibility to employees
4. High morale organization
5. Formal team structure
6. Inspection

It is very important process to examine either the goods is good or defective.

SUPPLIER SELECTION AND EVALUATION

In today’s competitive sourcing environment, buying firms select suppliers based on their capabilities, and not purely on the competitive process. The current trend in sourcing is to reduce the supplier base. In order to select supplier who continually outperform the competition, suppliers must be carefully analysed and evaluated.

         

There are two main categories of supplier evaluation. There is process-based evaluations and performance-based evaluations. The process-based evaluation is an assessment of the supplier’s production or service process. Typically, the buyer will conduct an audit at the supplier’s site to assess the level of capability in the supplier’s systems. Process flow charts can be developed to identify the non-value-added activities that should be eliminated to improve the business efficiency.

          

Performance-based evaluation is an assessment of the supplier’s actual performance on a variety of criteria, such as delivery reliability, cost, and quality defect rate. It is a more tactical assessment and measures the day-to-day performance of the supplying firm. The performance-based evaluation is more common than the process-based evaluations, perhaps since objective data are readily available and easier to measure. Benefits of objective measurement schemes are that they reduce perceptual bias and provide a means of benchmarking a supplier’s performance.

       

The three general types of supplier evaluation system in use today are categorical method, the cost-ratio method, and the linear averaging method. In general, the guiding factors in determining which system is best are ease of implementation and overall reliability of the system. It must be pointed out that the interpretation of the result from any of these three systems is a matter of the buyer’s judgment.

          

The categorical method involves categorizing each supplier’s performance in specific areas as defined by a list of relevant performance variables. The buyer develops a list of performance factors for each supplier. It is also a simple and informal system in the sense that detailed performance achievement or shortcomings are not measured. Instead, it is mostly used as an evaluation tool between top managers in the buying organization and the selling organization.

            

The cost-ratio method evaluates supplier performance by using standard cost analysis. The total cost of each purchase is calculated as its selling price plus the buyer’s internal operating costs associated with the quality, delivery, and service elements of the purchase.

            

 The linear averaging method is the most commonly used evaluation method. Specific quantitative performance factors are used to evaluate supplier performance. The most commonly used factors in goods purchases are quality, service, and price.

        

BANANA SUPPLY CHAIN TRACEABILITY MODEL BY DOLE COMPANY

The banana supply chain has always been complex and geographically fragmented,

and with more distant suppliers and ever-more demanding customers, the unique

characteristics of this supply chain bring challenges to implementing an effective

traceability system. The Dole Company account for a significant percentage of

the industry and have significant product identification and bar coding technology

requirements. In contrast, the upstream part of the supply chain.

.

Dole Company vary greatly in their technical capabilities:

from paper, phone and fax based transactions, through robust bar code, EDI1 and

other internal systems. Their ability to perform product tracking and tracing in an

accurate and timely manner is directly related to their managerial and technical

capabilities.

KEY AREA 1: GROWER

The grower is responsible for the production, harvesting and despatch, as well as

record keeping of appropriate information about the field and products sent to the

packing station. Field management records are available on request.

KEY AREA 2: PACKER

The packer receives the bananas from the grower or another packer, packs them into boxes, and may pallet them. He then dispatches them to a third party (e.g.

service provider) or the loading port. The packer is responsible for keeping records

of the origin of the products packed, labeling their identification and how and where

they were dispatched.

KEY AREA 3: TRANSPORT AND RECEIVING

The transporter receives the bananas from the packer. This may be loose boxes or

pallets. He transports the boxes or pallets from the

packer to the port or other 3rd party service provider.

KEY AREA 4: LOADING PORT

The port facility receives transport storage units, which are sent either to storage,

 labeling, quality control and or to the ship. The port facility is responsible

for keeping records about the handling process.

KEY AREA 5: UNLOADING PORT

The port facility is responsible for unloading the ship and allotting the pallets and/or

containers to storage, road and/or rail transport vehicles.

KEY AREA 6: RIPENING

The ripening company is responsible for receiving the pallets, storing them in

ripening chambers, repacking, order picking and dispatching.

KEY AREA 7: DISTRIBUTION

The retail distribution center receives pallets from the ripening company and stores or

cross-docks them for dispatch to the retail points of sale. The store orders are

picked and existing or newly created pallets are delivered to them.