Week
-
1
Purchasing and Supply Chain Management
Outsourcing and global sourcing
Sustainability
------------Video 1-----------What is purchasing management?
› The management of a firm’s external resources
› Ensuring the supply of goods, services, knowledge and capabilities
› To perform the firm’s primary and support activities
Purchasing today – trends (see book pp. 3-4)
› From administrative to strategic function
› From buying materials/parts to buying competence 能力
› From cost focus to performance focus
Why outsource? (chs. 5 and 6)
› Decrease production costs
› Access to good-quality suppliers
› Gain access to markets / circumvent trade barriers
› Gain access to scarce resources
Make or buy decision: underlying theory
› Transaction Cost Economics (TCE)
› Resource Based View (RBV)
Transaction cost theory (Williamson, 1975)
› Decision based on minimization of transaction costs
› Two criteria:
• Asset specificity: extent to which assets are unique to a specific
task
• Potential for opportunistic behavior and related costs for reducing
uncertainty
› Make or buy?
• High: make
• Low: buy
Resource based view
› Sources of sustained competitive advantage: Skills, resources, activities
› Core competencies (Hamel & Prahalad, 1990):
• Deliver customer value
• Differentiate firm from competitors
• Can potentially be extended and developed
• Have the following characteristics: Valuable, Rare, Inimitable,
Non-substitutable
› Make or buy? The closer to the core, the more important to keep in-house
Outsourcing and Purchasing & SCM
Outsourcing decision…(contracting out activities/functions to specialized
suppliers)
…leads to Purchasing activities…(who will provide the activity / function
demanded?)
…and to the management of chains and networks (How to make sure all work
together to deliver what the customer wants?)
Some outsourcing-related challenges
› Management of purchasing activities: Supplier selection / Negotiating
terms and conditions / Supplier monitoring
› Management of chains and networks: Increasing supply chain length: what
do 2nd, 3rd etc
tier suppliers do? / Quality assurance and product reliability / Environmen
tal and ethical considerations
Global sourcing? (ch. 6)
› International and global sourcing
› Trend towards re-shoring
Why do firms / SCs engage in sustainability?
› Political: Legal demands / regulation
› Economic: Competitive advantage / Reputation loss
› Social/moral: Response to stakeholders, customers, environmental and soci
al pressure groups / Own values, social/moral responsibility
What challenges do firms face?
› Focus: New types of stakeholders to deal with
› Scope: Cannot be sustainable by yourself
• Look at longer part of chain/network
• Coordination effort, intense communication in the SC
› Performance: a wider set of objectives
• Short-term costs versus long-term revenues
• Social and environmental performance
Sustainability policy (ch. 13)
• Legislations e.g. European Directive 2002/96/EC
• Standards and guidelines (codes of practice) e.g. ISO14001 and ISO26000
The Global Reporting Initiative (GRI)
› Approach to dealing with sustainability issues
› A multi-stakeholder code
------------Lecture 1-----------› The term “offshoring” is often associated with “outsourcing”, but
neither implies the other
› Outsourcing: relocation of jobs and processes to external providers
regardless of the provider’s location
› Offshoring: relocation of jobs and processes to any foreign country
without distinguishing whether the provider is external or affiliated with
the firm
------------Quiz 1------------
A)
B)
C)
D)
1. Which of the following most represents what supply chain management
is about?
Relations between/ among organizations
Relations between/ among departments in an organization
Relations between/ among buyers and sellers of organizations
None of these
2. Which of the following relate to perspectives on the relationship betwee
n purchasing and SCM?
A) Traditionalist and intersectionist
B) Intersectionist and axiomatic
C) Unionist and classic
D) Classic and traditionalist
3. Purchasing management is about:
A) Managing a firm's external resources
B) Buying intangible products
C) Buying tangible products
D) All of the above/ preceding answers
4. Purchasing and supply chain management (SCM) mainly differ with respect
to:
A) Profit emphasis: it matters most in purchasing
B) Strategic orientation: only SCM has a strategic function.
C) Focus of relations, scope of activities, value emphasis
D) Cost emphasis: costs only matter in purchasing
5.
ce
A)
B)
C)
D)
What are the similarities between transaction cost theory and the resour
based view?
Both always attach great value to the risk of opportunism
Both relate to decisions regarding costs
Both always attach great value to a firm's resource position
Both relate to make or buy decisions
6. Which statement is true about transaction cost economics (TCE) & the res
ource-based view (RBV)?
A) TCE focuses on relations as the unit of analysis
B) In the TCE, core competencies should not be outsourced
C) In the TCE, cost minimisation drives make-or-buy decisions
D) In the RBV, asset specificity affects make-or-buy decisions
7. According to the book, sustainable purchasing refers to considerations a
bout these factors:
A) Environmental and economic
B) Environmental, social, and ethical
C) Environmental, economic, and social
D) Environmental, economic, social, and ethical
8.
A)
B)
C)
D)
According to the book, what are the 3 dimensions of sustainability?
Environmental, social, ethical
Economic, social, environmental
Ethical, economic, environmental
Equity, viability, profitability
9. True or false? Economic and social/ ethical concerns are both drivers of
re-shoring?
A) True
B) False
10. True/ false? Globalization makes supply chain sustainability easier to
achieve.
A) True
B) False
Week 2
Strategic Supply Chain Management
Operational Supply Chain Management
Sustainable Supply Chain Management
------------Video 2-----------Supply Chain Management (SCM)
-
-
SCM is the management of upstream and downstream relations with suppl
iers and customers to deliver superior customer value at less costs t
o the SC as a whole - Christopher (1998)
SCM is the integration of key business processes from end user throug
h original suppliers, that provides products, services, and informati
on that add value for customers and other stakeholders - Cooper, Lamb
erts and Pagh (1998), The International Center for Competitive Excell
ence (1994), Global Supply Chain Forum (1998)
› Strategic level versus operational level
• Strategic: what to achieve with SC (cost leadership, differentiation, foc
us strategy)(=focus of book and 1st definition)
• Operational: what you actually do in your SC(= additional explanation in
this lecture based on
2nd definition)
Strategic Supply Chain Management
› Decisions about the structure of the SC and what processes each stage wil
l perform
› Strategic SC decisions: Locations and capacities of facilities / Products
to be made or stored at various locations
› SC design must support strategic objectives
› SC strategic decisions are long-term and expensive to reverse
Supply Chain Strategies
1. Push-based supply chains (Lean)
› Production and distribution decisions based on forecasts
› Problems: Inability to meet changing demand patterns / Obsolescence of su
pply chain inventory
2. Pull-based supply chains (Agile)
› Production and distribution are demand driven
› Enabled by fast information flow mechanisms
› They lead to: A decrease in inventory / A decrease in demand
› Difficult to implement: When lead times are very long (適合short lead times)
3. Push-pull supply chains
› Product characteristics
• Functional: predictable demand (=low variety/standard, long life cy
cle, low margin)
• Innovative: unpredictable demand (=high variety/custom, short life
cycle, high margin)
› Types of supply chains
• Physically efficient (supply efficiently at lowest cost)
• Market responsive (quick response, flexible)
Supply Chain Strategies (=book perspective, p.210-213)
› Lean - PUSH (efficiency focus)
› Agile – PULL (responsiveness focus)
› Leagile – PUSH-PULL
Operational Supply Chain Management
How do organizations work together in SCs
› on a daily basis
› in order to achieve a certain performance
Core concepts and ideas
1. Performance: achieve what customers want (quality, costs, dependable/spe
edy delivery, flexibility)
2. Integration & coordination: working well together without barriers
1. How to meet required performance?
When focus is on costs: make to stock
› Move customer decoupling point downstream (push多，點向右)
› Share info on sales forecast, historical demand
› Inventory
When focus is on flexibility: built to order
› Move customer decoupling point upstream
› Share real-time information (IT enabled forecast, replenishment etc
)
› Delivery precision (built and deliver to specifications)
2. Integration and coordination
› Integration: removal of all boundaries to ease the flow of material, cash
, resources and information
• Break down barriers between functions and organizations
• Will improve customer satisfaction, speed, reduce costs
› Coordination: pattern of decisions and communication between a group of a
ctors that work towards a common goal - (Malone, 1987).
Inhibited by:
• Incomplete information
• Incentives are not in line with common goal (Sahin and Robinson, 20
02)
How to achieve integration & coordination?
Practices in SCM: Joint planning (technology), EDI, vendor managed inventor
ies (VMI), Vertical integration
Interaction patterns: Plant visits, key supplier meetings, face-to-face com
munications, periodic
evaluation
Attitudes to SCs: Relations, trust, long term orientation, few suppliers, j
oint responsibility
Sustainable supply chain management
“Sustainable supply chain management (SCM) is a firm’s plans and activiti
es that integrate environmental and social issues into SCM in order to impr
ove its environmental and social performance and that of its suppliers and
customers without compromising its economic performance” - (de Ron, 1998;
Seuring and Muller, 2008; Pagell and Gobeli, 2009)
Supply chain sustainability: upstream
› Most supply chains involve many parties for components / ingredients 1st
and sub-tier suppliers
› Supply chain mapping: transparency and traceability
• Create understanding of processes, information, activities in SC
•
•
•
•
Communication tool
Determine constraints
Facilitate monitoring
Various applications: flow, value, life cycle, footprinting
Sustainable SCM implementation
› General starting point: SC mapping & evaluation
› Tools:
• Flowcharts: Areas of improvement, bottlenecks…
• SCVA (supply chain value analysis) and VSM (value stream map): Value and
waste
• Life-cycle analysis & footprinting: Quantifies potential environmental im
pacts
Supply chain sustainability: downstream
What is reverse logistics?
The process of planning, implementing and controlling the efficient, cost-e
ffective flow of products, materials, and information from the point of con
sumption back to the point of origin for repair, reuse, remanufacture, or r
ecycling.
Flows in a closed-loop SC
› Challenges specific to reverse logistics p.287
› Types of returns p.286
• Customer returns
• Asset returns
• Recalls
------------Lecture 2-----------[Case] FrieslandCampina
› Based your own knowledge, map the supply chain of FrieslandCampina
› Linear or network?
› Where could sustainability practices take place?
[Case] Palm oil
What are the challenges?
› Small-holder farmers in remote locations
› Exported oil is liquid mills mix sources
› Traceability is difficult
› Joint action RSPO (Roundtable on Sustainable Palm Oil)
[Case] clothing industry
› How to create a circular economy?
› What are the challenges?
------------Tutorial 1-----------How to categorize sustainability practices?
› The GRI standards (Global Reporting Initiative)
› See GRI standards document on Brightspace (Assignment)
› Book, chapter 13
Operational efficiency
› As clarified by SSCM literature (e.g., Gimenez & Tachizawa, 2012), econom
ic sustainability is often related to market share, sales, but also operati
onal efficiency
› Operational efficiency is widely used in operations and supply chain mana
gement literature (e.g., cost, quality, delivery, and flexibility)
› E.g., Avebe's annual report: “Achieve 10% more potato starch and protein
of one hectare in 2023 compared to 2017/2018”
[Case] PHARMA IBER
› How to search in a “smart” way?
› How to divide and categorize? What are effective strategies?
› How about SC involvement?
------------Quiz 2-----------1.
A)
B)
C)
D)
BMW wants to open a new location. At which level is this a SCM choice?
Management
Operational
Strategic
Global
2. Which one of the following concepts is not a main customer performance c
riterion?
A) Low cost
B) Dependability
C) Vertical communication
D) Flexibility
3. Which of these products typically belong to a PUSH strategy?
A) Private yachts and suits
B) Bananas and business software
C) Netflix original shows and sandals
D) Milk and Volkswagens
NOTE: Due to the possibility of multiple arguments supporting different ans
wers and potential lack of clarity, all students are provided with a correc
t answer.
4. What is the main goal of integration and coordination?
A) To improve customer performance criteria (e.g., speed, quality etc.)
B) To achieve transparency throughout the supply chain
C) To remove all boundaries to ease flow of materials, cash, resources and
information
D) To improve internal value enhancements
5. True or false? SCM is the integration of key business processes from end
user to original suppliers that provides value only to customers
A) True
B) False
6.
A)
B)
C)
D)
What are the implications of a PULL strategy?
Decrease in inventory and demand
Increase in speed and decrease in inventory
Decrease in demand and negative effect on lead times
Slow information flows and decrease in inventory
7. A company uses PUSH-strategy when...
A) There is low uncertainty and short lead times with the goal of cost mini
mization
B) There is low uncertainty and long lead times with the goal of cost minim
ization
C) There is high uncertainty and short lead times with the goal of responsi
veness
D) There is low uncertainty and long lead times with the goal of responsive
ness
8.
A)
B)
C)
D)
Unox
Move
Move
Move
None
produces their products to stock. Which prac1ce do they perform?
the decoupling point upstream and make use of forecasts
the decoupling point upstream and only produce once orders arrive
the decoupling point downstream and make use of forecasts
of the above/preceding answers
9.
A)
B)
C)
D)
How can integration in supply chains be achieved, for example?
Vertical integration and EDI
Discounts and having only a few suppliers
Face-to-face meetings and joint planning
Periodic evaluation and trust
10. Which is not an activity in reverse logistics?
A) Reuse
B) Recycle
C) Reassemble
D) Repair
11. True or false? Products with short life cycles have predictable demands
A) True
B) False
12. True or false? Whether and to what extent a product benefits from the P
USH or PULL strategy is determined by the decoupling point
A) True
B) False
13. A customer delivers his/her newly bought phone to the store for return.
From this point, what could happen with the phone?
A) Remanufactured
B) Direct reuse
C) Go into the waste disposal
D) All of the above/preceding answers
14. Heineken wants to gain insight into which practices generate waste. Whi
ch SCM tool could they use?
A) Flowcharts
B) Interviews with experts
C) Supply chain value analysis
D) Life-cycle analysis
15. True or false? Closed loop supply chains are an element/sub-part of rev
erse logistics
A) True
B) False
Week 3
Purchasing and the purchasing process
Sourcing strategies
------------Video 3-----------Place of purchasing in the organization
› Development from administrative to strategic function
› When is purchasing strategic?
• Reflecting organizational priorities and goals
• Aligned with different organizational functions (Marketing, R&D, Operatio
ns, …) see book, p. 56-57
The organization of Purchasing
› Centralized purchasing
• Global coordination
• Synergies across business units
› Decentralized purchasing
• Flexibility
• Adapt to local conditions
› Mixed / hybrid forms
• More maturity: develop form that fits best
› see pp. 66-73
Phases of the purchasing process: source to contract (tactical)
1. Specifying
• Aligned with (internal) customer needs
• Technical vs functional specifications
2. Selecting
• Hands on selection process
3. Contracting
• E.g. behavior/process based vs performance based contracting vs ser
vice level agreements
Phases of the purchasing process: procure to pay (operational)
4. Ordering
5. Expediting
• Execute contract
• Secure quality and timely delivery
5. Evaluating
• Performance conform specifications
Types of purchase situations
1. A straight repurchase
2. A modified repurchase
3. A new purchase
Sourcing
› Decision to outsource implies sourcing
› Finding, selecting, contracting and managing the best source of sup
ply (Van Weele, 2010)
Key sourcing questions:
› Where to purchase? (chapter 6)
› From how many suppliers?
› For what items (purchase categories)?
› By means of what type of relations?
Different categories of purchase items
Not all purchase items are the same!
Create categories based on purchase situations:
› Importance (cost, value) of purchase, profit impact (to internal operatio
ns)
› Supply risk, difficulty to purchase (external market)
------------Lecture 3-----------The purchasing process: an example
Activity: Two-by-two discussion
Jurjen works at the Faculty of Economics and Business (RUG) and is responsi
ble for buying materials (e.g., paper) for the printers. Do you think that
it is important that Jurjen goes through each of the tactical phases of the
purchasing process (Van Weele, 2010) every time he is buying such materials
?
The purchasing process: an example
› No
› Materials (e.g., paper) for the printers are classified as straight repur
chase
• No need to define new specifications
• No need to find new suppliers
› Operational purchasing stages are enough after the first successful purch
ase
› Periodical check about options are ok
Sustainability in multi-tier supply chains
Activity: Two-by-two discussion
› Which strategies do buying firms choose to manage sub-suppliers' sustaina
bility in different supply
chains?
› Which contingencies determine the choice of a particular strategy?
● Open: the buyer delegates all or part of the sub-suppliers’ sustainabil
ity management to the T1 suppliers
● Closed: the buyer not only make major investments in strengthening the s
ustainability capabilities of their T1 suppliers, but also participate dire
ctly in the selection, training, and auditing of T2 suppliers
● Third party: (variation of a closed) buyers collaborate with third party
certification organizations, such as the Rainforest Alliance, Fairtrade, or
UTZ. This “work with third parties” MSC structure is typical for managing
sustainability for tropical commodities such
● “Don't bother”: highly advanced sustainability management capabilities
of T1 suppliers, often with a dedicated expert; T1 suppliers’ proactive be
havior in disseminating sustainability upstream
● CONTIGENCIES:
● SC complexity: Different elements of a system that require coordination
by the buying firm (e.g. Number of tier, Number of suppliers in each tier)
● Institutional distance: Distance between the home country institutions o
f two firms engaged in buying and supplying with regard several aspects (e.
g. to voice political stability and absence of violence, government effecti
veness, control of corruption)
● Capabilities of first-tier supplier: technical expertise of suppliers to
implement sustainability in their own operations and/or to train/assist the
ir suppliers
● Sustainability dimension: environmental or social dimensions
------------Tutorial 2------------ !!! IN THE EXAM !!!
PHARMA IBER discussion
1) What is the role of sustainability at PHARMA IBER?
Which elements do you recall? Focus is at organizational level
Overall, there are 3 broad categories that highlight the role of sustainabi
lity: importance, management and components
1. The importance of sustainability for PHARMA IBER
PHARMA IBER vision: “achieve sustainability in everything they
do”
Everyday practices are aligned with sustainability principles
Engaged in different initiatives: UN 10 Principles, Responsible
Care Initiative of the chemical industry
2. The management of sustainability at PHARMA IBER
Link the variable remuneration of executives to sustainability
indicators
PHARMA IBER Community Board for Sustainable Development: Top ma
nagement commitment / Group-wide value
3. The components of sustainability: “achieve sustainability in everyth
ing they do”
Products and Innovation
Corporate Social Responsibility
Business Practices
2) How does the purchasing management area contribute to sustainability at
PHARMA IBER?
› Is its contribution important? Why?
› What activities need to be done to extend sustainability to suppliers?
1. Implementation of sustainability from PHARMA IBER Procurement Departm
ent:
Why important?
- A company is no more sustainable than the suppliers that it sel
ects and retains
- Reputational issues
- PHARMA IBER objective: to align suppliers’ sustainability valu
es
2. Design and manage Supplier Code of Conduct
Issues to think about?
- Information sharing: suppliers need to be informed about the SC
oC
-
Evaluation: are suppliers complying with the SCoC guidelines?
What next? (if not compliance)
3) Design an action plan for Daniel Hernan in order to implement the Code o
f Conduct with all its different suppliers at PHARMA IBER S.A.
› Which general steps did you include in the action plan?
› How to order these steps?
1. Categorize and prioritize suppliers -> KRALJIC MATRIX
2. Define an action plan for each kind of supplier
- Inform
- Test, Analyze, Evaluate
- Collaborate
3. Define an action plan for PHARMA IBER
- Important: include both internal and external actors
- Internal: form purchasers, redefine purchasing processes: supplier
selection, evaluation
- External: activities concerning information, evaluation and collabo
ration towards suppliers
4. What challenges and risks do you anticipate that PHARMA IBER will have t
o cope with in the implementation and the post-implementation of the SCoC?
› Relate challenges and risks to different stakeholders
› Who is the most challenging / risky stakeholder and why
Stakeholders and related challenges and risks:
• PHARMA suppliers
- Get interested in providing truthful answers
- Otherwise: Non-compliance
• Purchasing employees
- Get interested in working along the lines of CoC
- Otherwise: resistance to change
• Heads of Procurement and Trading in other divisions
- Get interested in bringing the project to their suppliers
- Otherwise: resistance to implement SCoC in total supply base
• Heads of other departments (e.g., Finance)
- Get interested in cross-departmental collaboration (e.g. sustainable
SSCF)
- Otherwise: constraints on SCoC development and adoption
------------Quiz 3-----------1. A company opened a new branch in an unfamiliar country. What would likel
y be the best purchasing strategy for them to satisfy the specific customer
s?
A) Centralized
B) Decentralized
C) Tactical
D) None of the preceding answers
2. A manager of a café restocks his products daily by ordering from its sup
pliers. At what level is this purchasing decision?
A) Strategic
B) Tactical
C) Operational
D) Managerial
3. True or false: A Request For Proposal is a component of operational-leve
l purchasing.
A) True
B) False
4. Which of the following activities takes place during the ‘expediting ph
ase’ of purchasing?
A) Specifying service level agreements and executing contracts
B) Executing contracts and securing quality/delivery
C) Selecting and evaluating suppliers
D) Analyzing if performance conforms to specifications
5. Due to a promotion, Desperados wants to temporarily sell beers with bott
les featuring different stickers in larger quantities than usual, which can
be purchased from the regular supplier. In which category would this purcha
se be classified?
A) A new purchase
B) A regular purchase
C) A modified repurchase
D) A straight repurchase
6. True or false. Parallel sourcing entails competition between suppliers.
A) True
B) False
7. True or false. Choosing multiple suppliers is a better option if you aim
for product flexibility.
A) True
B) False
8. Pfizer uses a chemical in one of their standard products, which is hard
to acquire. Which strategy should they use according to the Kraljic matrix?
A) Exploit the purchasing power
B) Secure supply
C) Develop a partnership
D) None of the preceding answers
Note: C is also accepted as correct, as students can have a different inter
pretation of what standard products are and their profit impact level
9. According to the book, under what conditions should a company press supp
liers for cost reductions?
A) When the item is considered a ‘bottleneck item’
B) When the item is considered a ‘leverage item’
C) When the item is considered a ‘non-critical item’
D) All of the preceding answers
10. When is purchasing considered strategic?
A) When purchasing reduces inventory
B) When it reflects organizational priorities and goals
C) When contracts are subject to economic benefits and governmental regulat
ions
D) When it aligns with ESG indicators
11. What does “sourcing” entail?
A) Both tactical and operational purchasing activities
B) The selection of suppliers to satisfy internal demand
C) Ensuring the physical logistics of products and services to all required
destinations
D) None of the above
12. A buyer is concerned about upcoming sustainability standards and wants
to find a more sustainable supplier. However, they are still unsure about t
he new governmental demands their products must meet. In which phase of the
purchasing process does this buyer fit?
A) Analyzing
B) Specifying
C) Selecting
D) Contracting
13. Which forms of sourcing entail collaboration among suppliers?
A) Parallel and triadic
B) Network and triadic
C) Multi and network
D) Network and parallel
14. True or false. Technological content can be used as a measure for asses
sing the importance of purchasing (Kraljic matrix)
A) True
B) False
Note: a technical problem occurred and some students could not input their
answer.
15. Which sourcing strategy is often employed for strategic items?
A) Single
B) Multiple
C) Triple
D) All of the preceding
16. True or false. Complexity of specification can be used as a measure for
assessing the importance of purchasing (Kraljic matrix).
A) True
B) False
Note: question added because of the technical problem with question 14
Week 4
Buyer-Supplier Relationships
Portfolio models
Sustainable purchasing
-----------Video 4-----------1) Buyer-supplier relationships
› What?
- Single purchase of a product
- Repetitive purchase of a standard component
- Repetitive purchase of a complex part of your product
- Services!
› How?
- What kind of relationship?
- Role of trust?
- Role of a contract?
Transactional relationships
› Extreme: Focus on short term, single transactions and one-off exchanges
› Annual contract with focus on price and quantities
- Up to the 90s: Common practice in Western part of the world
› Multiple sourcing
Move to collaboration
› Success of the Japanese automotive industry
- Keiretsu (“extended family”)
- Partnership relationships
› Outsourcing
- From simply buying bolds and nuts to purchasing complex subsystems of
products
› Different approach + different requirements!
- Explaing the move to collaborative buyer-supplier relationships
Partnerships
› Shared goals
› Mutual benefit
› Long term commitment
› Trust and open information sharing
Important topics
› The Interaction model (4.2.2)
› Role and types of trust (4.3.1)
› Role of power (4.3.2)
› Supplier relationship management (4.5 and 4.6)
The interaction model
2) Portfolio models
Portfolio models
› Different perspectives!
› A purchaser’s perspective
- Kraljic matrix
› A seller’s perspective
- Buyers market from the supplier’s perspective
› Relationship models
- Typology of relationships
3) Sustainable purchasing
Sustainable Purchasing
› The role of PURCHASING in the pursuit of sustainable supply chains
› What?
- Managing sustainability in the upstream supply chain
› How?
- Sourcing, developing, evaluating
What is the challenge?
› In October 2005, Walmart CEO Lee Scott committed the company to three amb
itious environmental goals:
- To be supplied 100 percent by renewable energy
- To create zero waste
- To sell products that sustain our resources and the environment
What is the challenge?
› to improve its environmental and social performance and that of its suppl
iers and customers
without compromising its economic performance
- Win-win? Trade-offs?
› Complex supply chains/networks
- Large supplier base
- Multi-tier supply chains
One example: CBAM (Carbon Border Adjustment Mechanism)
• 10/2023-2026: mandatory reporting phase
• 2026: requirement to purchase ‘certificates’ to cover GHG footprint for
imports into the EU
• Applies to specific products (iron, steel, aluminum, electricity, cement,
hydrogen, fertilizers*, precursors*)
• Certificates linked to EU Emissions Trading System prices (right now: 86€
per CO2 ton)
• Does not apply to products that pay equivalent CO2 taxes in country of or
igin
Sustainable purchasing
› Sourcing
- E.g. Local vs. global
- Consolidation? Risks?
› Evaluation
- Auditing/Monitoring
› Developing
- Mentoring/Collaboration
› More extensive discussion in the video lecture on policy and standard and
in the MSc course GSCM & Sustainability
------------Lecture 4-----------Topic 1: deep-tier suppliers
› What are the criticalities?
› What can we do about it?
› What about sustainability?
Topic 2: Portfolio approach(es) to relationships
› What are the main limitations?
› What are the differences between theory and practice?
------------Quiz 4-----------1. Trust that a supplier will perform tasks in excess of agreed terms and c
onditions is called:
Goodwill trust
Contractual trust
Competence trust
None of the above
2. What is NOT a typical main goal of a buyer-supplier partnership?
Transaction efficiency
Open and transparent information sharing
Share goals
All are typical main goals of buyer-supplier partnerships
3. True or false? Competence trust is a typical sign of a mature buyer-supp
lier partnership
True
False
????
4. Heineken sells beer to the supermarket chain Aldi. Their relationship is
trustworthy but with limited mutual dependency. With reference to the relat
ionship portfolio model, which relationship type better capture this situat
ion?
Traditional / adversarial
Strategic collaboration
Opportunistic behaviour
Tactical collaboration
5. The interaction model of Hakansson (1982) includes five dimensions under
'relationship
atmosphere. Which factor below is NOT one of them?
Strategy
Cooperation/Conflict
Mutuality
Power/dependence
6. A defense contractor possesses unique knowledge which it uses to develop
a software tailored to the needs of the Dutch army. Based on the Hughes, Ra
lph & Michels portfolio matrix, which category best describes this situatio
n?
Tailorized
Custom Design
Proprietary
Generic
7. The airline EasyJet has no choice but to rely on Schiphol Airport as a s
upplier, but has little
trust in them. How would you characterize this relationship (based on the r
elationship
portfolio matrix)?
Bottleneck item
Leverage item
Opportunistic behaviour
Tactical relationship
8. True or false? The relationship portfolio model assumes that mutual depe
ndency correlates
with high level of confidence
True
False
9. Which items from the Kraljic matrix align with high dependency levels in
the relationship
portfolio model?
Strategic and bottleneck
Strategic and leverage
Leverage and bottleneck
None of the above is correct
10. What is the overall goal of sustainable purchasing?
Increase consumers' visibility on sustainable initiatives in the upstream s
upply chain
Implement sustainable practices among suppliers and distributors
Reduce carbon footprint of purchasing activities
Implement sustainable practices among suppliers
12. The typical focus of purchasing activities in Western countries up to t
he 90's was:
Outsource to oversea suppliers
Reduce purchasing price
Balance price reduction with competence development
Develop long term relationships
13. True or False? Use of power in managing supplier relationships should,
generally speaking,
be avoided
True
False
14. The relationship portfolio model suggests that investments in supplier
relationships:
Should match the level of relationship intensity and criticality
Dictate the level of relationship intensity and criticality
Are typically highest in adversarial relationships
None of the above
15. True or false? Items from the Kraljic matrix tend to have a one-on-one
match with
relationship types in the relationship portfolio model
True
False
Week 5
Introduction to services
Product / service combinations
Sustainable purchasing and SCM in services
-----------Video 4-----------What are services?
› Large number of definitions. Services are...
- ... a (series of) activity(ies) of more or less intangible nature tha
t normally take place in interaction with the customer, provided as a
solution to customer problems (Gronroos, 1990)
- ...economic activities from which customers obtain value but normally
do not take ownership of physical elements involved (Lovelock and Wri
ght, 2007)
- ...a value co-producing configuration of people, technology and other
systems and information (Spohrer et al., 2007)
General service characteristics
› Services are often said to be characterized by IHIP:
› Intangibility: cannot touch services (some more than others: restaurant v
s. Skype)
› Heterogeneity: Services are hard to standardize because provided by human
beings to human beings
› Inseparability: Production and delivery take place (partly) simultaneousl
y
› Perishability: inability to store services
› Impact on purchasing?
Types of services
› Pure services → Pure commodity goods
- Product-service combinations
› B2C → B2B
› Professional → Mass services
› Impact on purchasing?
Impact on purchasing
› Purchasing process (book, p. 34)
- Specifying
-
Selecting
Contracting
Ordering
Expediting
Evaluating
Examples of impact
Different types of services & service chains
› Product-service combinations (e.g. maintenance) = focus of chapter 9
› “Pure” services
▪ Consumer services (e.g. health care, holidays, broadband at home): busine
ss to consumer (B2C)
▪ Business services (e.g. broadband at work, cleaning, catering, accounting
, consultancy): business to business (B2B)
Types discussed in this video
› Servitization
› Procuring complex performance
› Product-service systems
Servitization
› Manufacturing firms adding services to its products
› Why?
- To lock out competitors
- To lock in customers
- To increase levels of product differentiation
› How?
- Base services – goods and spare parts
-
Intermediates services – product repairs, maintenance, overhauls, hel
pdesks, training, condition monitoring
Advanced services – customer support agreements, outcome contracts
Servitization: new operating models
› Power by the Hour
- Fixed sum per flying hour
› Contracting for availability
- Shift from traditional support though spares inclusive to contracting
for availability to contracting for capability
› Simply buying a product has evolved to a long term perspective with focus
on future availability and updates
Procuring complex performance (PCP)
› Closely related to servitization but emphasis on
- All phases of a major project: Design, build, service support and dis
posal
- High value products or platform infrastructure
-
Long-term in-service support (decades)
Involvement of governments
Public-private collaborations
Implications for contracting?
Product-service systems
› Integrated bundles to increase value of core offering
› Product and service of equal importance (see next slide)
Purchasing sustainable services
› Cleaning services
- Working conditions
less hazardous products (e.g., biodegradability, low toxicity, low vo
latile organic compound (VOC) content, reduced packaging, low life cy
cle energy use)
- minimize harmful impacts to custodial workers and building occupants.
- Inspection Dutch government (ISZW 2018) reports problems w.r.t.: Paym
ent, Working hours, Workload (physical and mental)
› Financial services (direct)
- paperless
- low energy use
- working at home
› Financial services (investments)
- sustainable finance
- investments in the circular economy
- inclusive society etc
› IT services
- Energy use of data centers: Data center Apple in Galway (Ireland) 240
megawatt per year (8% of total energy consumption)
- Recycling of IT
-
› Sustainability specifications
› Select eco/socio-friendly service providers (water saving laundry service
s, paperless ICT enabled bookkeeper, equality favoring HRM services, etc.)
› Sustainability in SLA: importance of contract and evaluation phases
Sustainable Service SCs
› Sustainable healthcare supply chain
▪ Clinical waste
▪ Disposables vs. reusable medical devices
▪ Drug pollution
▪ Energy use
▪ Safety
------------Lecture 5-----------Topic 1: Trends in services
› Is IHIP still relevant?
- Intangibility
- Heterogeneity
- Inseparability
- Perishability
› What about
- Scalabiltiy?
- Human interaction?
問答
A new logic?
› All exchanges within an economy are service-to-service exchanges
› The purpose of physical goods is to deliver services
› Skills and knowledge are the only source of competitive advantage
› Buyers (incl. consumers) co-create value with suppliers
› All economies are service economies
“Service-dominant logic”
Topic 2: Circular Economy
› What is it?
› What is the link with services?
------------Quiz 5-----------1.
It
It
It
Which of the following is a typical characteristic of a service
cannot be stored
involves intangible goods only
is rare
It has a severe impact on purchasing
2. A general characteristic of services - based on the IHIP framework - is
heterogeneity. What
does that entail?
Services are hard to standardise
Services are hard to distinguish
Servies are hard to substitute
All of the above
3. You go to a carnival. Which of the following is the closest to a "pure s
ervice"?
The acrobats' show
The kiosk serving hot-dogs
The stand selling animal-shaped balloons
The gift shop
4. Which phase of the purchasing process is influenced by the typical insep
arability of services?
Contract
Select
Expedite
Specify
5. True or false? Providing value to customers through a service implies tr
ansferring ownership of the physical elements involved
True
False
6. Which of these is a form of servitization
KTM (motorbike manufacturer) selling spare parts
NS (Dutch railway) offering rental bikes at stations
Both of them
None of them
7. Which of the following is NOT a typical reason for introducing a serviti
zation component in a product offer?
Increase levels of product differentiation
Lock out competitors
Lock in customers
All of the above are typical reasons
8. True or false? 'Equality' between physical and service components is a t
ypical characteristics of servitization
True
False
9. Procuring Complex Performance (PCP):
Is typical of capital intensive private-public collaborations
Focuses on an asset operating life
Applies to pure services only
None of the above
10. True or false? Power-by-the-hour is an example of product-service syste
m
True
False
Please note this question shown in class erroneously reported ‘combination
’ instead of ‘system’.
Answers will not be counted.
11. What is a key component of product-service systems?
'Equality' between physical and service components
Ensure value focusing mostly on the service component
High asset value
All of the above
??? 12. True or false? "Contracting for Availability" typically transfers o
perative and financial risks from buyers to suppliers
True
False
13. Which of the following is a good description of "remanufacturing"?
A worn-out component is re-coated instead of disposed
A machine is rebuilt on a used product base, receiving all of the enhanceme
nts, expected life
and warranty of a new machine
Both of them
None of them
14. A textile brand wishes to reduce scope 3 emissions across the upstream
supply chain.
Which phase of the purchasing process is most likely going to be influenced
?
Specify
Evaluate
Contract
All of the above
15. True or False? There is a clear correlation between globalization and s
ervitization
True
False
Week 6
------------Guest Lecture-----------• Scope 1 emissions are GHGs released directly from a business.
• Scope 2 emissions are indirect GHGs released from the energy purchased by
an organization.
• Scope 3 emissions are also indirect GHG emissions, accounting for upstrea
m and downstream emissions from a product or service, and emissions across
a business’s supply chain.
EUROPE LEADS THE WAY (EU-ETS AND CBAM)
• The EU Emission Trading System is an essential part of the EU’s policy t
o combat climate change. The EU ETS is a cap-and-trade scheme, where a limi
t (the cap) is placed on the right to emit certain pollutants over a geogra
phic area. Parties can trade these emission rights in that area.
• EU-ETS is part of the compliance carbon credit market and is not linked t
o voluntary offsetting carbon credits.
• CBAM: Carbon Border Adjustment Mechanism is a landmark tool to put a fair
price on CO2 emitted during the production of carbon intensive goods that a
re entering the EU, and to encourage cleaner industrial production in non-E
U countries.
• The gradual introduction of the CBAM is aligned with the phase-out of the
allocation of free allowances under the EU Emissions Trading System (ETS) t
o support the decarbonisation of EU industry.
SCM IS A KEY FOR SUSTAINABILITY
• 70+% of GHG emissions are Scope 3 related
• Procurement and Supply chain teams can make a huge impact (and should)
• Know your numbers and be curious
• Know the (upcoming) regulations
• Know your Carbon accounting rules
• Know your finance
• Know your capital markets, company valuations are impacted by Carbon foot
prints
• Oh Yeah and know your Supply Chain Management and Procurement literature
------------Lecture------------
Week 7
------------Final Quiz-----------1. Campina is considering whether to internally make an innovative ingredie
nt, the processing of which requires specialized equipment. According to th
e TCE, what is the corresponding recommendation?
Perform internally
Outsourcing
Joint venture
All of the above
2. Which of the following statements on sustainability frameworks is not co
rrect?
ISO 26000 is the most renowned standard for the environmental sustainabilit
y
GRI is a multi-stakeholder code
Legislations are frequently country-specific
The United Nations Global Compact includes a principle on collective bargai
ning
3. Louis Vuitton has created a new and innovative garment line. What would
be the best supply chain strategy?
Push because they can produce on forecast
Push because of the long life cycle of the product
Pull because the margins are relatively low
Pull strategy because it allows for customer responsiveness
4. I) Vendor managed inventory is a SCM practice; II) Joint responsibility
is an interaction pattern
Only statement I is correct
Only statement II is correct
Both statements are correct
Neither statements are correct
5. I) Competition between suppliers is present in both multi-sourcing and t
riadic sourcing II) Buyer-supplier collaboration is typically present in pa
rallel and triadic sourcing
Only statement I is correct
Only statement II is correct
Both statements are correct
Neither statements are correct
6. Heineken needs to purchase a new component for their product. The suppli
er holds a monopoly on this particular item. However, Heineken may consider
discontinuing this product since it is not essential. What type of item is
this?
Leverage
Strategic
Bottleneck
Non-critical
7. Which of the following descriptions fits the concept of 'custom design'
the most (ref. Huges Ralph and Michels)?
The Monopoly board game
Budget suits for students
Swimming suits for olympic swimmers
Printing software for the European Central Bank
8. The RUG has a tactical collaboration with their food supplier. What does
this entail?
Level of confidence and dependency are both low
Level of confidence is low; level of dependency is high
Level of confidence is high; level of dependency is low
Level of confidence and dependency are both high
9. What is the best procedure to secure quality performance
Drafting a SLA
Establishing long term relations
Securing supply in storage
Creating a hands on selecting process
10. Which of the following is a form of servitization?
The purchaseble photo after a waterfall slide
Netflix offering videogames on its platform
A car dealer offering a 2-year carwash option included in the purchase pric
e of a car
A TED-talk speaker offering courses on her website
11. Which of the following is a potential strategy to counter extra purchas
ing costs introduced by the CBAM?
Buy in larger quantities
Moving sourcing from outside to within the EU
Perform more audits
None of the above
12. What actions can companies take to reduce their scope 3 emissions regar
ding downstream activities?
Reducing water usage
Reducing purchasable energy
Incorporating sustainable material in the products
None of the answer above
13. Which of the following is a likely combination between the Kraljic matr
ix and the relationship portfolio model?
Opportunistic behavior <-> Bottleneck items
Tactical collaboration <-> Leverage items
Both of them
None of them
14. What is not a sustainability component of Pharma Iber?
Reducing their monopoly
Products and innovation
Corporate social responsibility
Business practices
15. What were challenges for Pharma Iber regarding sustainable change?
Creating an improvement plan for all suppliers
Cross-departmental collaborations
Providing truthful answers
All of the above