Posted: April 24th, 2025

Discussion Q

Digital technologies are rapidly changing sourcing and supply management. What are the potential benefits and drawbacks to the adoption of digital technologies in supply management? (150 – 200 words)

No Ai

Source to use – PPTX attached

prior written consent of McGraw-Hill Education.

Chapter 10

Sourcing and Supply Management

prior written consent of McGraw-Hill Education.10-2

Learning Objectives

10-1 Define supply management and understand its
impact on a firm’s performance.

10-2 Define and describe each of the six supply
management goals.

10-3 Analyze costs and make insourcing/outsourcing
decisions.

10-4 Describe the steps in supply category
management.

10-5 Explain the steps in the sourcing process.

10-6 Describe how to assess and select suppliers.

10-7 Understand ways to manage ongoing supplier
relationships.

prior written consent of McGraw-Hill Education.10-3

Learning Objective 10-1

Chipotle Mexican Grill: Sourcing and Supply
Management

• Source fresh ingredients from organic farms
• Exposure to supply chain risk
• Higher costs, potential for supply disruptions,

potential problems with food safety

prior written consent of McGraw-Hill Education.10-4

Learning Objective 10-1

Supply Management

• Supply Management: identification, acquisition,
and management of inputs and supplier
relationships

• Also called purchasing or procurement

• Sourcing: process used to acquire goods and
services from suppliers

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Effective Supply Management

A firm’s strategic objectives are better met when
effective supply management:

• Ensures timely availability of resources.

• Identifies, assesses, and mitigates supply chain
risk.

• Reduces total cost (not just purchase price).

• Enhances quality.

• Enables access to technology and innovation.

• Fosters sustainability.

Learning Objective 10-2

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Learning Objective 10-2

Supply Chain Risk

Supply Chain Risk: probability of an unplanned event that
negatively affects a firm

• Supplier technical, operations, or quality

problems

• Supplier financial problems

• Labor disputes

• Increases/decreases in demand

• Lack of transparency in SC

• Inadequate security

• Natural disasters

• Changes in government regulations

• Concentration of suppliers within the same geographical
region

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Total Cost of Ownership

When the Costs Occur Type of Costs

Before the transaction
Time spent and costs of searching for, visiting, evaluating,
and certifying suppliers.

During the transaction
Purchase price and costs of ordering, transporting,
expediting, receiving, inspecting, and following up.

After the transaction

Costs of inventory, supply risk, production downtime,
defects in finished goods, warranties, safety recalls,
replacements, repairs, lost sales, liability, and damaged
reputation.

Table 10-1 Total Cost of Ownership

Learning Objective 10-2

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Learning Objective 10-2

Quality, Technology, and Innovation

• Quality: A product’s quality is tied to the quality
of its inputs.

• Technology and Innovation: Suppliers are
potential sources of innovation and new
technology.

prior written consent of McGraw-Hill Education.10-9

Learning Objective 10-2

Fosters Social Responsibility

Sustainability: the ability of the firm and SC to

maintain or sustain itself by improving performance

related to managing planet, people, and profit

• Add value to communities

• Increase social diversity

• Encourage environmental responsibility

• Display ethical behavior

• Practice and promote financial responsibility

• Respect human rights

• Ensure a safe working environment

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Learning Objective 10-2

Goals Addressed by Sustainability

Goals Supply Management Example

Support and provide value to the community Provide jobs in the supplier’s community

Increase social diversity
Use minority, women, and veteran-owned

suppliers

Encourage environmental responsibility
Require environmental compliance from

suppliers

Display ethical behavior Engage in fair contract negotiations

Practice and promote financial responsibility
Accurately report financial dealings with

suppliers

Respect human rights Use suppliers who conform to child labor laws

Ensure a safe working environment Use suppliers who conform to safety standards

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Results from Sustainability

• Effects of Sustainability

– Improves financial performance

– Increases quality

– Instills customer loyalty

– Enhances a firm’s reputation

– Can lower total costs

Learning Objective 10-2

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Student Activity (1 of 3)

Review the most recent list of the 100 Best Corporate
Citizens as ranked by Corporate Responsibility Officer
(www.thecro.com). Select a company from the list,
visit its Web site, and search for “supplier code of
conduct.” If you were a supplier, how would this code
affect the way you do business? Why?

Learning Objective 10-2

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Learning Objective 10-3

Insourcing/Outsourcing (1 of 2)

• Insourcing: inputs from within the firm

• Outsourcing: inputs from outside the firm

• Make or Buy Decision: choosing between

insourcing or outsourcing

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Learning Objective 10-3

Outsourcing Advantages and Disadvantages

Internal Factors

Outsourcing Advantages Outsourcing Disadvantages

Capital is not needed for equipment and

facilities

Can be difficult to communicate what is

needed to suppliers, especially for services

Easier to add or remove capacity if demand

changes

Supplier may have quality or delivery

problems

Supplier may increase costs

Lower costs because suppliers gain

economies of scale and suppliers often pay

lower wages

Must have sourcing and supply

management capabilities

Increased flexibility to change technology

or suppliers

May be difficult to integrate information

and materials flows with supplier

Better access to supply market information Loss of intellectual property

Table 10-2 Outsourcing Advantages and Disadvantages

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Learning Objective 10-3

Insourcing/Outsourcing (2 of 2)

Figure 10-1 Insourcing/Outsourcing Decision Process

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Learning Objective 10-3

Insource or Outsource? (1 of 4)

1. Assess Fit with Firm’s Core Competencies

– What is the product’s or process’s relationship to
the firm’s current or future core competencies?

– What are savings from outsourcing compared to
losing core competencies or intellectual property?

2. Evaluate the Suitability for Outsourcing

– Characteristics that favor outsourcing: (1) Mature
products with standard processes; (2) Known
technology with many capable suppliers and
intellectual property risk is low.

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Learning Objective 10-3

Insource or Outsource? (2 of 4)

3. Evaluate the Reasons for Outsourcing

– When product or process seems appropriate for
outsourcing, compare the benefits of
outsourcing versus insourcing.

4. Assess All Relevant Quantitative Costs.

– If previous steps indicate that outsourcing
makes sense, compare the cost of making the
product internally versus the cost of purchasing
it.

– Classify costs as either fixed or variable (Fixed
costs per contract, Fixed costs per order,
Variable costs).

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Learning Objective 10-3

Insource or Outsource? (3 of 4)

5. Assess All Qualitative Factors

– Important qualitative factors may include:

▪ loss of control

▪ risk of dealing with a supplier

▪ location, quality of supplier’s management team

▪ compatibility of organizational cultures and values

▪ supplier’s flexibility, labor-management climate,
warranty, and support systems

▪ proprietary information and degree of secrecy
required

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Learning Objective 10-3

Insource or Outsource? (4 of 4)

6. Review the Capability of Suppliers

– This includes a review of the technical, financial,
manufacturing, and quality-related capabilities of
suppliers.

7. Make and Implement a Decision

– If you decide to outsource, select a supplier and
document the anticipated benefits of outsourcing. If
you decide to insource, document the reasons for
this decision.

8. Monitor the Decision and Revise It as Necessary

– Compare the actual results of the decision against
estimates and identify potential problems.

prior written consent of McGraw-Hill Education.10-20

Learning Objective 10-3

Student Activity (2 of 3)

Many universities outsource services that were
traditionally insourced. Make a list of the major
services that your university offers. Which are
opportunities for outsourcing and which should
be insourced? Why?

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Supply Category Management

Supply Category Management: identifying and

developing supply management strategies for

groups of related purchases

Spend Analysis: shows what is being purchased,

at what prices, and from which suppliers

Learning Objective 10-4

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Learning Objective 10-4

Sourcing Strategies (1 of 3)

Figure 10-2 Portfolio Analysis for Supply Management Strategies

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Sourcing Strategies (2 of 3)

Supply Base Optimization: determination of
number of suppliers to use

• Too many increases complexity and makes supply
management difficult.

• Too few increases shortage and price risks, and
innovation may be limited.

Learning Objective 10-4

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Sourcing Strategies (3 of 3)

Capabilities and location are important:

• Proximity affects ease of communication,

transportation costs, and community perceptions

• Consideration of trade barriers and incentives

• Global presence may affect access to markets

Learning Objective 10-4

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Learning Objective 10-4

Spectrum of Supplier Relationships

Figure 10-3 Spectrum of Supplier Relationships

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Learning Objective 10-5

Strategic Sourcing Process

Figure 10-4 Sourcing Process

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Learning Objective 10-5

Identify Need and Develop Specifications

• Purchase requisition: a document that
communicates needs between user and supply
management

• Purchase specifications: a description of the
technical requirements of a purchase that is
communicated with suppliers

After purchase specifications are developed,
identify potential suppliers that are capable and
willing.

prior written consent of McGraw-Hill Education.10-28

Learning Objective 10-6

Assess and Select Suppliers (1 of 3)

• Competitive Bidding: price is most important
factor, specifications are clear, high value, several
equally qualified sources

• Request for Proposal (RFP) or Quotation
(RFQ): describes what customer wants; supplier
responds with cost and other data for
consideration

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Assess and Select Suppliers (2 of 3)

• Online Reverse Auctions: suppliers bid in real
time for buyer’s business

– Supplier can make multiple bids

– Usually price focused

• Negotiation: bargaining process of planning,
reviewing, analyzing, compromising to reach
agreement

Learning Objective 10-6

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Learning Objective 10-6

Assess and Select Suppliers (3 of 3)

Weighted-Point Model: establishes performance
categories that are weighted by importance

Supplier A Supplier B Supplier C

Category Weight Rating Score Rating Score Rating Score

Quality
systems

40% 3 1.2 5 1.2 3 1.2

Delivery
capability

40% 2 0.8 3 0.8 4 1.6

Price 20% 5 1.0 3 1.0 2 0.4

Weighted
Score

100% 3.0 3.0 3.2

Table 10-3 Weighted-Point Model for Supplier Selection

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Student Activity (3 of 3)

Assume that you will be selecting a new apartment.
Develop a weighted-point model to assist in your
decision-making process.

Learning Objective 10-6

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Learning Objective 10-7

Managing Supplier Relationships

• Information Sharing: buyers and suppliers

need to share timely data about demand, supply,

and delivery

• Supplier Scorecard: track and report supplier

performance in key areas

• Supplier Certification: assessment of supplier’s

ability to meet buyer’s needs

• Supplier Relationship Management (SRM):

technology-enabled data gathering about

suppliers to manage strategic relationships

prior written consent of McGraw-Hill Education.10-33

Supplier Management Summary

1. Effective supply management improves performance.

2. In- and outsourcing requires both quantitative and
qualitative analysis.

3. Supply category management is used to ensure consistency.

4. A portfolio analysis classifies purchase categories (noncritical,
leverage, bottleneck, strategic).

5. Category strategies address number of suppliers, locations,
and types of buyer-supplier relationships.

6. Sourcing is a process to acquire goods and services.

7. Suppliers are selected using online auctions, competitive
bidding, or negotiation.

8. Supplier relationship management is a systematic approach
to managing supply management.

9. Supplier relationship management involves communication
and coordination.

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