Advanced Diploma in Purchasing and Supply IMPROVING SUPPLY CHAIN PERFORMANCE. L5-03/Jan12 LEVEL 5 MARKING SCHEME. January 2012 AULTRO

Transcription

1 Advanced Diploma in Purchasing and Supply IMPROVING SUPPLY CHAIN PERFORMANCE L5-03/Jan12 LEVEL 5 MARKING SCHEME January 2012 AULTRO

2 SECTION A You are strongly advised to read carefully and analyse the information in the case study before attempting to answer questions 1 and 2. AULTRO FURNITURE LTD History Aultro Furniture Ltd (Aultro) was founded in 1987 to build high quality pieces of furniture such as tables, chairs and cabinets. Aultro worked with softwoods and hardwoods and produced classical and contemporary designs. It sourced the differing styles of fittings, such as handles, hinges and brackets it required locally at first, but then realised that this was constraining its range. Hence Aultro extended its supply base across Europe to cope with the varying demands of design. The craftsmanship of Aultro s work soon became recognised by small independent premium furniture retailers and it received a steady growth in orders from outlets across Europe. By 2007 it had grown to employ 300 staff at a single manufacturing site, with all operations carried out at this base. The New Facility Enquiries by a number of its existing customers note the growth in the market for high quality finishes using base materials such as chipboard (particles of wood held together by an adhesive binder) and MDF (medium density fibreboard). These materials allow for more radical designs to be produced. Aultro has resisted this previously as it perceives the materials as inferior and associated with the perceived cheap flat-pack furniture sold by large retailers. However, Aultro recognises that this provides an opportunity for growth and that its current lines in hardwood and softwood are suffering from the market and from supply issues. Recently wood prices have risen considerably. Sustainability concerns, exchange rates fluctuations and increased transportation costs (materials were sourced from across the world) has combined to adversely impact upon margins. Consumers, driven by an increased interest in interior design through the media, now have a greater awareness of product choice through the internet and have been moving across from solid wood products to increased design choice. These market pressures have squeezed Aultro s margins. Aultro s board have investigated a move towards manufacturing using chipboard and MDF based products and conclude that this is desirable for the future of the company and that this will represent the requirement for a substantial investment. Manufacturing processes using chipboard and MDF require different processes, equipment and skills to those using solid wood. This has brought Aultro s board to conclude that, given constraints on its current site, Aultro needs to invest in an additional facility. It has identified a vacant warehouse in the region that appears suitable for conversion. This would require fitting out with services, extensive manufacturing equipment and office facilities, all to be completed within 18 months. Additionally, some staff would have to be recruited (though some would be transferred across from the other facility) and extensive training would have to be carried out for new equipment and processes. Page 2 of 11

3 This new facility also provides the company with an opportunity to review Aultro s entire operations to ensure that it is fit for purpose in the future. Page 3 of 11

4 Taking the Company Forward Aultro s board recognises that there are two key challenges for the company; 1. For solid wood products there needs to be a review of current operations. This would include: (a) (b) Sourcing policies to deal with; rising materials costs, the sustainability agenda, a rationalised product range, procurement administration, fittings provision and transportation cost issues. Process improvement to address; materials waste, scrap and rework, throughput improvement, time from design to production, handling and storage. 2. For the new facility project: (a) (b) (c) (d) Establishing a new supply base to deal with these new types of products and associated materials, designs and processes. Decisions on how to manage the project, given the current constraints of management time. This could include outsourcing areas such as; training, recruitment and project management. The procurement of specialist equipment that the management team currently has limited experience with. New designs, a marketing campaign and an associated catalogue to ensure that sales increase quickly once the new facility starts to produce. Both of these initiatives will require negotiation at a high level with a range of suppliers not familiar to Aultro. Overall these two challenges represent an enormous amount of management effort for the company, for which Aultro recognises it would need additional resource to ensure successful implementation. The information in this case study is purely fictitious and has been prepared for assessment purposes only. Any resemblance to any organisation or person is purely coincidental. Page 4 of 11

5 SECTION A You are strongly advised to read carefully and analyse the information in the case study before attempting to answer questions 1 and 2. Q1 Propose and justify how to establish a supply base to meet the new product and project development challenges of Aultro. (25 marks) Q1 MARK SCHEME To test candidate knowledge of supplier selection approaches and related Syllabus Reference(s): 1.3, 1.5, 2.1 The key challenges are outlined within the case as: Develop a range of new furniture products to complement their portfolio, requiring the establishment of new suppliers and extension of the activities of existing suppliers Establish a new facility for the production of the new product lines Candidates may draw from a range of potential areas here but should cover overall the ground required which ensures that suitable suppliers are ultimately appointed. This process may include: Review of existing supplier capabilities, both qualitative and quantitative Review of current structure and organisation of suppliers Rationalisation and identification of gaps. Supply market research activities (on-line, recommendation, journals and trade shows, visits and telecon. etc) Preparation for tendering; establishing specifications, criteria, supporting documentation etc Screening activities (tendering, auditing, rating, short-listing, interview and presentations) Negotiation process and associated Categorisation (Kraljic), Segment and tiering issues For each of the challenges consideration should be given to a number of aspects such as: Capacity and expertise in procurement of this type and the requirement to appoint additional resource The nature of the relationship vis a vie ongoing supply or single project The type of product begin procured e.g. technical, commodity Value added issues in the supply process The objectives of the organisation Better candidates will be able to balance the requirement of breadth and the requirement to appreciate the overall process and depth i.e. sufficient explanation of the constituent parts. Further credit may be given to those candidates who recognise the developmental nature of this process and suitably explore points in relation to this. Additionally candidates may justifiably recognise issues of management and development for the supply base. Page 5 of 11

6 Q2 Discuss the approach to an overall negotiation process that Aultro s personnel may take to deliver: (i) the new facility project (ii) the new product line requirements. (25 marks) Q2 MARK SCHEME To test candidate knowledge of advanced negotiation techniques Syllabus Reference(s): 3.1, 3.2, 3.3 The question addresses potentially two differing types of relationships and contexts for the appointment of new suppliers to the organisation i.e. The use of contractors to establish the new facility The introduction of suppliers who can provide new materials for the new product lines It would be appropriate for candidates to consider the nature of the relationship as a contextual aspect: Long-term/ collaborative relationships will seek to maximise long term gains through the development of win-win solutions. Short-term, spot-trading relationships will potentially be win-lose when parties are not expected to trade regularly in the future. In assessing the nature of the relationship and the items procured Kraljic matrix may also applied to inform the approach to be taken. Similarly the power relationship between the two parties should be considered, based upon issues such as substitute/ alternatives, scale and ownership/ alliance aspects, knowledge and information aspects. Candidates will need to consider for the negotiation campaign elements such as: Gathering information Building a team (or teams) Establishing priorities Project management Discussion of strategies and tactics Agreeing an overall process, aligned with company objectives During the negotiation reference may be made to the objectives set, the use of MIL and BATNA tactics game theory applications and ploys (high/ low-balling etc) communication issues e.g. Johari window. the use of time and information control as levers The style of the negotiation may be addressed; competitive, accommodative, avoidance, collaborative, compromise and combinations of such which may be used to overcome deadlocks. The negotiator should be aware of interpersonal skills such as the requirement to establish rapport, reading NVC and questioning, structured development and confirmatory discursive approaches. Organisation and progression of the event should consider the sequence of events (opening, exploring, offers, closing, concessions etc) and also the associated documentation. Better candidates will be consistent in relating the content of their question answer back to the context issue made previously, differentiating between the project and ongoing supply. Page 6 of 11

7 SECTION B Answer TWO questions from section B. You are strongly advised to read carefully all the questions in section B before selecting TWO questions to answer. Q3 Examine how THREE quality approaches used by leading organisations may contribute to reduced supply chain costs. (25 marks) Q3 MARK SCHEME To test candidate understanding of quality based cost reduction techniques for supply chains Syllabus Reference(s): 2.3 Potentially a broad question candidates may choose from a range of approaches based within the field of quality, quality management, process improvement or related. These may include: Japanese Management techniques JIT/ lean supply techniques to minimise inventory and obsolescence and encourage improved processes Kaizen or related such as; TQM (should candidates select a concept such as TQM then marks should be given not only for overall points made relating to such but also the consideration of constituent aspects e.g. communication, commitment, systems etc CFTs as devices to target, inform and implement cost savings within and across departments, replicated by the actions of many groups to multiply gains Six Sigma as a structured device to implement a series of improvement projects SPC TPM Self-assessment approaches such as EQA, Deming Prize, MBNQA Company specific approaches such as the Toyota Production System Candidates should select three techniques to examine and equal marks will be allocated. Should candidates cover only two approaches then these will be marked from 2/3 of the available marks. Should candidates cover more than three approaches then only the first three will be marked. Consideration of costs may be from a number of ways, such as: Removal of waste such as scrap, rework, excess handling, stock obsolescence Reduction in lost time due to dealing with complaints, breakdowns, fire fighting Minimisation of losses from downgrading or discounting due to quality issues Process improvement for set-ups, throughput speed etc Better candidates will be able to extract more detailed points from the techniques and consistently link these areas to cost Page 7 of 11

8 Q4 Evaluate how the following may contribute to the development of improved operational processes in the supply chain: (i) Lean Supply (ii) Benchmarking. (25 marks) Q4 MARK SCHEME To test candidate understanding of methods for the revision of supply chain operations. Syllabus Reference(s): 2.5 The question has two parts and equal marks weighting should be attributed to each. Candidates should recognise the need to align all supply chain operations for success and within the answer it would be to their credit to note the need to effectively interface operations effectively. Definitions of benchmarking and lean supply may be included and the nature of the areas determined as improvement tools with differing, but potentially related methodologies. i) An explanation/ definition of lean supply may be provided, which may refer to elements such as zero inventory or JIT objectives and the alignment of supply chain activities to achieve this. Though there are a range a valid views on lean supply approaches its contribution may include a number of core aspects such as: Supply chain alignment through improved planning and communications Effective company supplier-interface for inbound logistics Reduction in double handling due to use at point of supply Balance of flow activities within the supply chain Removal of requirement for warehousing and associated operational costs Reduction in process set-up times to achieve smaller optimal batch size Process capability improvement and resulting reduced waste Closer working relationship with suppliers Overall candidates will recognise not just the objective in respect of the reduced inventory outcome, but also the imperative to ensure that processes are operated to high standards to achieve this. ii) Benchmarking may discuss elements of product, performance or process applications suitable within the context of the question. Candidates may outline benchmarking process approaches but these should be clearly linked to the question i.e. not merely listed. The application of benchmarking may bring about a number of benefits e.g.: Information for decision making (process improvement, operational design for example) Setting of standards (both minimum and stretch targets). Motivation through goal setting (Locke, 1968) Challenging current views Developing collaborative relationships Outcomes of the application of these initiatives should include the benefits to the organisation e.g. cost, quality, speed, flexibility, reliability, co-ordination, communication. In reference to the supply chain better candidates will recognise also the requirement for holistic requirement and complementary fit. Better answers will go further than merely reporting on the nature and application of the elements and display a greater understanding of the benefits to operations. Page 8 of 11

9 Q5 Evaluate the benefits of automated information flows upon supply chain performance. (25 marks) Q5 MARK SCHEME To test candidates understanding of ICT applications in the supply chain. Syllabus Reference(s): 4.3 Candidates must take a supply chain perspective here and the benefits considered arising from the alignment of systems utilising ICT for improved performance. The question relates to the benefits but candidates should implicitly display an understanding of a range of potential technologies including; EPOS, EDI, RFID, Intra and Extranets, information systems including databases, expert systems etc. Additionally candidates may include reference to beneficial systems e.g. MRPI/II, ERP, CRM, SAP, APS etc and their contribution. The core of the question should address the benefits which may include (for example); reduced processing costs, improved communications, shorter lead times, greater accuracy, more timely decision making, improved security, reduced risk, greater control over stock, logistics planning, resource optimisation, bullwhip reduction, shorter time to market, knowledge management based competitive advantage. Candidates may provide a suitable definition of automated information flows, this will highlight the action of technology to transfer information throughout the supply chain. Better candidates will incorporate both a range of ICT solutions and greater breadth of benefits derived for the supply chain in application. Page 9 of 11

10 Q6 Discuss how the purchasing function can add value to the following functions within an organisation. (i) (ii) Production Marketing (iii) Research and Development. (25 marks) Q6 MARK SCHEME To test candidate understanding of the role of the purchasing function. Syllabus Reference(s): 1.1, 1.4, Candidates should note the directive of the three specific functions, hence equal marks weighting will be awarded to each. Should a candidate only complete two functions then these will be marked out of 2/3 of the marks. For each of these functions there are perhaps some generic points which may be made including: Adding capacity at peak times through organising additional supply Advising on contractual issues Mitigating risk through supplier management and contingency planning Cost reduction approaches Quality enhancement and supplier innovations Communication programmes promoting services Developing service level standards Resolving disputes Supporting negotiations Systems developments CFT involvement Outsourcing of non-core activities It would be acceptable for candidates to note these are common elements in relation to the three areas but some attempt should be made to engage these points with the areas within the discussion. Specific areas of note may areas such as: For production: Quality improvement Value analysis and engineering Process development Integration of innovation; IT systems, planning etc Cost reduction including supplier input For marketing: Engaging specialist market media for specific projects Gathering and analysing data Facilitating connection with other key functions Page 10 of 11

11 For Research and Development: Gathering data from suppliers to inform design Integrating suppliers with the design and development process Researching product innovation and associated technologies, materials or designs Value analysis activities Better candidates will recognise the generic skills employed in purchasing and how they are transferable into a range of operational situations, giving a range of suitable examples of contribution. END OF MARK SCHEME Page 11 of 11