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SUPPLY CHAIN MANAGEMENT
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What Operations Managers Do?10 OM Strategy
Decisions: Design of Goods & Services
Managing Quality
Process Strategy Location Strategies
Layout Strategies
Human Resources
Supply Chain Management Inventory Management
Scheduling
Maintenance
10 Decision Areas: service & product design
quality management
process & capacity design location
layout design
human resources & job design
supply chain management
inventory, MRP, and J-I-T
intermediate, short-term,
and project scheduling
maintenance
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Supply Chain ManagementManagement of integrated activities that
procure raw materials
transform those materials into intermediategoods and final products
deliver the products through a distribution
system
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SUPPLY CHAIN
SUPPLIERS
Materials,
Parts,
Subassemblies,
And service
Products
and
Services
PRODUCERS
Finished
goods, end
products,
and services
Products
and
Services
DISTRIBUTORS
Package
and
Delivery
Products
and
Services
CUSTOMERS
Total
satisfaction
with quality,
price, delivery
and service
Information
Cash
Inventory Inventory Inventory
Supply Chain is the sequence of organizations their
facilities, functions, and activitiesthat are involved in
producing and delivering a product or service from suppliers
(or their suppliers) to customers (and their customers).
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FACILITIES
FUNCTIONS and ACTIVITIES
warehouses
factories processing centers
distribution centers
retail outlets
offices
forecasting
purchasing
inventory management
information management
quality assurance
scheduling
production
distribution
delivery
customer service
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SUPPLY CHAIN Sometimes referred to asValue Chain, a term
that reflects the concept that value is added asgoods and services progress through the chain.
Comprised of separate business organizations,rather than just a single organization.
Has two (2) components for each organization:
1) a supply component
2) a demand component
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SUPPLY CHAIN
CustomerRetailerDistributorStorageMFGStorage
Supplier
Supplier
Supplier
SUPPLY COMPONENT DEMAND COMPONENT
The supply component starts at the beginning of the chain and ends with the
internal operations of the organization. The demand component of the chain
starts at the point where the organizations output is delivered to its immediatecustomer and ends with the final customer in the chain. The demand chain is
the sales and distribution portion of the value chain
The length of each component depends on where a particular organization is in
the chain:the closer the organization is to the final customer, the shorter its
demand component and the longer its supply component.
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Supplier
Supplier
Supplier
S
t
o
ra
g
e
MFG Distributor
S
t
o
ra
g
e
S
t
o
ra
g
e
Retailer CUSTOMER
S
t
o
r
a
g
e
SERVICE CUSTOMER
Supplier
Supplier
Distributor CUSTOMERTier 1
SuppliersPRODUCER
Tier 2
Suppliers
MANUFACTURING SUPPLY CHAIN
SERVICE SUPPLY CHAIN
Supply and Demand Components
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The Supply Chain
All organizations, regardless of where they are inthe chain, must deal with supply and demandissues.
The goal of SCM is to link all components of thesupply chain so that market demand is met asefficiently as possible across the entire chain.
This requires matching supply and demand at eachstage of the chain.
Except for the beginning supplier(s) and the finalcustomer(s), the organizations in a supply chainare both customers and suppliers.
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The Supply Chain
Manufacturer
Supplier
Supplier
Supplier
CustomerDistributor
Customer
Customer
Inventory
Inventory
Inventory
Inventory
Market research data
Scheduling information
Engineering & design data
Order flow & cash flow
Ideas & design to satisfy
the end customer
Material flow
Credit flow
The supply chain includes all the interactions betweensuppliers, manufacturers,
distributors, and customers. The chain includes, transportation, scheduling information,cash & credit transfers, as well as ideas, designs, and material transfers.
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Supply Chain Management Includes determining the following:
1) transportation vendors
2) credit & cash transfers
3) suppliers
4) distributors & banks
5) accounts payable & receivable
6) warehousing and inventory levels
7) order fulfillment
8) sharing customer, forecasting & productioninformation
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SUPPLY CHAIN MANAGEMENT (SCM) means managing the flow of goods and services
and information through the supply chain in
order to attain the level of synchronization that
will make it more responsive to customer needs
while lowering costs.
has the goal of linking all components of thesupply chain so that market demand is met as
efficiently as possible across the entire chain.
Keys to effective SCM are:
o Informationo Communication
o Cooperation
o Trust
o Supplier partnering
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Supply Chain Management The idea is to build a chain of suppliers
that focus on both Reducing waste, and
Maximizing value to the ultimate customer
Activities of Supply Chain managers cutacross the disciplines of
Accounting Finance
Marketing
operations
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Need for Supply Chain Management1. Need to improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-commerce
7. Complexity of supply chains8. Need to manage inventories
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Supply Chain ManagementAs firms strive to increase their competitiveness viaSTRATEGIES:
Product customization High quality Differentiation Cost reductions Low-cost Speed-to-market Response
added emphasis was placed on the Supply Chain
The key to effective supply-chain management isto make the suppliers PARTNERSin the firmsstrategy to satisfy an ever-changing marketplace.
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GLOBAL SUPPLY CHAIN ISSUESSupply chains in a global environment must be:
Flexible enough to react to sudden changes inparts availability, distribution or shipping
channels, import duties, and currency ratesAble to use the latest computer and
transmission technologies to manage theshipment of parts in and finished products
outStaffed with local specialists to handle duties,
trade, freight, customer, and political issues
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SUPPLY CHAIN ISSUES
STRATEGIC ISSUES
TACTICAL ISSUES
OPERATING ISSUES
Design of the supply chainPartnering
Inventory policiesPurchasing policiesProduction policiesTransportation policies
Quality policies
Quality ControlProduction Planning & Control
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PERFORMANCE MEASURESPerspective Metrics
RELIABILITY On-time deliveryOrder fulfillment lead timeFill rate
Perfect order fulfillment
FLEXIBILITY Supply chain response timeUpside production flexibility
EXPENSES Supply chain management cost
Warranty cost as a % of revenueValue added per employee
ASSETS/UTILIZATION Total inventory days of supplyCash-to-cash cycle time
Net asset turns
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PURCHASING The supply chain receives so much attention because
Purchasing is the most costly activity in most firms
Illustration:SALES
- VCPurchases (50%)Other VC (24%)
- FCPROFIT
$ 100
(50)(24)(24)
$ 2
=====
$ 103.85
(51.93)(24.92)(24.00)
$ 3.00
=======
$ 100
(49)(24)(24)
$ 3.00
=====
Through a $3.85 of additional sales, profit increased by $1,from $2 to $3. The same increase in margin could havebeen obtained by reducing purchasing costs by $1.
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PURCHASING is critical to supply chain efficiency because it is the
job of purchasing to Select suppliers
Establish mutually beneficial relationships with them
its goal is to develop and implement purchasing plansfor products and services that support operationsstrategies.
among its duties are
Identifying sources of supply Negotiating contracts
Maintaining a database of suppliers
Obtaining goods & services that meet or exceed operationsrequirements in a timely and cost-efficient manner
Managing suppliers
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PURCHASING
Purchasing is the acquisition of goods & services
Objectives of Purchasing are:
1. To help identify the products and services that can beobtained externally
2. To develop, evaluate, and determine the best supplier,price and delivery for those products and services
Purchasing takes place in both manufacturingand service environments
cost & quality ofgoods & services
SOLD
cost & quality ofgoods & services
PURCHASED
EffectivePurchasingStrategy
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Purchasing in
Manufacturing Environments
Purchasing function is supported by
1) Product engineering drawings & specs
2) Quality control documents
3) Testing activities that evaluate the purchased items
PURCHASING AGENT
BUYERS EXPEDITERS
- a person with legal authority toexecute purchasing contracts onbehalf of the firm
- perform all the activities ofthe purchasing departmentEXCEPT contract signing
- assist buyers infollowing up onpurchases to ensureTIMELY DELIVERY
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Purchasing in
Service Environments In many service environments, purchasings
role is DIMINISHED because the primaryproduct is an intangible one (ex. Legal andmedical organizations)
In transportation and restaurants, thepurchasing function is CRITICAL
In wholesale and retail segment of services,purchasing is performed by a BUYER who is apurchaser RESPONSIBLE for the SALE OF andPROFIT ON merchandise that will be resold.
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PURCHASING INTERFACES
LegalAccounting
DataProcessing
Design
Receiving
Suppliers
Operations
Purchasing
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PURCHASING CYCLE Begins with a request from within theorganization to purchase material, equipment,
supplies, or other items from outside theorganization
Ends when the purchasing department is notifiedthat a shipment has been received in satisfactorycondition
Main steps are:
1. Purchasing receives the requisition2. Purchasing selects a supplier
3. Purchasing places the order with a vendor
4. Monitoring orders
5. Receiving orders
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VALUE ANALYSISexamination of the function of
purchased parts and materials in an effort to reduce costand/or improve performance.
MAKE or BUYchoosing between producing acomponent or a service in-house or advantageously
purchasing it form an outside source VENDOR SELECTION - a decision regarding who to
buy materials from, considering numerous factors, suchas inventory and transportation costs, availability of
supply, delivery performance, and quality of suppliers SUPPLIER MANAGEMENTincludes vendor
analysis, supplier audits, supplier certification, supplierrelationships and supplier partnerships
ROLES OF PURCHASING
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ROLES OF PURCHASING
MAKE or BUYRole is to evaluate alternative suppliers and provide
current, accurate, complete data relevant to thebuy alternative.
Wholesale/RetailPURCHASES SALES
Manufacturing, Restaurants, and Assemblers
PURCHASES (components & subassemblies)PRODUCTION
SALES (final products)
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Outsourcing Buying goods or services from outside sources
rather than making or providing them in-house
Reasons:
Ability of outside source to provide materials, parts or
services better, cheaper, or more efficiently
Patents, expertise & knowledge of the supplier
Gives more flexibility to the organization (downsizing)
Risks: Loss of control
Greater dependency on suppliers
Loss of ability to perform in-house
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Deciding Factors in Outsourcing1. Cost to do it in-house versus cost to buy, including start-up costs, versus cost to outsource
2. Stability of demand and possible seasonality
3. Quality available from suppliers compared with a firmsown quality capabilities
4. Desire to maintain close control of operations
5. Idle capacity available within the organization
6. Lead times for each alternative
7. Who has patents, expertise, and so on, if these are factors
8. Stability of technology (if technology is changing, it maybe better to use a supplier)
9. Degree to which the necessary operations are consistentwith, or in conflict with current operations
10. Strategy
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Example No.1 : Make or Buy DecisionChoose which alternative is better. Analyze the following datato determine the total annual cost of making and of buying.
Expected Annual Volume
Variable cost per unitAnnual fixed costs
Make20,000 units
$ 5.00$30,000
Buy20,000 units
$ 6.00-
Solution: Total Annual Cost = Fixed Cost + VC/unit x annual volume
Make : $ 30,000 + ($5 x 20,000) = $130,000Buy : 0 + ($6 x 20,000) = $120,000
Buying is the better alternative because it would save $10,000 a year.
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Example No.2 : Make or Buy DecisionGiven the following data, determine the total annual cost of
making and of buying. Estimated demand is 10,000 units a year.
Variable cost per unitAnnual fixed costTransportation cost per unit
Make
Process A Process Buy__
$ 50 $ 52 $51$ 40,000 $ 36,000
$ 2
SOLUTION:
Variable Cost $500,000 $520,000 $510,000Fixed Cost 40,000 36,000 -
Transportation Cost - - 20,000Total Annual Cost $540,000 $556,000 $530,000
====== ====== ======
Buying is the best alternative with the lowest total annual cost
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OutsourcingREASONS for MAKING
Lower production cost
Unsuitable suppliers
Assure adequate supply (quantity ordelivery)
Utilize surplus labor or facilities andmake a marginal contribution
Obtain desired quality
Remove supplier collusion
Obtain unique item that would entaila prohibitive commitment for asupplier
Maintain organizational talents andprotect personnel from a layoff
Protect proprietary design or quality
Increase or maintain size of company
(management prerogative)
REASONS for BUYING Lower acquisition cost
Preserve supplier commitment
Obtain technical ormanagement ability
Inadequate capacity Reduce inventory costs
Ensure alternative sources
Inadequate managerial ortechnical resources
Reciprocity Item is protected by a patent
or trade secret
Frees management to dealwith its primary business
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ROLES OF PURCHASING
VALUE ANALYSIS
MAKE or BUY DECISION
VENDOR SELECTIONa decision regarding who to buy materials from
considers numerous factors:
inventory and transportation costs availability of supply
delivery performance
quality of suppliers
outstanding operations requires excellent vendors
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3 Stages of Vendor Selection
1. Vendor Evaluation Involves finding potential vendors and
determining the likelihood of their becoming goodsuppliers
Requires development of evaluation criteria, suchas: financial strength
quality
management
research
technical ability
potential for a close
long-term relationship
Weights dependingupon the needs ofthe organization
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3 Stages of Vendor Selection
2. Vendor Development Ensures integration of the supplier into a firms system and
the appreciation by the vendor of its
Quality requirements
Engineering changes Schedules and delivery
Procurement policies
Payment system
May include everything from training, to engineering &production help, to formats for electronic informationtransfer
Purchasing policies address issues such as percent ofbusiness done with any one supplier or with minoritybusinesses
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3 Stages of Vendor Selection
3. Negotiations
Negotiation strategies are approaches taken by
purchasing personnel to develop contractualrelationships with suppliers
They are of 3 classic types:
1) Cost-Based Price Model
2) Market-Based Price Model
3) Competitive Bidding
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Negotiations / Determining Prices1) Cost-Based Price Model : requires that the supplier
open its books to the purchaser. The contract price isthen based on time and materials, or on a fixed cost withan escalation clause to accommodate changes in thevendors labor and materials cost.
2) Market-Based Price Model : price is based on apublished price or index. Paperboard and nonferrousmetals prices, for instance, are published in weeklyindustry magazines.
3) Competitive Bidding : is common for large orders ofstandard products and services; is a typical policy inmany firms for the majority of their purchases. Requires to have several potential suppliers of the product (or its
equivalent)
Sends requests for bids, asking vendors to quote a price for aspecified quantity and quality of the items
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Centralized Versus Decentralized
PurchasingCENTRALIZED PURCHASING
Means that purchasing is handled by one special department
Takes advantage of quantity discounts offered on large orders
Obtains better service and closer attention from suppliersEnables companies to assign certain categories of items to specialists
DECENTRALIZED PURCHASINGMeans that individual departments or separate locations handle their
own purchasing requirementsHas the advantage of awareness of differing local needs and beingbetter able to respond to those needs.
Offers quicker response than centralized purchasing
Can save on transportation costs by buying locally, where locations are
widely scattered
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Myths Concerning PurchasingNegotiation is a win-lose confrontation. Purchasing negotiations should not be viewed as a win-
lose game; it can be a win/win game
The main goal is to obtain the lowest possibleprice. It must be realized that contractors and suppliers need
a reasonable profit to survive.
Each negotiation is an isolated transaction. Purchasing must work towards partnering so each
negotiation is a step in developing long-termrelationships and therefore not as an one-off deal.
Ethi i P h i
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Ethics in Purchasing Principles
Loyalty to employer
Justice to those you deal with Faith in your profession
Standards of Purchasing Practice1. Avoid appearance of unethical or uncompromising
practice2. Follow the lawful instructions of your employer
3. Refrain from private activity that might conflict with theinterest of your employer
4. Refrain from soliciting or accepting gifts, favors, orservices from present or potential suppliers
5. Handle confidential or proprietary employer or supplierinformation with due care
6. Practice courtesy and impartiality in all aspects of yourjob
Ethi i P h i
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Ethics in Purchasing
Standards of Purchasing Practice
7. Refrain from reciprocal agreements that constraincompetition
8. Know and obey the letter and spirit of laws governingpurchasing
9. Demonstrate support for small, disadvantaged, andminority-owned businesses
10. Discourage involvement in employer-sponsoredprograms of non-business, personal packages
11. Enhance the profession by maintaining currentknowledge and the highest ethical standards
12. Conduct international purchasing in accordance with thelaws, customs, and practices of foreign countries, butconsistent with the laws of the your country, your
organizations policies, and these guidelines
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SUPPLIER MANAGEMENT
Vendor Analysis
Supplier Audits
Supplier Certification
Supplier Relationships
Supplier Partnerships
Strategic Partnerships
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SUPPLIER MANAGEMENTVendor Analysis Evaluating the sources of supply in terms ofprice,
quality,the suppliers reputation, past experience withthe supplierand after-sales service
Other factors that can be used in evaluation are flexibility(in handling changes in schedules, design and quantity),location, leadtimes & on-time delivery,and otheraccounts
Supplier AuditsAre a means of keeping current on suppliers production
capabilities, quality and delivery problems andresolutions, and performance on other criteria
Are also an important first step in supplier certification
programs
SUPPLIER MANAGEMENT
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SUPPLIER MANAGEMENTSupplier Certification Is a detailed examination of the policies and capabilities of
a supplier
Verifies that a supplier meets or exceeds the requirementsof the buyer
Is generally important in supplier relationships, but is
particularly important in seeking to establish long-termrelationships with suppliers
Supplier Relationships Type of relationship depends on length of a contract
Short-term contracts involve competitive bidding Medium-term contracts often involve ongoing relationships
Long-term contracts often evolve into partnerships
Keeping good relations with suppliers is increasinglyrecognized as an important factor in maintaining a
competitive advantage.
SUPPLIER MANAGEMENT
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SUPPLIER MANAGEMENTSupplier Relationships Supplier Partnerships
More and more business organizations are seeking to establishpartnerships with other organizations in the supply chain
This impliesa) Fewer suppliers
b) Longer-term relationships
c) Sharing of information (forecasts, sales data, problem alerts)d) Cooperation in planning
Benefits area) Higher quality
b) Increased delivery speed and reliability
c) Lower inventoriesd) Lower costs
e) Higher profits
f) Improved operations
Strategic Partnerships are those that convey strategic benefits toone or both partners who have the potential for helping them grow theirown businesses.
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LOGISTICSThe movement of materials and information withina facility and to incoming and outgoing shipmentsof goods and materials
Movement within a facility movement of materialsmust be coordinated to arrive at the appropriatedestination at appropriate times
Traffic Management overseeing the shipment ofincoming and outgoing goods
Evaluating shipping alternatives need to make a choicebetween rapid (but more expensive) shippingalternatives and slower (but less expensive) alternatives
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MATERIALS MANAGEMENTPurchasing may be combined with various warehousing andinventory activities to form a materials management system
Purpose is to obtain efficiency of operations through theintegration of all material acquisition, movement, and storageactivities
Emphasis is placed on MM when the transportation andinventory costs are substantial on both the input and outputsides of the production process
Potential for competitive advantageis found via both reducedcostsand improved customer service
Recognizing that distribution of goods to and from the firmsfacilities can represent as much as 25% of the cost of theproducts, there is a need to evaluate their means ofdistribution (trucking, railroads, airfreight, waterways or
pipelines)
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SUPPLY CHAIN STRATEGIES
1. Many Suppliers
2. Few Suppliers
3. Vertical Integration
4. Keiretsu Networks
5. Virtual Companies
SUPPLY CHAIN STRATEGY
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SUPPLY CHAIN STRATEGY1. Many Suppliers
Traditional American approach ofnegotiating with manysuppliersand playing one supplier against another
The supplier responds to the demands and specifications of
a request for quotation (RFQ) with the order usuallygoing to the low bidder
Suppliers aggressively competing with one another
Places the burden of meeting the buyers demands on the
supplier Holds the supplier responsible for maintaining the
necessary technology, expertise, and forecasting abilities,as well as cost, quality, and delivery competence
Not long-term: partnering relationships are NOT the goal
SUPPLY CHAIN STRATEGY
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SUPPLY CHAIN STRATEGY2. Few Suppliers
Implies that rather than looking for short-termattributes, such as low cost, a buyer is better offforming a long-term relationship with a few dedicatedsuppliers.
Using few suppliersa) Are more likely to understand the broad objectives of the
procuring firm and the end customer
b) Can create value by allowing customers to have economies of scale ) that yield both lower transaction costs
learning curve ) and lower production costs
Few suppliers (with large commitment to buyer) mayalso be more than willing to
a) Participate in JIT systems
b) Provide innovations & technological expertise
SUPPLY CHAIN STRATEGY
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SUPPLY CHAIN STRATEGY2. Few Suppliers
Most important factor : TRUST between suppliers and buying companies alignment of cultures ) that foster both formal
commitment of resources ) & informal contact toward advancing the relationship
Strengthening the partnership
Buyers Results: Incorporate suppliers in the supply system ) contracts that extend thru Choose suppliers even before parts are designed ) the products life cycle
Place added emphasis on quality & reliability ) more efficient
) reduced prices over time
Downsides Cost of changing parts is huge (so both buyer and supplier run the risk of
being captives of the other)
Risk of poor supplier performance
Concern about trade secrets and suppliers that make other alliances orventure out on their own (ex. US Schwinn Bicycle Co. taught Taiwans GiantMfg. Co.)
SUPPLY CHAIN STRATEGY
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SUPPLY CHAIN STRATEGY3. Vertical Integration
Developing the ability to produce goods or services previously
purchased or actually buying a supplier or distributor. Can take the form of FORWARD or BACKWARD integration
Vertical Integration
Backward IntegrationRaw Material (suppliers)
Current Transformation Automobiles Integrated Flour
Circuits MillingForward Integration
Finished goods (customers)
Examples of Vertical Integration
Iron ore
Steel
Distributionsystem
Dealers
Silicone
Circuit Boards
ComputersWatches
Calculators
Farming
Baked
goods
SUPPLY CHAIN STRATEGY
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SUPPLY CHAIN STRATEGY3. Vertical Integration
Can offer opportunities or advantages in:
Cost reduction ) work best when the organization
Quality adherence ) has a large market share, or the
Timely delivery ) management talent to operate Scheduling flexibility ) an acquired vendor successfully
Dangerous for firms in industries undergoingtechnological change if management cannot
keep abreast of those changes, or
invest the financial resources necessary for the nextwave of technology
SUPPLY CHAIN STRATEGY
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SUPPLY CHAIN STRATEGY4. Keiretsu Networks
Many large Japanese manufacturers have found a middleground between purchasing from few suppliersto verticalintegration
These manufacturers are often the financial supporters of
suppliers through ownershipor loans The supplier then becomes part of a company coalition, known as the
keiretsu
Members of the keiretsu
assured of long-term relationships, and therefore expected to functionas partners
provide technical expertise and stable quality production to themanufacturer
can also have suppliers down the chain, making second- or even third-tier suppliers part of the coalition
SUPPLY CHAIN STRATEGY
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SUPPLY CHAIN STRATEGY5. Virtual Companies
Because vertical integration locks in an organization intobusinesses that it may not understand or be able tomanage, another strategy is to find good flexible suppliers
Takes away complications brought about by specialization andchanging technology
Addresses issues of being too bureaucratic having a division
Develops virtual companies that use suppliers on anas-needed basis
Doing payroll; hiring personnel
Designing products Manufacturing components
Conducting tests
Distributing products
Providing consulting services
SUPPLY CHAIN STRATEGY
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SUPPLY CHAIN STRATEGY5. Virtual Companies
companies that rely on a variety of supplierrelationships to provide services on demand
Also known as hollow corporationsor networkcompanies
Have fluid, moving organizational boundaries thatallow them to create a unique enterprise to meetchanging market demands
Relationships may be ST or LT and may include: true partners } whatever formal relationship,
collaborators } the result can be
able suppliers } exceptionally
subcontractors } LEAN PERFORMANCE
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SUPPLY CHAIN STRATEGY5. Virtual Companies
Advantages include
specialized management expertise
low capital investment
flexibility
speed
Traditional Example : APPAREL BUSINESS Designer of clothes seldom manufacture their designs
They rather license the manufacture
rent a loft
lease sewing machines
contract labor
Result:
low overhead
flexibility
speed-to-market
SUPPLY CHAIN STRATEGY
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SUPPLY CHAIN STRATEGY5. Virtual Companies
Contemporary Example : SEMICONDUCTORINDUSTRY exemplified by Visioneer (in Palo Alto, CA)
subcontracts almost everything
software written by several partners
hardware manufactured by a siliconesubcontractor
PCBs made in Singapore
Plastic cases made in Boston where units aretested and packed for shipment
In virtual companies, the Purchasing function isdemanding and dynamic
OPTIMIZING the SUPPLY CHAIN
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OPTIMIZING the SUPPLY CHAIN
Postponement
Channel Assembly Drop Shipping and Special Packaging
Blanket Orders
Stockless Purchasing Standardization
Electronic Ordering and Funds Transfers
Internet Purchasing
RMsources
Suppliers Prod Whse Distributors Customers
SUPPLIER SELLER DISTRIBUTION CONSUMER
VALUE
CREATION
OPTIMIZING the SUPPLY CHAIN
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OPTIMIZING the SUPPLY CHAIN1. POSTPONEMENT : withholding/delaying any modifications
or customization to the product as long as possible in theproduction process Example: Dell Computers modified its printer by moving out the
power supply into a power cord (generic printers) Manufacture and centralized inventories of generic printers for shipment as
demand change
Unique power system and documentation at the final distribution point
2. CHANNEL ASSEMBLY : a variation of postponement;postpones final assembly of a product so the distribution channelcan assemble it; sends individual components & modules, ratherthan FG, to the distributor, who then assembles, tests, and ships. Treats distributors more as manufacturing partners than as
distributors
Technique is successful in industries where products undergo rapidchange such as PCs
FG inventory is reduced, market response is better, with lowerinvestment (nice combination in business)
Examples: IBM, HP, Compaq
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OPTIMIZING the SUPPLY CHAIN3. DROP SHIPPING & SPECIAL PACKAGING :
means the supplier will ship directly to the end customer, rather
than to the seller saving both time and reshipping costs. Other cost-saving measures include the use of special packaging, bar coding &labeling; beneficial to wholesalers & retailers by reducing shrinkage(lost, damaged or stolen merchandise) and handling costs.
Dell Computers core competence is not in stocking peripherals,but in assembling PCs.
4. BLANKET ORDERS :a long-term purchasecommitment to a supplier for items that are to bedelivered against short-term releases to ship Are unfilled orders with a vendor; not an authorization to ship
anything until the receipt of an agreed-upon document, perhaps ashipping requisition or shipment release
5. STOCKLESS PURCHASING :means that asupplier delivers materials directly to the purchasersusing department rather than to a central stockroom.
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OPTIMIZING the SUPPLY CHAIN6. STANDARDIZATION : reducing the number of
variations in materials and components as aid to costreduction
Rather than obtaining a variety of similar componentswith labeling, coloring, packaging or slightly differentengineering specifications, the purchasing agent
should try to have the components standardized
7. ELECTRONIC ORDERING & FUNDSTRANSFER :reduces paper transactions, consisting of
purchase order, purchase release, a receiving document,authorization to pay an invoice and finally the issuance ofa check
Speeds up the traditionally long procurement cycle
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7. ELECTRONIC ORDERING & FUNDSTRANSFER :
Electronic Data Interchange a standardized
data transmittal format for computerizedcommunications between organizations (orderdate, due date, quantity, part #, P.O. #, address,and so forth)
Advanced Shipping Notice (ASN) a shippingnotice delivered directly from vendor topurchaser
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8. INTERNET PURCHASING also known as e-procurement
Order releases communicated over the Internet or approvedvendor catalogues available on the Internet for use by employeesof the purchasing firm
Takes 2 forms:a) First, Internet Purchasing may just imply that the Internet is used to
communicate ORDER RELEASES to the suppliers (items for which ablanket P.O. exists)
b) Second, for non-standard items, for which there is no blanket P.O.,CATALOGUES and ORDERING PROCEDURES enhance thecommunication features of the Internet
Lends itself to comparison shopping, rapid ordering, and
reduction of inventory Liked by suppliers because on-line selling means they are getting
closer to their customers
May be a part of an integrated ERP system (order release, notonly tells the supplier to ship, but also updates the appropriate
portions of the ERP system)
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CREATING AN EFFECTIVESUPPLY CHAIN
1. Develop strategic objectives and tactics. These will guide the
process.2. Integrate and coordinate activities in the internal portion of
the chain. This requires (1) overcoming barriers caused byfunctional thinking that lead to attempts to optimize a subset
of a system rather than the system as a whole, and (2)transferring data and coordinating activities.
3. Coordinate activities with suppliers and with customers. Thisinvolves addressing supply and demand issues.
4. Coordinate planning and execution across the supply chain.This requires a system for transferring data across the supplychain and allowing access to data to those engage inoperations to which it will be useful.
5. Consider the possibilities of forming strategic partnerships.
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CHALLENGES
Barriers to Integration of Separate OrganizationsGetting CEOs, Board of Directors, Managers, andEmployees Onboard
Dealing with Trade-offs
1. Lot size-inventory trade-off2. Inventory-transportation cost trade-off
3. Lead time-transportation cost trade-off
4. Product variety-inventory trade-off
5. Cost-customer service trade-offSmall Businesses
Variability and Uncertainty
Long Lead Times
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PERFORMANCE DRIVERS1. Cost
2. Quality3. Flexibility
Refers to the ability to adjust to changes in orderquantitiesbut also in product or service
requirements4. Velocity
Inventory velocity the rate at which inventory(material) goes through the supply chain
Information velocity the rate at whichinformation (two-way flow) is communicated in asupply chain
5. Customer Service