supply chain management ppt @ bec doms
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Supply chain management ppt @ bec domsTRANSCRIPT
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Supply-Chain Management
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Outline
GLOBAL COMPANY PROFILE: VOLKSWAGEN
THE STRATEGIC IMPORTANCE OF THE SUPPLY-CHAIN Global Supply-Chain Issues
SUPPLY-CHAIN ECONOMICS Make-or-Buy Decisions Outsourcing
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Outline - Continued SUPPLY-CHAIN STRATEGIES
Many Suppliers Few Suppliers Vertical Integration Keiretsu Networks Virtual Companies
Managing the Supply Chain Issues In an Integrated Supply Chain Opportunities in an Integrated Supply Chain
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Outline - Continued INTERNET PURCHASING VENDOR SELECTION
Vendor Evaluation Vendor Development Negotiations
MATERIALS MANAGEMENT BENCHMARKING SUPPLY-CHAIN
MANAGEMENT
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When you complete this chapter, you should be able to :
Identify or Define: Supply-chain management Purchasing Outsourcing E-procurement Materials management Keiretsu Virtual companies
Learning Objectives
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When you complete this chapter, you should be able to :
Describe or Explain: Supply-Chain Strategies Purchasing strategies Approaches to negotiations
Learning Objectives
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Volkswagen
Brazilian plant employs 1000 workers 200 work for VW
800 work for other contractors: Rockwell International, Cummins Engines, Deluge Automotiva,
MWM, Remon and VDO, etc.
VW responsible for overall quality, marketing, research and design
VW looks to innovative supply-chain to improve quality and drive down costs
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Volkswagen
Unusual elements: VW is buying not only materials, but also
the labor and related services Suppliers are integrated tightly into VW’s
own network, right down to assembly work in the plant
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Planning, organizing, directing, & controlling flows of materials Begins with raw materials Continues through internal operations Ends with distribution of finished goods
Involves everyone in supply-chain Example: Your supplier’s supplier
Objective: Maximize value & lower waste
Supply-Chain Management
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Consumer
Retailer
Manufacturing
Material Flow
VISA®
Credit Flow
Supplier
Supplier Wholesaler
Retailer
CashFlow
OrderFlowSchedules
The Supply-Chain
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The Supply Chain
Supplier
Supplier
Supplier
Inventory
Inventory
Distributor
Inventory Inventory
Manufacturer
Customer
Customer
Customer
Market research dataScheduling information
Engineering and design dataOrder flow and cash flow
Ideas and design to satisfy end customer
Material flowCredit flow
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11%
31%
58%
Material
Dir Wages
Other
71%
16%13% COGS
Payroll
Other
83%
9%8%COGS
Payroll
Other
Manufacturing
Wholesale
Retail
Material Costs in Supply-Chain
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Supply-Chain Support for Overall Strategy
Supplier’sgoal
Primary Selection Criteria
Supply demand at lowest possible cost
Select primarily for cost
Low CostRespond quickly to changing requirements and demand to minimize stockouts
Select primarily for capacity, speed, and flexibility
ResponseShare market research; jointly develop products and options
Select primarily for product development skills
Differentiation
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Supply-Chain Support for Overall Strategy - continued
Process Characteristics
Maintain high average utilization
Low CostInvest in excess capacity and flexible processes
ResponseModular processes that lend themselves to mass customization
Inventory Characteristics
Minimize inventory throughout the chain to hold down costs
Develop responsive system, with buffer stocks positioned to ensure supply
Minimize inventory in the chain to avoid obsolescence
Differentiation
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Supply-Chain Support for Overall Strategy - continued
Lead-timeCharacteristics
Shorten lead-time as long as it does not increase costs
Low CostInvest aggressively to reduce production lead-time
ResponseInvest aggressively to reduce development lead-time
Differentiation
Product-design Characteristics
Maximize performance and minimize cost
Use product designs that lead to low set-up time and rapid production ramp-up
Use modular design to postpone product differentiation for as long as possible
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Global Supply-Chain Issues
Supply chains in a global environment must be: Flexible enough to react to sudden changes in
parts availability, distribution, or shipping channels, import duties, and currency rates
Able to use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out
Staffed with local specialists to handle duties, trade, freight, customs and political issues
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Major cost center Affects quality of final product Aids strategy of low cost, response, and
differentiation
Importance of Purchasing
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Supply-Chain Costs as a Percent of Sales
All industry Automobile Food Lumber Paper Petroleum Transportation
52% 67% 60% 61% 55% 79% 62%
Industry Percent of Sales
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Dollars of Additional Sales Needed to Equal 1$ Saved Through Purchasing
Percent of Sales Spent in the Supply-Chain
30% 40% 50% 60% 70% 80% 90%
2 $2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $16.67
4 $2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $14.29
6 $2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $12.50
8 $2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $11.11
10 $2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.00
Percent Net Profit of Firm
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Objectives of the Purchasing Function
Help identify the products and services that can be best obtained externally; and
Develop, evaluate, and determine the best supplier, price, and delivery for those products and services
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The Purchasing Focus
Materials Management-High transportation cost-High inventory costs
Supply Management-High costs-Scarcity: national or
international
Source Management-Unique items-Custom-made items-High technology items
PurchasingManagement-Commodity items-Standard products
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ReceivingDock
PurchaseOrder
PackingList
OrderProcessing
Invoice
Receivables Report
Check Accounts Receivable
Accounts Payable
MailReconcile
Customer Supplier
Traditional Purchasing Process
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Purchasing Techniques Drop shipping and special packaging Blanket orders Invoiceless purchasing Electronic ordering and funds transfer Electronic data interchange (EDI) Stockless purchasing Standardization Outsourcing
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Make/Buy Considerations1. Maintain core
competencies and protect personnel from layoff
2. Lower production cost3. Unsuitable suppliers4. Assure adequate supply5. Utilize surplus labor and
make a marginal contribution
1. Frees management to deal with its primary business
2. Lower acquisition cost3. Preserve supplier
commitment4. Obtain technical or
management ability5. Inadequate capacity
Reasons for Making Reasons for Buying
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Make/Buy Considerations - Continued
6. Obtain desired quantity7. Remove supplier collusion8. Obtain a unique item that
would entail a prohibitive commitment from the supplier
9. Protect proprietary design or quality
10. Increase or maintain size of company
6. Reduce inventory costs7. Ensure flexibility and
alternate source of supply8. Inadequate managerial or
technical resources9. Reciprocity10. Item is protected by patent
or trade secret
Reasons for Making Reasons for Buying
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Plans to help achieve company mission Affect long-term competitive position Strategic options
Many suppliers Few suppliers Keiretsu network Vertical integration Virtual company
Plan
© 1995 Corel Corp.
Supply-Chain Strategies
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Supply-Chain Strategies Negotiate with many suppliers; play one supplier against
another Develop long-term “partnering” arrangements with a few
suppliers who will work with you to satisfy the end customer Vertically integrate; buy the actual supplier Keiretsu - have your suppliers become part of a company
coalition Create a virtual company that uses suppliers on an as-
needed basis.
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Many sources per item Adversarial relationship Short-term Little openness Negotiated, sporadic PO’s High prices Infrequent, large lots Delivery to receiving dock © 1995 Corel Corp.
Many Suppliers Strategy
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1 or few sources per item Partnership (JIT) Long-term, stable On-site audits & visits Exclusive contracts Low prices (large orders) Frequent, small lots Delivery to point of use
© 1995 Corel Corp.
Few Suppliers Strategy
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Daimler Chrysler’s Supplier Cost Reduction Effort
Supplier Suggestion Model SavingsRockwell Use passenger car door
locks on trucksDodgetrucks
$280,000
Rockwell Simplify design/substitutematerials on manual
window system
Various $300,000
3M Change tooling for wood-grain panels to allow threefrom one die instead of two
Caravan,Voyager
$1,500,000
Trico Change wiper-bladeformulation
Various $140,000
Leslie MetalArts
Exterior lighting suggestions Various $1,500,000
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Tactics for Close Supplier Relationships
Tactic Reduce total number of
suppliers
Certify suppliers
Ask for JIT delivery from key suppliers
Involve key suppliers in new product design
Develop software linkages to suppliers
Results Average 20% reduction in 5
years
Almost 40% of all companies surveyed were themselves currently certified
About 60% ask for this
About 54% do this
Almost 80% claim to do this About 50% claim this
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Raw Material(Suppliers)
BackwardIntegration
CurrentTransformation
ForwardIntegration
Finished Goods(Customers)
Ability to produce goods previously purchased Setup operations Buy supplier
Make-buy issue Major financial
commitment Hard to do all things well
Vertical Integration Strategy
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Forms of Vertical Integration
Iron Ore
Steel
Automobiles
DistributionSystem
Dealers
Silicon
IntegratedCircuits
Circuit Boards
ComputersWatches
Calculators
Farming
Flour Milling
Raw Material(Suppliers)
BackwardIntegration
CurrentTransformation
ForwardIntegration
Finished Goods(Customers)
Baked Goods
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Vertical Integration Can be Forward or Backward
Vertical Integration Examples of Vertical Integration
Raw material (suppliers) Iron ore Silicon Farming
Backward Integration Steel
Current Transformation Automobiles Integrated Circuits Flour Milling
Forward Integration Distribution System
Circuit boards
Finished goods (customers) Dealers Computers, watches, calculators
Baked Goods
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Japanese word for ‘affiliated chain’ System of mutual alliances and
cross-ownership Company stock is held by allied firms
Lowers need for short-term profits
Links manufacturers, suppliers, distributors, & lenders ‘Partnerships’ extend across entire supply chain
Keiretsu Network Strategy
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Virtual Companies
Companies that rely on a variety of supplier relationships to provide services on demand.
Also known as hollow corporations, or network corporations
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© 1995 Corel Corp.
Virtual Company Strategy Network of independent
companies Linked by technology
PC’s, faxes, Internet etc.
Each contributes core competencies
Typically provide services
Payroll, editing, designing
May be long or short-term Usually, only until
opportunity is met
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Managing the Supply-Chain Options:
Postponement Channel assembly Drop shipping Blanket orders Invoiceless purchasing Electronic ordering and funds transfer Stockless purchasing Standardization Internet purchasing (e-procurement)
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Managing the Supply-Chain - Other Options
Establishing lines of credit for suppliers Reducing bank “float” Coordinating production and shipping
schedules with suppliers and distributors Sharing market research Making optimal use of warehouse space
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Successful Supply-Chain Management Requires:
A mutual agreement on goals Trust Compatible organizational cultures
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Issues in an Integrated Supply-Chain
Local optimization Incentives Large lots
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Opportunities in an Integrated Supply-Chain
Generation of accurate “pull” data Reduction of lot size Single stage control of replenishment
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Vendor Managed Inventory (VMI) Postponement – keeps product generic as long as possible Channel Assembly – sends to distributor individual
components and modules rather than finished goods Drop Shipping and Special Packaging – supplier will ship to
end consumer rather than to seller Blanket Orders – a long-term purchase commitment to a
supplier for items that are to be delivered against short-term releases to ship
Standardization – reducing the number of variations in materials and components
Electronic Ordering and Funds Transfer – “paperless” ordering and 100% material acceptance, payment by “wire”
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Vendor evaluation Identifying & selecting potential vendors
Vendor development Integrating buyer & supplier
Example: Electronic data exchange
Negotiations Results in contract Specifies period of agreement, price, delivery
terms etc.
Vendor Selection Steps
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Company Financial stability Management Location
Product Quality Price
Service Delivery on time Condition on arrival Technical support Training
Supplier Selection Criteria
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Vendor Selection Rating Form
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Negotiation Strategies
Three types: cost-based price model - supplier opens its
books to purchaser; price based upon fixed cost plus escalation clause for materials and labor
market-based price model - published price or index
competitive bidding - potential suppliers bid for contract
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Logistics Management Integrates all materials functions
Purchasing Inventory management Production control Inbound traffic Warehousing and stores Incoming quality control
Objective: Efficient, low cost operations
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Goods Movement Options
Trucking Railways Airfreight Waterways Pipelines
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Supply-Chain Performance Compared
Typical FirmsBenchmark
FirmsAdministrative costs as percent of purchases
3.3% 0.8%
Lead time (weeks) 15 8
Time spent in placing order 42 minutes 15 minutes
Percentage of late deliveries 33% 2%
Percentage of rejected material 1.5% .0001%
Number of shortages per year 400 4