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Supply Chain Management

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Supply demand at lowest possible cost (e.g., Emerson Electric, Taco Bell) ... Applies to any business application, like purchasing ... – PowerPoint PPT presentation

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Title: Supply Chain Management


1
Operations Management
Chapter 11 Supply Chain Management
PowerPoint presentation to accompany
Heizer/Render Principles of Operations
Management, 7e Operations Management, 9e
2
Learning Objectives
  • When you complete this chapter you should be able
    to
  • Explain the strategic importance of the supply
    chain
  • Identify five supply chain strategies
  • Explain issues and opportunities in the supply
    chain
  • Describe approaches to supply chain negotiations

3
Learning Objectives
  • When you complete this chapter you should be able
    to
  • Evaluate supply chain performance
  • Compute percent of assets committed to inventory
  • Compute inventory turnover

4
Darden Restaurants
  • Largest publicly traded casual dining company in
    the world
  • Serves over 300 million meals annually in more
    than 1,400 restaurants in the US and Canada
  • Annual sales of 2.4 billion
  • Operations is the strategy

5
Darden Restaurants
  • Sources food from five continents and thousands
    of suppliers
  • Four distinct supply chains seafood,
    refrigerated foods, baked goods, restaurant
    supplies
  • Over 1.5 billion spent annually in supply chains
  • Competitive advantage achieved through superior
    supply chain

6
Darden Restaurants
  • Supply chains have the same common
    characteristics
  • Supplier qualification
  • Product tracking system
  • Independent audits
  • Employ JIT delivery
  • Receive competitive advantage through rapid,
    transparent and efficient SC

7
The Supply Chains Strategic Importance
Supply chain management is the integration of the
activities that procure materials and services,
transform them into intermediate goods and the
final product, and deliver them to customers
Competition is no longer between companies it is
between supply chains
8
Supply Chain Management
Important activities include determining
  • Transportation vendors
  • Credit and cash transfers
  • Suppliers
  • Distributors
  • Accounts payable and receivable
  • Warehousing and inventory
  • Order fulfillment
  • Sharing customer, forecasting, and production
    information

9
A Supply Chain for Beer
Figure 11.1
10
Global Supply-Chain Issues
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

11
How Supply Chain Decisions Impact Strategy
Table 11.1
12
How Supply Chain Decisions Impact Strategy
Table 11.1
13
How Supply Chain Decisions Impact Strategy
Table 11.1
14
Supply Chain Economics
Supply Chain Economics
  • Supply chain is a costly activity, so savings in
    SC costs directly increases profit.
  • Affects quality of final product
  • Aids strategy of low cost, response, and
    differentiation
  • SC must be managed efficiently!

15
Supply Chain Economics
Supply Chain Costs as a Percent of Sales
Table 11.2
16
Supply Chain Economics
Dollars of additional sales needed to equal 1
saved through the supply chain
Table 11.3
17
Supply Chain Economics
  • Hau Lee Furniture spends 50 of its sales in the
    SC and has a net profit of 4.
  • How much sales should be made to receive the same
    profit when 1 saving is made in the SC?
  • What is the solution, if the profit is increased
    to 6, thus the system is more efficient now?

18
Objectives of the Purchasing Function
  • Help identify the goods and services that can be
    best obtained externally and
  • Develop, evaluate, and determine the best
    supplier, price, and delivery for those products
    and services

19
Make-or-Buy Decisions
Table 11.4
20
Make-or-Buy Decisions
Table 11.4
21
Outsourcing
  • Transfers traditional internal activities and
    resources of a firm to outside vendors
  • Utilizes the efficiency that comes with
    specialization, vendor is an expert in that
    specialty.
  • Firms outsource information technology,
    accounting, legal, logistics, and production
  • There is no tangible product or transfer of
    title, only resources (facilities, people,
    equipment) are transferred.

22
Ethics in the Supply Chain
  • Ethical decisions are critical to long term
    success of SC. Opportunities for unethical
    behavior are enormous and temptations are high.
  • Ex Friendship b/w sales people and customers
    ..bribery?
  • Many companies have strict rules and codes of
    conduct that define acceptable behavior.
  • Institute for Supply Management has developed a
    detailed set of principles and standards for
    ethical behavior.
  • In global SCs there are additional ethical
    issues labor laws, culture, traditional values
  • Ex Gap Inc. reports that 10-15 of Chinese
    factories are subject to psychological or verbal
    abuse 50 factories in Africa operate w/o proper
    safety devices.

23
Principles and Standards for Ethical Supply
Management Conduct
  • LOYALTY TO YOUR ORGANIZATION
  • JUSTICE TO THOSE WITH WHOM YOU DEAL
  • FAITH IN YOUR PROFESSION
  • Avoid the intent and appearance of unethical or
    compromising practice in relationships, actions,
    and communications
  • Demonstrate loyalty to the employer by diligently
    following the lawful instructions of the
    employer, using reasonable care and granted
    authority
  • Avoid any personal business or professional
    activity that would create a conflict between
    personal interests and the interests of the
    employer

Table 11.5
24
Principles and Standards for Ethical Supply
Management Conduct
  • Avoid soliciting or accepting money, loans,
    credits, or preferential discounts, and the
    acceptance of gifts, entertainment, favors, or
    services from present or potential suppliers that
    might influence, or appear to influence, supply
    management decisions
  • Handle confidential or proprietary information
    with due care and proper consideration of ethical
    and legal ramifications and government
    regulations
  • Promote positive supplier relationships through
    courtesy and impartiality
  • Avoid improper reciprocal agreements

Table 11.5
25
Principles and Standards for Ethical Supply
Management Conduct
  • Know and obey the letter and spirit of laws
    applicable to supply management
  • Encourage support for small, disadvantaged, and
    minority-owned businesses
  • Acquire and maintain professional competence
  • Conduct supply management activities in
    accordance with national and international laws,
    customs, and practices, your organizations
    policies, and these ethical principles and
    standards of conduct
  • Enhance the stature of the supply management
    profession

Table 11.5
26
Supply Chain Strategies
  • Plans to help achieve company mission. They
    affect long-term competitive position
  • Negotiating with many suppliers
  • Long-term partnering with few suppliers
  • Vertical integration
  • Keiretsu networks
  • Virtual companies that use suppliers on an as
    needed basis

27
Many Suppliers
  • Commonly used for commodity products
  • Purchasing is typically based on price.
  • Suppliers aggresively compete with one another
    order goes to the low bider.
  • Supplier is responsible for technology,
    expertise, forecasting, cost, quality, and
    delivery
  • Almost no information sharing
  • Infrequent large lots
  • Delivery to receiving dock
  • Disadvantage
  • Long term relationship is not the goal!

28
Few Suppliers
  • Buyer forms longer term relationships with fewer
    suppliers
  • Create value through economies of scale and
    learning curve improvements, in the long run!
  • Suppliers participate in JIT programs, contribute
    design and technological expertise
  • Frequent, small lots
  • Delivery to point of use
  • Disadvantages
  • Cost of changing partner is high
  • There might be problems with poor supplier
    performance
  • Suppliers can make other alliances.
  • Ex Schwinn Bicycle Co. Giant Manufacturing Co.

29
Vertical Integration
Figure 11.2
30
Vertical Integration
  • Developing the ability to produce goods or
    service previously purchased. Ex. Ford Motor
    manufactures its own radios. Texas Instruments
    produce integrated circuits as well as flat
    screens, calculators.
  • Integration may be forward, towards the customer,
    or backward, towards suppliers
  • Can improve cost, quality, and timely delivery,
    decrease inventory
  • Most beneficial when the company has large market
    share and components are highly integrated
  • Disadvantages
  • Requires capital, managerial skills, and demand
  • Risky in industries with rapid technological
    change

31
Keiretsu Networks
  • A middle ground between few suppliers and
    vertical integration
  • Supplier becomes part of the company coalition
  • Often provide financial support for suppliers
    through ownership or loans
  • Members expect long-term relationships and
    provide technical expertise and stable deliveries
  • May extend through several levels of the supply
    chain

32
Virtual Companies
  • Vertical integration has many drawbacks, so find
    good flexible suppliers and rely on variety of
    supplier relationships.
  • Ex doing payroll, hiring personnel, designing
    products, providing consulting services,
    distributing products,
  • Relationship short term, long term, include
    partners, collaborators
  • Results in specialized management expertise, low
    capital investment, flexibility and speed..
  • Ex Cloth designers give licence to the
    manufacturer who rents space, lease sewing m/cs,
    contract for labor, subcontact other services.
  • Disadvantages
  • - Selecting the companies to join the
    alliance
  • - Sharing revenues
  • - Evaluating performance

33
Managing the Supply Chain
Substantial efficiencies are possible by
integration of the SC . However, management of
seperate and independent organizations may result
in serious inefficiencies. Significant
management issues in controlling a SC
  • Mutual agreement on goals not on just contact
    terms
  • Trust information sharing
  • Compatible organizational cultures strengthen
    the relationship with formal and informal contacts

34
Distortions in an Integrated Supply-Chain
  • Local optimization - focusing on local profit or
    cost minimization based on limited knowledge
  • Incentives (sales incentives, quantity discounts,
    quotas, and promotions) - push merchandise prior
    to sale
  • Large lots - low unit cost but do not reflect
    sales
  • All result in increased bullwhip effect!

35
Bullwhip effect
  • Increasing fluctuation in orders towards the
    upper supply chain.
  • Results in
  • Increases cost of inventory, shipping, etc
  • Decreases customer service and profitability
  • A well running SC is based on accurate
    information about how many products are truly
    being pulled through the system.

36
Opportunities for effective management in an
Integrated SC
  • Generation of accurate pull data.
    Ex share point-of-sales (POS) info
    and computer assisted ordering CAO
  • Reduction of lot size by aggressive management
    Ex develop economical shipments of small
    size
  • discounts based on annual volume
  • reduce cost of ordering
  • Single stage control of replenishment
  • A member is resposible for the inventory
    management of the whole chain like a retailer,
    distributor or manufacturer.

37
Radio Frequency Tags
38
Opportunities for effective management in an
Integrated SC
  • Vendor managed inventory (VMI)
  • use of a local supplier to maintain inventory
    for the manufacturer or retailer. Supplier
    delivers directly to the purchasers using
    department.
  • Blanket orders
  • A contract to purchase certain orders from the
    vendor.
  • Standardization
  • Use standard components that do not have slight
    variations.
  • Postponement
  • Delaying any modification or customization to
    the later stages of production. Ex HP Printers

39
Opportunities for effective management in an
Integrated SC
  • Drop shipping and special packaging
  • Supplier will ship directly to the end consumer
    to be assembled, tested and shipped. Ex Dell
    Computers.
  • Use of special packaging, labels, optimal
    placement of labels, their bar codes, etc..
  • Pass through facility
  • A distribution center where merchandise is held,
    but functions as a holding area and shipping hub.
    Often run by logistics firms
  • Channel assembly
  • Postpones final assembly of a product so the
    distribution channel can assemble it.

40
E-Procurement
  • Use of internet to facilitate purchasing.
  • Reduces total cycle time, paperwork, integrates
    SC, enhances organizations competitive
    advantage.
  • A SC may contain many of the above techniques
    within automated purchasing systems.
  • Internet is used to communicate order releases to
    suppliers, especially for blanket orders.
  • For nonblanket orders, catalogs and ordering
    procedures on internet enhance the communicating
    features.

41
E-Procurement Environments, Components
  • Traditional Tehniques
  • Electronic data interchange (EDI)
  • A standardized data transmittal format for
    computerized communications b/w organizations.
  • Applies to any business application, like
    purchasing
  • Provides format for order date, due date,
    quantity, etc.
  • Advanced shipping notice (ASN)
  • A shipping notice delivered directly from vendor
    to purchaser, showing that the vendor is ready to
    ship.
  • Modern Techniques
  • Online catalogs
  • Auctions
  • RFQs
  • Real time inventory tracking

42
E-Procurement
  • Online catalogs
  • Provide information about products and cost
    comparisons among suppliers in electronic form
  • Standard items may be purchased by online
    catalogs
  • Catalogs are available in three versions
  • Catalogs provided by vendors
  • Catalogs published by intermediaries
  • Ex www.eksenbilgisayar.com
  • Exchanges provided by buyers
  • Ex Global healthcare exchange

43
E-Procurement
  • Auctions
  • Maintained by buyers, sellers, or intermediaries
  • Low barriers to entry
  • Increase in the potential number of buyers

44
E-Procurement
  • RFQ Request for Quote
  • When purchasing requirements are nonstandard, RFQ
    preparation is too time consuming! E-Procurement
    can make it less costly
  • Improves supplier selection
  • Ex GE has extensive database of vendors,
    deliver, quality, engineering drawings
  • Real-time inventory tracking
  • E-procurement supported by bar codes and RFID can
    provide economical inventory tracking on the shop
    floor, in warehouses and in logistics

45
Vendor Selection
  • Vendor evaluation
  • Critical decision
  • Find potential vendors
  • Determine the likelihood of them becoming good
    suppliers
  • Vendor Development
  • Training
  • Engineering and production help
  • Establish policies and procedures

46
Negotiation Strategies for Vendor Selection
  • Cost-Based Price Model - supplier opens books to
    purchaser price based upon fixed cost plus
    escalation clause for materials and labor
  • Market-Based Price Model - price based on
    published, auction, or indexed price
  • Competitive Bidding - used for infrequent
    purchases but may make establishing long-term
    relationships difficult

47
Vendor Evaluation
48
Logistics Management
  • Objective is to obtain efficient operations
    through the integration of all material
    acquisition, movement, and storage activities
  • Is a frequent candidate for outsourcing
  • Allows competitive advantage to be gained through
    reduced costs and improved customer service

49
Distribution Systems
  • Trucking
  • Moves the vast majority of manufactured goods
  • Chief advantage is flexibility
  • Railroads
  • Capable of carrying large loads
  • Little flexibility though containers and
    piggybacking have helped with this

50
Distribution Systems
  • Airfreight
  • Fast and flexible for light loads
  • May be expensive

51
Distribution Systems
  • Waterways
  • Typically used for bulky, low-value cargo
  • Used when shipping cost is more important than
    speed

52
Distribution Systems
  • Pipelines
  • Used for transporting oil, gas, and other
    chemical products

53
Third-Party Logistics
  • Outsourcing logistics can reduce costs and
    improve delivery reliability and speed
  • Coordinate supplier inventory with delivery
    services
  • May provide warehousing, assembly, testing,
    shipping, customs

54
Cost of Shipping Alternatives
  • Product in transit is a form of inventory and has
    a carrying cost
  • Faster shipping is generally more expensive than
    slower shipping
  • We can evaluate the two costs to better
    understand the trade-off

55
Cost of Shipping Alternatives
Value of connectors 1,750.00 Holding cost
40 per year Second carrier is 1 day faster and
20 more expensive
(.40 x 1,750)/ 365 1.92
Since it costs less to hold the product one day
longer than it does for the faster shipping
(1.92 lt 20), we should use the cheaper, slower
shipper
56
Logistics, Security, and JIT
  • Borders are becoming more open in the U.S. and
    around the world
  • Monitoring and controlling stock moving through
    supply chains is more important than ever
  • New technologies are being developed to allow
    close monitoring of location, storage
    conditions, and movement

57
Measuring Supply Chain Performance
Table 11.6
58
Measuring Supply Chain Performance
  • Assets committed to inventory

Investment in inventory 11.4 billion Total
assets 44.4 billion
Percent invested in inventory (11.4/44.4) x 100
25.7
59
Measuring Supply Chain Performance
Table 11.7
60
Measuring Supply Chain Performance
  • Inventory turnover

61
Measuring Supply Chain Performance
Table 11.8
62
Measuring Supply Chain Performance
  • Inventory turnover

63
Measuring Supply Chain Performance
14.2 / 1.69 8.4
64
Measuring Supply Chain Performance
1.69 / .273 6.19 weeks
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