Chapter 11
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Transcript of Chapter 11
Supply Chain Management
Overview• What is it?• Supply chain strategies• Purchasing -> Read
– Outsourcing– Partnering
• Managing the supply chain– Postponement– Channel assembly– READ others
• Efficient vs. responsive supply chain=========================• Vendor selection -> Read
Supply Chain Management
• Coordinates and manages all
activities of the supply chain
• Components of the supply chain:
– External distribution
– Internal functions
– External suppliers
Supply Supply ChainChain
Supplier of materialsSupplier of services
Tier 1
Tier 3
Tier 2
Legend
Distribution center
Distribution center
Manufacturer
Supplier of materialsSupplier of services
Tier 1
Tier 3
Tier 2
Legend
Distribution center
Distribution center
Manufacturer
External Suppliers
Internal functions
External Distributors
Milk Supply Chain
PackagingOperation
ExternalDistributors
Internalfunctions
ExternalSuppliers
Tier 1
Tier 2
Tier 3
Supply-Chain Strategies
• Many suppliers
• Long-term suppliers
• Vertically integrate
• Keiretsu
• Virtual company
• Many sources per item
• Adversarial relationship
• Short-term
• Little openness
• Negotiated, sporadic PO’s
• Infrequent, large lots
• Delivery to receiving dock© 1995 Corel Corp.
Many Suppliers Strategy
• 1 or few sources per item
• Partnership (JIT)
• Long-term, stable
• On-site audits & visits
• Exclusive contracts
• Frequent, small lots
• Delivery to point of use
© 1995 Corel Corp.
Few Suppliers Strategy
Few suppliers strategy – Wallace Co.
• Partnering
• Listening to the needs of the customer
• Vendor-stocking program
• 98% on-time delivery
• Quick response on problems for customer
Daimler Chrysler’s Supplier Cost Reduction Effort
Supplier Suggestion Model Savings Rockwell Use passenger car door
locks on trucks Dodge trucks
$280,000
Rockwell Simplify design/substitute materials on manual window system
Various $300,000
3M Change tooling for wood-grain panels to allow three from one die instead of two
Caravan, Voyager
$1,500,000
Trico Change wiper-blade formulation
Various $140,000
Leslie Metal Arts
Exterior lighting suggestions Various $1,500,000
Raw Material(Suppliers)
BackwardBackwardIntegrationIntegration
CurrentCurrentTransformationTransformation
ForwardForwardIntegrationIntegration
Finished GoodsFinished Goods(Customers)(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
Vertical Integration
RAC "MiG" is the first Russian "vertically" integrated aircraft manufacturing company
• Uniquely Japanese form of corporate organization
• System of mutual alliances and cross-ownership– Company stock is held by allied firms
•Lowers need for short-term profits
• Two types: horizontal and vertical
Keiretsu Network Strategy
Vertical Keiretsu
• Links manufacturers, suppliers, distributors, & lenders– ‘Partnerships’ extend across entire supply
chain
• Primarily cars and electronics industries
• Ex. Toyota, Nissan, Honda-Matsushita, Hitachi, Toshiba, Sony
© 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
Virtual company - Biogen• Formed in 1978 with a simple,
research-centered business model– Develop drugs and sell licenses to
pharmaceutical companies
• Received preliminary approval to market Avonex (reduces the progression of M.S.)
Virtual company - Biogen
Four major tasks to produce Avonex
Bulkmanufacturing
Formulation PackagingWarehousing/Distribution
Virtual company - Biogen
Four major tasks to produce Avonex
Bulkmanufacturing
Formulation PackagingWarehousing/Distribution
Ben Venue Labs (OH)
Virtual company - Biogen
Four major tasks to produce Avonex
Bulkmanufacturing
Formulation PackagingWarehousing/Distribution
Ben Venue Labs (OH)
Packaging Coordinators (Philadelphia
Virtual company - Biogen
Four major tasks to produce Avonex
Bulkmanufacturing
Formulation PackagingWarehousing/Distribution
Ben Venue Labs (OH)
Packaging Coordinators (Philadelphia
Amgen
Louisville facility
Virtual company - Biogen
• Biogen managed the network of partners
• Success story– FDA approval to market was 35 hours– No product shortages– No recalls– Production increased 5-fold over the
next 3 years
Virtual company - Biogen
• Benefits to Biogen– Competitive cost structure– Had limited and small scale production
experience– Fixed assets low– Capital investment was low compared
to the size of its business– Investment risk was shared by partners
Managing the Supply-Chain•Options:
– Postponement – Channel assembly– Drop shipping– Blanket orders – Electronic ordering and funds
transfer– Vendor managed inventory– Standardization– Internet purchasing (e-procurement)
Postponement
• A tactic used by assemble-to-order and mass-customization firms
• Delay the customization of a product or service until the last possible moment
• e.g. Drug company produces the drug as a powder. When orders are received then produce tablets in the dosage for which the order was received.
Channel assembly• A form of postponement• Utilize the distribution channel as an
assembly station• Warehouse performs a value-added
service• e.g. Car battery manufacturer produces
batteries for several private labels. The manufacturer ships unmarked batteries to warehouse. When orders are received, warehouse places decals for the brand name and packages for that private label.
Purchasing
• Outsourcing– Make or buy decision
• Partnering
Outsourcing• Choosing to purchase a service or part from
an outside source; • Make or buy decision
– Insourcing vs. outsourcing decision• Advantages
– Allows the firm to focus on core competencies
– Adds capacity without additional fixed cost and overhead
– Can be more cost effective– Supports market agility
$0.82
$1.52
$1.75
$2.00
$4.75
$5.89
$13.50
$13.57
$15.47
$16.55
$17.97
$18.24
$18.50
$19.37
$22.24
$22.82
$28.28
$0.00 $15.00 $30.00
China
Malaysia
Mexico
Czech Republic
Brazil
Taiwan
US CEM
Ireland
U.K.
Canada
France
U.S.
Austria
Japan
Scand
Belgium
Germany
$0.82
$1.52
$1.75
$2.00
$4.75
$5.89
$13.50
$13.57
$15.47
$16.55
$17.97
$18.24
$18.50
$19.37
$22.24
$22.82
$28.28
$0.00 $15.00 $30.00
China
Malaysia
Mexico
Czech Republic
Brazil
Taiwan
US CEM
Ireland
U.K.
Canada
France
U.S.
Austria
Japan
Scand
Belgium
Germany
Source: http://stats.bls.gov/news.release/ichcc.t02.htm (1997data)+company recordsSource: http://stats.bls.gov/news.release/ichcc.t02.htm (1997data)+company records
Hourly Labor Rates
Key Is Total Cost Of Ownership
Li & Fung - Outsourcing• Hong Kong based exporter• American and European customer base• The Limited is one of their customers• Receive order for 10,000 garments:
– Purchase yarn from Korean company– Have the yarn dyed and woven by a company
in Taiwan– Purchase Japanese buttons and zippers from
YKK’s Chinese plants– Garments made in 5 different plants in
Thailand
Partnering
• Process of developing a long-term relationship with a supplier based on:– mutual trust– shared vision– shared information– shared risk
Beer distribution game• Consider a simplified beer supply chain,
– A retailer who sells to the customer– A wholesaler which supplies the retailer– A distributor which supplies the wholesaler– A factory with unlimited raw materials which
makes (brews) the beer and supplies the distributor
• Each component in the supply chain has:– unlimited storage capacity – fixed supply lead-time – order delay time between each component
Beer distribution game
Beer distribution game
• Each week, each component in the supply chain tries to meet the demand of the downstream component.
• Any orders that cannot be met are recorded as backorders, and are met as soon as possible.
• No orders will be ignored, and all orders must eventually be met.
Beer distribution game• At each period, each component in the supply
chain is charged a $1.00 shortage cost per backordered item.
• At each period, each location is charged $.50 inventory holding cost per inventory item that it owns. Each component owns the inventory at that facility. In addition,– the wholesaler owns inventory in transit to the
retailer; – the distributor owns inventory in transit to the
wholesaler; – the factory owns both items being manufactured and
items in transit to the distributor.
Beer distribution game• Each supply chain member orders some
amount from its upstream supplier. • It takes one week for this order to arrive at
the supplier. • Once the order arrives, the supplier
attempts to fill it with available inventory.• There is a two week transportation delay
before the material being shipped by the supplier arrives at the customer who placed the order.
Supply-Chain DynamicsSupply-Chain Dynamics
Supply-Chain DynamicsSupply-Chain Dynamics
(a)
Customer Customer
Firm A
Supply-Chain DynamicsSupply-Chain Dynamics
(a)
Customer Customer
Firm A
Firm B
Supply-Chain DynamicsSupply-Chain Dynamics
(a)
Customer Customer
Firm A
Firm B
Firm C
Supply-Chain DynamicsSupply-Chain Dynamics
(a)
Customer Customer
Firm A
Firm B
Firm CTime
(b)
Mat
eria
ls r
equ
irem
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Supply-Chain DynamicsSupply-Chain Dynamics
(a)
Firm A
Customer Customer
Firm A
Firm B
Firm CTime
(b)
Mat
eria
ls r
equ
irem
ents
Supply-Chain DynamicsSupply-Chain Dynamics
(a)
Customer Customer
Firm A
Firm B
Firm C
Firm C
Firm A
Time(b)
Mat
eria
ls r
equ
irem
ents
Supply-Chain DynamicsSupply-Chain Dynamics
Firm C
Firm A
Time
Mat
eria
ls r
equ
irem
ents
Bullwhip effectInaccurate or distorted demand information created in the supply chain
Supply-Chain EnvironmentsSupply-Chain Environments• Two supply chain designs for
competitive advantage– Efficient supply chain
• Goal is to minimize inventories and maximize the efficiency of manufacturers and suppliers in the chain
– Responsive supply chain• Goal is to react quickly to market
demands by positioning inventories and capacities in order to hedge against uncertainties of demand
Supply-Chain EnvironmentsSupply-Chain EnvironmentsEnvironments Best Suited for Efficient and Responsive Supply Chains
Supply-Chain EnvironmentsSupply-Chain EnvironmentsEnvironments Best Suited for Efficient and Responsive Supply Chains
Factor
Demand
Competitivepriorities
New-productintroduction
Contributionmargins
Product variety
Supply-Chain EnvironmentsSupply-Chain EnvironmentsEnvironments Best Suited for Efficient and Responsive Supply Chains
Factor Efficient Supply Chains
Demand Predictable; low forecast errors
Competitive Low cost; consistent priorities quality; on-time
delivery
New-product Infrequentintroduction
Contribution Lowmargins
Product variety Low
Supply-Chain EnvironmentsSupply-Chain EnvironmentsEnvironments Best Suited for Efficient and Responsive Supply Chains
Factor Efficient Supply Chains Responsive Supply Chains
Demand Predictable; low Unpredictable; highforecast errors forecast errors
Competitive Low cost; consistent Development speed; fastpriorities quality; on-time delivery times;
delivery customization; volumeflexibility; high-performance designquality
New-product Infrequent Frequentintroduction
Contribution Low Highmargins
Product variety Low High