Chapter 17 Supply Chain Management Copyright ©2012 Pearson Education, Inc. publishing as Prentice...

Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-11

Supply Chain Management


Supply Chain Supply Chain ManagementManagement A key determinant of a A key determinant of a

company’s ability to competecompany’s ability to compete Today, competition is not Today, competition is not

“company vs. company but “company vs. company but supply chain vs. supply chain” supply chain vs. supply chain”

Globalization has made supply Globalization has made supply chains longer and more complexchains longer and more complex

Global purchasing increases risk Global purchasing increases risk

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Supply Chain Risks

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 17-3

Chapter 17 Supply Chain Management


Supply Chain Supply Chain ManagementManagement Companies spend nearly $20 trillion on Companies spend nearly $20 trillion on

goods and services each yeargoods and services each year Shaving 2% from a company’s CGS can Shaving 2% from a company’s CGS can

increase net income by as much as 25%increase net income by as much as 25% Aberdeen Group survey: 82% of Aberdeen Group survey: 82% of

companies had experienced a supply companies had experienced a supply disruption or outage within the last two disruption or outage within the last two years years

Requires a sound purchasing planRequires a sound purchasing plan

Components of a Components of a Purchasing PlanPurchasing Plan

Right Quality

Right Vendor

Right Time

Right Quantity

Right Price

The Purchasing

Plan

Copyright ©2012 Pearson Education, Inc. publishing as Prentice HallChapter 17 Supply Chain Management

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The Purchasing PlanThe Purchasing Plan

QualityQuality Kaizen Kaizen Total Quality ManagementTotal Quality Management

Deming’s 14 PointsDeming’s 14 Points Six SigmaSix Sigma

QuantityQuantity Economic Order Quantity Analysis Economic Order Quantity Analysis

(EOQ)(EOQ) Economic Order Quantity with UsageEconomic Order Quantity with Usage


PricePrice Purchase DiscountsPurchase Discounts

TimeTime Reorder Point AnalysisReorder Point Analysis

VendorVendor Sources of SupplySources of Supply Vendor Rating ScaleVendor Rating Scale

(Continued)(Continued)

The Purchasing PlanThe Purchasing Plan


QualityQuality

““Higher quality is less expensive to Higher quality is less expensive to produce than lower quality.” produce than lower quality.” —— W. W. Edwards DemingEdwards Deming

The endless pursuit of quality produces The endless pursuit of quality produces lower costs, higher productivity, greater lower costs, higher productivity, greater market share, and more satisfied market share, and more satisfied customerscustomers

KaizenKaizen, continuous improvement, is the , continuous improvement, is the most commonly used quality improvement most commonly used quality improvement strategystrategy

Quality


Total Quality Management (TQM) is a Total Quality Management (TQM) is a philosophy that strives for getting philosophy that strives for getting everything a company does for a everything a company does for a customer customer right the first timeright the first time

TQM involves a lifelong process of TQM involves a lifelong process of continuous improvement; a continuous improvement; a successful TQM process requires a successful TQM process requires a company to change company to change everythingeverything it it doesdoes

QualityQualityQuality


Implementing Implementing TQMTQM

1. Use benchmarking to discover the 1. Use benchmarking to discover the best practices that will produce best practices that will produce quality results quality results

2. Shift from a management-driven 2. Shift from a management-driven culture to a participative, team-culture to a participative, team-based onebased one

3. Modify the reward system to 3. Modify the reward system to encourage teamwork and innovation encourage teamwork and innovation

Success requires following 11 principles:Success requires following 11 principles:


4. Train workers constantly to give them 4. Train workers constantly to give them the tools they need to produce quality the tools they need to produce quality and to upgrade the company’s and to upgrade the company’s knowledge base knowledge base

5. Train employees to measure quality 5. Train employees to measure quality with the tools of statistical process with the tools of statistical process control (SPC)control (SPC)

6. Use Pareto’s Law to focus TQM efforts6. Use Pareto’s Law to focus TQM efforts7. Share information with everyone in 7. Share information with everyone in

the organizationthe organization

Implementing Implementing TQMTQMSuccess requires following 11 principles:Success requires following 11 principles:


8. Focus quality improvements on 8. Focus quality improvements on astonishing the customerastonishing the customer

9. Don’t rely on inspection to 9. Don’t rely on inspection to produce quality products and produce quality products and services services

10. Avoid using TQM to place blame 10. Avoid using TQM to place blame on those who make mistakeson those who make mistakes

11. Strive for continuous 11. Strive for continuous improvement in processes as well improvement in processes as well as in products and services as in products and services

Implementing Implementing TQMTQMSuccess requires following 11 principles:Success requires following 11 principles:


Deming’s 14 PointsDeming’s 14 Points

1. Constantly strive to improve 1. Constantly strive to improve products and servicesproducts and services

2. Adopt a total quality philosophy2. Adopt a total quality philosophy

3. Correct defects as they happen 3. Correct defects as they happen rather than rely on mass rather than rely on mass inspection of end productsinspection of end products

4. Don’t award business on price 4. Don’t award business on price alonealone


5. Constantly improve the system 5. Constantly improve the system of production and serviceof production and service

6. Institute training6. Institute training

7. Institute leadership7. Institute leadership

8. Drive out fear8. Drive out fear



9. Break down barriers among staff 9. Break down barriers among staff areasareas

10. Eliminate superficial slogans and 10. Eliminate superficial slogans and goalsgoals

11. Eliminate standard quotas11. Eliminate standard quotas



12. Remove barriers to pride in 12. Remove barriers to pride in workmanshipworkmanship

13. Institute vigorous education and 13. Institute vigorous education and retrainingretraining

14. Take demonstrated 14. Take demonstrated management action to achieve management action to achieve transformationtransformation



Like TQM, Six Sigma uses data-Like TQM, Six Sigma uses data-driven statistical tools to improve driven statistical tools to improve quality quality

Threshold: Just 3.4 defects per 1 Threshold: Just 3.4 defects per 1 million opportunities million opportunities

Built on the Quality DMAIC ProcessBuilt on the Quality DMAIC Process

Six SigmaSix Sigma

Principle Process Improvement Technique

Define Identify the problem.

Define the requirements.

Set the goal for improvement.

Measure Validate the process problem by mapping the process and gathering data about it.

Refine the problem statement and the goal.

Measure current performance by examining the relevant process inputs, steps, and output to establish a baseline.

Analyze Develop a list of potential root causes.

Identify the vital few.

Use data analysis tools to validate the cause and effect connections between root causes and the quality problem.

Improve Develop potential solutions to remove root causes by making changes to the process.

Test potential solutions and develop a plan for implementing those that are successful.

Measure the results of the improved process.

Control Establish standard measures for the new process.

Establish standard procedures for the new process.

Review performance periodically and make adjustments as needed.

Source: Adapted from Andrew Spanyi and Marvin Wurtzel, “Six Sigma for the Rest of Us,” Quality Digest, July 2003, http://www.qualitydigest.com/july03/articles/01_article.shtml.

http://www.qualitydigest.com/july03/articles/01_article.shtml


Four Tenets of Six Four Tenets of Six SigmaSigma

1.1. Delight customers with quality Delight customers with quality and speedand speed

2.2. Constantly improve the processConstantly improve the process

3.3. Use teamwork to improve the Use teamwork to improve the processprocess

4.4. Make changes to the process Make changes to the process based on facts, not guesses based on facts, not guesses


PricePrice

Discounts:Discounts: Trade discounts – established on a Trade discounts – established on a

graduated scale and depend on a graduated scale and depend on a company’s position in the channel of company’s position in the channel of distributiondistribution


Trade Discount StructureTrade Discount Structure

Manufacturer sells for $80.Manufacturer sells for $80.

Wholesaler buys at $80;Wholesaler buys at $80;sells at $100.sells at $100.

Retailer buys at $100;Retailer buys at $100;sells at $175.sells at $175.

Customer buys at $175.Customer buys at $175.


Quantity discounts - offer price breaks Quantity discounts - offer price breaks on large-volume purchaseson large-volume purchases

Cash discounts - offered as incentives Cash discounts - offered as incentives to pay early. (e.g., “2/10, net 30”) to pay early. (e.g., “2/10, net 30”)

PricePrice

Discounts:Discounts: Trade discounts - established on a Trade discounts - established on a

graduated scale and depend on a graduated scale and depend on a company’s position in the channel of company’s position in the channel of distributiondistribution


Selecting the Right Selecting the Right Vendors Vendors

Factors to consider:Factors to consider: Number of suppliersNumber of suppliers ReliabilityReliability ProximityProximity SpeedSpeed ServicesServices Collaboration Collaboration PricePrice

Chapter 17 Supply Chain Management Copyright ©2012 Pearson Education, Inc. publishing as Prentice...

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