OM Week 10 Supply Chain Management
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Transcript of OM Week 10 Supply Chain Management
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SUPPLY CHAIN MANAGEMENT
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Low-Cost Strategy Response Strategy DifferentiationStrategy
Suppliers goal Supply demand at
lowest possible cost.
Respond quickly to
changing requirementand demand tominimize stockouts
Share market
research; jointlydevelop products andoptions.
Primaryselectioncriteria
Select primarily forcost
Select primarily forcapacity, speed, andflexibility
Select primarily forproduct developmentskills
Process
characteristics
Maintain high
average utilization
Invest in excess
capacity and flexibleprocesses
Use modular
processes that lendthemselves to masscustomization
Inventorycharacteristics
Minimize inventorythroughout thechain to hold downcosts
Develop responsivesystem, with bufferstocks positioned toensure supply
Minimize inventory inthe chain to avoidobsolescence
Lead-timecharacteristics
Shorten lead timeas long as it doesnot increase costs
Invest aggressively toreduce productionlead time
Invest aggressivelyto reducedevelopment leadtime
Product-designcharacteristics
Maximizeperformance andminimize cost.
Use product designthat lead to low setuptime and rapidproduction ramp-up
Use modular designto postpone productdifferentiation for aslong as possible
How supply chain decisions affect strategy
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Global Supply Chain Issues
Supply chain in a global environment mustbe able to:
Research to sudden changes in parts
availability, distribution or shipping channels,import duties, and currency rates.
Use the latest computer and transmissiontechnologies to schedule and manage the
shipment of parts in and finished products out. Staff with local specialists who handle duties,
freight, customs, and political issues.
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SUPPLY CHAIN ECONOMICS
Make-or-Buy Decisions
A choice between producing a component orservice in-house or purchasing it from an
outside source. Outsourcing
Outsourcing transfers some of what aretraditional internal activities and resources of a
firm to outside vendors, making it slightlydifferent from the traditional make-or-buydecision.
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Considerations for the Make-or-Buy
Decision
Reasons for Making Reasons for Buying
1. Maintain core competence2. Lower production cost3. Unsuitable suppliers4. Assure adequate supply (quantity or
delivery)5. Utilize surplus labor or facilities and
make a marginal contribution6. Obtain desired quality7. Remove supplier collusion8. Obtain unique item that would entail a
prohibitive commitment for a supplier
9. Protect personnel from a layoff10. Protect proprietary design or quality11. Increase or maintain size of the
company (management preference)
1. Frees management to deal with its corecompetence.
2. Lower acquisition cost3. Preserve supplier commitment
4. Obtain technical or management ability5. Inadequate capacity6. Reduce inventory costs7. Ensure alternative sources8. Inadequate managerial or technical
resources9. Reciprocity
10. Item is protected by a patent or tradesecret.
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ETHICS IN SUPPLY CHAIN
LOYALTY TO YOUR ORGANIZATION; JUSTICE TOTHOSE WITH WHOM YOU DEAL; FAITH IN YOURPROFESSION
Avoid the intent and appearance of unethical or
compromising practice.
Demonstrate loyalty to the employer by diligentlyfollowing the lawful instructions of the employer.
Avoid any activity that would create a conflict betweenpersonal and employer interest.
Avoid any activity that might influence, or appear toinfluence, supply management decisions.
Handle confidential or proprietary information with duecare and proper consideration.
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ETHICS IN SUPPLY CHAIN
Promote positive supplier relationships.
Avoid improper reciprocal agreements.
Know and obey the letter and spirit of laws.
Encourage support for small, disadvantaged, and
minority-owned businesses. Acquire and maintain professional competence.
Conduct activities in accordance with national andinternational laws, customs, practices, and ethics.
Enhance the stature of the supply management
profession.
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SUPPLY CHAIN STRATEGIES
Many suppliers A supplier responds to the demand and specifications of
a request for quotation, with the order usually going tothe low bidder.
Few suppliers Low cost, a buyer is better of forming a long-term
relationship with a few dedicated suppliers.
Vertical integration Developing the ability to produce goods or services
previously purchased or actually buying a supplier or adistributor.
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SUPPLY CHAIN STRATEGIES
Keiretsu networks A Japanese term that describes suppliers who become
part of a company coalition.
Virtual companies Companies that rely on a variety of supplierrelationships to provide services on demand. Also knownas hollow corporations or network companies.
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MANAGING THE SUPPLY CHAIN
Mutual Agreement on Goals Partners in the chain must appreciate that the only
entity that puts money into a supply chain is the endcustomer.
Trust Members of the chain must enter into a relationship that
share information.
Compatible Organizational Cultures A positive relationship between the purchasing and
supplying organizations that comes with compatibleorganizational cultures can be a real advantage whenmaking a supply chain hum.
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Issues in an Integrated Supply Chain
Local optimization Members of the chain are inclined to focus on
maximizing local profit or minimizing immediate costbased on their limited knowledge.
Incentives (sales incentives, quantitydiscounts, quotas, and promotions) Incentives push merchandise into the chain for sales
that have not occurred.
Large lots Bullwhip effect is the increasing fluctuation in orders that
often occurs as orders move through the supply chain.
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Opportunities in an
Integrated Supply Chain
Accurate Pull Data Accurate sales data that initiate transactions to pull
product through the supply chain.
Lot Size Reduction Developing economical shipments of less than truckloadlots.
Providing discounts based on total annual volume ratherthan size of individual shipment
Reducing the cost of ordering through techniques suchas standing orders and various forms of electronicpurchasing.
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Opportunities in an
Integrated Supply Chain
Single Stage Control of Replenishment Fixing responsibility for monitoring and managing
inventory for the retailer.
Vendor-Managed Inventory (VMI) A system in which a supplier maintain material for thebuyer, often delivering directly to the buyers usingdepartment.
Blanket Orders A long-term purchase commitment to a supplier for
items that are to be delivered against short-termreleases to ship.
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Opportunities in an
Integrated Supply Chain
Standardization The purchasing department should make special efforts
to increase levels of standardization.
Postponement Delaying any modifications or customization to a productas long as possible in the production process.
Drop Shipping and Special Packaging Shipping directly from the supplier to the end consumer
rather than from the seller, saving both time andreshipping costs.
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Opportunities in an
Integrated Supply Chain
Pass-through Facility Expedites shipment by holding merchandise and
delivering from shipping hubs.
Channel Assembly Postpones final assembly of a product so the distributionchannel can assemble it.
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E-PROCUREMENT E-procurement uses the Internet to facilitate
purchasing. E-purchasing speeds purchasing, reduces costs,
and integrates the supply chain, enhancing anorganizations competitive advantage.
Electronic Ordering and Funds Transfers aretraditional approaches to speeding transactionsand reducing paperwork.
Electronic data interchange (EDI) is a
standardized data-transmittal format forcomputerized communications betweenorganizations.
Advanced shipping notice (ASN) is a shippingnotice delivered directly from vendor to
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E-PROCUREMENT
Online Catalogs
Auctions
RFQs When purchasing requirement are nonstandard, time
spent preparing requests for quote (RFQ) and therelated bid package can be substantial.
Real-Time Inventory Tracking
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VENDOR SELECTION
Vendor Evaluation Involves finding potential vendors and determining the
likelihood of their becoming good suppliers.
Vendor Development How integrate the supplier into the system. Include everything from training, to engineering and
production help, to procedures for information transfer.
Negotiations Approaches taken by supply chain personnel to develop
contractual relationships with suppliers.
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Negotiations
Cost-Based Price Model Requires that the supplier open its books to the
purchaser.
The contract price is based on time and materials or on
a fixed cost with an escalation clause to accommodatechanges in the vendors labor and materials cost.
Market-Based Price Model Price is based on a published, auction, or index price.
Competitive Bidding When suppliers are not willing to discuss costs or where
near-perfect markets do not exist, competitive bidding isoften appropriate.
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LOGISTICS MANAGEMENT
Logistics management is an approach thatseeks efficiency of operations through theintegration of all material acquisition,movement, and storage activities.
Distribution Systems Trucking, railroads, airfreight, pipelines, and
waterways.
Third-Party Logistics
Supply chain managers may find that outsourcing
logistics is advantageous in driving down inventoryinvestment and costs while improving deliveryreliability and speed.
Cost of Shipping Alternatives
Logistics, Security, and JIT6/22/2013 21
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MEASURING SUPPLY CHAIN
PERFORMANCE
Supply Chain Performance
Typical Firms Benchmark Firms
Lead time (weeks)
Time spent placing an order
Percent of late deliveries
Percent of rejected material
Number of shortages per year
15
42 minutes
33%
1.5%
400
8
15 minutes
2%
0.0001%
4
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MEASURING SUPPLY CHAIN
PERFORMANCE
Assets Committed to Inventory
The amount of money invested in inventory
(total inventory investment / total assets) X 100
Inventory turnoverCost of goods sold / inventory investment
Weeks of supply
Inventory investment / (Annual of CGS / 52 weeks)
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GOOD LUCK
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