Operations ManagementOperations Management

Supply-Chain ManagementSupply-Chain Management 供應鏈管理供應鏈管理

Chapter 11Chapter 11

OutlineOutline GLOBAL COMPANY PROFILE (全球性公司的槪述 ): VOLKSWAGEN THE STRATEGIC IMPORTANCE OF THE

SUPPLY-CHAIN( 供應鏈供應鏈的策略性重點的策略性重點 )) Global Supply-Chain Issues

SUPPLY-CHAIN CONOMICS( 供應鏈的經濟供應鏈的經濟性性 )) Make-or-Buy Decisions(自製與外購決策 ) Ref: Outsourcing (外包 )

Outline - ContinuedOutline - Continued SUPPLY-CHAIN STRATEGIES (供應鏈供應鏈的策略的策略 ))

Many Suppliers Few Suppliers Vertical Integration Keiretsu Networks Virtual Companies

Managing the Supply Chain(管理供應鏈供應鏈 )) Issues In an Integrated Supply Chain Opportunities in an Integrated Supply Chain

Outline - ContinuedOutline - Continued

INTERNET PURCHASING(綱路採購 )

VENDOR SELECTION(供應供應商的選擇商的選擇 ) ) Ref:Ref: Vendor Evaluation Vendor Development Negotiations

MATERIALS MANAGEMENT(配送選擇的成本 ) BENCHMARKING SUPPLY-CHAIN MANAGEMENT

(供應鏈供應鏈管理的標竿管理的標竿 ))

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 ObjectivesLearning Objectives

When you complete this chapter, you should be able to :

Describe or Explain: Supply-Chain Strategies Purchasing strategies Approaches to negotiations

Learning ObjectivesLearning Objectives

VolkswagenVolkswagen

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

VolkswagenVolkswagen

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

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 ManagementSupply-Chain Management

Consumer

Retailer

Manufacturing

Material Flow

VISA®

Credit Flow

Supplier

Supplier Wholesaler

Retailer

CashFlow

OrderFlowSchedules

The Supply-ChainThe Supply-Chain

The Supply ChainThe Supply Chain

Supplier

Supplier

Supplier

Inventory

Inventory

Distributor

Inventory Inventory

Manufacturer

Customer

Customer

Customer

Market research dataScheduling informationEngineering and design

dataOrder flow and cash flow

Ideas and design to satisfy end customer

Material flowCredit flow

11%

31%

58%

Material

Dir Wages

Other

71%

16%13% COGS

Payroll

Other

83%

9%8%COGS

Payroll

Other

ManufacturingManufacturing

WholesaleWholesale

RetailRetail

Material Costs in Supply-ChainMaterial Costs in Supply-Chain

Supply-Chain Support for Overall Supply-Chain Support for Overall StrategyStrategy

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

Supply-Chain Support for Overall Supply-Chain Support for Overall Strategy - continuedStrategy - 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

Supply-Chain Support for Overall Supply-Chain Support for Overall Strategy - continuedStrategy - 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

Global Supply-Chain IssuesGlobal 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

Major cost center Affects quality of final product Aids strategy of low cost, response, and

differentiation

Importance of PurchasingImportance of Purchasing

Supply-Chain Costs as a Percent Supply-Chain Costs as a Percent of Salesof Sales

All industry Automobile Food Lumber Paper Petroleum Transportation

52% 67% 60% 61% 55% 79% 62%

Industry Percent of Sales

Dollars of Additional Sales Needed to Dollars of Additional Sales Needed to Equal 1$ Saved Through PurchasingEqual 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

Objectives of the Purchasing Objectives of the Purchasing FunctionFunction

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

The Purchasing FocusThe 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

ReceivingDock

PurchaseOrder

PackingList

OrderProcessing

Invoice

Receivables Report

Check Accounts Receivable

Accounts Payable

Mail

MailReconcile

Mail

Customer Supplier

Traditional Purchasing ProcessTraditional Purchasing Process

Purchasing TechniquesPurchasing Techniques

Drop shipping and special packaging Blanket orders Invoiceless purchasing Electronic ordering and funds transfer Electronic data interchange (EDI) Stockless purchasing Standardization Outsourcing

Make/Buy ConsiderationsMake/Buy Considerations

1. 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

Make/Buy Considerations - Make/Buy Considerations - ContinuedContinued

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

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 StrategiesSupply-Chain Strategies

Supply-Chain StrategiesSupply-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.

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 StrategyMany Suppliers Strategy

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 StrategyFew Suppliers Strategy

Daimler Chrysler’s Supplier Cost Daimler Chrysler’s Supplier Cost Reduction EffortReduction Effort

Supplier Suggestion Model SavingsRockwell Use passenger car door

locks on trucksDodgetrucks

$280,000

Rockwell Simplify design/substitutematerials on manualwindow 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

Tactics for Close Supplier Tactics for Close Supplier RelationshipsRelationships

TacticTactic 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

ResultsResults 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

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 StrategyVertical Integration Strategy

Forms of Vertical IntegrationForms 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

Vertical Integration Can be Vertical Integration Can be Forward or BackwardForward 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

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 StrategyKeiretsu Network Strategy

Virtual CompaniesVirtual Companies

Companies that rely on a variety of supplier relationships to provide services on demand.

Also known as hollow corporations, or network corporations

© 1995 Corel Corp.

Virtual Company StrategyVirtual 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

Managing the Supply-ChainManaging 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)

Managing the Supply-Chain - Managing the Supply-Chain - Other OptionsOther 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

Successful Supply-Chain Successful Supply-Chain Management Requires:Management Requires:

A mutual agreement on goals Trust Compatible organizational cultures

Issues in an Integrated Supply-Issues in an Integrated Supply-ChainChain

Local optimization Incentives Large lots

Opportunities in an Integrated Opportunities in an Integrated Supply-ChainSupply-Chain

Generation of accurate “pull” data Reduction of lot size Single stage control of replenishment

Vendor Managed Inventory (VMI)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”

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 StepsVendor Selection Steps

Company Financial stability Management Location

Product Quality Price

Service Delivery on time Condition on arrival Technical support Training

Supplier Selection CriteriaSupplier Selection Criteria

Vendor Selection Rating FormVendor Selection Rating Form

Negotiation StrategiesNegotiation 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

Logistics ManagementLogistics Management

Integrates all materials functions Purchasing Inventory management Production control Inbound traffic Warehousing and stores Incoming quality control

Objective: Efficient, low cost operations

Goods Movement OptionsGoods Movement Options

Trucking Railways Airfreight Waterways Pipelines

Supply-Chain Performance Supply-Chain Performance ComparedCompared

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