Operations Management Supply-Chain Management Chapter 11.
-
date post
20-Dec-2015 -
Category
Documents
-
view
228 -
download
3
Transcript of Operations Management Supply-Chain Management Chapter 11.
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 Objectives
When you complete this chapter, you should be able to :
Describe or Explain:– Supply-Chain Strategies– Purchasing strategies– Approaches to negotiations
Learning Objectives
Volkswagen
• 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
Volkswagen
• 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 Management
Consumer
Retailer
Manufacturing
Material Flow
VISA®
Credit Flow
Supplier
Raw material Supplier Wholesaler
Retailer
CashFlow
OrderFlowSchedules
The Supply-Chain
The Supply Chain
Supplier
Supplier
Supplier
Inventory
Inventory
Distributor
Inventory Inventory
Manufacturer
Customer
Customer
Customer
Market research dataScheduling information
Engineering 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-Chain
Supply-Chain Support for Overall Strategy
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 Strategy - 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 Strategy - 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 IssuesSupply 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 Purchasing
Supply-Chain Costs as a Percent of 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 Equal 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 Function
• 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 FocusMaterials 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
MailReconcile
Customer Supplier
Traditional Purchasing Process
Purchasing Techniques• Drop shipping and special packaging
• Blanket orders
• Electronic ordering and funds transfer
• Electronic data interchange (EDI)
• Standardization
• Outsourcing
Make/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 cost
3. Preserve supplier commitment
4. Obtain technical or management ability
5. Inadequate capacity
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
Supply-Chain Strategies
Supply-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
Many 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 Strategy
Daimler Chrysler’s Supplier Cost Reduction 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 RelationshipsTacticTactic
• 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
CurrentTransformation
ForwardForwardIntegrationIntegration
Finished GoodsFinished Goods(Customers)(Customers)
Why Use it?
• 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
Forms of Vertical IntegrationIron 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 Forward 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
• Resulting in lowering need for short-term profits
• Links manufacturers, suppliers, distributors, & lenders– ‘Partnerships’ extend across entire supply chain
Keiretsu Network Strategy
Virtual Companies
• Companies that rely on a variety of supplier relationships to provide services on demand.
• Also known as hollow corporations, or network corporations
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
Managing 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 - Other 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 Management Requires:
• A mutual agreement on goals
• Trust
• Compatible organizational cultures
Opportunities in an Integrated Supply-Chain
• Generation of accurate “pull” data
• Reduction of lot size
• Single stage control of replenishment
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”
1. Vendor evaluation– Identifying & selecting potential vendors
2. Vendor development– Integrating buyer & supplier
• Example: Electronic data exchange
3. Negotiations– Results in contract– Specifies period of agreement, price, delivery
terms etc.
Vendor Selection Steps
Negotiation 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 Management• Integrates all materials functions
– Purchasing– Inventory management– Production control– Inbound traffic– Warehousing and stores– Incoming quality control
• Objective: Efficient, low cost operations
Supply-Chain Performance Compared
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