supply chain - Copy.ppt

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© 2006 Prentice Hall, Inc. 11 – 3

OEM

ChemicalsInc lud ing

Synthe t ic RubberSuppl ie r

Dis t r ibu tors

Natura l RubberCord and Steel

suppl ie rFireston e Tire

Co mp an y




Outl ine

Global Com pany Prof i le:Volkswagen

The Strategic Im p or tan ce Of TheSupp ly ChainGlobal Supp ly-Chain Iss ues

Supp ly-Chain Econ om icsMake-or-Buy Decis io ns

Outsourc ing




Outl ine – Con t inu ed

Ethic s in the Sup ply Chain

Sup ply -Chain Strateg ies

Many Supp l iersFew Supp l iers

Vertic al In tegr ation

Keiretsu Netwo rks

Vir tual Com panies




Outl ine – Con t inu edManaging the Sup ply Chain

Iss ues In an Integ rated Sup ply Chain

Opp ortu ni t ies in an IntegratedSupp ly Chain

Internet Purch asing

Vend or Select io nVendo r Evaluation

Vend or Develop m ent

Negot ia t ions


http://slidepdf.com/reader/full/supply-chain-copyppt 7/58© 2006 Prentice Hall, Inc. 11 – 7

Outl ine – Con t inu ed

Lo gis t ics Managem entDis t r ibut ion Sys tems

Cost of Shipping A l terna t ivesLo gis t ics , Secu ri ty, and J IT

B enc hm arking Supp ly-Chain

Management



Learn ing Objec t ives

When yo u c om plete th is ch apter, yo ush ou ld b e ab le to :

Identify o r Define:

Supply-chain m anagem entPurchas ing

Outsourc ing

E-procurementMaterials m anagem ent

Keiretsu (a loo se co al i t ion ofbus inesses

Vir tual com panies



Volkswagen

B razil ian plant em p loy s 1000workers *

200 w ork for VW and are resp on siblefor o veral l qu ali ty, m arketing ,

research , and d es ign800 w ork fo r o ther con t rac tors and dothe as sembly wo rk

VW loo ks to inno vat ive su pp ly chainto imp rove qual ity and d r ive do w ncos t s* Company i s now c losed dow n



Volkswagen

Im po r tant e lem ents of th is c on ceptVW is b uying no t on ly m ater ials , bu t

also the labor and re la ted s ervic esSupp l iers are in tegrated t igh t ly in toVW’s own network, right down toassem bly w ork in the p lan t

Purchase co s ts in the au to ind us t ryexceed 60% of th e sales d ollar, so anysaving s are s ig nif icant



Volkswagen



Th e Strateg ic Im p ortanc e

of th e Su pp ly ChainSupp ly-ch ain m anagem ent is theintegrat ion o f the act iv i t ies th atpro cu re m ater ials and services ,

t rans form them in to in termediatego od s and th e f inal pro du ct , and

deliver them to cu s tom ersCom peti tion i s no long er betw een

co m panies ; i t i s betw een s up ply c hains



Su p p ly-Chain Man ag em en t

1. Tr an s p o rt at io n v en d o rs

2. Cr ed it an d c as h t ran s fer s

3. Su pp liers

4. Dis tr ib u to rs an d ban k s

5. A cco u n t s p ay ab l e an d r ecei vab l e

6. War eh o u s in g an d in v en to ry

7. Ord er fu lf il lm en t

8. Shar ing cus tomer, f o r ecas t ing , andproduc t ion in form at ion

Im po rtant act iv i t ies inclu de determ ining



A Sup ply Chain

Figure 11.1



Glob al Sup p ly-Chain Is su es

React to sud den ch anges in p ar t savai labi l i ty, d is t r ibu t ion , or sh ipp ingch annels , im po rt du t ies , and cu rrenc y rates

Use the lates t c om pu ter and t ransm iss iontechn olog ies to sch edu le and m anage thesh ipm ent o f part s in and f in ished prod uctsou t

Staff wi th loc al specialis ts w ho h andledu t ies , f reigh t , cu stom s and po l i t ical i ssu es

Supply c hains in a g lobal env i ronm entm ust b e ab le to



How Sup ply-ChainDecis ion s Im p ac t Strateg y

Low-CostStrategy

ResponseStrategy

DifferentiationStrategy

Supplier’sGoal

Supply demandat lowestposs ib le cos t(e.g., Em erso nElectric , TacoBell)

Respond qu ick lyto changingrequirementsand demand tominimizesto cko uts (e.g.,Dell Com pu ters)

Share marketresearch;

jo in tly developproducts andop tio ns (e.g.,Benetton)

Pr imarySelectionCriteria

Select prim arilyfor cos t Select prim arilyfor capacity,sp eed, andflexibili ty

Select prim arilyfor p roductdevelopmentski l ls

Table 11.1




Low-CostStrategy

ResponseStrategy


ProcessCharact- er is t ics

Maintain highaverageutil ization

Invest in excesscapacity andflexibleprocesses

Modularproc esses thatlendthemselves tomasscustomizat ion

Inventory

Charact- er is t ics

Minimize

inventorythroughout thecha in to ho lddown cos t

Develop

responsivesys tem wi thbuffer s tock sposi t ioned toensure sup ply

Minimize

inventory in thechain to avoidobsolescence

Table 11.1





Low-CostStrategy

ResponseStrategy


Lead-TimeCharact- er is t ics

Short en leadt ime as long asi t does notincrease co sts

Investaggressively toreduceprod uct ion leadt ime

Investaggressively toreducedevelopmentlead tim e

Product - Design

Charact- er is t ics

Maximizeperformance

and m inimizecosts

Use productdesigns that

lead to lowsetup t ime andrapidproduct ionramp-up

Use modu lardes ign to

postponeproductdifferentiationas long aspossible

Table 11.1




Sup ply-Chain Eco no m ics

Supp ly Chain Cos ts as a Percent o f Sales

Table 11.2

Ind ustry % Purchased

Al l indu s t ry 52Automobi le 67Food 60Lumber 61

Paper 55Petroleum 79Transpor ta t ion 62




Sup ply-Chain Eco no m ics

Dollars of addit ion al sales n eeded to equal $1saved th rou gh the sup ply chain

Percent of Sales Spent in th e Sup ply Ch ainPercent Net Profit

of Firm 40% 50% 60% 70% 80% 90%2 $3.23 $3.85 $4.76 $6.25 $9.09 $16.674 $3.13 $3.70 $4.55 $5.88 $8.33 $14.29

6 $3.03 $3.57 $4.35 $5.56 $7.69 $12.508 $2.94 $3.45 $4.17 $5.26 $7.14 $11.11

10 $2.86 $3.33 $4.00 $5.00 $6.67 $10.00

Table 11.3




Make-o r-B u y Decis ion s

1. Main tain co re c o m pet en c e2. L ow er p ro du ctio n c os t3. Un su itab le s up pliers4. A s s u re adeq uat e s u pp ly (quan t it y o r d el iv ery )5. Ut il ize su r pl us l ab o r o r fac ili ti es6. Ob tain d es ired q u ality7. Rem o ve su pp lier c ollu s io n

8. O b tain un iqu e i tem th at w ou ld en t ai l a p roh ib it ivecom mitm ent for a suppl ier9. Pr o tec t p er s on n el f ro m a lay o ff10. Pro tec t p ropr ietary des ign o r qua li ty11. Inc rease o r ma in tain s i ze o f comp any

Reasons for Making

Table 11.4




Make-o r-B u y Decis ion s

1. Frees manageme n t t o deal w i th i ts p rimarybus iness

2. L ow er ac qu is it io n co st3. Pr es erv e s u pp lier co m m it m en t4. Ob t ai n tec h n ic al o r m an ag em en t ab il it y5. In ad eq uate c ap ac ity6. Red uc e in ven to ry c os ts

7. En s ur e alter nat iv e s o ur ces8. Inad equat e ma nager ial o r t ec hn i c al r es ou rc es9. Rec ip roc ity10. Item is pro tec ted by a patent or t rade secret

Reasons for Buy ing

Table 11.4




Outsourc ing

Transfers t radi t ion al internalact iv i t ies and reso urc es o f a f i rm toou ts ide vend ors

Uti l izes th e eff icien cy th at co m esw ith sp ecial izat ion

Firms ou tsou rce inform at iontech n olo gy, acco u ntin g , legal ,log is t ics , and p rod uct ion




Ethics in the Su pp ly Chain

Opp ortu ni t ies for unethical behaviorare eno rm ou s and temp tat ions are h igh

Many com panies have s t r ic t ru les andco des of con du ct tha t def ineacceptable b ehavio r

Ins t i tu te for Sup ply Managem ent has

developed a detai led set of p r incip lesand s tand ards for e thical behavior




Princip les and Stand ards for

Eth ical Sup ply Managem entConduct

LOYA LTY TO YOUR ORGA NIZATIONJUSTICE TO THOSE WITH WHOM YOU

DEAL

FA ITH IN YOUR PROFESSION

Table 11.5






1. Avo id the i n ten t and app earan c e o f uneth ic al orcom prom is ing prac t ice in relat ionships , ac t ions , andcommunica t ions

2. D emo n s t r at e l oyal ty t o t he emp loyer by d il igen t lyfo l lowing the lawful ins t ruc t ions of the employ er, us ingreaso nable care and g ranted auth ori ty

3. Avo id an y per s onal bus ines s o r p ro fes s ional ac t iv i ty t hatwo uld c reate a co nfl ic t betw een person al interes ts andthe interes ts o f the em ploy er

Table 11.5






4. Avo id s o li c it ing o r ac c ep t in g mo ne y, l o ans , c r ed i ts , o r

preferent ial disc ou nts , and the acceptance of gif ts ,enterta inment , favors , or services from present orpotent ia l supp liers that m ight in fluence, or appear toinf luence , supply management dec is ions

5. H and le c on f iden t ial o r p rop r iet ary in fo rma tion w i th du ecare and prop er cons iderat ion o f e thical and legalram if ica t ions and governm ent regulat ions

6. Promote p os i ti ve s u p p l ier rel at ions h ip s t h rough c o u r tes yand im part ial i ty

7. Av o id im p r o per rec ip ro c al ag r eem e nt sTable 11.5






8. K no w and obe y the let ter and s p i ri t o f law s a pp li c ab l e t o

supp ly managem ent9. En c ou rag e s u ppo r t f o r s ma ll , d i s ad v an t aged , and

mino r i ty-ow ned bus inesses

10. Acqui re and m ain tain p ro fes s ional comp etence

11. Conduc t supp ly management ac tiv it i es in accordancewith nat ional and in ternat ional laws , cus tom s, and

practices, your organization’s policies, and these ethicalpr inc ip les and s tandards of cond uct

12. Enhance the s ta ture of the supp ly managementprofess ion Table 11.5




Sup p ly-Chain Strateg ies

Nego t iat ing w i th m any su pp l iers

Lo ng -term par tner ing w i th fewsuppl iers

Vertical in tegratio n

KeiretsuVir tual com panies that us esu pp l iers o n an as needed b asis




Many Sup p l iers

Com m only used fo r com m odi typ roduc t s

Purchas ing i s typ ically based onprice

Sup pliers are pi t ted again st o n eanother

Supp l ier is resp on sible fortechn olo gy, exp ert ise, for ecast in g,co st , qu al i ty, and del ivery




Few Sup p liers

Bu yer fo rm s long er t ermrelat ionsh ips w i th few er s up pl iers

Create value thro ug h econ om ies o fsc ale and learnin g cu rveimprovements

Supp l iers m ore w il ling to par t ic ipatein J IT prog ram s and c on t r ibu tedesign and tech no log ical exp er t ise

Cos t o f ch ang ing su pp l ier s i s h uge




Vert ical In tegratio n

Figure 11.2

Raw m aterial(suppliers) Iron ore Si l icon Farming

Backward

integra t ionSteel

Currentt ransformat ion Automobi le s Integrated

circui ts Flour mi l l ing

Forward in tegra t ion Dis t r ibut ion

sys temsCircui t boards

F in i shed good s(cus tomers) Dealers

Compute r sWatches

Calcula torsBaked goods

Vertical Integration Examp les of Vertical Integration




Vertic al In teg ration

Develop ing the ab i l ity to pro du ce goo ds orserv ice previous ly p urch ased

Integrat ion m ay be forw ard, tow ards thecus tom er, or b ackw ard , tow ards su pp l iers

Can im pro ve cos t , qu al i ty, and inv entorybu t requ ires capital , m anagerial sk il ls , anddemandRisky in indus t r ies w i th rap id techno logica lchange




K eiretsu Netw o rks

A midd le grou nd between few su pp l iersand v er t ical in tegrat ion

Suppl ier becom es p ar t of the com pany

coal i t ionOften prov ide f inancial su pp or t fo rsup p l ier s th roug h o wn ersh ip o r loans

Mem bers exp ect lon g- term rela t ion sh ipsand p rov ide tech nical exp er t ise and s tabledeliveries

May extend thro ug h s everal levels of th e

sup p ly cha in




Virtual Co m p an ies

Rely o n a var iety o f su pp l ierrelat ionsh ips to pro vide serv ices ondemand

Fluid org anizat ional bo un dar ies thatallow the creat ion o f un iqu e enterpr isesto m eet changing m arket demands

Except ion al ly lean perform ance, lowcapital inv estm ent, f lexibil i ty, and s peed




Managing the Su pp ly Chain

Mutual agreem ent on g oals

Trust

Com patible org anizat ional cul tu res

There are s ig nif icant m anagement issu es incon t ro l ling a supp ly cha in invo lv ing m anyindepend ent org anizat ion s




Is sues in an In teg rated

Su pp ly ChainLo cal op t imizat ion - focu s ing on loca lprof i t o r cos t m inimizat ion based onl im i ted k no w ledg e

Inc entives (sales inc entives, qu anti tydisco un ts , quo tas , and pro m ot ions ) -pu sh m erchandise pr ior to sa le

Large lo ts - low u ni t cos t b ut do n otreflect sales

B ullw hip effect - s table dem and beco m eslump y orders th roug h the supp ly cha in




Opp or tu ni t ies in an

In teg rated Sup p ly Chain

Accurate “pull” data

Lo t s ize redu ct ion

Sing le s tage co ntro l ofreplenishment

Vend or m anaged inv ento ry

Postponement




Opp or tu ni t ies in an

In teg rated Sup p ly Chain

Channel ass em bly

Drop s h ipp ing and sp ecialpackaging

B lank et orders

Standardizat ion

Elect ron ic o rder ing andfund s t ransfer




Rad io Freq u en cy Tag s




In tern et Pu rch asin g

In ternet u sed to co m m un icate

or der releases agains t blank etpu rchase ord ers

Internet replaces o ther form s o felectro nic o rd er releases

Fou r Com m on Var iat ions





In ternet used to bu y n on -

s tand ard i tem s f rom catalogsLo ng -term m aster agreem ents inplace

Redu ces ord er lead-t im e andpurchas ing cos t s






Tradi t ion al purc hasing s ys tem ,

bu t Intern et-b asedSign i f icant ly sp eeds uprequis i t ion ing , b idd ing, su pp l ierselect ion , and o rder placem ent






Intern et auct io n s

May b e used fo r com m odi tyi tem s for wh ich long -termcon trac ts d o not ex is t





Ships good ;receives

electronicpayment

Receiveselectronic

purchase order

Selects a supp lierbased on q uality,

cos t, deliveryperformance;

issues purch aseorder

Collects/reviewsbids submit tedelectronically

Assign s suppl iersto b id ; g ives

clos ing d atesand condi t ions

Enters data in toIn ternet sys tem

Buyer reviewsrequis i t ion

Inputs request in tocomputer sys tem

and t ransmits topurchas ingdepartment


Figure 11.3

Individ ual ini t iatesrequis i t ion Purchas ingdepar tment /buyer Suppl ier

Prepares requisit io n





Suppl iers g et c los er to th ei r cus tom ersShor ter cy cle t imes m ay im prov e cash

f lowCapita l inves tm ent is lowBuy ers en joy com par ison shop ping ,rapid order ing, reduc ed t rans act ion

cos ts , and low er inventoryMay b e part o f an in tegrated En terpris eReso urc e Planning (ERP) sy s tem




Ven d o r Select io n

Vend or evaluat io nCri t ical decis ion

Find po tent ial vendo rs

Determ ine the l ikel ihoo d o f thembecom ing good su pp l ier s

Vend or Develop m ent

Training

Engineer ing and pro du ct ion h elp

Es tabl i sh pol ic ies and proc edu res




L og is t ics Managem ent

Object iv e is to o b tain eff icientop erat ion s th rou gh the in tegrationo f al l m aterial acqu isi t io n ,m ov em ent , and s to rage act iv i t iesA frequent c and idate forou t sourc ing

Gain co m pet i tive adv antagethroug h reduc ed co s t s andim pro ved cus to m er serv ice




Dis t r ibu t ion Sys tem s

TruckingMoves the vas t m ajor i ty o fm anufac tu red good s

Chief adv antage is f lexibil i ty

Railroads

Capable of carryin g large loadsLit t le f lexibi l i ty tho ug hcon tainers and p igg yb ackinghave helped w i th th is





AirfreightFast and f lexible for l igh t loads

May be exp ens iveWaterways

Typ ically us ed fo r bu lky, low -

value cargoUsed w hen sh ipp ing co s t i sm ore im por tan t than s peed





Pipel inesUsed for t ransp or t ing oi l , gas ,and o ther chemical prod ucts




Cos t of ShippingAlternat ives

Prod uc t in t rans i t i s a form ofinventory and has a car ry ing c os t

Faster shipp ing is general ly m oreexpens ive than s low er sh ipping

We can evaluate the two co sts tob et ter u n d erstand the t rade-o ff




Cos t of ShippingAlternat ives

Value of co nn ectors = $1,750.00Holding co s t = 40% p er yearSeco nd c arr ier is 1 day faster and $20 m ore

expensive

Dai ly cos t ofho ld ing p roduc t = x /365

annualho ld ing

cos t

p roduc tvalue

= (.40 x $1,750)/ 365 = $1.92Since i t cos ts less to h old the produ ct one day

long er than i t does for the fas ter shippin g ($1.92 <$20) , w e sh ou ld us e the cheaper, s lo w er shipp er




Log ist ic s , Secu ri ty, an d J IT

B ord ers are becom ing m ore op en inthe U.S. and arou nd the w orld

Moni to r ing and c on t ro l ling s tockm oving th rough supp ly cha ins i sm ore imp or tant th an ever

New tech no log ies are beingdeveloped to al low close m on i tor ingof loc at ion, s to rage con di t ion s , andmovement



B enc hm ark ing Supp ly-

Chain Managem en tTypic al Firms

BenchmarkFirms

Ad minis trat ive costs as a percent ofpurchases 3.3% .8%

Lead tim e (weeks) 15 8

Time spent p lacing an order 42 m inutes 15 min utes

Percentag e of late deliv eries 33% 2%

Percentag e of rejected m aterial 1.5% .0001%

Num ber of sh ortages per year 400 4

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