Chapter 11 - Supply-Chain Management PDF

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IAF716 - Operations Management Chapter 11 - Supply-Chain Management October 15, 2018What is the Strategic Importance of the Supply Chain Supply Chain Management : ➔ Objective: to build a chain of suppliers that focuses on maximizing value to the ultimate customer ➔ It is the integration of the activ...

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IAF716 - Operations Management Chapter 11 - Supply-Chain Management October 15, 2018 What is the Strategic Importance of the Supply Chain Supply Chain Management : ➔ Objective: to build a chain of suppliers that focuses on maximizing value to the ultimate customer ➔ It is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system ➔ Competition is no longer between companies; it is between supply chains ➔ Important activities include determining ◆ Transportation vendors ◆ Warehousing and inventory ◆ Credit and Cash Transfers ◆ Order fulfillment ◆ Suppliers ◆ Sharing customer, forecasting, and ◆ Distributors production information ◆ A/P and A/R

➔ Supply Chain Risk: ◆ More reliance on supply chains means more risk ◆ Fewer suppliers increase dependence ◆ Compounded by globalization (political & currency risk) and logistical complexity ◆ Vendor reliability and quality risks ◆ Political and currency risks ◆ Management must mitigate and react to disruptions in 1) Processes (raw material, component availability, logistics) 2) Controls- management metrics and reliable secure communication for financial transactions, product designs 3) Environment- customs duties, tariffs, security screening, natural disaster, currency fluctuations, terrorist attacks, and political issues ➔ Purchasing and Subcontracting ◆ Purchasing - acquire goods or services to accomplish the goals of the enterprise. ◆ Subcontracting refers to hiring a third party by a Company to perform a specific task as part of the overall project- a task that cannot be handled internally. ◆ Outsourcing- hiring a third party to perform processes that could be performed by a company's internal staff. Outsourcing provides a more cost-efficient solution ◆ Purchasing represents a significant part of a company’s business ➔ Ethics and Sustainability: Personal Ethics | ethics within the Supply Chain | Ethical Behavior Regarding the Environment

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◆ Principles and Standards for Ethical Supply Management Conduct ● “Loyalty to your organization’ | “Justice to those whom you deal” | “Faith in your profession”

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Outsourcing: Transfers traditional internal

activities and resources of a firm to outside vendors ◆ Utilizes the efficiency that comes with specialization ◆ Firms outsource information technology, accounting, legal, logistics, and production What are the 6 Supply-Chain Strategies 1) Negotiating with many suppliers - “old” or “unenlightened” method but used by firms who practice an extreme-low cost a) Commonly used for commodity products b) Purchasing is typically based on price c) Suppliers compete with one another d) Supplier is responsible for technology, expertise, forecasting, cost, quality, and deliver 2) Long-Term partnering with few suppliers - more “enlightened” method for selecting suppliers, top companies aggressively working to reduce supply bases a) Buyer form longer term relations with fewer suppliers b) Create value through economies of scale and learning curve improvements c) Suppliers more willing to participate in JIT programs and contribute design and technological expertise d) Cost of changing suppliers is huge 3) Vertical integration a) Developing the ability to produce goods and service previously purchased b) Integration may be forward, towards the customer, or backward, towards suppliers c) Can improve costs, quality, and inventory but requires capital, managerial skills and demand d) Risky in industries with rapid technological change

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4) Joint ventures - represent a nice way to gain the benefits of partnering while retaining independence and being in a relationship that is easier to dissolve a) Formal Collaboration - enhance skills, secure supply, reduce costs b) Cooperation without diluting brand or conceding competitive advantage 5) Keiretsu - a set of companies with interlocking business relationships and shareholdings member companies own small portions of the shares in each other's companies a) A middle ground between few suppliers and vertical integration b) Supplier becomes part of the company coalition c) Often provide financial support for suppliers through ownership or loans d) Members expect long-term relationships and provide technical expertise and stable deliveries e) May extend through several levels of the supply chain 6) Virtual companies that use suppliers on an as needed basis a) Rely on a variety of supplier relationships o provide services on demand b) Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands c) Exceptionally lean performance, low capital investment, flexibility, and speed Bullwhip effect- occurs as orders are relayed from retailers to wholesalers resulting in increased fluctuation at each step of the sequence. This also increases costs associated. Customer (5)---Retailer (10)----Distributor (20)-----Manufacturer (40) Drop shipment- wholesaler supplies directly to consumers rather than seller. What are the Issues and Opportunities in the Supply Chain? There are significant management issues in controlling a Supply Chain involving many independent organizations: ➔ Mutual agreements on goals ➔ Trust

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➔ Compatible organizational cultures Issues - Integrated Supply Chain ➔ Local optimization - focusing on local profit or cost minimization based on limited knowledge ➔ Incentives (sales incentives, quantity discounts, quotas, and promotions) - push merchandise prior to sale ➔ Large lots - low unit cost but do not reflect sales ◆ Bullwhip effect - stable demand becomes lumpy orders through the supply chain

Opportunities - Integrated Supply Chain ➔ ➔ ➔ ➔ ➔ ➔ ➔ ➔ ➔ ➔ ➔

Accurate “pull” data Lot size reduction Single stage control of replenishment Vendor managed inventory (VMI) Collaborative planning, forecasting, and replenishment (CPFR) Blanket orders Standardization Postponement Drop shipping and special packaging Pass-through facility Channel assembly

➔ E-procurement - uses the internet to facilitate purchasing ◆ Electronic ordering and funds transfer, catalogues, auctions, RFGs, Real-Time inventory tracking What are the Steps in Vendor Selection ➔ Vendor Evaluation: Critical Decision | Find Potential Vendors | determine the likelihood of them becoming good suppliers ➔ Vendor Development: Training | Engineering and production help | establish policies and procedures ➔ Negotiations - developing a contract negotiation strategy: ◆ Cost-Based Price Model - supplier opens books to purchaser ◆ Market-Based Price Model - price based on published, auction, or indexed price ◆ Competitive Bidding - used for infrequent purchases but may make establishing Long-term relationships difficult What Are the Major issues in Logistics Management Logistics Management ➔ Objective: to obtain efficient operations through the integration of all material acquisition, movement, and storage activities ➔ Is a frequent candidate for outsourcing ➔ Allows competitive advantage to be gained through reduced costs and improved customer service ➔ Distribution Systems: ◆ Trucking - moves the cast majority of manufactured goods. Advantage = flexibility ◆ Railroads - capable of carrying large loads. Little flexibility though containers and piggybacking have helped with this ◆ Airfreight - fast and flexible for light loads. Ma be expensive ◆ Waterways - typically for bulky, low value cargo. Used when shipping cost is more

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important than speed ◆ Pipelines - used for transporting oil, gas, and other chemical products Third-Party Logistics - Third Party Logistics is the activity of outsourcing activities related to Logistics and Distribution ➔ Outsourcing logistics can reduce costs and improve delivery reliability and speed ➔ Coordinate supplier inventory with delivery services ➔ May provide warehousing, assembly, testing, shipping, customs Cost of shipping alternatives ➔ Product in transit is a form of inventory and has a carrying cost ➔ Faster shipping id generally more expensive than slower shipping ➔ We can evaluate the two costs to better understand the trade-offs Security and JIT ➔ Borders are becoming more open in the US and around the world ➔ Monitoring and controlling stock moving through supply chains is more important than ever ➔ New technologies are being developed to allow close monitoring of location, storage conditions, and movement Organization of purchasing departments: ➔ Centralized Purchasing ➔ Decentralized Purchasing

How do you Compute Percentage Assets Committed to Inventory Turnover

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