Summary Operations Management - Chapter 11 PDF

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Supply Chain management Summary Chapter 11 and Supplement 11...

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CHAPTER 11 SUPPLY CHAIN MANAGEMENT

The Supply Chain’s Strategic Importance Supply chain management is a management of activities that procure materials and services, transforming them into intermediate goods and final products, and delivering the products through a distribution system. Supply chain management includes determining: 1. Transportation vendors 2. Credit and cash transfer 3. Suppliers 4. Distributors 5. Account payable and receivable 6. Warehousing and inventory 7. Order fulfillment 8. Sharing customer, forecasting, and production information. The objective is to build a chain of suppliers that focuses on maximizing value to the ultimate customers.

Supply Chain Strategies Five supply chain strategies: 1. Negotiating with many suppliers and playing one supplier against another. 2. Develop long-term partnering relationships with a few suppliers to satisfy the end customer. 3. Vertical integration, in which a firm decides to use vertical backward integration by actually buying the supplier. Vertical integration is developing the ability to produce goods or services previously purchased or actually buying a supplier or a distributor. 4. Combination of few suppliers and vertical integration, known

as a keirtsu. Keiretsu is a Japanese term that describes suppliers who become part of a company coalition. 5. Develop virtual companies that use suppliers on an as-needed basis. Virtual companies are the companies that rely on variety of supplier relationships to provide services on demand. Also known as hollow corporations or network companies.

Issues in an Integrated Supply Chain There are 3 issues complicate development of an efficient, intergrated supply chain: 1. Local Optimization 2. Incentives (Sales Incentives, Quantity Discount, Quotas, and Promotions) 3. Large Lots Opportunities in an Integrated Supply Chain Opportunities for effective management n the supply chain include the following 10 items: 1. Accurate “pull” Data 2. Lot Size Reduction 3. Single Stage Control of Replenishment 4. Vendor-Managed Inventory 5. Blanket Orders 6. Standardization 7. Postponement 8. Drop Shipping 9. Pass-through Facility 10. Channel assembly

Negotiations 3 classic types of negotiation strategies: 1. Cost-Based Price Model Requires that the supplier open its books to the purchaser. The Page 2

contract price is then based on time and materials or on a fixed cost with an escalation clause to accommodate changes in the vendor’s labor and materials cost. 2. Market-Based Price Model In market-based price model, price is based on a published, auction, or index price. Many commodities are priced this way. 3. Competitive Bidding When suppliers are not willing to discuss costs or where nearperfect markets do not exist, competitive bidding is often appropriate. Infrequent work such as construction, tooling, and dies is usually purchased based on a bid. Bidding may take place via mail, fax, or an Internet auction. Competitive bidding is the typical policy in many firms for the majority of their purchases. Bidding policies usually require that the purchasing agent have several potential suppliers of the product and quotations from each.

Measuring Supply Chain Performance Like all other managers, supply chain managers require standards to evaluate performance. Evaluation of the supply chain is particularly critical for these managers because they spend most of the organization’s money. In addition, they make scheduling and quantity decisions that determine how well the supply chain is performing and how well assets are utilized. We will now discuss these two metrics. Assets Committed to Inventory

There are 3 specific measure can be helpful here: 1. Percent invested in inventory (Total inventory investment/total assets(x100

2. Inventory turnover: Cost of goods sold/Inventory investment

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3. Weeks of supply: Inventory

investment /

(annual

cost

of

goods

sold/52weeks)

SUPPLEMENT 11 OUTSOURCING AS A SUPPLY CHAIN STRATEGY

Outsourcing is a procuring from external sources services of products that are normally part of an organization. Types of outsourcing Among the business processes outsourced are : 1. Purchasing 2. Logistics 3. R&D 4. Operation of facilities 5. Management of services 6. Human resources 7. Finance/accounting 8. Customer reations Page 4

9. Sales/marketing 10. Training 11. Legal process The theory of comparative advantage : a theory which states that countries benefit from specializing in and exporting products and services in which they have relative advantage and importing goods in which they have a relative disadvantage.

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