Consumer
Retailer
Manufacturing
Material Flow
VISA®
Credit Flow
Supplier
Supplier Wholesaler
Retailer
CashFlow
OrderFlowSchedules
The Supply-ChainThe Supply-Chain
¨ 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
The Supply ChainThe 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
Supply Chain ManagementSupply Chain Management
¨ SCM is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.
Conflicting Objectives in SCConflicting Objectives in SC
¨ Purchasing¨ stable volume requirements¨ flexible delivery time¨ little variation in mix¨ large quantities
¨ Manufacturing¨ long run production¨ high quality¨ high productivity¨ low production cost
Conflicting Objectives in SCConflicting Objectives in SC
¨ Warehousing¨ low inventory¨ reduced transportation costs¨ quick replenishment capability
¨ Customers¨ short order lead time¨ high in stock¨ enormous variety in products¨ low prices
11%
31%
58%
Material
Dir. Wages
Other
71%
16%13% COGS
Payroll
Other
83%
9%8%COGS
Payroll
Other
ManufacturingManufacturing
WholesaleWholesale
RetailRetail
Material Costs inMaterial Costs in Supply-Chain Supply-Chain
Source: U.S. Department of Commerce, Bureau of Census, 1987 Census of Manufacturers: General Summary of Retail Trade (Washington, D.C.: Government Printing Office, 1991)
Supply-Chain Support for Supply-Chain Support for Overall StrategyOverall 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 Supply-Chain Support for Overall Strategy - continuedOverall Strategy - continued
Process Characteristics
Maintain high average utilization
Low CostInvest in excess capacity and flexible processes
ResponseModular processes to 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 Supply-Chain Support for Overall Strategy - continuedOverall 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 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 manage the shipment of parts in and finished products out
¨ staffed with local specialists to handle duties, trade, freight, customs and political issues
¨ Acquisition of goods & services¨ Activities
¨ Help decide whether to make or buy¨ Identify sources of supply¨ Select suppliers & negotiate contracts¨ Control vendor performance
¨ Importance¨ Major cost center¨ Affects quality of final product
PurchasingPurchasing
Purchasing Costs as a Percent of Purchasing Costs as a Percent of SalesSales
¨ All industry¨ Automobile¨ Food¨ Lumber¨ Paper¨ Petroleum¨ Transportation
¨ 52%¨ 61%¨ 60%¨ 61%¨ 55%¨ 74%¨ 63%
Industry Percent of Sales
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
Purchasing TechniquesPurchasing Techniques
¨ Drop shipping and special packaging¨ Blanket orders¨ Invoiceless purchasing¨ Electronic ordering and funds transfer¨ Electronic data interchange (EDI)¨ Stockless purchasing¨ Standardization
Make/Buy ConsiderationsMake/Buy Considerations
¨ lower production cost
¨ unsuitable suppliers
¨ assure adequate supply
¨ utilize surplus labor and make a marginal contribution
¨ obtain desired quantity
¨ remove supplier collusion
¨ obtain a unique item that would entail a prohibitive commitment from the supplier
¨ maintain organizational talent
¨ protect proprietary design or quality
¨ increase/maintain size of company
¨ lower acquisition cost
¨ preserve supplier commitment
¨ obtain technical or management ability
¨ inadequate capacity
¨ reduce inventory costs
¨ ensure flexibility and alternate source of supply
¨ reciprocity
¨ item is protected by patent or trade secret
¨ frees management to deal with its primary business
Reasons for Making Reasons for Buying
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
¨ Company¨ Financial stability¨ Management¨ Location
¨ Product¨ Quality¨ Price
¨ Service¨ Delivery on time¨ Condition on arrival¨ Technical support¨ Training
Supplier Selection CriteriaSupplier Selection Criteria
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
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
Materials ManagementMaterials 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