Supply Chain Materials Flow

From Raw Materials to Finished Goods

HOW DO WE GET ?????

From this mine in Wodgina, Australia

To these finished ATMs

Supply Chain: Raw Materials Flow

Supply Chain: Raw Materials FlowAustralia (Cabot) to the Czech Republic (AVX)

Discussion PointsAustralia (Cabot) to the Czech Republic (AVX)

• Cabot: Who are they and what do they produce?

• AVX: Who are they and what do they produce?

• Reorder Point: What is it and how does it apply to this supply chain?

• The Social Costs of Tantalum Ore.

CABOT

• Ticker Symbol: CBT (NYSE)

• 2008 sales: $3.2 billion

• Employees: 4,500

• Industry: Chemicals and Performance Materials

• 39 locations in 19 countries

Cabot is a world leader in specialty chemicals, such as inkjet colorants, toners, plastics, and coatings and performance materials such a tantalum, niobium, silica, and fumed alumina.

AVX• Ticker Symbol: AVX (NYSE)

• 2008 sales: $1.4 billion

• Employees: 9,900

• Industry: Diversified electronic components

• Division of Kyocera Group

AVX is a worldwide leader in the production of ceramic, tantalum, film, and electrolytic capacitors. In addition to capacitors AVX also produces a number of specialty products such as connectors, switches, filters, and RF devices.

Capacitor

Reorder Point: What is it?

• The level at which the inventory for a product is replenished.

• Occurs when inventory stock levels drop to a predetermined level.

• Reorder Point = normal consumption during lead-time + safety stock.

• AVX reorders tantalum using a reorder point type system.

Social Costs of Tantalum Ore

Social Costs of Tantalum Ore

In the same way that the Taliban uses opium to fund its war in Afghanistan, or rebel groups in Colombia thrive off the proceeds of cocaine sales, the civil war in Congo is bankrolled by the sale of illegally mined "conflict resources" such as tantalum.

The International Rescue Committee refugee action group says the conflict has resulted in the death of over 5.4 million Congolese over the past decade.

Blood tantalum

For much of the past decade, cheap supplies of tantalum derived from mines under the control of various rebel groups based in the north-eastern regions of the Democratic Republic of Congo (DRC) have flowed into a long and complex supply chain.

Among those groups profiting from this trade are Hutu militia associated with the 1994 Rwandan genocide.

"There doesn't seem to be any shortage of material coming from that area," Robinson says. "People are making money wherever they can."

In central Africa, tantalum is extracted from an ore called coltan, short for columbite-tantalite.

Coltan is found in alluvial deposits or mined in primitive open-cut pits by workers - some of whom are children, enslaved or indentured - using the most basic of tools.

Taken from the Sydney Morning Herald

Social Costs of Tantalum Ore

Although most materials incorporated in our products are available from a number of sources, certain materials (particularly tantalum from Australia and China and palladium from Russia and South Africa) are available only from a relatively limited number of suppliers.  We have informed our suppliers of tantalum materials not to use material sourced from the Democratic Republic of Congo due to environmental, wildlife and humanitarian concerns, and to our knowledge we have not used any material from that location.

Supply Chain: Raw Materials FlowCzech Republic (AVX) to China (Arrow)

Discussion Points Czech Republic (AVX) to China (Arrow)

• Arrow: Who are they and what do they do?

• Risk Pooling: What is it?

• Risk Pooling: How is it applied in this flow?

ARROW ELECTRONICS• Ticker Symbol: ARW (NYSE)

• 2008 sales: $16.8 billion

• Employees: 12,700

• Industry: Electronic Components and Computer Products Distribution

• 340 locations in 53 countries

Arrow focuses on the distribution of electronics components to multiple customers around the world. In addition to distribution Arrow also supports many of its customers with inventory management solutions, vendor managed inventory, programming capabilities, and tape and reeling. Major brands offered by Arrow include AVX, Texas Instruments, Epson, Honeywell, NEC, and Sanyo.

Risk Pooling: What is it?

• Risk pooling is a supply chain management concept demand variability from one source is reduced by aggregating demand across multiple sources.

• Demand increases from any given location will be offset by demand drops with other location in turn smoothing demand.

• Centralized distribution or warehouse systems are a good example of this technique in practice.

Risk Pooling in Practice - Arrow

• AVX sells tantalum capacitors to Arrow in large quantities based on their own customers end demand.

• Arrow then hubs all products together and distributes these products out to its many end customers.

• Demand increases for one customer are offset by demand decreases from others. Overall supply chain inventory is reduced because of reductions in needed safety stock.

• Other benefits.

Supply Chain: Raw Materials FlowChina (Arrow) to China (Flextronics)

Discussion Points China (Arrow) to China (Flextronics)

• Flextronics: Who are they and what do they produce?

• Outsourcing: What is it?

• Vendor Managed Inventory: What is it?

• Electronic Data Interchange: What is it?

• Outsourcing: How it is applied and examples

• Vendor Managed Inventory: How is it applied in this flow?

• Electronic Data Interchange: How it is applied

FLEXTRONICS INTERNATIONAL• Ticker Symbol: FLEX (Nasdaq)

• 2008 sales: $30.95 billion

• Employees: 160,000

• Industry: Printed Circuit Boards, Systems Integration

• Operates in 30 countries

Flextronics is the worlds largest electronics contract manufacturer and focuses on providing end to end solutions for its customers. Core competencies for Flextronics include printed circuit board design and manufacturing, plastics, vertical integration, and systems integration.

Outsourcing: What is it?

• Outsourcing is the process of transferring the production of a product or internal/external service offerings to a 3rd party manufacturing/service provider.

• Advantages include reduced costs, aggregation advantages, allow focus on core competencies, and market penetration.

• Disadvantages include the loss of control of the outsourced process.

VMI: What is it?

• Vendor Managed Inventory: An inventory control practice in which a supplier monitors and replenishes inventory on a customer’s site.

• Advantages include reduced lead-time, shared risk (if the product does not sell the vendor will buy it back), and continuous management/monitoring by supplier

• Inventory is typically maintained on site or in a third party logistics provider.

EDI: What is it?

• Electronic Data Interchange: A directory of protocols for transferring information regarding demand and supply over private electronic networks.

• 4 major EDI standards: UN (only international standard), US standard, Tradacoms (used primarily in the UK), Odette (used in European automotive industry.

• Can be transmitted via a VAN (value added network) or via the internet.

• Advantages include less errors in communicating data, no manual entry of data, quicker response times.

Outsourcing in Practice - Flextronics

VMI in Practice - Flextronics

•Flextronics uses VMI with most of its high spend suppliers/parts.

•Typically parts are stored either on site or in a 3PL.

•Flextronics will typically issue purchase orders against VMI stock at a 2day to 5 day lead time. Flextronics typically issues 13 weeks of forecast.

•Vendor is required to maintain stock to support forecast plus a 30% upside in that forecast within 2 to 4 weeks.

•Flextronics maintains liability for the parts in VMI stock under a 13 week freshness clause.

EDI in Practice - Flextronics

•Flextronics uses EDI to transmit and receive forecasts, PO confirmations and changes, delivery information, forecast confirmations to and from suppliers and customers.•EDI is the standard format for all suppliers set up on a replenishment model (VMI or RLT).•RLT or Reduced Lead Time is typically used in conjunction with EDI to lower lead times on parts without setting product up on a VMI model.

Supply Chain: Raw Materials FlowChina (Flextronics) to India (NCR)

Discussion Points China (Flextronics) to India (NCR)

• NCR: Who are they and what do they produce?

• Min/Max: What is it?

• Min/Max: How is it applied in this flow?

• Use of 3rd Party Logistics

NCR• Ticker Symbol: NCR (NYSE)• 2008 sales: $5.32 billion• Employees: 22,400• Industry: Financial and Retail services and Solutions

NCR is a leader in financial and retail services. Primary products include ATM’s, self check-out kiosk solutions, and point of sale technologies. NCR also supplies consumables such as paper products, laser documents, inkjet toner, and media items, that are used to support the products it sells

Min/Max: What is it?

• Min-max—a simplistic inventory system in which a minimum quantity and maximum quantity are set for an item.  When the quantity drops below Min you order up to the Max.

• Can either be a continuous or periodic review.

• Good fit for line side stock, very cheap items, or MRO type products (maintenance, repair, overhaul.)

Min/Max Hub in Practice - Flextronics

                                             

• 20 to 30 parts currently managed in the min/max hub

• Managed by a 3rd party logistics provider

• Parts are periodically reviewed for replenishment.

• VMI: Flextronics managed inventory levels.

Printed Circuit Board Assembly

Supply Chain: Raw Materials FlowIndia (NCR) to USA (Flextronics)

Discussion Points India (NCR) to USA (Flextronics)

• Reverse Supply Chain: What is it?

• Reverse Supply Chain: How is it applied in this flow?

Reverse Supply Chain: What is it?

• Reverse supply chain refers to the reuse or return of materials, reverse flow of materials and/or information, flow of cash exchanged for goods.

• Primary use is in the return or exchange of goods in retail outlets or via online sources.

Reverse Supply Chain in Practice - Flextronics

Invoice Generation

Y1

(Material in transit)

Invoices customs clearance

Y2

(Data Entry)

Y3

(Approving)

Y4

(Payment Release)

Invoices PaidInvoices ApprovedInvoices Entered

45 Days 2 Days

45 Days47 Days

5 Days

52 Days

10 days

Average payment process capability: 62 days

Supply Chain: Raw Materials FlowUSA (Flextronics) to USA (NCR)

Discussion Points USA (Flextronics) to USA (NCR)

• Mass Customization: What is it?

• Mass Customization: How is it applied in this flow?

Mass Customization: What is it?

• Mass Customization is the use of flexible computer-aided manufacturing systems to produce a custom output. These systems combine the low unit costs of mass production processes with the flexibility of individual customization.

• Finished goods are produced to a common semi-finished state and then customized as firm order from customers are received.

• Also referred to as postponement strategy where investment is delayed until the last possible moment.

• Example is Dell Computers.

Mass Customization in Practice - Flextronics

•ATMs are built to forecast to a semi-finished state.

•Final assembly for ATMs occur at time of order from NCR.

•Based on ordered features from NCR the ATM is finished and shipped to NCR warehouse.

•Features may include installed heating and cooling units, color selections, and customer specific signage.

Supply Chain: Raw Materials FlowUSA (NCR) to USA (Bank of America)

Discussion Points USA (NCR) to USA (Bank of America)

• Bank of America: Who are they and what do they do?

• Spares Management: What is it and how does it apply to this supply chain?

BANK OF AMERICA• Ticker Symbol: BAC (NYSE)• 2008 sales: $124.1 billion• Employees: 285,000• Industry: Financial Services

Bank of America Corporation, a financial holding company, provides a range of banking and non-banking financial services and products in the United States and internationally. Its segments include consumer and small business banking along with corporate and investment banking and services.

Spares Management – Bank of America

• NCR contracts to a third party for installation and spares management of its ATM products.

• In the US this company is called WCS. WCS places orders on NCRs outsourcing partners for upgrade/spares that are required by Bank of America.