Supply Chian Management

transcript

Supply Chain

Management

Outline

Global Company Profile: Volkswagon

The Strategic Importance of the Supply-

– Global Supply-Chain Issues

Supply Chain Economics

– Make-or-Buy Decisions

– Outsourcing

Outline - continued

Supply-Chain Strategies – Many Suppliers

– Few Suppliers

– Vertical Integration

– Keiretsu Networks

– Virtual Companies

Vendor Selection – Vendor Evaluation

– Vendor Development

– Negotiations

Outline - continued

Managing the Supply-Chain

Materials Management

– Distribution Systems

Benchmarking Supply-Chain

Management

Explain supply chain management

State the importance of purchasing and

materials management

Compare & contrast purchasing strategies

Summarize vendor relations issues

Describe the purchasing process and

techniques

Learning Objectives

Volkswagon

Brazilian plant employs 1000 workers

– 200 work for VW

– 800 work for other contractors: Rockwell International, Cummins Engines, Delga

Automotiva, MWM, Remon and VDO, etc.

VW responsible for overall quality,

marketing, research and design

VW looks to innovative supply chain to

improve quality and drive down costs

Volkswagon

Unusual elements:

– VW is buying not only materials, but also the

labor and related services

– Suppliers are integrated tightly into VW‟s own

network, right down to assembly work in the

Definition

The process of planning, implementing and controlling

efficient cost effective flow and storage of goods,

services and related information from point of origin

to point of consumption for the purpose of conforming

to customer requirements.

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

Supply-Chain Management

Suppliers

Tier 2

Suppliers

Tier 1

Manufacturing

Inbound Logistics

Operations

Outbound Logistics

Distributors Retailers

The Supply Chain

Information

The time to act is now!

The first firm in an industry to implement

a real time, interactive logistics information system

will have a competitive advantage, the last firm to do

so doesn't need to spend the money.

D. M. Lambert

T. C. Harrington

Consumer

Retailer

Manufacturing

Materiall Flow

VISA ®

Credit Flow

Supplier

Supplier Wholesaler

Retailer

Cash Flow

Order Flow

Schedules

The Supply-Chain

The Supply Chain

Supplier

Inventory

Distributor

Inventory Inventory

Manufacturer

Customer

Market research data

scheduling information

Engineering and design data

Order flow and cash flow

Ideas and design to

satisfy end customer

Material flow

Credit flow

Supply Chain Management Components:

Information Management

•Traditional supply chain: Forecasts based on different data.

Contributes to the bullwhip effect, excess inventory, and

stockouts.

Supply Chain Management Components:

Information Management

Improved approaches enabled by technology to collect,

store and communicate data

Collaborative planning, forecasting, and

replenishment (CPFR) – Approach to demand

planning in which partners negotiate and agree on a

plan for meeting demand

Material

Dir Wages

16% 13% COGS

Payroll

9% 8% COGS

Payroll

Manufacturing

Wholesale

Retail

Material Costs in Supply-Chain

Supply-Chain Support for Overall Strategy

Supplier’s

Primary Selection Criteria

Supply demand at lowest possible cost

Select primarily for cost

Low Cost

Respond quickly to changing requirements and demand to minimize stockouts

Select primarily for capacity, speed, and flexibility

Response

Share market research; jointly develop products and options

Select primarily for product development skills

Differentiation

Supply-Chain Support for Overall Strategy - continued

Process

Characteristics

Maintain high average utilization

Low Cost

Invest in excess capacity and flexible processes

Response

Modular 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 Overall Strategy - continued

Lead-time

Characteristics

Shorten lead-time as long as it does not increase costs

Low Cost

Invest aggressively to reduce production lead-time

Response

Invest aggressively to reduce development lead-time

Differentiation

Product-design

Characteristics

Maximize

performan

ce and

minimize

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 Issues

Supply chains in a global environment must

– 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

Purchasing

Purchasing Costs as a Percent of Sales

All industry

Automobile

Lumber

Petroleum

Transportation

Industry Percent of Sales

Dollars of Additional Sales Needed to

Equal 1$ Saved Through Purchasing

Percent of Sales Spent for Purchases

Firm's

Percent

Profit

30% 40% 50% 60% 70% 80% 90%

2 $2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $16.67

4 $2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $14.29

6 $2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $12.50

8 $2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $11.11

10 $2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.11

Motivating Forces: Supply Savings

Example U.S. businesses spend 20-30% of revenue

acquiring goods from outside suppliers

– 60% for manufacturing).

Purchase cost savings have strong impact on

bottom line.

– e.g., if the business saves just 6% in supply costs

($432,000), profit will increase by 45%.

Objectives of the Purchasing Function

Help identify the products and services

that can be best obtained externally;

Develop, evaluate, and determine the

best supplier, price, and delivery for

those products and services

The Purchasing Focus

Materials Management

-High transportation cost

-High inventory costs

Supply Management

-High costs

-Scarcity: national or

international

Source Management

-Unique items

-Custom-made items

-High technology items

Purchasing

Management

-Commodity items

-Standard products

Receiving

Purchase Order

Packing List

Processing

Invoice

Receivables

Report

Check Accounts

Receivable

Accounts

Payable

Mail Reconcile

Customer Supplier

Traditional Purchasing

Process

Purchasing Techniques

Drop shipping and special packaging

Blanket orders

Invoiceless purchasing

Electronic ordering and funds transfer

Electronic data interchange (EDI)

Stockless purchasing

Standardization

Make/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

Frees management to deal

with primary business 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

Plans to help achieve company mission

Affect long-term competitive position

Strategic options

– Many suppliers

– Few suppliers

– Keiretsu network

– Vertical integration

– Virtual company

Purchasing Strategies

Supply-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

Many 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

Few Suppliers Strategy

Chrysler‟s Supplier Cost Reduction Effort

Supplier Suggestion Model Savings Rockwell Use passenger car door

locks on trucks

trucks

$280,000

Rockwell Simplify design/substitute

materials on manual

window system

Various $300,000

3M Change tooling for wood-

grain panels to allow three

from one die instead of two

Caravan,

Voyager

$1,500,000

Trico Change wiper-blade

formulation

Various $140,000

Leslie Metal

Exterior lighting suggestions Various $1,500,000

Tactics for Close Supplier Relationships

Tactic

Reduce total number of suppliers

Certify suppliers

Ask for JIT delivery from key suppliers

Involve key suppliers in new product design

Develop software linkages to suppliers

Results

Average 20% reduction in 5 years

Almost 40% of all companies surveyed were themselves currently certified

About 60% ask for this

About 54% do this

Almost 80% claim to do

About 50% claim this

Raw Material

(Suppliers)

Backward

Integration

Current

Transformation

Forward

Integration

Finished Goods

(Customers)

Ability to produce

goods previously

purchased – Setup operations

– Buy supplier

Make-buy issue

Major financial

commitment

Hard to do all things

Vertical Integration Strategy

Forms of Vertical Integration

Iron Ore

Automobiles

Distribution

System

Dealers

Silicon

Integrated

Circuits

Circuit Boards

Computers

Watches

Calculators

Farming

Flour Milling

Raw Material

(Suppliers)

Backward

Integration

Current

Transformation

Forward

Integration

Finished Goods

(Customers) Baked Goods

Japanese word for „affiliated chain‟

System of mutual alliances and

cross-ownership – Company stock is held by allied firms

Lowers need for short-term profits

Links manufacturers, suppliers,

distributors, & lenders – „Partnerships‟ extend across entire supply

Keiretsu Network Strategy

Virtual Company Strategy

Network of independent companies

– Linked by technology PC‟s, faxes, Internet etc.

– Each contributes core competencies

– Typically provide services Payroll, editing, designing

May be long or short-term

– Usually, only until opportunity is met

Vendor evaluation – Identifying & selecting potential vendors

Vendor development – Integrating buyer & supplier

Example: Electronic data exchange

Negotiations – Results in contract

– Specifies period of agreement, price, delivery

terms etc.

Vendor Selection Steps

Company – Financial stability

– Management

– Location

Product – Quality

– Price

Service – Delivery on time

– Condition on arrival

– Technical support

– Training

Supplier Selection Criteria

Negotiation Strategies

Three types:

– cost-based price model - supplier opens its

books to purchaser; price based upon fixed

clause plus escalation clause for materials

and labor

– market-based price model - published price

or index

– competitive bidding - potential suppliers bid

for contract

Managing the Supply Chain

Postponement – keeps product generic as long as possible

Channel Assembly – sends to distributor individual components and modules rather than finished goods

Drop Shipping and Special Packaging – supplier will ship to end consumer rather than to seller

Blanket Orders – a long-term purchase commitment to a supplier for items that are to be delivered against short-term releases to ship

Standardization – reducing the number of variations in materials and components

Electronic Ordering and Funds Transfer – “paperless” ordering and 100% material acceptance, payment by “wire”

Managing the Supply-Chain - Other 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

Vendor managed inventories

Logistics 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 Options

Trucking

Railways

Airfreight

Waterways

Pipelines

Benchmarking Supply-Chain Management

Number of suppliers

per purchasing agent

Purchasing costs as

percent of purchases

Lead time (weeks)

Time spent placing an

42 minutes

15 minutes

Typical

Firms Benchmark

Supply-Chain Performance Compared

Number of suppliers per

purchasing agent34 5

Purchasing costs as percent of

purchases3.3% 0.8%

Lead time (weeks) 15 8

Time spent in placing order 42 minutes 15 minutes

Percentage of late deliveries 33% 2%

Percentage of rejected material 1.5% .0001%

Number of shortages per year 400 4

Supply Chian Management

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