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Supply Chain Management
2
Supply Chain Management
Supply Chain Management
Outsourcing
Purchasing
Partnership Relationships
The Firm as Supplier
JIT Purchasing
Global Purchasing
3
Supply Chain Management
Apply a total systems approach to managing the entire flow of– information– materials– and services
Rawmaterialsuppliers
Factories &warehouses
Endcustomer
4
Outsourcing
Purchased items account for 50 to 70% of the cost of goods sold.
Outsourcing allows firms to focus on their core competencies.
– Organizations outsource when they decide to purchase something they had been making in-house.
Typically mis-handled by materials management function.
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Make or Buy
Current trend favors outsourcing all activities that do not directly represent or support core competencies.
Are there any dangers associated with aggressive outsourcing? What are the implications for JIT production?
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Purchasing
No longer just order takers….
Purchasing need to know– material– performance– availability– suppliers
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The Firm as a Supplier
In this chapter, we discuss the role of the firm as a buyer of goods and services.
How does the perspective change when the shoe is on the other foot?
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Partnership Relationship
Continuing relationship involving
– a commitment over an extended time period,
– an exchange of information, and
– an acknowledgement of the risks & rewards of the relationship.
Characteristics of Good Relationships
Commitment Communication Working through change / improvement Principles centered relationship Spending time together Appreciation / recognition / feedback
Special AttentionLow spend - high risk
Long-Term RelationshipHigh spend - high risk
ContractualHigh spend - low risk(Easily substituted)
High
Low High
Ris
k
Annual Spend
Supplier Characterization Matrix
TransactionalLow spend - low risk
Supplier Improvement
Supplier Evaluation - Involves finding potential suppliers and determining the likelihood of their becoming good partners.
Supplier Development - May include everything from training, to engineering and production help, to formats for electronic transfer.
Negotiations - Are of three classic types: cost-based model, market-based price model, and competitive bidding.
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JIT Purchasing--Requirements
Reduced lot sizes
Frequent and reliable delivery schedules
Reduced and highly reliable lead times
Consistently high quality levels for purchased materials
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JIT Purchasing--Suppliers
Fewer, nearby suppliers
Repeat business
Support suppliers’ competitiveness
Clusters of remote suppliers
Limit competitive bidding to new parts
Resist vertical integration
Encourage suppliers to implement JIT purchasing
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JIT Purchasing--Quantities
Steady output rate (a desirable prerequisite)
Frequent deliveries in small lot quantities
Long-term contract agreements with minimal release paperwork
Deliver quantities variable from release to release but fixed for whole contract term
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JIT Purchasing--Quantities (Ctd)
Little or no permissible overage or underage of receipts
Suppliers encouraged to package in exact quantities
Suppliers encouraged to reduce their production lot sizes (or store unreleased material)
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JIT Purchasing--Quality
Minimal product specifications imposed on supplier
Help suppliers to meet quality requirements
Close relationships between buyers' and suppliers' quality assurance people
Suppliers encouraged to use process control charts instead of lot sampling inspection
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JIT Purchasing--Shipping
Scheduling of inbound freight
Gain control by use of – company-owned or contract shipping– contract warehousing– trailers for freight consolidation/storage
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JIT Purchasing--Benefits
Consistent quality
Savings on resources
Lower costs
Special attention
Saving on tooling
Loyalty associated with long-term relationships with suppliers
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Global Sourcing
Original strategy was to reduce production costs.
Changing focus of global purchasing includes– local content / market access– product availability– technology– delivery– lead times– labor availability and quality.
Why Long-Term Relationships?
Increasing trend toward global supply Higher baseline performance Increasing focus on time to market Dependence upon suppliers for technology
Why Long-Term Relationships?
A long-term relationship between purchaser and supplier is necessary for best economy. How can a supplier be innovative and develop economy in his production processes when he can only look forward to short-term business with a purchaser?
W. Edwards Deming, Out of the Crisis
Why Long-Term Relationships?
Trend toward LT contracts since 1990
Pressure to reduce price
Pressure to reduce transaction costs
Consolidation pressures
Challenges for a Useful SCR Model
Relationships are critical
Trust may be low
Literature focuses on causes of failure
Challenges for a Useful SCR Model
Limited number of published SCR successes
Successes could be culture-dependent
Model should be simple & proven
Family Strengths Research
Strong families
20+ years of research
Over 6,000 surveyed
Family Strengths Research
Culturally diverse population
Compares favorably with other taxonomies of family success
Summarized in six characteristics
Family Strengths Research6 Characteristics of Strong Families
Commitment (trust) Good communication patterns Ability to deal with crises Spiritual wellness Spending time together Appreciation
Six Characteristics of Successful SCR’s
Commitment Good communication patterns Ability to deal with crises (change) Spiritual wellness (principles-centered) Spending time together Appreciation / feedback
Commitment: Concerns
Is this the right supplier? What about commitment? Is management committed? What are the implementation
issues related to maintaining
commitment?
Commitment: Implementation
Selection prior to initiation Two-way criteria for success Regular performance reviews Management committed to proceed Participation requirements identified early Implementation of complete SCR model
Matrix for SCR Selection
Surveillance (2) Long-TermRelationship (1)
Transactional (4) Contractual (3)
Increasing Spend / Value Potential
Incr
easi
ng
Ris
k /
Com
ple
xity
Communication: Concerns
Replace face-to-face communication with technology?
Good communication = $$$ Communication between technical groups Role of agent
Communication: Implementation
Face-to-face communication increased & facilitated by multiple technologies
Support for communication forums Triad as core team Agent investments in communication
Dealing with Change
New product dev. process Common improvement
process Performance measures Conflict resolution by
team leaders
Shared Principles
Principles Centered Leadership
Two-Way Performance Measures
Follow-through on Commitments
Spending Time Together
Quarterly performance reviews
Team building dinners
Commitment to keep the schedule
Appreciation
Celebration of critical improvement
Recognition distribution
Other forms of recognition
Buil ding S t r o ng C ust o mer -Suppl ierRel at io nships
Time To get herAppr ec iat io n/
Feedbac k
Capacityfor
Change
Capacityfor
Change
Strongcommitment
Strongcommitment
Commonpr incipl esCommon
pr incipl es
Excel l entCommunication
Excel l entCommunication