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 Flow
Australia (Cabot) to the Czech Republic (AVX)
Discussion Points
Australia (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
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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
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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?
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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
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.
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.
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 Flow
Czech 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
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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?
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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
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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 Flow
China (Arrow) to China (Flextronics)
Discussion Points
China (Arrow) to China (Flextronics)
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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
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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 Flow
China (Flextronics) to India (NCR)
Discussion Points
China (Flextronics) to India (NCR)
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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
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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 Flow
India (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
Average payment process capability: 62 days
45 Days
2 Days
5 Days
Y1
Y2
Y3
Y4
(Material in transit)
(Data Entry)
(Approving)
(Payment
Release)
45 Days
10 days
47 Days
52 Days
Invoice
Generation
Invoices customs
clearance
Invoices Entered
Invoices Approved
Invoices Paid
Supply Chain: Raw Materials Flow
USA (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 Flow
USA (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
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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.