Operations
Management
Supply Chain
Management
1
Volkswagen Resende Plant
Volkswagen
• Brazilian plant employs 1565 workers
– 265 work for VW
– 1300 work for other sub-contractors/suppliers:
• VW employees responsible for overall quality, marketing,
research and design
• Supplier/subcontractor employees responsible for supply of
parts/components and overall assembly of truck, being
provided space in the VW plant
• VW looks to innovative supply-chain to improve quality and
drive down costs
Supply-Chain Management
• Management of all activities concerned with
– Procurement
– Transformation
– Distribution
• Involves everyone in supply-chain
• Objective: Maximize value & lower waste
• Key is to make suppliers “partners” in firm’s strategy
The Supply-Chain
®
Material Flow
Supplier
Credit Flow
Manufacturing
Supplier
Schedules
Retailer
Consumer
Wholesaler
Retailer
Order/Cash
Flow
Mkt research
data
Importance of Purchasing
• Major cost center
– More wise to reduce cost than increase sales to increase
overall profits
• Affects quality of final product
• Aids strategy of low cost, response, and
differentiation
Objectives of the Purchasing
Function
• Helps identify the products and services
that can be best obtained externally –
Make / Buy decisions – outsourcing?
• Develops, evaluates, and determines the
best supplier, price, and delivery for those
products and services
Supply-Chain Strategies
• Must be in sync with OM strategy which in turn
should support overall company strategy
• Affects long-term competitive position
• Strategic options
– Many suppliers
– Few suppliers
– Vertical backward integration
Many Suppliers Strategy
• Many sources per item
• Lowest bidder wins order – focus on low cost
• Infrequent, large lots
• Long-term relations is not a goal
• Negotiated, sporadic
• Suppliers held responsible for reqd technology,
expertise, cost, quality and delivery competencies
Few Suppliers Strategy
• 1 or few sources per item
• Partnership (JIT); long-term, stable relations
• Allows suppliers to have economies of scale and a
learning curve, thus cutting down on prodn costs
• Reliability and quality given primary importance
• Frequent, small lots
• Delivery to point of use
• Drawback – both buyer and supplier run risk of
becoming captives to one another
Vertical Integration Strategy
• Ability to produce goods previously purchased
– Setup operations
– Buy supplier
• Results in cost reduction, quality adherence, timely delivery
• Issues
– Major financial commitment
– Hard to do all things well
– Dangerous for firms in industries undergoing technological change if
management not knowledgeable enough about the next wave of change
Forms of Vertical Integration
Iron Ore
Silicon
Farming
Raw Material
(Suppliers)
Backward
Integration
Steel
Automobiles
Integrated
Circuits
Distribution
System
Circuit Boards
Dealers
Computers
Watches
Calculators
Flour Milling
Current
Transformation
Forward
Integration
Baked Goods
Finished Goods
(Customers)
Vendor Selection
• Vendor evaluation
Engineering/research/innovation skills
Production capability
Distribution capability
Quality systems
Facilities
Financial and managerial strength
• Vendor development
Integration of the chosen supplier to the system
• Negotiations
Cost based; market based; competitive bidding