The Supply-Chain
VISA
Material Flow
Supplier
®
Credit Flow
Manufacturing
Supplier
Schedules
Retailer
Consumer
Wholesaler
Retailer
Order
Flow
Cash
Flow
Supply-Chain Management
¨ 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 waste
The Supply Chain
Market research data
scheduling information
Engineering and design data
Order flow and cash flow
Supplier
Inventory
Supplier
Customer
Ideas and design to
satisfy end customer
Material flow
Credit flow
Customer
Manufacturer
Inventory
Inventory
Supplier
Distributor
Inventory
Customer
Supply Chain Management
¨ SCM is primarily concerned with the
efficient integration of suppliers, factories,
warehouses and stores so that merchandise is
produced and distributed in the right
quantities, to the right locations and at the
right time, and so as to minimize total
system cost subject to satisfying service
requirements.
Conflicting Objectives in SC
¨ Purchasing
¨
¨
¨
¨
stable volume requirements
flexible delivery time
little variation in mix
large quantities
¨ Manufacturing
¨
¨
¨
¨
long run production
high quality
high productivity
low production cost
Conflicting Objectives in SC
¨ Warehousing
¨
¨
¨
low inventory
reduced transportation costs
quick replenishment capability
¨ Customers
¨
¨
¨
¨
short order lead time
high in stock
enormous variety in products
low prices
Material Costs in
Supply-Chain
Wholesale
Manufacturing
8% 9%
COGS
Payroll
31%
11%
58%
83%
Material
Other
Dir. Wages
Other
Retail
13%
Source: U.S. Department of Commerce, Bureau of
Census, 1987 Census of Manufacturers: General
Summary of Retail Trade (Washington, D.C.:
Government Printing Office, 1991)
16%
COGS
Payroll
71%
Other
Supply-Chain Support for
Overall Strategy
Low Cost
Response
Differentiation
Supplier’s
goal
Supply
demand at
lowest possible
cost
Respond
quickly to
changing
requirements
and demand
to minimize
stockouts
Share market
research;
jointly
develop
products and
options
Primary
Selection
Criteria
Select
primarily for
cost
Select
primarily for
capacity,
speed, and
flexibility
Select
primarily for
product
development
skills
Supply-Chain Support for
Overall Strategy - continued
Low Cost
Response
Differentiation
Process
Characteristics
Maintain high
average
utilization
Invest in
excess
capacity and
flexible
processes
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
Supply-Chain Support for
Overall Strategy - continued
Low Cost
Response
Differentiation
Lead-time
Characteristics
Shorten leadtime as long as
it does not
increase costs
Invest
aggressively
to reduce
production
lead-time
Invest
aggressively to
reduce
development
lead-time
Product-design
Characteristics
Maximize
performance
and
minimize
cost
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 be:
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
¨
Purchasing
¨ 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 Costs as a Percent of
Sales
Industry
¨
¨
¨
¨
¨
¨
¨
All industry
Automobile
Food
Lumber
Paper
Petroleum
Transportation
Percent of Sales
¨
¨
¨
¨
¨
¨
¨
52%
61%
60%
61%
55%
74%
63%
Objectives of the Purchasing
Function
¨ Help identify the products and services
that can be best obtained externally;
and
¨ Develop, evaluate, and determine the
best supplier, price, and delivery for
those products and services
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
Reasons for Making
Reasons for Buying
¨
¨
¨
¨
¨
¨
¨
¨
¨
¨
¨
¨
¨
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
¨
¨
¨
¨
¨
¨
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
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 Suppliers Strategy
¨
¨
¨
¨
¨
¨
¨
¨
Many sources per item
Adversarial relationship
Short-term
Little openness
Negotiated, sporadic PO’s
High prices
Infrequent, large lots
Delivery to receiving dock
© 1995 Corel Corp.
Few 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
© 1995
Corel
Corp.
Supplier Selection Criteria
¨ Company
¨
¨
¨
Financial stability
Management
Location
¨ Product
Quality
¨ Price
¨
¨ Service
Delivery on time
¨ Condition on arrival
¨ Technical support
¨ Training
¨
Managing the Supply-Chain
¨ Options:
Postponement
¨ Channel assembly
¨ Drop shipping
¨ Blanket orders
¨ Invoiceless purchasing
¨ Electronic ordering and funds transfer
¨ Stockless purchasing
¨ Standardization
¨
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
Materials 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