Supply Chain Management
2 August 2001
Introduction
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What: Supply Chain Management
Where: Organizations that have
significant costs spent on purchasing
Why: reduce purchasing costs
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
Supplier
Inventory
Distributor
Inventory
Customer
The Supply Chain
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Transportation vendors
Credit and cash transfers
Suppliers
Distributors and banks
Accounts payable and receivable
Warehousing and inventory levels
Order fulfillment
Customer, forecasting and product
information
The Supply Chain
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Build a chain of suppliers
Reduce repeated steps (waste)
Maximize value to ultimate customer
Make suppliers partners in the firm’s
strategy
Low-Cost Strategy
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Goal: Lowest possible cost
Supplier Selection: Based on cost
Manufacturing Process: High utilization
Inventory: Minimize inventory throughout
chain to hold down costs
Lead Time: Shortest lead time possible
without increasing costs
Product Design: Maximum performance for
minimum cost
Response Strategy
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Goal: Respond quickly to changing
requirements and demand
Supplier Selection: Based on capacity, speed,
flexibility
Manufacturing Process: Excess capacity,
flexible process
Inventory: Buffer stocks
Lead Time: Reduce aggressively
Product Design: Low setup time, rapid
production ramp-up
Differentiation Strategy
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Goal: Share research, jointly develop
products
Supplier Selection: Based on product
development skills
Manufacturing Process: Modular, mass
customization
Inventory: Minimize to avoid obsolescence
Lead Time: Reduce development lead time
Product Design: Modular, postpone
differentiation as long as possible
Purchasing
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Identify products and services that can
be obtained externally
Develop, evaluate and determine the
best supplier, price, and delivery for
those products and services
Purchasing Functions
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Purchasing Agent
Buyers
Expediters
Make or Buy Decision
Reasons to Make
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Lower production cost
Unsuitable suppliers
Assure adequate supply
Use surplus labour / facilities
Obtain desired quality
Obtain unique item
Maintain organizational talents
Protect proprietary design
Increase size of company
Reasons to Buy
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Lower cost
Commitment to suppliers
Obtain supplier’s technical or management ability
Inadequate capacity
Reduce inventory costs
Ensure alternative sources
Inadequate managerial or technical resources
Reciprocity
Item protected by patent or trade secret
Deal with primary business
Supply Chain Strategy: Many
Suppliers
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Purchaser issues Request For Quote
(RFQ)
Order goes to lowest bidder
Suppliers compete
Not partners
Supply Chain Strategy: Few
Suppliers
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Long term relationship with dedicated
suppliers
Suppliers understand objectives of firm
and end customers
Huge cost to change partners
Share trade secrets
Supply Chain Strategy: Vertical
Integration
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Produce goods or services that were
previously purchased
Buy a supplier or distributor
Opportunities for cost reduction
Dangerous during technological change
Supply Chain Strategy:
Keiretsu
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Large Japanese companies
Invest or loan to suppliers
Company coalition
Middle ground between few suppliers
and vertical integration
Long-term relationships
Supply Chain Strategy: Virtual
Companies
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Subcontract almost everything
Highly flexible
Suppliers provide all variety of services
Relationships may be short or long term
Vendor Selection
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Who to buy materials from
Vendor evaluation
Vendor development
Vendor Negotiation
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Cost-Based Price
Market-Based Price
Competitive Bidding
Supply Chain Techniques
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Postponement
Channel Assembly
Drop Shipping
Blanket Ordering
Stockless Purchasing
Standardization
Electronic Ordering
Electronic Funds Transfer
Internet Purchasing
Materials Management
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Efficiency through integration of
material acquisition, movement and
storage
Purchasing in Services