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SUPPLY CHAIN MANAGEMENT

SECTION 2 Supplier Relationships

1 - UNDERSTANDING AND DESIGNING THE SUPPLY CHAIN

ALAN L. WHITEBREAD ALLW International

FORCES SHAPING SCM TODAY

• Competitive pressures • Rising customer expectations • Stakeholder [financial performance] pressure • Globalization • Capacity / inventory and its location[s] • Mergers and acquisitions • Rapid technology change • Need for ever-increasing speed to market ALLW International

SCM SETTING TODAY

• • Rapid change in product life cycle stages / international product life cycles • Forecasting difficulties: individually understanding the elements of total demand • Critical lead times / commitments • Increasing storage costs • Highly variable transportation costs ALLW International

FROM JIT TO SCM

Collaborative Supply Chains COLLABORATIVE – synchronize all aspects Supplier Strategic Alliances Supplier Managed Replenishment Supply Chain Optimization OPTIMIZED – improve collaboration and control with suppliers and customers Supplier Partnerships INTEGRATED – integrate functions of the existing supply chain Quick Response Just In Time 1980 FUNDAMENTAL – the beginning 1990 2000 2008

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JUST-IN-TIME [JIT] CONCEPT

• Producing exactly what is needed, transferring it to where it is needed, in the required sequence, exactly when it is required.

•

Characteristics:

– Focuses on having little or no inventory throughout the supply chain – Most items are make-to-order with short lead times and specific delivery times [windows] – Reduces variability from all sources – The supply chain is synchronized – There are numerous tightly scheduled events •

Risks

– Failure to deliver on time has serious consequences.

– Large changes in demand or unexpected events can become difficult to handle.

•

A basic premise is that excess capacity or inventory are forms of waste that must be minimized.

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SUPPLY CHAIN MANAGEMENT [SCM]

A network of facilities and distribution options that perform the functions of: – Procurement

[purchasing, expediting, …]

– Transformation of materials through intermediate stages

[WIP and assemblies]

into finished components and products – Storage and management of inventories

[asset management]

– Distribution of finished products to customers at all levels

[DC’s, logistics]

– Support systems

[administration, IT]

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SCM: GENERAL FUNCTIONS

MANAGING FLOWS – Information, Materials, and Money SUPPLIER’S SUPPLIERS SUPPLIERS FOCAL FIRM CUSTOMERS CUSTOMER’S CUSTOMERS

Information, materials, and money flow freely back-and-forth between the supply chain entities. This ever-present need for information, materials, and money is what drives the need for cooperation in supply chains. The best supply chains typically have the best flows.

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SCM: GENERAL FUNCTIONS

• Managing relationships – Suppliers – Employees – Customers: Resellers – Customers: End-users • Managing functions and processes – Benchmarking and best practices • – Translates user needs into production systems that make quality products.

• – A management philosophy for the continuous improvement of processes and products.

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SCM: GENERAL FUNCTIONS Managing The Value Chain

Organization of discrete yet interrelated activities that deliver more value at each and every step of the supply chain and enable excellent entity performance.

Support Activities Firm Infrastructure

Financing, planning, investor relations

Human Resource Management

Recruiting, training, compensation system

Technology Development

Product design, testing, process design, market research, material research

Procurement

Raw materials, advertising space, health services

Operations M N I A G R Primary Activities Inbound Logistics

Data collection, Material storage Manufacturing, Operations

Outbound Logistics

Order processing, Warehousing, Distribution centers

Marketing and Sales

Sales, Proposal writing, Advertising, Trade shows

After-Sale Service

Installation, Customer support

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SCM: SPECIFIC FUNCTIONS

Facility Location Customer Service Order Processing Demand forecasting Production Scheduling Facility Management Material Handling Inventory & Control Transportation Purchasing Packaging Standards Warehousing Return Goods Handling Salvage and scrap disposal

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A TOY’S TRIPS TO MARKET

Plastic eyes & transistors China Speakers for voice & wiring China Plastic body Malaysia Motor for legs China Plastic legs & IC chips Taiwan Microfiber fabric coat Korea Voice recognition USA Voice recognition programming Taiwan Packaging China Manufacturer Outbound Port Inbound Port

There are many steps / paths from the beginning of a supply chain to having a satisfied customer. Every red arrow indicates one or more transportation vehicles.

Warehouses and Distribution Centers Thousands of Retail Stores SATISFIED CUSTOMER

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THE SUPPLY CHAIN AT WORK: AUTOMOTIVE INDUSTRY

To build more than hundreds of thousands of cars per year, an auto manufacturer is likely to utilize approximately 200 1 ST TIER suppliers with hundreds of factories. The number of suppliers grows exponentially as add the 2 ND and 3 RD TIER suppliers.

STEEL COMPANY UPSTREAM UPSTREAM SUPPLIER DIRECT SUPPLIER AUTO MANU FACTURER DOWNSTREAM DEALERS RENTAL AGENCIES CONSUMERS BUSINESS CONSUMERS FLEETS 3 RD TIER 2 ND TIER 1 ST TIER Manage all other tiers.

OEM SPECIAL VEHICLES STEEL FASTENERS RADIATORS Raw materials, semi-finished, and component products VEHICLES Finished products and components

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DESIGNING THE SUPPLY CHAIN

• Seamless supply chains have – excellent coordination among members; – compatible information systems; – – outstanding communication; – little waste and few environmental issues; – minimal inventories; – exceeded customer and supplier expectations; and, – meet or exceed profit expectations.

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TYPES OF SUPPLY CHAINS: 7 DECISIONS: The two extremes

EFFICIENT SUPPLY CHAIN RESPONSIVE SUPPLY CHAIN

Primary goal Product design Pricing

Lowest supply cost Quick response to demand Maximum performance at minimum cost Modularity for product line additions and rollouts Lower margins - price is seen as a prime driver Higher margins - price is not a prime driver

Manufacturing

High utilization provides low costs Flexibility to capitalize on opportunities

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TYPES OF SUPPLY CHAINS: 7 DECISIONS: The two extremes

EFFICIENT SUPPLY CHAIN RESPONSIVE SUPPLY CHAIN

Inventory

Minimized Ample –not excessive— safety stocks exist

Lead time Suppliers

Reduce – only as costs permit Reduce aggressively – even with some cost increases Select based on cost and quality Select based on speed, flexibility, reliability, quality, and the ability to integrate with your systems

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SCOR MODEL

For complete details go to www.supply-chain.org

• The SCOR

[Supply-Chain Operations Reference-model]

by the Supply-Chain Council provides a supply chain process framework of plan – source – make – deliver – return ALLW International These elements are the key to SCOR success.

SCOR SPANS

• All customer interactions –

From order entry through final payment

• All product and service transactions –

From your supplier’s supplier to your customer’s customer

• All market interactions –

From understanding all of the elements

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SCOR: THE CONFIGURATION OF A SUPPLY CHAIN

• PLAN levels of aggregation and information • SOURCE locations and products • • MAKE production sites and methods • • DELIVER channels, inventory deployment and products • RETURN locations and methods ALLW International

SCOR: MEASURE PERFORMANCE – INTERNAL & EXTERNAL

• RELIABILITY – achievement of customer demand fulfillment complete and on-time • RESPONSIVENESS – the time it takes to react to and fulfill customer demand • AGILITY - the ability of supply chain to increase/decrease demand • COST – objective assessment of all supply chain cost elements • ASSETS – the assessment of all resources ALLW International

SCOR: REALIGN SUPPLY CHAIN PROCESSES & BEST PRACTICES

• Classic process re-engineering from "As-Is" to "To-Be" • Lean Manufacturing analysis and process change • Six-Sigma analysis of defective processes • • ISO-9000 style process capture and control • Balanced SCORcards and benchmarking • Many more industrial engineering based best-practice techniques ALLW International

SUPPLY CHAIN MANAGEMENT: Functional components

MARKETS Consumers: Customers Prospects Suspects SUPPLIER’S SUPPLIERS SUPPLIERS FOCAL FIRM CUSTOMERS CUSTOMER’S CUSTOMERS Market assessment Product & component design Long range planning Product & component design Demand planning Supply chain planning Master production schedule Materials planning Logistics Procurement Customer order management Factory planning

Years ← Quarters ← Quarters ← Months ← Weeks ← Weeks ← Days ← Minutes

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•

NETWORK DESIGN

You need to thoroughly understand all the complex systems, how they are related, and integrated to make an intelligent network design decision.

• ALLW International That requires an understanding of these four phases of SCM.

1. Supply chain strategy 2. Facility configuration 3. Desirable sites 4. Location decisions

NETWORK DESIGN

• • • •

Supply chain strategy is based on

competitive strategy, domestic and international competition, and • – – – –

Facility configuration is a function of

production technologies, methods, and scope, aggregating and minimizing logistics costs, regional demand, and international affects.

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NETWORK DESIGN

• • • •

Desirable sites have good

production methods, an adequate and available labor force.

•

Location decisions are determined by

– factor costs •

Labor, materials, site operations

– ALLW International

SUPPLY CHAIN CYCLES

CUSTOMER ORDER CYCLE CUSTOMER REPLENISHMENT CYCLE B2B CUSTOMER ORDER CYCLE PROCUREMENT CYCLE: SUPPLIERS DEALER / RETAILER DISTRIBUTOR / WHOLESALER MANUFACTURER

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MANUFACTURING PROCESSES: BATCH

• • The equipment can make a variety of products in a class based on its capability.

• An optimal batch size is determined.

• Products are run in a sequence to optimize the process [as much as possible].

• • Capacity can generally be added in a reasonable time frame.

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MANUFACTURING PROCESSES: FLOW

• • The equipment runs at a [fast] steady rate.

• The lead time is short with continuous production.

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MANUFACTURING PROCESSES: LEAN PRODUCTION

• The Production System Design Laboratory [PSD] at MIT http://lean2.mit.edu/ – “Lean production is aimed at the elimination of waste in every area of production including customer relations, product design, supplier networks and factory management. Its goal is to incorporate less human effort, less inventory, less time to develop products, and less space to become highly responsive to customer demand while producing top quality products in the most efficient and economical manner possible.” • • Toyota was a pioneer and realized enormous cost savings.

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MANUFACTURING PROCESSES: LEAN PRODUCTION: THE 5 S’s

Basic Principle

Eliminate clutter by removing everything

tools, and paperwork] [supplies, materials,

not required in the operation.

Sort Set In Order

Organize the work area so you can find everything quickly and easily. Items are always in the same place.

Make the entire work area

[aisles, walls, meeting, and storage places]

shine. You should be proud to show it to visitors.

Sustain

Use policies, procedures, and practices to insure the first three of the 5S activities are performed regularly. Create a 5S culture by utilizing mechanisms that support, enhance, and extend 5S practices, monitor performance, involve and recognize people for their contributions. ALLW International

MANUFACTURING PROCESSES: LEAN PRODUCTION PRINCIPLES

• Managerial Responsibility – Managers must be teachers, team facilitators, and motivators.

• Process Development – Line workers are trained to • Improve processes, and • Solve problems – • Network Orientation – Lean should be practiced by ALLW International

MANUFACTURING PROCESSES: LEAN PRODUCTION PRINCIPLES

• Synchronization – Coordination of material movement is accomplished • developed by Toyota Corporation to signal when parts needed to be withdrawn from inventory or a feeding operation

[like a supply bin]

and leave a visible record of its withdrawal.

• Continuous Improvement – – continuous improvement comes through productivity gains and innovation ALLW International

SUPPLY CHAIN RISKS

• Disruptions of any kind –

Disasters, labor disputes, supplier problems, …

• Delays in the systems –

Inflexibility of supply sources, poor yield, capacity or bottlenecks, …

• Systems issues –

Lack of systems integration, system breakdowns, …

• Forecasting problems –

Excessive inaccuracy due to seasonality, SKU variety, short life cycles, small customer base, …

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SUPPLY CHAIN MANAGEMENT: PROBLEMS & SOLUTIONS

THE PROBLEM A POTENTIAL SOLUTION

Uses numerous transportation carriers Consolidate to as few carriers as necessary and press for steep freight discounts Less-than-truckload freight quantities from manufacturing sites to customers Ship railcar or truckload quantities to DCs then LTL to customers Excessive loss and damage in transit Identify sources of damage —transit, packaging, or handling and correct The supplier base had numerous suppliers with many LTL shipments Consolidate the supplier base based on total system cost and efficiency Purchasing buys based only on price Convert to purchasing on a total system cost basis

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ALLW International SUPPLY CHAIN MANAGEMENT

SECTION 2 Supplier Management and Supplier Relationships 2 – OUTSOURCING AND SUPPLIER SELECTION ALAN L. WHITEBREAD

OUTSOURCING

• Outsourcing is the process of moving an aspect of production, service, or other business function from within an organization to an outside supplier.

• By outsourcing non-strategic processes an organization can focus its attention on its primary business[es] and maximize customer satisfaction.

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TYPES OF OUTSOURCING

• –

a third-party makes an assembly, component, or finished product for another company.

• –

a supplier that provides some or all logistics activities.

• Offshoring –

outsourcing a function to a different country.

•

Business Process Outsourcing [BPO]

–

outsourcing support functions such as: housekeeping, payroll, uniforms, … This is frequently included in with 3PLs.

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BENEFITS OF OUTSOURCING

• Frequently cited benefits include: – Reduce operating expenses – Focus on the core business – Create a variable cost structure – Improve skills due to business focus – Concentrate on increasing revenue – Conserve or more effectively utilize capital – Increase innovation – Improve quality ALLW International

OUTSOURCING RISKS

• Outsourcing the wrong [core or strategic] functions may interfere with the operation of an entity and may cause a long-term loss of competitive position.

• Outsourcing risks – Strategic risk is long-term risk based on a – Tactical risk is short-term risk based on the use of a supplier for capacity.

• BE CAREFUL! – ALLW International

OUTSOURCING RISKS

STRATEGIC RISK result -

Lose the knowledge to internally perform the function or master the technology – can not keep up with competitive technology levels

TACTICAL RISK result

A short-term supply disruption – customer shipments are delayed Supplier has, or develops, unique capabilities – technology protected by patents and / or trade secrets causing you to lose bargaining power Supplier takes short-cuts to increase speed of production and / or decrease quality without your approval – increased number of bad parts, …

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OUTSOURCING POSSIBILITIES

ITEM TO OUTSOURCE WHY?

Grounds maintenance Housekeeping

It is not a strategic function or core competency. It is unimportant to the long term success of the entity.

?

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MITIGATING OUTSOURCING RISKS

OUTSOURCED ITEM ISSUE

Available capacity / total supplier capacity Cost escalation with a contract Cost escalation without a contract

Risk can be mitigated by …?

Identifying and qualifying additional suppliers Contract; price adjustment clause should be indexed to …

?

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OUTSOURCING BY TYPE: CONTRACT MANUFACTURING

• Contract manufacturing uses one or more selected suppliers to provide a product and/or service for the customer’s specific needs.

– It involves • a contract, • extensive coordination, • specifications [product, packaging, and quality], and • possibly new product development activities.

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OUTSOURCING BY TYPE: 3PL EXAMPLES

Transportation

Tracking, tracing, dispatch, freight payment, contract management

Warehousing Other 3PL services

Cross-docking, shipment merging, pick and pack operations, kitting, inventory control, order fulfillment, catalog fulfillment, internet order delivery Customs brokering, freight forwarding, export crating and consolidation, order taking, insurance claims, freight bill auditing, consulting services

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OUTSOURCING BY TYPE: 3PL

• PRIMARY REASONS FOR SELECTING A 3PL – REDUCE COST • •

Reduce operating costs Reduce capital investment

– INCREASE COMPETENCY FOCUS • •

Focus on core business Gain access to technology not in firm

– INCREASE REVENUE • •

Increase flexibility and responsiveness Increase speed to market

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OUTSOURCING BY TYPE: 3PL

• HOW SHOULD I SELECT A 3PL? Some general items to evaluate • Price competitiveness – Evaluate on a total system cost basis – not a piece price basis • Financial stability • Experience in the same industry or with similar companies or products • • ?

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OUTSOURCING BY TYPE: 3PL

• HOW SHOULD I SELECT A 3PL?

– Quality • Service quality and performance [Six Sigma, ISO 9000, Malcom Baldridge [NIST], … • Six Sigma [defects per million] Six Sigma 2 3 4 5 6 Defects 308,537 66,807 6,210 233 3.4

?

25-40% 15-25% 5-15% <1% ALLW International

OUTSOURCING BY TYPE: 3PL

• HOW SHOULD I SELECT A 3PL?

– Quality [continued] • • Quality of the supplier’s management team – Client Relationship • Availability of top management • • Service cancellations, delays, and / or interruptions • General reputation – Human resource policies and availability of qualified talent ALLW International

SCM ISSUES

• SUPPLIER SELECTION – Capability and quality of supplier • •

Logistic compatibility Systems compatibility

– What form should it be?

•

Contract, partnership, or strategic alliance?

– Setting requirements •

Continuous improvement

•

Extensive corporate access

– What are the key metrics that will be used to evaluate supplier performance?

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SCM ISSUES

• SUPPLIER CERTIFICATION – involves the process of selecting and qualifying suppliers through a series of tests.

– It may require • • initial interviews and tours, • initial samples, • a detailed facility review –

production, systems, processes, quality, …,

• and more.

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SCM ISSUES

• SUPPLIER LOGISTICS – How orders are placed and confirmed – Returns and rework • • • • • – ALLW International

SCM ISSUES

• SUPPLIER LOGISTICS: SYSTEMS – •

EVENT: The focal firm places 100 office items with Supplier A and 200 production supply items with Supplier B. Both suppliers are on two-year contracts. Requisitions are electronically sent to the supplier requiring at least once-a week delivery, and suppliers are paid every ten days.

•

MINIMUM SUPPLIER REQUIREMENTS: [1] local; [2] own their warehouse, [3] own their transportation, and [4] have compatible IT for order placement and accounting purposes.

•

EXPECTED RESULTS: reductions of [1] inventory, [2] turnaround time, and [3] stockouts .

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SCM ISSUES

• SUPPLIER LOGISTICS: SYSTEMS – •

EVENT: A major company requires suppliers that can produce branded products to their specifications and provide verification of the quality of the product.

•

MINIMUM SUPPLIER REQUIREMENTS: [1] world-class facilities; [2] Six Sigma or similar quality system, and [3] significant flex capacity.

•

RESULTS: supplier [1] ships directly to customer warehouses and distribution centers, [2] eliminates customer quality verification delays and expense, and [3] provides a more predictable flow of product to inventory.

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SCM ISSUES

• SUPPLIER INVOLVEMENT – Design • Standardization • Customization • Modularization [interchangeability – minimize the number of parts / components] • Performance testing [standards, specifications, and reporting results] • Change management strategies • Flexibility ALLW International

SCM ISSUES

• SUPPLIER INVOLVEMENT – Supplier-managed inventories • Excellent for changing customer demand when – Customers have trouble forecasting – – – Remember,

D t = ∑D n

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DEMAND AND MAKE TO ORDER PRODUCTION SCHEDULE

1000 900 800 700 600 500 400 300 200 100 0

Level loaded facility [lowest long-term cost of production] D 1 D D 2 3 D t

1 2 3 4 5 6 Distributors Wholesalers Retailers Produced To understand implications to the total system, you must understand each demand schedule [D 1 , D 2 , and D 3 ] as well as the total demand schedule [D t the produced line in this example].

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SUPPLIER-MANAGED INVENTORY

• This has many features including it – shortens the supply chain; – improves and shortens communications; – allows centralized forecasting; and, – ALLW International

SCM ISSUES

• SUPPLIER INVOLVEMENT – • Changing customer demand • A complex product offering • Economies of scale –

Automation, purchase volume, production run size, …

• Requirements for new versus existing products ALLW International

SCM ISSUES

• SUPPLIER INVOLVEMENT – • Component / assembly management • • Just-in-time [JIT] – Frequent, small and consistent deliveries – Co-location possible – ALLW International

DIRECT SHIPMENTS

SUPPLIER A SUPPLIER B

PLANT

SUPPLIER D

FULL EMPTY

SUPPLIER E SUPPLIER C SUPPLIER F A direct shipment sends items from a supplier to a customer facility. When dealing with truckloads, the carrier needs to find a return load or go deadhead and not get paid on the return trip. Direct shipments can increase the total cost of operation due to freight costs. However, a firm may not have any alternative to the direct shipment model. ALLW International

MILK RUN SHIPMENTS

SUPPLIER D

EMPTY PARTIALLY FULL PLANT [Level loaded]

SUPPLIER E

PARTIALLY FULL FULL

SUPPLIER F If suppliers are close together and the order timing is acceptable, a firm may be able to use a milk run model. A truck picks up from multiple suppliers before returning to the plant. The savings in freight costs should offset the increased scheduling expense. ALLW International

SCM ISSUES

• SUPPLIER INVOLVEMENT – Flexible Business Relationships • • Purchase orders [POs] – • Primary / secondary / tertiary sourcing • Purchasing agreements to contracts – Alliances – ALLW International

SCM ISSUES

• SUPPLIER INVOLVEMENT – Systems coordination and development • Integration • Coordination of efforts • Evaluation and feedback • System variation over time • Quality system compliance and reporting ALLW International

SCM ISSUES

• SUPPLIER INVOLVEMENT – Infrastructure compatibility • IT systems • Logistics • Engineering • Operations – Multiple production aspects; quality systems / standards – Packaging [at all stages] • • • Customer requirements and specifications ALLW International

CLOSED / OPEN LOOP PACKAGING SYSTEMS

FOCAL FIRM Packaging materials SUPPLIER FOCAL FIRM PACKAGING SUPPLIER Plastic containers PACKAGING SUPPLIER Corrugated SUPPLIER

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SCM ISSUES

• SUPPLIER INVOLVEMENT – Target costing approach • • Components • Product[s] • Administrative efficiencies ALLW International

TOTAL SYSTEM COST EXAMPLE

•

We need 12,000 units of item A each year. A new purchasing employee can buy it for $9.00 from a new unapproved supplier versus $9.75 from the current approved supplier. This could result in a savings of $9,000 per year. But it costs $25,000 to qualify a new supplier – a payback of 2.8 years. Therefore, it is not worth qualifying a new supplier for this small savings.

•

However, if the supplier would price it at $8.95, it would just barely meet the minimum corporate payback rate of 2.5 years and be worth consideration.

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SUPPLIER RELATIONSHIPS: ARMS-LENGTH

• Ideal for routine transactional purchases of goods or services that are not critical. – • • There is no long-term commitment or special value added by this supplier. • It is a supply market with many undifferentiated, very competitive firms that primarily compete on price.

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SUPPLIER RELATIONSHIPS: NICHE

• Providers are usually specialized, providing a very specific product, service, or technology. –

Specialized process or product

• They are more difficult to replace than arms-length suppliers due to their specialized capability. ALLW International

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SUPPLIER RELATIONSHIPS: HYBRID

• Provide an intermediate level of service and items that are integrated into the organization’s operations. • Functional boundaries between the supplier and the firm often blur. There is a steady flow of communications at and between many functional levels of the two firms.

• The integration of functions and obligations increase switching costs ALLW International

SUPPLIER RELATIONSHIPE: FULL-SERVICE

• Provide strategic items and processes that are highly integrated with the focal firm with a very high level of responsibility and accountability. • • Communication between the firms is extensive at all levels. • Typically, these are major suppliers, often world-class caliber, with very long-term relationships and / or strategic alliances. Very difficult and costly to replace. ALLW International

ALLW International SUPPLY CHAIN MANAGEMENT

SECTION 2 Understanding the Market 3 – RELATIONSHIPS, NEGOTIATION, AND CONFLICT RESOLUTION ALAN L. WHITEBREAD ALLW International

Supply Chain Relationships

• Current and future success of an entity depends on its ability to identify outstanding supply chain partners and develop appropriate relationships.

• Managers must learn how to define and manage many types of relationships throughout the supply chain in a ever changing environment.

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The Relationship Continuum

• Not all relationships are created equal. They are within the continuum below.

SIMPLE AND DISTANT Transactional COMPLEX AND CLOSE Long-term Transitory Cost-driven Not close Mutual benefits Shared risks & resources Open communication Organization-wide

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RELATIONSHIPS

• Supplier relationships • Customer [direct] relationships • Channel [reseller] relationships • – What are some of the issues with these? • ALLW International

RELATIONSHIP MARKETING

• is the development and maintenance of long-term mutually beneficial relationships with – customers, – suppliers, – employees, and – stakeholders.

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RELATIONSHIP MARKETING

• Three major items are your keys to success.

– Identifying current and potential customers, their characteristics, and needs. •

RESPONSIBLE AREAS: product management and market research

– Customizing messages and/or products and services for customers. •

RESPONSIBLE AREAS: product management, market research, Integrated Marketing Communications [IMC] [advertising, promotion, and PR]

– Building the relationship over a long period of time. •

RESPONSIBLE AREAS: sales and sales management

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DEVELOPING POSITIVE CHANNEL RELATIONSHIPS REQUIRES

• • Excellent 2-way communication • • • Commitment at many levels • Consistent behavior patterns • A long-term orientation • Results meeting or exceeding reasonable goals ALLW International

CUSTOMER-CHANNEL MEMBER INTERACTION AND THE EXCHANGE

TRANSACTIONAL EXCHANGE RELATIONAL EXCHANGE Short-term oriented Sharp-in, sharp-out Past, present, and future considered Reciprocity Self-interest only Relationships No concern for the future One-time deals Long-term focus Win-Win

Look at each type of exchange as a customer type. Then write down the [1] traits of the sales people you would hire to sell to that type of account, [2] requirements for training the manufacturer’s sales organization, and [3] sales compensation?

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Transactional Relationship

• – Minimize cost – Manage for efficiency • These relationships are not strategic and often transitory! They receive minimal – – – ALLW International

Strategic Alliances

• The focus is coordinating complementary core competencies or organizational strengths.

• Relationships are mutually evaluated and managed.

• There is intensive open communication • Cross-organizational teams drive cooperative planning.

• These are long-term relationships.

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Strategic Alliance: Success Factors [one or more]

• The relationship has current or potential mutual benefits.

• The supply chain member represents a significant amount of revenue or potential revenue.

• The potential partner possesses skills, technology, or some other unique aspect.

• • • A strategic component, service, or upstream / downstream relationship is affected.

–

Better quality, lower costs, shorter cycles, unique service, ...

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Strategic Alliance: Expected Benefits [one or more]

• The focus on individual strengths leverages them into core competencies or key success factors.

• The SC is a value system. You can optimize resource usage across the supply chain! • Permits unique product/service packages and one-of-a-kind satisfaction opportunities.

• Allows SC partners to learn from each other.

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Strategic Alliance: Supplier Outcomes [one or more]

• • • Increase production stability Allows: – Investment in new technologies May result in: – –

Access to buyer’s expertise Access to buyer financing for materials or equipment

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Supply Chain Relationship Practices

•

Personal contacts

– generate goodwill and reduce miscommunication.

•

Clear specifications

– for product, process, and contract fulfillment are clearly stated to reduce confusion and ambiguity.

•

Timely payment

– that is as quick and easily as possible. ALLW International

Supply Chain Relationship Practices

•

Equitable treatment

– Policies are applied equally to all supply chain [SC] members.

– Playing favorites creates suspicion, mistrust, and damages relations beyond those involved. •

Support and Training

– Appropriate levels are provided to customers and suppliers. People must have the tools to succeed!

•

Open communication

– Timely information is shared via electronic linkages; face-to-face communication is critical. ALLW International

Supply Chain Relationship Practices

• • •

Feedback

– Periodic SC surveys coupled with face-to-face feedback build trust and improve the process.

Confidentiality

– Customer and/or Supplier information must remain strictly confidential.

Integrity

– SC managers should always desire to fulfill all contract obligations without hassle or argument. ALLW International

•

Trust

THE ROLE OF TRUST

– – promotes collaboration, risk taking, information sharing, and shared resources; and – ALLW International

Principles of Trust in SCM

• • • – Trust is difficult to earn and takes time to establish.

• • – Consistent patterns of behavior build trust.

Trust Requires Open Information Sharing

– Open communication promotes strong and dynamic relationships.

– Suppliers don’t trust institutions, they trust people!

– There is no trust without consistent and outstanding performance.

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Trust – Overcoming Different Views

Power Buyer Organization Buyer has it!

Supplier Organization Does not have it!

Corporate Objective Reduce costs!

Protect margins!

Relationship Expectations Have needs met —buying solutions.

Be treated fairly.

Communication Style Only the FACTS!

Seek to accommodate!

Problem Solving Definition of Win-win Don’t like to be corrected by suppliers!

Offers of help only when problems arise are viewed as changing their business model!

Suppliers should be happy if they are a little better off than before!

Expect to be compensated for value added!

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Modern Negotiation

• Negotiation is the formal communication process where two or more parties discuss important issues and come to a mutually satisfactory agreement.

• • Successful negotiations require careful management of information, personal relationships, time, and the appropriate use of power.

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POWER and DIFFERENTIAL ADVANTAGE

• POWER – [the ability to get another to do something] is obtained through differential advantage.

• – [sometimes sustainable competitive advantage] may be • • • Physical / experiential • Total cost including price and terms of sale • Post-purchase satisfaction

[

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Commonly Negotiated Areas

• • • • • • •

Price Quality Service level Confidentiality, especially key items like cost structure and proprietary technologies Continuous improvement

–

quality, cost, and other relevant areas Contract duration and volumes Delivery schedules

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Negotiation Philosophies

•

Win-Lose Philosophy

[Predatory strategy]

– – – –

Pits customer and supplier against each other Conflict resolution is a hardball process. Neither channel member is concerned with the other's needs. Each tries to win its maximum value.

•

Win-Win Philosophy

[Symbiotic strategy]

– –

Working together both parties can improve their long term competitive position and profitability

– – ALLW International

Steps in Preparing for a Successful Negotiation

• Understand the other team [members] – Strategy roles – – – • Psychological – Type of room / equipment – ALLW International

Common Negotiation Tactics

• – Arguments that cannot be factually supported damage credibility.

• – Experienced negotiators know that the proper answer to a question is truthful, advances the negotiator’s tactical plan, and helps discern the supplier’s objectives. •

Be Wary of Deadlines

diminishes credibility. . – An effective negotiator does not let deadlines force bad decisions. The use of arbitrary or meaningless deadlines ALLW International

Common Negotiation Tactics

• •

Best and Final Offer

. – The take-it-or-leave-it approach signals the need for a decision on a specific point. If the negotiator is not prepared to end the negotiation and the “bluff” is called, credibility is lost. – It is better to say no than to agree to an unsatisfactory position. Being candid has merit. •

Foot in the Door

. – Whenever an exceptional quote is received a negotiator should examine both motivation and capabilities to determine whether the offer represents a real long-term benefit. •

High Ball

. – Win-lose negotiators sometimes begin a negotiation at an extreme position, expecting to make concessions. ALLW International

Common Negotiation Tactics

• • •

Honesty and Openness.

– Win-win negotiations emphasize the honest and open sharing of information.

Keep the Initiative.

– Some negotiators believe that the “best defense is a good offense.” They establish initiative early and maintain it by probing the other side’s position, asking for justifications and requiring supporting documentation. – Great listeners focus on not only the words but also the tone of voice and the pauses. Careful observation provides insight into the other side’s position and real objectives.

ALLW International

Common Negotiation Tactics

• – Win-lose negotiators often believe that the other side should make more and larger concessions. For every concession made, equal or greater concessions are expected from the other side. • – Deliberately attempting to mislead the other side into believing that “a better quote (or offer) is waiting from another supplier (or buyer)” is unethical, probably illegal, and risky. • •

Prioritize Issues

. – Two basic philosophies / approaches exist.

1. Discuss the most difficult issues first.

2.

Discuss the “easy” issues first to establish the trust that will help resolve more difficult issues.

ALLW International

Common Negotiation Tactics

• – Experienced negotiators divert attention away from the problematic issues using a joke, an anecdote, or a well-timed break.

•

Use Positive Statements

. – Sometime it is important to respond with a simple, “I see your point” or “Your point is well taken” to temporarily defer the issue.

• •

Use Questions Effectively

deflect criticism. . – The right question can undermine an unacceptable position or – Silence can be effectively used to avoid difficult questions, make the other side nervous, seek concessions without specifically asking for them, and redirect the discussion tactfully.

ALLW International

METHODS OF RESOLVING CONFLICT

• Problem-Solving • Persuasion • Bargaining • • Politics ALLW International

LEGAL REMEDIES TO CONFLICTS

• • Strict reliance on the contract law causes problems.

• Legal options should be used only as a last resort! They can be a major problem with – Time – Expense – Business distraction ALLW International

NEGOTIATIONS: STRATEGIES AND ALTERNATIVES

•

Opening

– Important issues or minor ones?

•

Countering

– Quick response?

– Quick response and defer?

– Defer all minor points?

•

Short conferences

– Buying time, or appearing to do so?

ALLW International

NEGOTIATIONS: TACTICS

• • • Develop a minimum and maximum position for every strategy and alternative.

• Did you prepare a question map? Who asks each key question?

• • Change the roles of team players.

• Always ask for something more? Only to a point.

ALLW International

NEGOTIATIONS: PERSONAL SKILLS

• Emotional maturity • Body Language—know hidden signs • Meta-Talk—hidden meanings – Hofstede's high context countries – Search http://www.geert-hofstede.com/ .

ALLW International

HOFSTEDE’S CULTURAL DIMENSIONS: 117,000 IBM employees in 88 countries

• #1 – INDIVIDUALISM :

The degree to which the individual is more important than the group.

– Low [Collective] •

Ecuador, Guatemala, Japan

– High [Individual] •

U.S., Australia

• #2 – MASCULINITY :

The degree to which male dominance is accepted.

– Low [Feminine] •

Finland, Norway, Sweden

– High [Masculine] •

Austria, Italy, Japan, Mexico

ALLW International

HOFSTEDE’S CULTURAL DIMENSIONS

• #3 – UNCERTAINTY AVOIDANCE :

The degree to which people deal with uncertain situations.

– Low [Risk Accepting] • Denmark, Great Britain, Jamaica, Singapore, Sweden,

U.S.

– High [Risk Averse] • Argentina, Greece, Israel, Italy, Japan, Portugal • #4 – POWER DISTANCE :

The acceptance of an unequal distribution of power of entities.

– Low [Egalitarian; boss gains trust of employees] • Australia, Austria, Denmark, Israel, Canada,

U.S.

– High [Hierarchical; the boss must be obeyed] • Brazil, China, India, Malaysia, Mexico, Panama, Turkey ALLW International

CULTURAL BEHAVIOR: PERSONAL SPACE

In all societies there are accepted distances for a conversation based on the relationship. Those distances can go from inches to feet.

INTIMATE DISTANCE PERSONAL DISTANCE SOCIAL DISTANCE PUBLIC DISTANCE Close Far THE GREATER THE POWER DISTANCE SCORE, THE GREATER THE SPACING.

THIS WOULD BE TRUE FOR COLOMBIA, PAKISTAN, THAILAND, AND SIMILAR SCORES.

ALLW International

NEGOTIATIONS: PRINCIPLES

• • • • Work together to find solutions.

• Ask for as much as possible—within reason.

• Use your strengths, disguise your weaknesses.

• Look for creative solutions.

ALLW International

NEGOTIATIONS: OBJECTIVES

• Determine a minimum acceptable solution. There may be many scenarios.

• Know your true strengths. Understand what the other party really wants.

• • Find common interests.

• Control and minimize conflicts.

ALLW International

MEASURING A NEGOTIATION

• CRITIQUE THE NEGOTIATION(S) – Debrief. • What worked? • What did not work?

– Roles, profiles, any changes required?

ALLW International

SOURCES OF TRUST AND DISTRUST

• • Integrity of the firms and their people.

– the feeling that the other party may be going around you.

• • Not doing what you say when you say you will do it.

• • … ALLW International

SUPPLIER AND CUSTOMER RELATIONSHIPS

• Game theory – A general theory of strategic behavior – Finds the optimum solution for both players ALLW International

BONNIE: Confess BONNIE: Do not Confess

GAME THEORY

CLYDE: Confess CLYDE: Does not confess 4 4 1 8 8 – 1 3 3

What would you choose to do if you were either Bonnie or Clyde? Why?

Example: If you confess you and get either 1 year or 4 years in prison based on what the other person does. But if neither one of you confesses, you will get 3 years in prison. If you do not confess and the other person does, you get 8 years in prison.

ALLW International

ALLW International SUPPLY CHAIN MANAGEMENT

SECTION 2 Supplier Management and Supplier Relationships 4 – OPERATIONS MANAGEMENT AND THE SUPPLY CHAIN ASSESSING SUPPLIER PERFORMANCE ALAN L. WHITEBREAD ALLW International

OPERATIONS MANAGEMENT

• Generally consists of the following disciplines – Outsourcing and Supplier Selection – Design, Standards, and Packaging – Purchasing and Transaction Management – Production Management – Inventory and Warehousing Management – Logistics ALLW International

DESIGN, STANDARDS, AND PACKAGING

• Some design engineering functions – Fulfill all needs • Consumers – – –

Sleek Ergonomic Functional and easy to use

• Marketing –

Fit with the rest of the offering

• Production –

Easily handled and produced

ALLW International

STANDARDS

• International – Metric not imperial measurements – Numerous electrical systems exist – – •

DIN [Germany], INMETRO [Brazil] JIS [Japan], and more

• US – The U. S. market is not government driven.

• Commercial • Government • Numerous industry standards groups ALLW International

INTERNATIONAL STANDARDS ORGANIZATION [ISO]

• Nearly 150 countries working in partnership with – International standards organizations – Country standards organizations – Government entities and standards – Industry associations • including national standards organizations – Business and consumer representatives ALLW International

U.S. COMMERCIAL STANDARDS

Look for these on the Internet.

• ASTM International • UL [Underwriters Laboratories] • ANSI [American National Standards Institute] • Many industry and other level standards ALLW International

U.S. GOVERNMENT STANDARDS

• Numerous Federal Standards –MilSpec –

– –

–NIST –

Testing Federal military procurement National Institute of Standards & – Many more ALLW International

PRODUCT RELIABILITY TESTING

• How is the product likely to be used?

– – – • What can happen to the product?

• How should we protect the product … – – ALLW International

SHOULD I MAKE A COMMON PRODUCT?

ADVANTAGES DISADVANTAGES Cost reduction through economies of scale More consistent quality Improved operations due to less variety Improved inventory control Product does not match the market segment need closely Must meet all the packaging requirements with a limited number of packages Explosion in number of products [SKUs] to be made and inventoried Standard product must compete against strong local competitors

ALLW International

PACKAGING IS CRITICAL

Packaging provides a lot of marketing assistance!

Communication to the consumer

[benefits, pictures]

Consumer security

[tamper-proofing]

Differentiates the product

[features]

Environmentally friendly materials

[listed]

Contains labeling and identification information

[UPC …]

Opportunity for innovation

[multiple use package]

Protection

[in-transit, use, and storage]

Recognition of the company & brand image

[image]

Sales promotion

[special offers of most types]

Storability

[long-term protection]

Value perception – additional utility

[reuse]

Packaging may or may not be an expensive cost element.

ALLW International

PACKAGING ISSUES: INTERMODAL STRESS POINTS

ROAD LOADING RAIL PORT SHIP Acceleration Retardation Acceleration Retardation Acceleration Retardation Acceleration Heaving, Pitching, Rolling Drop / Impact Centrifugal forces Centrifugal forces Vibration Drop / Impact Centrifugal forces Vibration Yawing Shunting Swaying Vibration

Package testing is an important element in protecting the product during testing, shipment, use, and storage. By making sure the package is what you need to can keep returns low.

ALLW International

PACKAGING ISSUES: PACKAGE TESTING

• Distribution system testing – ISTA procedures – ASTM –

D-4169, D-4728, D 999, …

– Mil specs – Company specified tests – Custom test protocols – UN, IATA, ICAO ALLW International

PACKAGING ISSUES: PACKAGE TESTING

• Product testing inside the package • Temperature / Humidity testing • Corrugated box testing – – • Shock testing • Incline-impact testing • Compression testing • Drop testing • Vibration testing ALLW International

PURCHASING AND TRANSACTION MANAGEMENT

• PURCHASING FUNCTIONS – Supplier selection assistance – Procurement • • EDI • Contract terms and pricing – Inventory – – – ALLW International

PURCHASING AND TRANSACTION MANAGEMENT: OVERHEAD & PPV

• UNDERABSORPTION OF OVERHEAD RATES: – CAUSE:

Underestimate costs or overestimate volume

– RESULT:

Company takes a loss

• • OVERABSORPTION OF OVERHEAD RATES: – CAUSE:

Overestimate costs or underestimate volume

– RESULT:

Products are priced abnormally high in the market – volume may suffer.

ALLW International

PURCHASING AND TRANSACTION MANAGEMENT

• ACTIVITY-BASED COSTING [ABC Analysis] – An accounting technique to measure the costs of individual activities and trade all those costs to the products, customers, and channels that consumed those activities.

– Used in logistics to determine the appropriate level of customer service.

– Allows a firm to get to more accurate level of individual product or customer profitability.

ALLW International

PURCHASING SKILLS

• Traditional purchases by purchasing agents, buyers, or managers involve contractual relationships that are clearly defined, with clear expectations and performance measures.

• Outsourcing and supplier management requires supply chain professionals to master creating, developing, and managing complex relationships.

ALLW International

PRODUCTION MANAGEMENT

• Goal – The fastest rate of production, at the least expensive cost, with the desired quality product, for the defined product and/or service.

ALLW International

• • • • • •

PRODUCTION MANAGEMENT: SOLVING PROBLEMS

Calculus Linear programming, matrix algebra, and Simplex solutions Queing theory Markov chains Regression analysis Box-Jenkins time series analysis

• • • • • •

Inventory Transportation, minimum / maximum problems Wait times Event, demand Forecasting Forecasting

ALLW International

PRODUCTION MANAGEMENT: VARIABILITY: MANAGING SUPPLY

• MANAGE WITH CAPACITY – – – Facility flexibility – Product flexibility • MANAGE WITH INVENTORY – – ALLW International

PRODUCTION MANAGEMENT: VARIABILITY: MANAGING DEMAND

• MANAGEMENT OF – Market growth – Increasing / decreasing share – Customer purchase patterns • • Move up purchases ALLW International

PRODUCTION MANAGEMENT

TOTAL PRODUCTION COST

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1 2 3 Make to order 4 Continuous 5 6 ALLW International

PRODUCTION MANAGEMENT

MARGINAL PRODUCTION / INVENTORY COST

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00

100 500 1000 2500 5000

UNITS IN INVENTORY

ALLW International Set-up cost Production cost Holding cost Total cost

PRODUCTION MANAGEMENT: CYCLE TIME

INVENTORY PER TIME PERIOD

1600 1400 1200 1000 800 600 400 200 0

Simple min-max system

1 2 3 4 5

1

6 7 8 9

2

10 11 Cycle frequency, time [duration], and magnitude

[stockout, minimum, maximum, average, safety stock]

12 ALLW International

LOGISTICS

• Involves the processing and tacking of goods during warehousing, inventory control, transport, customs documentation, delivery and shipment of products. • • Logistics is important! It can be <15% manufacturing cost, or < 26% wholesale, retail costs, and generally ~25% of the firm’s assets.

• Total systems approach – Search YouTube for logistics videos.

ALLW International

LOGISTICS: GOALS

• Market coverage • Customer service level • Product fit • Cost minimization ALLW International

LOGISTICS AS AN OPERATING CENTER

• Firms face a decision for how to operate their logistics function. They have two basic choices.

– • The logistics function must make enough money to pay for itself.

– • Satisfy customer needs at a minimum cost.

ALLW International

WAREHOUSING: WHAT TYPE?

• PRIVATE – Private Warehouses – Distribution Centers – Alternatives to private warehouse • [1] • [2] • PUBLIC – Bonded warehouse – – ALLW International

WAREHOUSING: FLOW

Receiving Bulk and rack Pick and consolidate

ALLW International

Staging and loading Pack

WAREHOUSING: ISSUES

• Material handling equipment • Building height / rack profiles • Dock size and configuration • Slot sizes and strategies • Handling methods • Ergonomics • Traffic flows • Layouts: – rack and aisle, product oriented, repetitive [for assembly], … ALLW International

WAREHOUSING:

•

PRODUCT-ORIENTED LAYOUTS

• – Build components – Machine paced – Repetitive – Assemblies – Workstations – Repetitive – Paced by task times •

RETURN, REWORK, AND REPAIR

ALLW International

WAREHOUSING: ISSUES

• Flow and layout – Break-bulk – Cross-docking – Stockpiling – Deterioration and rotation • Safety • ALLW International

WAREHOUSING: MATERIAL HANDLING DEVICES

• Conveyors • Palletizers • Pallet lifting • Trucks • • • Robots ALLW International

INVENTORY: Inventory pricing methods

• FIRST IN, FIRST OUT (FIFO) – The oldest cost incurred is considered the first cost charged to production. The latest costs are shown in the inventory price.

• LAST IN, FIRST OUT (LIFO) – The latest cost incurred is considered the first cost charged to production. The oldest costs are shown in the inventory price.

ALLW International

INVENTORY: AND THE SUPPLY CHAIN

• Demand – Forecasts and sources of variability • Production – Cycles and economies of scale • Inventory – Levels and safety stocks • Flow – Reduce lead times and material flow times • Forecasting – Improved methods • Improved availability, efficiency, and responsiveness ALLW International

INVENTORY: IT IS EVERYWHERE!

• • Finished goods • • Work in progress [WIP] • • • Components • Raw materials ALLW International

Suppliers In transit

INVENTORY: IT IS EVERYWHERE!

Raw materials components Work-in process [WIP] Finished goods inventory In-transit inventory Inbound products Production Suppliers In transit Suppliers In transit At checkout: in and out of retailer’s inventory Consignment Finished goods inventory Distribution centers Finished goods inventory

ALLW International

INVENTORY: ISSUES

• Seasonality • Fluctuating demand • Out-of-stock • Demand forecasts • Carrying costs ALLW International

INVENTORY: REDUCTION

• REDUCING – To only what is necessary – – ALLW International

INVENTORY: MANAGEMENT

• CONTROL ASPECT – A tangible asset in many forms • Finished goods, WIP, components, raw materials – – Identify performance measures • Inventory turns • Average dollars in inventory [by category] – Evaluate and adjust goals as necessary • ALLW International

INVENTORY: EFFICIENT CUSTOMER RESPONSE [ECR]

• • and promotions • Changes in product introductions • Changes in merchandising ALLW International

RETURNED GOODS

• INVENTORY • QUALITY [by type of error] – Frequency of damage – Dollar amount of damage – Number of credit claims – Number of customer returns – Cost of returned goods • ALLW International

RETURN GOODS INVENTORY

•

Discuss issues

• • •

Scrap and manufacturing improvement

ALLW International

LOGISTICS: SCHEDULING, TRANSPORTATION, AND METRICS

• The keys to good scheduling are – Close large customer contact – Understanding effects like seasonality – – ALLW International

LOGISTICS: DEMAND

• It is critical one understands the all the components of the total demand schedule [D t ]!

•

D t = ∑ D n

– Where D n are the individual demand schedules. For instance, the demand for manufacturing, wholesalers, and retailers.

• The problem is at the channel level. So it is critical to understand backlog and the Bull-Whip Effect.

ALLW International

LOGISTICS: BACKLOG

• • It is calculated as follows.

= previous period backlog + current period demand • A problem occurs with rapidly changing orders and less rapidly changing supply.

ALLW International

LOGISTICS: CAUSES OF THE BULL-WHIP EFFECT

• There are numerous causes of this phenomena. Any combination of the following will have some impact.

– An overreaction to backlogs – – Material or system delays – – Larger orders and/or production runs – Customers hoarding in times of shortage or increasing prices – ALLW International

LOGISTICS: MINIMIZING THE BULL-WHIP EFFECT

• Modify the supply chain infrastructure –

Improve and update systems

• Modify supply chain operations –

Frequency of change notices

–

Real-time forecasting

ALLW International

LOGISTICS: COUNTERING THE BULL-WHIP EFFECT

• Any combination of the following will have some offsetting impact.

– Implement EDI and computer-aided ordering [CAO] – Employ rationing schemes in times of shortage or excessive demand – Implement the use of point-of-sales [POS] data in forecasting – Implement vendor managed inventories [VMI] ALLW International

LOGISTICS: TRANSPORTATION COST FACTORS

• Understand dollar cost vs. total system cost • Distance • Density – • Handling – refrigeration, cranes, … • Liability – susceptibility to damage, perishability, theft, HAZMAT, – value per pound • Market factors ALLW International

LOGISTICS: PERFORMANCE METRICS

• • REVENUE –

Can you use differential service levels to command premiums and increase gross profit?

• • COST –

Reduced expedited shipments

• CUSTOMER SERVICE –

Reduce the number and frequency of stock-outs

–

Implement a service / quality index

– –

Units per labor dollar Dollars/employee

– –

% on-time deliveries; % order fill ROA, ROI, EBITDA

ALLW International

ALLW International

ALLW International SUPPLY CHAIN MANAGEMENT

SECTION 2 Supplier Management and Supplier Relationships 5 – SUPPLY CHAIN INFORMATION SYSTEMS ALAN L. WHITEBREAD

INFORMATION IS CRITICAL

• Modern information technology makes supply chain integration possible.

• • Real-time availability, delivery, shipping, invoice, and other information improve customer satisfaction.

• Information sharing by connecting systems is redefining and improving supply chain relationships.

ALLW International

INFORMATION PROBLEMS

• • Automating bad processes only makes mistakes faster. • Rushing to automate causes problems. You must document in detail before you try and automate it.

• The wrong technology strategy and / or poor implementation reduces value and / or customer satisfaction.

ALLW International

MATERIALS REQUIREMENTS PLANNING [MRP]

• Master scheduling • Item lead time analysis • Inventory analysis and tracking at all levels • Purchase requirements per time period • Shipment forecasts • Purchase order generation ALLW International

Information Systems – Interaction

Resource planning Distribution requirements planning

ALLW International

Bills of materials Production activity control Inventory status Purchase planning and control

ERP versus Legacy Systems

MRP / ERP Systems

• Systems implemented corporate wide • Single integrated system for all divisions and countries of operation • Single integrated database • Data entered once • Integrated, cross functional

Legacy Systems

• Systems usually implemented at the functional or department level • Different systems for different divisions or country operations • Multiple databases • Data entered several times • Standalone ALLW International

MRP / ERP AND SCOR SYSTEMS

PLAN SOURCE MAKE DELIVER / RETURN Management Administration Finance Accounting Human resources Purchasing: Supplier relations Marketing: Customer relations Engineering Production Quality Inventory Mgt.

Warehouse Mgt.

Transportation Mgt.

All these areas are interconnected with a central set of databases that make real time adjustments possible.

ALLW International

SCOR and MRP / ERP Systems

•

Plan

– Strategic and tactical planning as well as accountability and reporting

[senior management, administration, finance, accounting, and human resources]

•

Source

– Supplier’s viewpoint: this process is the customer order management process. – Buyers’ viewpoint: this is the purchasing or sourcing process •

Make

– Production, manufacturing, assembly, service delivery, and quality processes •

Deliver / Return

– Organization’s logistics, warehousing, and transportation processes ALLW International

ERP: The Future Radio Frequency Technology [RFID]

1. Radio frequency transmissions between computer systems and mobile operators.

– Used extensively in warehouse and distribution center operations – Improves picking efficiency and accuracy 2. Radio frequency identification tags [RFID] - coded electronic chips embedded in the product or in product packaging.

ALLW International

ERP: The Future Radio Frequency Technology [RFID]

• Unlike barcodes, RFID does not require line of sight to be scanned.

• RFID tags can hold much more information and bar codes.

• RFID information can be unique to every product, not just a specific type of item or UPC code.

ALLW International

E-Commerce and the Internet

• The use of Internet technology has reduced the cost of providing, collecting, and communicating information.

– Internet – provides unlimited access – Intranet – provides systems access to a limited number of parties; avoids custom interfaces, incompatible hardware types, and special connection procedures – Extranet – allow limited access to certain applications and data to external users ALLW International

E-Commerce and the Internet

Electronic-commerce is the automation of commercial transactions using computers and networked communication technologies.

– Electronic Data Interchange [EDI] – Internet – E-mail – Electronic Funds Transfer [EFT] – Electronic bulletin boards ALLW International

E-Commerce and the Internet

• E-commerce can reduce cost by allowing: – Centralization of inventory – Centralization of shipping locations – Reduction of safety stock – Consolidation of inbound transportation – Real-time capture and distribution of demand and inventory information ALLW International

E-Commerce and the Internet

• E-commerce can enhance revenue by: – Removing time and location constraints – Allowing direct to customer sales – Allowing real-time access to demand in inventory data facilitating better decision making – Allowing instantaneous and flexible introduction of products and product mixes – Allowing the customer to instantly pay for orders reducing cash-to-cash cycle time ALLW International

E-Commerce and the Internet: Electronic Marketplaces

• E-marketplaces are defined as neutral [no single buyer] Internet enabled entities through which companies may conduct buying and selling transactions for goods or services.

ALLW International

E-Commerce and the Internet: Electronic Marketplaces - Types

Type of E-marketplace Project/ Specification Managers Supply Consolidators Characteristics

 Primarily specialize in design and planning support – tools to plan and manage complex projects/processes for customers.

 Bring together many suppliers product offerings to increase the buyer ’ s options.

Liquidity Creators

  Create dynamic markets for commodity products. Provide real-time price and terms transparency across suppliers.

Aggregators

 Help customers reduce the price paid on a product or service by

Transaction Facilitators

 ALLW International

• –

E-Commerce and the Internet: Reverse Auctions

• Supplier participants in reverse auctions should be prequalified, and winning bidders should have their capabilities verified before contracts are issued.

• Focus on price and competitiveness contrary to supply chain principles of total cost of ownership and collaborative relationships.

ALLW International