Chapter 1, Heizer/Render, 5th edition
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Transcript Chapter 1, Heizer/Render, 5th edition
Operations
Management
Supply-Chain Management
Chapter 11
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Management, 7e
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Outline
GLOBAL COMPANY PROFILE: VOLKSWAGEN
THE STRATEGIC IMPORTANCE OF THE
SUPPLY-CHAIN
Global Supply-Chain Issues
SUPPLY-CHAIN ECONOMICS
Make-or-Buy Decisions
Outsourcing
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Outline - Continued
SUPPLY-CHAIN STRATEGIES
Many Suppliers
Few Suppliers
Vertical Integration
Keiretsu Networks
Virtual Companies
Managing the Supply Chain
Issues In an Integrated Supply Chain
Opportunities in an Integrated Supply Chain
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Outline - Continued
INTERNET PURCHASING
VENDOR SELECTION
Vendor Evaluation
Vendor Development
Negotiations
MATERIALS MANAGEMENT
BENCHMARKING SUPPLY-CHAIN
MANAGEMENT
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Learning Objectives
When you complete this chapter, you should be
able to :
Identify or Define:
Supply-chain management
Purchasing
Outsourcing
E-procurement
Materials management
Keiretsu
Virtual companies
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Learning Objectives
When you complete this chapter, you should be
able to :
Describe or Explain:
Supply-Chain Strategies
Purchasing strategies
Approaches to negotiations
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Volkswagen
Brazilian plant employs 1000 workers
200 work for VW
800 work for other contractors:
Rockwell International, Cummins Engines, Deluge Automotiva,
MWM, Remon and VDO, etc.
VW responsible for overall quality, marketing,
research and design
VW looks to innovative supply-chain to improve
quality and drive down costs
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Volkswagen
Unusual elements:
VW is buying not only materials, but also the labor and
related services
Suppliers are integrated tightly into VW’s own network,
right down to assembly work in the plant
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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
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The Supply-Chain
VISA
Material Flow
Supplier
®
Credit Flow
Manufacturing
Supplier
Schedules
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Order
Flow
11-10
Retailer
Consumer
Wholesaler
Retailer
Cash
Flow
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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
Customer
Inventory
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Material Costs in
Supply-Chain
Wholesale
8% 9%
Manufacturing
31%
11%
COGS
Payroll
Material
83%
Other
Dir Wages
58%
Retail
Other
13%
16%
71%
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COGS
Payroll
Other
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Supply-Chain Support for Overall
Strategy
Supplier’s
goal
Primary
Selection
Criteria
Low Cost
Response
Supply demand
at lowest
possible cost
Respond
quickly to
changing
requirements
and demand to
minimize
stockouts
Share market
research; jointly
develop
products and
options
Select
primarily for
capacity,
speed, and
flexibility
Select primarily
for product
development
skills
Select
primarily for
cost
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Differentiation
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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 that
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
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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 setup time and
rapid production
ramp-up
Use modular
design to
postpone
product
differentiation for
as long as
possible
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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 schedule and manage the shipment of
parts in and finished products out
Staffed with local specialists to handle duties, trade,
freight, customs and political issues
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Importance of Purchasing
Major cost center
Affects quality of final product
Aids strategy of low cost, response, and
differentiation
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Supply-Chain Costs as a Percent
of Sales
Industry
Percent of Sales
All industry
Automobile
Food
Lumber
Paper
Petroleum
Transportation
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52%
67%
60%
61%
55%
79%
62%
11-18
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Dollars of Additional Sales Needed to
Equal 1$ Saved Through Purchasing
Percent of Sales Spent in the Supply-Chain
Percent
Net
Profit of
Firm
30%
40%
50%
60%
70%
80%
90%
2
$2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $16.67
4
$2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $14.29
6
$2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $12.50
8
$2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $11.11
10
$2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.00
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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
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The Purchasing Focus
Supply Management
-High costs
-Scarcity: national or
international
Materials Management
-High transportation cost
-High inventory costs
Purchasing
Management
-Commodity items
-Standard products
Source Management
-Unique items
-Custom-made items
-High technology items
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Traditional Purchasing Process
Customer
Supplier
Purchase
Order
Receivables
Report
Accounts
Payable
Order
Processing
Mail
Receiving
Dock
Packing
List
Mail
Reconcile
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Invoice
Check
11-22
Mail
Accounts
Receivable
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Purchasing Techniques
Drop shipping and special packaging
Blanket orders
Invoiceless purchasing
Electronic ordering and funds transfer
Electronic data interchange (EDI)
Stockless purchasing
Standardization
Outsourcing
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Make/Buy Considerations
Reasons for Making
Reasons for Buying
1. Maintain core competencies
and protect personnel from
layoff
2. Lower production cost
3. Unsuitable suppliers
4. Assure adequate supply
5. Utilize surplus labor and
make a marginal
contribution
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1. Frees management to deal
with its primary business
2. Lower acquisition cost
3. Preserve supplier
commitment
4. Obtain technical or
management ability
5. Inadequate capacity
11-24
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Make/Buy Considerations Continued
Reasons for Making
6. Obtain desired quantity
7. Remove supplier collusion
8. Obtain a unique item that
would entail a prohibitive
commitment from the
supplier
9. Protect proprietary design or
quality
10. Increase or maintain size of
company
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Reasons for Buying
6. Reduce inventory costs
7. Ensure flexibility and
alternate source of supply
8. Inadequate managerial or
technical resources
9. Reciprocity
10. Item is protected by patent
or trade secret
11-25
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Supply-Chain Strategies
Plans to help achieve company mission
Affect long-term competitive position
Strategic options
Many suppliers
Few suppliers
Keiretsu network
Vertical integration
Virtual company
Plan
© 1995 Corel Corp.
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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.
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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
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© 1995 Corel Corp.
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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
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© 1995
Corel
Corp.
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Daimler Chrysler’s Supplier Cost
Reduction Effort
Supplier Suggestion
Model Savings
Rockwell
Use passenger car door
locks on trucks
Simplify design/substitute
materials on manual
window system
Dodge
trucks
Various
3M
Change tooling for woodgrain panels to allow three
from one die instead of two
Caravan,
Voyager
Trico
Change wiper-blade
formulation
Various
$140,000
Leslie Metal
Arts
Exterior lighting suggestions
Various
$1,500,000
Rockwell
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$280,000
$300,000
$1,500,000
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Tactics for Close Supplier
Relationships
Tactic
Results
Reduce total number of
suppliers
Average 20% reduction in 5 years
Certify suppliers
Almost 40% of all companies
surveyed were themselves
currently certified
About 60% ask for this
Ask for JIT delivery from key
suppliers
Involve key suppliers in new
product design
Develop software linkages to
suppliers
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About 54% do this
Almost 80% claim to do this
About 50% claim this
11-31
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Vertical Integration Strategy
Ability to produce goods
previously purchased
Raw Material
(Suppliers)
Setup operations
Buy supplier
Backward
Integration
Make-buy issue
Major financial
commitment
Hard to do all things well
Current
Transformation
Forward
Integration
Finished Goods
(Customers)
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Forms of Vertical Integration
Iron Ore
Silicon
Steel
Automobiles
Farming
Raw Material
(Suppliers)
Flour Milling
Backward
Integration
Current
Transformation
Integrated
Circuits
Forward
Integration
Distribution
Circuit Boards
System
Dealers
Computers
Watches
Calculators
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Baked Goods
11-33
Finished Goods
(Customers)
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Vertical Integration Can be
Forward or Backward
Vertical Integration
Raw material (suppliers)
Backward Integration
Examples of Vertical Integration
Iron ore
Silicon
Farming
Flour
Milling
Steel
Current Transformation
Automobiles
Integrated Circuits
Forward Integration
Distribution
System
Circuit boards
Dealers
Computers, watches,
calculators
Finished goods (customers)
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Baked
Goods
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Keiretsu Network Strategy
Japanese word for ‘affiliated chain’
System of mutual alliances and
cross-ownership
Company stock is held by allied firms
Lowers
need for short-term profits
Links manufacturers, suppliers, distributors, &
lenders
‘Partnerships’ extend across entire supply chain
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Virtual Companies
Companies that rely on a variety of supplier
relationships to provide services on demand.
Also known as hollow corporations, or network
corporations
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Virtual Company Strategy
Network of independent companies
Linked by technology
PC’s, faxes, Internet etc.
Each contributes core competencies
Typically provide services
Payroll, editing, designing
May be long or short-term
Usually, only until opportunity is met
© 1995 Corel Corp.
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Managing the Supply-Chain
Options:
Postponement
Channel assembly
Drop shipping
Blanket orders
Invoiceless purchasing
Electronic ordering and funds transfer
Stockless purchasing
Standardization
Internet purchasing (e-procurement)
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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
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Successful Supply-Chain
Management Requires:
A mutual agreement on goals
Trust
Compatible organizational cultures
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Issues in an Integrated SupplyChain
Local optimization
Incentives
Large lots
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Opportunities in an Integrated
Supply-Chain
Generation of accurate “pull” data
Reduction of lot size
Single stage control of replenishment
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Vendor Managed Inventory (VMI)
Postponement – keeps product generic as long as possible
Channel Assembly – sends to distributor individual components
and modules rather than finished goods
Drop Shipping and Special Packaging – supplier will ship to end
consumer rather than to seller
Blanket Orders – a long-term purchase commitment to a
supplier for items that are to be delivered against short-term
releases to ship
Standardization – reducing the number of variations in materials
and components
Electronic Ordering and Funds Transfer – “paperless” ordering
and 100% material acceptance, payment by “wire”
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Vendor Selection Steps
Vendor evaluation
Identifying & selecting potential vendors
Vendor development
Integrating buyer & supplier
Example: Electronic data exchange
Negotiations
Results in contract
Specifies period of agreement, price, delivery terms etc.
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Supplier Selection Criteria
Company
Service
Financial stability
Management
Location
Product
Delivery on time
Condition on arrival
Technical support
Training
Quality
Price
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Vendor Selection Rating Form
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Negotiation Strategies
Three types:
cost-based price model - supplier opens its books to
purchaser; price based upon fixed cost plus escalation
clause for materials and labor
market-based price model - published price or index
competitive bidding - potential suppliers bid for contract
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Logistics Management
Integrates all materials functions
Purchasing
Inventory management
Production control
Inbound traffic
Warehousing and stores
Incoming quality control
Objective: Efficient, low cost operations
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Goods Movement Options
Trucking
Railways
Airfreight
Waterways
Pipelines
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Supply-Chain Performance
Compared
Benchmark
Typical Firms
Firms
3.3%
0.8%
Administrative costs as
percent of purchases
Lead time (weeks)
15
8
Time spent in placing order
42 minutes
15 minutes
Percentage of late deliveries
33%
2%
Percentage of rejected material
1.5%
.0001%
400
4
Number of shortages per year
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