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Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
Chapter 11
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Chapter 11
Chapter 11
Chapter 11
Chapter 11
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Chapter 11

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  • 1. BA 339, OM – Chapter 11 <ul><li>Supply Chain Management (SCM) </li></ul><ul><ul><li>Definition &amp; strategic importance </li></ul></ul><ul><ul><li>Organization structure &amp; SCM </li></ul></ul><ul><ul><li>Functional aspects of the supply chain – </li></ul></ul><ul><ul><ul><li>Purchasing – make/buy, orientation toward suppliers, centralized vs. local, </li></ul></ul></ul><ul><ul><ul><li>Inventory – management/measurement, placement </li></ul></ul></ul><ul><ul><ul><li>Distribution/logistics – inbound/outbound </li></ul></ul></ul><ul><ul><li>Supply chain strategies – many/few, vertical integration, E-procurement </li></ul></ul><ul><ul><li>Supplier evaluation/selection </li></ul></ul><ul><ul><li>Supplier risk assessment/management </li></ul></ul><ul><ul><li>Global supply chain issues </li></ul></ul>
  • 2. BA 339, OM – Chapter 11 <ul><li>SCM Defined </li></ul><ul><ul><li>“ Integration of the activities that procure materials, transform them into intermediate goods and final products, and deliver them to customers” </li></ul></ul><ul><ul><li>“ Managing the flow of materials and services within a firm” </li></ul></ul><ul><ul><li>Includes: Purchasing, supplier management, warehousing, inventory (raw materials, WIP, finished goods), logistics &amp; distribution, accounts payable/receivable, and forecasting </li></ul></ul><ul><ul><li>Involves coordination of these functions with marketing/sales, engineering, finance, IT, and operations </li></ul></ul>
  • 3. BA 339, OM – Chapter 11 <ul><li>Strategic Importance of SCM </li></ul><ul><ul><li>Material costs in the supply chain </li></ul></ul><ul><ul><ul><li>58% in mfg.; 83% in wholesale; 71% in retail </li></ul></ul></ul><ul><ul><li>Purchasing cost are significant portion of sales and finished goods </li></ul></ul><ul><ul><ul><li>All industries – 52% </li></ul></ul></ul><ul><ul><ul><li>Automobile – 67% </li></ul></ul></ul><ul><ul><ul><li>Petroleum – 79% </li></ul></ul></ul><ul><ul><ul><li>Food – 60% </li></ul></ul></ul><ul><ul><ul><li>Transportation – 62% </li></ul></ul></ul><ul><ul><li>Purchasing savings have substantial impact upon profitability (relative to increasing sales) &gt; see Table 11.3 on page 436 in text </li></ul></ul><ul><ul><li>Provides competitive advantage via cost, quality, responsiveness &amp; differentiation &gt; see Table 11.1 on page 435 in test </li></ul></ul>
  • 4. BA 339, OM – Chapter 11 <ul><li>Organization Structure &amp; SCM </li></ul><ul><ul><li>Evolution away from functional “stove pipes” to more integrated approaches (generally purchasing, production control, inventory, and distribution/logistics) </li></ul></ul><ul><ul><li>Materials management – often includes purchasing (mat’l &amp; services), inventory, production levels, schedules, distribution, and staffing patterns </li></ul></ul><ul><ul><ul><li>Also referred to as Logistics Management in more service oriented firms </li></ul></ul></ul><ul><ul><ul><li>Segmented structure – traditional, department organizations such as purchasing, production control and distribution reporting to separate managers </li></ul></ul></ul><ul><ul><ul><li>Integrated structure – incorporates functional groups into a single organization that elevates its manager to a higher level in the firm (director, executive, etc.) </li></ul></ul></ul>
  • 5. BA 339, OM – Chapter 11 <ul><li>Functional Aspects of the Supply Chain </li></ul><ul><ul><li>Purchasing </li></ul></ul><ul><ul><ul><li>Acquisition of materials, supplies, equipment and services </li></ul></ul></ul><ul><ul><ul><li>5 basic steps: </li></ul></ul></ul><ul><ul><ul><ul><li>Recognize a need – technical handoff </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Evaluate/select suppliers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Issue/place the order or contract </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Track/manage the order or contract </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Receive the order – inventory/logistics handoff </li></ul></ul></ul></ul>
  • 6. BA 339, OM – Chapter 11 <ul><li>Purchasing </li></ul><ul><ul><li>E-Commerce/E-procurement </li></ul></ul><ul><ul><ul><li>E-Marketplace </li></ul></ul></ul><ul><ul><ul><ul><li>Competitive marketplace located on the internet; generally formed around common industries such as auto, energy, etc. (vertical); horizontal support MRO &amp; commercial items </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Integration ranges from web-browser based transactions &gt; EDI &gt; integration w/E-P &gt; integration w. ERP system </li></ul></ul></ul></ul><ul><ul><ul><li>E-procurement </li></ul></ul></ul><ul><ul><ul><ul><li>Electronic purchase of goods &amp; services </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Hosted – S/W is located on marketplace; functionality differs based on host locations </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Non-hosted – S/W is located &amp; maintained with the buyer </li></ul></ul></ul></ul>
  • 7. BA 339, OM – Chapter 11 <ul><li>Purchasing </li></ul><ul><ul><li>E-Commerce/E-procurement </li></ul></ul><ul><ul><ul><li>Auctions </li></ul></ul></ul><ul><ul><ul><ul><li>Forward – seller driven; one seller, many buyers, price rises with time; assets and surplus inventory </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Reverse – buyer driven; one buyer, many sellers, price falls with time; materials &amp; services </li></ul></ul></ul></ul><ul><ul><ul><li>Business case usually required because of capital outlays required for S/W &amp; H/W </li></ul></ul></ul><ul><ul><ul><li>Considerations: core business function/competency, scope, volume, etc. </li></ul></ul></ul>
  • 8. BA 339, OM – Chapter 11 <ul><li>Reasons for Making </li></ul><ul><ul><li>Lower production costs </li></ul></ul><ul><ul><li>Unsuitable suppliers </li></ul></ul><ul><ul><li>Assure adequate supply </li></ul></ul><ul><ul><li>Utilize surplus labor/facilities </li></ul></ul><ul><ul><li>Obtain desired “Q” </li></ul></ul><ul><ul><li>Remove supplier collusion </li></ul></ul><ul><ul><li>Unique item would require prohibitive commitment for a supplier </li></ul></ul><ul><ul><li>Maintain organizational talent; preclude layoff </li></ul></ul><ul><ul><li>Protect proprietary design </li></ul></ul><ul><ul><li>Increase size of firm </li></ul></ul><ul><li>Reason for Buying </li></ul><ul><ul><li>Lower acquisition cost </li></ul></ul><ul><ul><li>Preserve supplier commitment </li></ul></ul><ul><ul><li>Obtain technical or management ability </li></ul></ul><ul><ul><li>Inadequate capacity </li></ul></ul><ul><ul><li>Reduce inventory costs </li></ul></ul><ul><ul><li>Ensure alternative sources </li></ul></ul><ul><ul><li>Inadequate managerial or technical resources </li></ul></ul><ul><ul><li>Reciprocity </li></ul></ul><ul><ul><li>Item protected by patent or trade secret </li></ul></ul><ul><ul><li>Frees management to deal with primary business </li></ul></ul>
  • 9. BA 339, OM – Chapter 11 <ul><li>Purchasing </li></ul><ul><ul><li>Orientation toward suppliers </li></ul></ul><ul><ul><ul><li>Competitive (Example – U.S. auto industry) </li></ul></ul></ul><ul><ul><ul><ul><li>Negotiation is a zero-sum game – winner &amp; loser </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Short-term advantages valued over long-term commitment </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Buyer pushes price to survival levels </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Seller pushes for higher price for specific levels of quality, customer services &amp; volume flexibility </li></ul></ul></ul></ul><ul><ul><ul><li>Cooperative (Example – VW facility in Brazil) </li></ul></ul></ul><ul><ul><ul><ul><li>Work together toward common goals; more information sharing; partnership </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Favors few suppliers with 1-2 as the optimal numbers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Suppliers become extension of buyer </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Fewer transactions lower internal cost; reduction in supply chain reduces cost and complexity </li></ul></ul></ul></ul>
  • 10. BA 339, OM – Chapter 11 <ul><li>Purchasing </li></ul><ul><ul><li>Centralize vs. local (de-centralized) buying </li></ul></ul><ul><ul><ul><li>Centralized </li></ul></ul></ul><ul><ul><ul><ul><li>Increased purchasing clout (volume) &gt; can lead to better service, better availability, improved development of supplier capability </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Favored by companies w/ overseas suppliers because of specialized skills required (language, international commercial/contract law) and use of info. tech. and internet </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Loss of control at local level can negatively affect responsiveness to customers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Loss of appreciation of cultural impacts due to limited management experience </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Often have longer lead times, more internal bureaucracy and increase logistics cost </li></ul></ul></ul></ul><ul><ul><ul><li>Compromise – IBM’s centralized purchasing based on local needs. </li></ul></ul></ul>
  • 11. BA 339, OM – Chapter 11 <ul><li>Functional Aspects - Inventory Management </li></ul><ul><ul><li>Key issues: </li></ul></ul><ul><ul><ul><li>Measurement – average aggregate inventory value, weeks of supply, inventory turnaround (“turns”) </li></ul></ul></ul><ul><ul><ul><li>Location and size of warehouse/distribution centers </li></ul></ul></ul><ul><ul><ul><li>Standardization of materials/suppliers and related handling equipment </li></ul></ul></ul><ul><ul><ul><li>Volume </li></ul></ul></ul>
  • 12. BA 339, OM – Chapter 11 <ul><li>Functional Aspects - Distribution/Logistics </li></ul><ul><ul><li>Inbound &amp; outbound materials flow </li></ul></ul><ul><ul><li>Inbound sometimes considered as part of purchasing or logistics </li></ul></ul><ul><ul><li>Outbound equated with distribution </li></ul></ul><ul><ul><li>Considerations : </li></ul></ul><ul><ul><ul><li>Placement of finished goods inventory – critical for international operations (customer proximity, customs, etc.) &gt; forward (closer to customers) &amp; backward (centralized – evens out regional demand) </li></ul></ul></ul><ul><ul><ul><li>Selection of transportation mode &amp; carriers </li></ul></ul></ul><ul><ul><ul><ul><li>Truck – 40% of U.S. freight </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Rail – 30% of U.S. freight </li></ul></ul></ul></ul><ul><ul><ul><li>Scheduling/routing must align with purchasing and production schedules </li></ul></ul></ul>
  • 13. BA 339, OM – Chapter 11 <ul><li>Supply Chain Strategies </li></ul><ul><ul><li>Many suppliers </li></ul></ul><ul><ul><ul><li>Many sources per item </li></ul></ul></ul><ul><ul><ul><li>Adversarial relationship </li></ul></ul></ul><ul><ul><ul><li>Short-term emphasis </li></ul></ul></ul><ul><ul><ul><li>Little openness </li></ul></ul></ul><ul><ul><ul><li>Negotiated, sporadic POs </li></ul></ul></ul><ul><ul><ul><li>High prices </li></ul></ul></ul><ul><ul><ul><li>Infrequent, large lots </li></ul></ul></ul><ul><ul><ul><li>Delivery to receiving dock </li></ul></ul></ul>
  • 14. BA 339, OM – Chapter 11 <ul><li>Supply Chain Strategies </li></ul><ul><ul><li>Few suppliers </li></ul></ul><ul><ul><ul><li>1 or few sources per item </li></ul></ul></ul><ul><ul><ul><li>Partnership (JIT) </li></ul></ul></ul><ul><ul><ul><li>Emphasis on long-term, stability </li></ul></ul></ul><ul><ul><ul><li>On-site audits visits </li></ul></ul></ul><ul><ul><ul><li>Exclusive contract </li></ul></ul></ul><ul><ul><ul><li>Low prices (large orders) </li></ul></ul></ul><ul><ul><ul><li>Frequent, small lots </li></ul></ul></ul><ul><ul><ul><li>Delivery to point of use </li></ul></ul></ul><ul><ul><li>E-commerce/E-procurement </li></ul></ul><ul><ul><ul><li>Vertical/horizontal marketplace, technology driven </li></ul></ul></ul>
  • 15. BA 339, OM – Chapter 11 <ul><li>Supplier Evaluation/Selection </li></ul><ul><ul><li>Considerations: </li></ul></ul><ul><ul><ul><li>Alignment with business model, competitive strategy (cost, responsiveness, differentiation), product/service lifecycle, risk strategy &amp; purchasing strategy </li></ul></ul></ul><ul><ul><li>Evaluation models </li></ul></ul><ul><ul><ul><li>Company, product, service </li></ul></ul></ul><ul><ul><ul><ul><li>Financial stability, management, location </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Quality, price </li></ul></ul></ul></ul><ul><ul><ul><ul><li>On-time delivery, condition on arrival, technical support, training </li></ul></ul></ul></ul><ul><ul><ul><li>Technical, business, services </li></ul></ul></ul><ul><ul><ul><ul><li>Design, production, quality </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Procurement, financial, logistics, customer satisfaction </li></ul></ul></ul></ul>
  • 16. BA 339, OM – Chapter 11 <ul><li>Supplier Risk Assessment/Management </li></ul><ul><ul><li>Risk Assessment </li></ul></ul><ul><ul><ul><li>Act of identifying, classifying, quantifying &amp; analyzing risk </li></ul></ul></ul><ul><ul><ul><li>Components </li></ul></ul></ul><ul><ul><ul><ul><li>Probability – likelihood of some event occurring </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Impact – consequence of that event occurring </li></ul></ul></ul></ul><ul><ul><ul><li>Includes internal and external sources of risk </li></ul></ul></ul><ul><ul><ul><li>Includes qualitative (adjectival) and quantitative (numerical) assessments </li></ul></ul></ul><ul><ul><li>Risk Management </li></ul></ul><ul><ul><ul><li>Act of responding to, controlling, mitigating, influencing, avoiding, sharing, accepting, or diversifying risk </li></ul></ul></ul><ul><ul><ul><li>Implies some method of assessment that can be qualitative or quantitative </li></ul></ul></ul>
  • 17. BA 339, OM – Chapter 11 <ul><li>Source of Risk in the Supply Chain </li></ul><ul><ul><li>Product – complexity, maturity, criticality, technological maturity, delivery schedule criticality, &amp; performance history </li></ul></ul><ul><ul><li>Process – design/engineering, production/manufacturing, quality </li></ul></ul><ul><ul><li>System – multiple, interlocking systems &amp; sub-systems </li></ul></ul><ul><ul><ul><li>Quality management system </li></ul></ul></ul><ul><ul><ul><li>Logistics systems </li></ul></ul></ul>
  • 18. BA 339, OM – Chapter 11 <ul><li>Sources of Risk (cont.) </li></ul><ul><ul><li>Financial – lack of capital, poor cash flow, product litigation, inefficient use of assets </li></ul></ul><ul><ul><ul><li>Useful ratios </li></ul></ul></ul><ul><ul><ul><ul><li>Current ratio – ratio of assets to liabilities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Quick ratio – ratio of cash, marketable securities &amp; accounts receivables to current liabilities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Return on sales ratio – ratio of net income to net sales </li></ul></ul></ul></ul><ul><ul><ul><ul><li>ROI – (Net operating income/sales) x (Sales/avg. operating assets) </li></ul></ul></ul></ul>
  • 19. BA 339, OM – Chapter 11 <ul><li>Managing Risk </li></ul><ul><ul><li>Understand your suppliers’/service providers’ supply chain, critical processes and capability </li></ul></ul><ul><ul><li>Define critical suppliers, supply chain processes and critical products/services </li></ul></ul><ul><ul><li>Identify sources of risk or variation in the supply chain </li></ul></ul><ul><ul><ul><li>Cost </li></ul></ul></ul><ul><ul><ul><li>Schedule </li></ul></ul></ul><ul><ul><ul><li>Quality </li></ul></ul></ul><ul><ul><ul><li>Requirements </li></ul></ul></ul><ul><ul><ul><li>Technology </li></ul></ul></ul>
  • 20. BA 339, OM – Chapter 11 <ul><li>Managing Risk </li></ul><ul><ul><li>Asses &amp; measure risk </li></ul></ul><ul><ul><ul><li>Select &amp; develop a risk methodology based on organizational maturity/capability </li></ul></ul></ul><ul><ul><ul><li>Develop measures based on availability and reliability of data </li></ul></ul></ul><ul><ul><ul><ul><li>Assessment measures can be qualitative or quantitative </li></ul></ul></ul></ul><ul><ul><li>Approaches </li></ul></ul><ul><ul><ul><li>ORCA </li></ul></ul></ul><ul><ul><ul><ul><li>Identify business Objectives </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Identify operations and other Risks </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Define Controls </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Assess Process </li></ul></ul></ul></ul>
  • 21. BA 339, OM – Chapter 11 <ul><li>SC in a global Environment must be: </li></ul><ul><ul><li>Flexible enough to react to sudden changes in parts availability, distribution, or shipping channels, import duties and currency rates </li></ul></ul><ul><ul><li>Able to use the latest computer and transmission technology to schedule and manage shipment of parts in and finished parts out </li></ul></ul><ul><ul><li>Staffed with local specialists to handle duties, trade, freight, customs, and political issues </li></ul></ul>

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