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  • Is this the future? Is our increased application of technology forcing both individuals and organizations to become specialists in relatively narrow areas? What problems is this likely to cause? This is probably a good example to discuss in detail. Points which might be raised include: - What differences might one expect between Volkswagen’s employment of 800 of its own workers versus 800 workers from a variety of companies? - What risks does this practice raise for VW? - What changes must VW make to integrate the workers from the other companies into the VW organization? - While this might work in Brazil, would it work equally well in the U.S.?
  • Probably the most important point to be made here is the encompassing nature of supply-chain management - from suppliers’ suppliers through internal production through distribution to the customer.
  • This slide might be used to make the point about the various “flows” - material, information, money.
  • Students should be asked to explain the differences illustrated by these graphs.
  • This and the following two slides look at how supply-chain strategy can support overall strategy.
  • Students might be asked how they believe the role of purchasing is changing given the increased use of information technology and strategies such as JIT.
  • This slide should further impress upon students the importance of the purchasing function.
  • This slide emphasizes the role of efficiency of purchasing.
  • While these are the main functions of purchasing, one would also expect the purchasing department to participate in make-buy decisions.
  • Students should be asked to consider how this traditional process might be changed through process reengineering and the effective application of information technology. (paperless purchasing?) How does the nature of this process change in a virtual company?
  • The strategic options listed are expanded upon in later slides.
  • Subsequent slides expand upon these strategies.
  • We read in the management literature more and more about “managing relationships.” If you use the “many supplier” strategy, how do you develop useful relationships?
  • The risk of having only a single supplier will probably be obvious to most students. What nature of relationship must you have with your supplier to reduce this risk?
  • Under what conditions is vertical integration an appropriate strategy? Would we choose it simply if the item production/purchase cost would be less?
  • Students should be asked to consider why, other than on a “cost” basis, a company might want to consider vertical integration.
  • Students might be asked to consider what it would take to implement such a system in the U.S.
  • Students should be asked to consider the problems in establishing a virtual company, such as: - how does one decide which companies to ask to join their alliance? - how is the decision to share revenues made? - how is performance evaluated? - etc.
  • Students should be asked to consider the problems which might be encountered at each step in this process.
  • Students might be asked to consider what additional information they might want before approving a vendor selection.
  • Students might be asked if they perceive one or another of these criteria to be especially important. Also, are there other criteria they would prefer to use or think should be added? (One such criteria might be the ability to communicate using EDT)
  • Ask students under what conditions each of these models might be appropriate.
  • Ask students to consider the conditions under which each of these options might be appropriate.
  • In addition to framing the materials management function, this slide raises the issue of “how does one begin assigning responsibilities for each of the facets of supply-chain management?”
  • Here you might simply discuss some of the options available under each of the categories listed.
  • This slide summarizes some of the benefits of effective supply-chain management.

Transcript

  • 1. Operations Management Supply-Chain Management Chapter 11
  • 2. Outline
    • Global Company Profile: Volkswagen
    • The Strategic Importance of the Supply-Chain
      • Global Supply-Chain Issues
    • Purchasing
      • Manufacturing Environments
      • Service Environment
      • Make-or-Buy Decisions
  • 3. Outline - continued
    • Supply-Chain Strategies
      • Many Suppliers
      • Few Suppliers
      • Vertical Integration
      • Keiretsu Networks
      • Virtual Companies
    • Vendor Selection
      • Vendor Evaluation
      • Vendor Development
      • Negotiations
  • 4. Outline - continued
    • Managing the Supply-Chain
    • Materials Management
      • Distribution Systems
    • Benchmarking Supply-Chain Management
  • 5.
    • When you complete this chapter, you should be able to :
    • Identify or Define :
      • Supply chain management
      • Purchasing
      • E-procurement
      • Materials management
      • Keiretsu
      • Virtual companies
    • Describe or Explain :
      • Purchasing strategies
      • Approaches to negotiations
    Learning Objectives
  • 6. 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
  • 7. Lead Figure for Chapter 11
    • Graphic of VW plant, showing areas occupied by supply firms.
  • 8. 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
  • 9.
    • 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
    Supply-Chain Management
  • 10. The Supply-Chain Consumer Retailer Manufacturing Material Flow VISA ® Credit Flow Supplier Supplier Wholesaler Retailer Cash Flow Order Flow Schedules
  • 11. The Supply Chain Supplier Supplier Supplier Inventory Inventory Distributor Inventory Inventory Manufacturer Customer Customer Customer Market research data scheduling information Engineering and design data Order flow and cash flow Ideas and design to satisfy end customer Material flow Credit flow
  • 12. Material Costs in Supply-Chain Source: U.S. Department of Commerce, Bureau of Census, 1987 Census of Manufacturers: General Summary of Retail Trade (Washington, D.C.: Government Printing Office, 1991) 11% 31% 58% Material Dir Wages Other 71% 16% 13% COGS Payroll Other 83% 9% 8% COGS Payroll Other Manufacturing Wholesale Retail
  • 13. Supply-Chain Support for Overall Strategy
    • Supplier’s
    • goal
    Primary Selection Criteria Supply demand at lowest possible cost Select primarily for cost Low Cost Respond quickly to changing requirements and demand to minimize stockouts Select primarily for capacity, speed, and flexibility Response Share market research; jointly develop products and options Select primarily for product development skills Differentiation
  • 14. Supply-Chain Support for Overall Strategy - continued Process Characteristics Maintain high average utilization Low Cost Invest in excess capacity and flexible processes Response Modular processes to lend themselves to mass customization Inventory Characteristics Minimize inventory throughout the chain to hold down costs Develop responsive system, with buffer stocks positioned to ensure supply Minimize inventory in the chain to avoid obsolescence Differentiation
  • 15. Supply-Chain Support for Overall Strategy - continued Lead-time Characteristics Shorten lead-time as long as it does not increase costs Low Cost Invest aggressively to reduce production lead-time Response Invest aggressively to reduce development lead-time Differentiation Product-design Characteristics Maximize performance and minimize cost Use product designs that lead to low set-up time and rapid production ramp-up Use modular design to postpone product differentiation for as long as possible
  • 16. Global Supply-Chain Issues
    • Supply chains in a global environment must be:
      • flexible enough to react to sudden changes in parts availability, distribution, or shipping channels, import duties, and currency rates
      • able to use the latest computer and transmission technologies to manage the shipment of parts in and finished products out
      • staffed with local specialists to handle duties, trade, freight, customs and political issues
  • 17.
    • Acquisition of goods & services
    • Activities
      • Help decide whether to make or buy
      • Identify sources of supply
      • Select suppliers & negotiate contracts
      • Control vendor performance
    • Importance
      • Major cost center
      • Affects quality of final product
    Purchasing
  • 18. Purchasing Costs as a Percent of Sales
    • All industry
    • Automobile
    • Food
    • Lumber
    • Paper
    • Petroleum
    • Transportation
    • 52%
    • 61%
    • 60%
    • 61%
    • 55%
    • 74%
    • 63%
    Industry Percent of Sales
  • 19. Dollars of Additional Sales Needed to Equal 1$ Saved Through Purchasing
  • 20. 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
  • 21. The Purchasing Focus Materials Management -High transportation cost -High inventory costs Supply Management -High costs -Scarcity: national or international Source Management -Unique items -Custom-made items -High technology items Purchasing Management -Commodity items -Standard products
  • 22. Traditional Purchasing Process Receiving Dock Purchase Order Packing List Order Processing Invoice Receivables Report Check Accounts Receivable Accounts Payable Mail Mail Reconcile Mail Customer Supplier
  • 23. Purchasing Techniques
    • Drop shipping and special packaging
    • Blanket orders
    • Invoiceless purchasing
    • Electronic ordering and funds transfer
    • Electronic data interchange (EDI)
    • Stockless purchasing
    • Standardization
  • 24. Make/Buy Considerations
    • lower production cost
    • unsuitable suppliers
    • assure adequate supply
    • utilize surplus labor and make a marginal contribution
    • obtain desired quantity
    • remove supplier collusion
    • obtain a unique item that would entail a prohibitive commitment from the supplier
    • lower acquisition cost
    • preserve supplier commitment
    • obtain technical or management ability
    • inadequate capacity
    • reduce inventory costs
    • ensure flexibility and alternate source of supply
    • reciprocity
    Reasons for Making Reasons for Buying
  • 25. Make/Buy Considerations
    • maintain organizational talent
    • protect proprietary design or quality
    • increase/maintain size of company
    • item is protected by patent or trade secret
    • frees management to deal with its primary business
    Reasons for Making Reasons for Buying
  • 26.
    • Plans to help achieve company mission
    • Affect long-term competitive position
    • Strategic options
      • Many suppliers
      • Few suppliers
      • Keiretsu network
      • Vertical integration
      • Virtual company
    Purchasing Strategies Plan © 1995 Corel Corp.
  • 27. 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.
  • 28.
    • Many sources per item
    • Adversarial relationship
    • Short-term
    • Little openness
    • Negotiated, sporadic PO’s
    • High prices
    • Infrequent, large lots
    • Delivery to receiving dock
    Many Suppliers Strategy © 1995 Corel Corp.
  • 29.
    • 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
    Few Suppliers Strategy © 1995 Corel Corp.
  • 30. Daimler Chrysler’s Supplier Cost Reduction Effort
  • 31. Purchasers Ties Themselves to Suppliers
    • Tactic
    • 1. Reduce total number of suppliers
    • Certify suppliers
    • Ask for JIT delivery from key suppliers
    • Involve key suppliers in new product design
    • Develop software linkages to suppliers
    • Results
    • Average 20% reduction in 5 years
    • Almost 40% of all companies surveyed were themselves currently certified
    • About 60% ask for this
    • About 54% do this
    • Almost 80% claim to do this
    • About 50% claim this; about 15% more than have EDI links to suppliers
  • 32.
    • Ability to produce goods previously purchased
      • Setup operations
      • Buy supplier
    • Make-buy issue
    • Major financial commitment
    • Hard to do all things well
    Vertical Integration Strategy Raw Material (Suppliers) Backward Integration Current Transformation Forward Integration Finished Goods (Customers)
  • 33. Forms of Vertical Integration Iron Ore Steel Automobiles Distribution System Dealers Silicon Integrated Circuits Circuit Boards Computers Watches Calculators Farming Flour Milling Raw Material (Suppliers) Backward Integration Current Transformation Forward Integration Finished Goods (Customers) Baked Goods
  • 34.
    • 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
    Keiretsu Network Strategy
  • 35. 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.
  • 36.
    • 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.
    Vendor Selection Steps
  • 37. Vendor Selection Rating Form
  • 38.
    • Company
      • Financial stability
      • Management
      • Location
    • Product
      • Quality
      • Price
    • Service
      • Delivery on time
      • Condition on arrival
      • Technical support
      • Training
    Supplier Selection Criteria
  • 39. 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
  • 40. 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)
  • 41. 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
  • 42. Materials Management
    • Integrates all materials functions
      • Purchasing
      • Inventory management
      • Production control
      • Inbound traffic
      • Warehousing and stores
      • Incoming quality control
    • Objective: Efficient, low cost operations
  • 43. Goods Movement Options
    • Trucking
    • Railways
    • Airfreight
    • Waterways
    • Pipelines
  • 44. Supply-Chain Performance Compared Typical Firms Benchmark Firms