Chapter 11

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  • The outputs go to distribution centers before finally reaching the customers.
  • The outputs go to distribution centers before finally reaching the customers.
  • 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 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.
  • Ask students to consider the conditions under which each of these options might be appropriate.
  • The next series of slides presents Figure 11.8. The series builds in steps to the final Figure. This slide advances automatically.
  • The first slides build Figure 11.8(a) working from the customer interface back to the first organization in the supply-chain.
  • This set of slides builds Figure 11.8(b) showing the difference in demand patterns at different points in the supply-chain.
  • This series of slides present Table 11.2 on Supply-Chain Environments. This slide advances automatically.
  • This slide opens the basic table. This slide advances automatically.
  • This slide lists the basic factors.
  • This slide shows the characteristics of efficient organizations for the basic factors.
  • This slide shows the characteristics of responsive organizations for the basic factors.
  • Chapter 11

    1. 1. Supply Chain Management
    2. 2. Overview <ul><li>What is it? </li></ul><ul><li>Supply chain strategies </li></ul><ul><li>Purchasing -> Read </li></ul><ul><ul><li>Outsourcing </li></ul></ul><ul><ul><li>Partnering </li></ul></ul><ul><li>Managing the supply chain </li></ul><ul><ul><li>Postponement </li></ul></ul><ul><ul><li>Channel assembly </li></ul></ul><ul><ul><li>READ others </li></ul></ul><ul><li>Efficient vs. responsive supply chain </li></ul><ul><li>========================= </li></ul><ul><li>Vendor selection -> Read </li></ul>
    3. 3. Supply Chain Management <ul><li>Coordinates and manages all activities of the supply chain </li></ul><ul><li>Components of the supply chain: </li></ul><ul><ul><li>External distribution </li></ul></ul><ul><ul><li>Internal functions </li></ul></ul><ul><ul><li>External suppliers </li></ul></ul>
    4. 5. Supply Chain Supplier of materials Supplier of services Tier 1 Tier 3 Tier 2 Legend Distribution center Distribution center Manufacturer
    5. 6. External Suppliers Internal functions External Distributors Supplier of materials Supplier of services Tier 1 Tier 3 Tier 2 Legend Distribution center Distribution center Manufacturer
    6. 7. Milk Supply Chain
    7. 8. Supply-Chain Strategies <ul><li>Many suppliers </li></ul><ul><li>Long-term suppliers </li></ul><ul><li>Vertically integrate </li></ul><ul><li>Keiretsu </li></ul><ul><li>Virtual company </li></ul>
    8. 9. <ul><li>Many sources per item </li></ul><ul><li>Adversarial relationship </li></ul><ul><li>Short-term </li></ul><ul><li>Little openness </li></ul><ul><li>Negotiated, sporadic PO’s </li></ul><ul><li>Infrequent, large lots </li></ul><ul><li>Delivery to receiving dock </li></ul>Many Suppliers Strategy © 1995 Corel Corp.
    9. 10. <ul><li>1 or few sources per item </li></ul><ul><li>Partnership (JIT) </li></ul><ul><li>Long-term, stable </li></ul><ul><li>On-site audits & visits </li></ul><ul><li>Exclusive contracts </li></ul><ul><li>Frequent, small lots </li></ul><ul><li>Delivery to point of use </li></ul>Few Suppliers Strategy © 1995 Corel Corp.
    10. 11. Few suppliers strategy – Wallace Co. <ul><li>Partnering </li></ul><ul><li>Listening to the needs of the customer </li></ul><ul><li>Vendor-stocking program </li></ul><ul><li>98% on-time delivery </li></ul><ul><li>Quick response on problems for customer </li></ul>
    11. 12. Daimler Chrysler’s Supplier Cost Reduction Effort
    12. 13. <ul><li>Ability to produce goods previously purchased </li></ul><ul><ul><li>Setup operations </li></ul></ul><ul><ul><li>Buy supplier </li></ul></ul><ul><li>Make-buy issue </li></ul><ul><li>Major financial commitment </li></ul><ul><li>Hard to do all things well </li></ul>Vertical Integration Strategy Raw Material (Suppliers) Backward Integration Current Transformation Forward Integration Finished Goods (Customers)
    13. 14. Vertical Integration <ul><li>RAC &quot;MiG&quot; is the first Russian &quot;vertically&quot; integrated aircraft manufacturing company </li></ul>
    14. 15. <ul><li>Uniquely Japanese form of corporate organization </li></ul><ul><li>System of mutual alliances and cross-ownership </li></ul><ul><ul><li>Company stock is held by allied firms </li></ul></ul><ul><ul><ul><li>Lowers need for short-term profits </li></ul></ul></ul><ul><li>Two types: horizontal and vertical </li></ul>Keiretsu Network Strategy
    15. 16. Vertical Keiretsu <ul><li>Links manufacturers, suppliers, distributors, & lenders </li></ul><ul><ul><li>‘ Partnerships’ extend across entire supply chain </li></ul></ul><ul><li>Primarily cars and electronics industries </li></ul><ul><li>Ex. Toyota, Nissan, Honda-Matsushita, Hitachi, Toshiba, Sony </li></ul>
    16. 17. Virtual Company Strategy <ul><li>Network of independent companies </li></ul><ul><ul><li>Linked by technology </li></ul></ul><ul><ul><ul><li>PC’s, faxes, Internet etc. </li></ul></ul></ul><ul><ul><li>Each contributes core competencies </li></ul></ul><ul><ul><li>Typically provide services </li></ul></ul><ul><ul><ul><li>Payroll, editing, designing </li></ul></ul></ul><ul><li>May be long or short-term </li></ul><ul><ul><li>Usually, only until opportunity is met </li></ul></ul>© 1995 Corel Corp.
    17. 18. Virtual company - Biogen <ul><li>Formed in 1978 with a simple, research-centered business model </li></ul><ul><ul><li>Develop drugs and sell licenses to pharmaceutical companies </li></ul></ul><ul><li>Received preliminary approval to market Avonex (reduces the progression of M.S.) </li></ul>
    18. 19. Virtual company - Biogen <ul><li>Four major tasks to produce Avonex </li></ul>
    19. 20. Virtual company - Biogen <ul><li>Four major tasks to produce Avonex </li></ul>Ben Venue Labs (OH)
    20. 21. Virtual company - Biogen <ul><li>Four major tasks to produce Avonex </li></ul>Ben Venue Labs (OH) Packaging Coordinators (Philadelphia
    21. 22. Virtual company - Biogen <ul><li>Four major tasks to produce Avonex </li></ul>Ben Venue Labs (OH) Packaging Coordinators (Philadelphia Amgen Louisville facility
    22. 23. Virtual company - Biogen <ul><li>Biogen managed the network of partners </li></ul><ul><li>Success story </li></ul><ul><ul><li>FDA approval to market was 35 hours </li></ul></ul><ul><ul><li>No product shortages </li></ul></ul><ul><ul><li>No recalls </li></ul></ul><ul><ul><li>Production increased 5-fold over the next 3 years </li></ul></ul>
    23. 24. Virtual company - Biogen <ul><li>Benefits to Biogen </li></ul><ul><ul><li>Competitive cost structure </li></ul></ul><ul><ul><li>Had limited and small scale production experience </li></ul></ul><ul><ul><li>Fixed assets low </li></ul></ul><ul><ul><li>Capital investment was low compared to the size of its business </li></ul></ul><ul><ul><li>Investment risk was shared by partners </li></ul></ul>
    24. 25. Managing the Supply-Chain <ul><li>Options: </li></ul><ul><ul><li>Postponement </li></ul></ul><ul><ul><li>Channel assembly </li></ul></ul><ul><ul><li>Drop shipping </li></ul></ul><ul><ul><li>Blanket orders </li></ul></ul><ul><ul><li>Electronic ordering and funds transfer </li></ul></ul><ul><ul><li>Vendor managed inventory </li></ul></ul><ul><ul><li>Standardization </li></ul></ul><ul><ul><li>Internet purchasing (e-procurement) </li></ul></ul>
    25. 26. Postponement <ul><li>A tactic used by assemble-to-order and mass-customization firms </li></ul><ul><li>Delay the customization of a product or service until the last possible moment </li></ul><ul><li>e.g. Drug company produces the drug as a powder. When orders are received then produce tablets in the dosage for which the order was received. </li></ul>
    26. 27. Channel assembly <ul><li>A form of postponement </li></ul><ul><li>Utilize the distribution channel as an assembly station </li></ul><ul><li>Warehouse performs a value-added service </li></ul><ul><li>e.g. Car battery manufacturer produces batteries for several private labels. The manufacturer ships unmarked batteries to warehouse. When orders are received, warehouse places decals for the brand name and packages for that private label. </li></ul>
    27. 28. Purchasing <ul><li>Outsourcing </li></ul><ul><ul><li>Make or buy decision </li></ul></ul><ul><li>Partnering </li></ul>
    28. 29. Outsourcing <ul><li>Choosing to purchase a service or part from an outside source; </li></ul><ul><li>Make or buy decision </li></ul><ul><ul><li>Insourcing vs. outsourcing decision </li></ul></ul><ul><li>Advantages </li></ul><ul><ul><li>Allows the firm to focus on core competencies </li></ul></ul><ul><ul><li>Adds capacity without additional fixed cost and overhead </li></ul></ul><ul><ul><li>Can be more cost effective </li></ul></ul><ul><ul><li>Supports market agility </li></ul></ul>
    29. 30. Hourly Labor Rates Source: http://stats.bls.gov/news.release/ichcc.t02.htm (1997data)+company records Key Is Total Cost Of Ownership
    30. 31. Li & Fung - Outsourcing <ul><li>Hong Kong based exporter </li></ul><ul><li>American and European customer base </li></ul><ul><li>The Limited is one of their customers </li></ul><ul><li>Receive order for 10,000 garments: </li></ul><ul><ul><li>Purchase yarn from Korean company </li></ul></ul><ul><ul><li>Have the yarn dyed and woven by a company in Taiwan </li></ul></ul><ul><ul><li>Purchase Japanese buttons and zippers from YKK’s Chinese plants </li></ul></ul><ul><ul><li>Garments made in 5 different plants in Thailand </li></ul></ul>
    31. 32. Partnering <ul><li>Process of developing a long-term relationship with a supplier based on: </li></ul><ul><ul><li>mutual trust </li></ul></ul><ul><ul><li>shared vision </li></ul></ul><ul><ul><li>shared information </li></ul></ul><ul><ul><li>shared risk </li></ul></ul>
    32. 33. Beer distribution game <ul><li>Consider a simplified beer supply chain, </li></ul><ul><ul><li>A retailer who sells to the customer </li></ul></ul><ul><ul><li>A wholesaler which supplies the retailer </li></ul></ul><ul><ul><li>A distributor which supplies the wholesaler </li></ul></ul><ul><ul><li>A factory with unlimited raw materials which makes (brews) the beer and supplies the distributor </li></ul></ul><ul><li>Each component in the supply chain has: </li></ul><ul><ul><li>unlimited storage capacity </li></ul></ul><ul><ul><li>fixed supply lead-time </li></ul></ul><ul><ul><li>order delay time between each component </li></ul></ul>
    33. 34. Beer distribution game
    34. 35. Beer distribution game <ul><li>Each week, each component in the supply chain tries to meet the demand of the downstream component. </li></ul><ul><li>Any orders that cannot be met are recorded as backorders, and are met as soon as possible. </li></ul><ul><li>No orders will be ignored, and all orders must eventually be met. </li></ul>
    35. 36. Beer distribution game <ul><li>At each period, each component in the supply chain is charged a $1.00 shortage cost per backordered item . </li></ul><ul><li>At each period, each location is charged $.50 inventory holding cost per inventory item that it owns. Each component owns the inventory at that facility. In addition, </li></ul><ul><ul><li>the wholesaler owns inventory in transit to the retailer; </li></ul></ul><ul><ul><li>the distributor owns inventory in transit to the wholesaler; </li></ul></ul><ul><ul><li>the factory owns both items being manufactured and items in transit to the distributor. </li></ul></ul>
    36. 37. Beer distribution game <ul><li>Each supply chain member orders some amount from its upstream supplier. </li></ul><ul><li>It takes one week for this order to arrive at the supplier. </li></ul><ul><li>Once the order arrives, the supplier attempts to fill it with available inventory. </li></ul><ul><li>There is a two week transportation delay before the material being shipped by the supplier arrives at the customer who placed the order. </li></ul>
    37. 38. Supply-Chain Dynamics
    38. 39. Supply-Chain Dynamics (a) Customer Customer Firm A
    39. 40. Supply-Chain Dynamics (a) Customer Customer Firm A Firm B
    40. 41. Supply-Chain Dynamics (a) Customer Customer Firm A Firm B Firm C
    41. 42. Supply-Chain Dynamics (a) Customer Customer Firm A Firm B Firm C Time (b) Materials requirements
    42. 43. Supply-Chain Dynamics (a) Firm A Customer Customer Firm A Firm B Firm C Time (b) Materials requirements
    43. 44. Supply-Chain Dynamics (a) Firm C Firm A Customer Customer Firm A Firm B Firm C Time (b) Materials requirements
    44. 45. Supply-Chain Dynamics Firm C Firm A Bullwhip effect Inaccurate or distorted demand information created in the supply chain Time Materials requirements
    45. 46. <ul><li>Two supply chain designs for competitive advantage </li></ul><ul><ul><li>Efficient supply chain </li></ul></ul><ul><ul><ul><li>Goal is to minimize inventories and maximize the efficiency of manufacturers and suppliers in the chain </li></ul></ul></ul><ul><ul><li>Responsive supply chain </li></ul></ul><ul><ul><ul><li>Goal is to react quickly to market demands by positioning inventories and capacities in order to hedge against uncertainties of demand </li></ul></ul></ul>Supply-Chain Environments
    46. 47. Supply-Chain Environments Environments Best Suited for Efficient and Responsive Supply Chains
    47. 48. Supply-Chain Environments Environments Best Suited for Efficient and Responsive Supply Chains Factor Demand Competitive priorities New-product introduction Contribution margins Product variety
    48. 49. Supply-Chain Environments Environments Best Suited for Efficient and Responsive Supply Chains Factor Efficient Supply Chains Demand Predictable; low forecast errors Competitive Low cost; consistent priorities quality; on-time delivery New-product Infrequent introduction Contribution Low margins Product variety Low
    49. 50. Supply-Chain Environments Environments Best Suited for Efficient and Responsive Supply Chains Factor Efficient Supply Chains Responsive Supply Chains Demand Predictable; low Unpredictable; high forecast errors forecast errors Competitive Low cost; consistent Development speed; fast priorities quality; on-time delivery times; delivery customization; volume flexibility; high- performance design quality New-product Infrequent Frequent introduction Contribution Low High margins Product variety Low High

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