Heizer om10 ch11

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Heizer om10 ch11

  1. 1. 11 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall11 Supply-ChainManagementPowerPoint presentation to accompanyHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePowerPoint slides by Jeff Heyl
  2. 2. 11 - 2© 2011 Pearson Education, Inc. publishing as Prentice HallOutline Global Company Profile:Darden Restaurants The Supply Chain’s StrategicImportance Supply Chain Risk Ethics and Sustainability Supply-Chain Economics Make-or-Buy Decisions Outsourcing
  3. 3. 11 - 3© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Supply-Chain Strategies Many Suppliers Few Suppliers Vertical Integration Joint Ventures Keiretsu Networks Virtual Companies
  4. 4. 11 - 4© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Managing the Supply Chain Issues in an Integrated Supply Chain Opportunities in an Integrated SupplyChain E-Procurement Online Catalogs Auctions RFQs Realtime Inventory Tracking
  5. 5. 11 - 5© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Vendor Selection Vendor Evaluation Vendor Development Negotiations
  6. 6. 11 - 6© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Logistics Management Distribution Systems Third-Party Logistics Cost of Shipping Alternatives Security and JIT Measuring Supply-ChainPerformance
  7. 7. 11 - 7© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshould be able to:1. Explain the strategic importance ofthe supply chain2. Identify six supply-chain strategies3. Explain issues and opportunities inthe supply chain4. Describe the steps in vendorselection
  8. 8. 11 - 8© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshould be able to:5. Explain major issues in logisticsmanagement6. Compute percent of assetscommitted to inventory andinventory turnover
  9. 9. 11 - 9© 2011 Pearson Education, Inc. publishing as Prentice HallDarden Restaurants Largest publicly traded casualdining company in the world Serves over 400 million mealsannually in more than 1,800restaurants in the US and Canada Annual sales of $6.7 billion Operations is the strategy
  10. 10. 11 - 10© 2011 Pearson Education, Inc. publishing as Prentice HallDarden Restaurants Sources food from five continentsand thousands of suppliers Four distinct supply chains Over $1.5 billion spent annually insupply chains Competitive advantage achievedthrough superior supply chain
  11. 11. 11 - 11© 2011 Pearson Education, Inc. publishing as Prentice HallSupply-Chain ManagementThe objective is to build a chain ofsuppliers that focuses onmaximizing value to the ultimatecustomer
  12. 12. 11 - 12© 2011 Pearson Education, Inc. publishing as Prentice HallThe Supply Chain’sStrategic ImportanceSupply chain management is theintegration of the activities thatprocure materials and services,transform them into intermediategoods and final products, and deliverthem through a distribution systemCompetition is no longer betweencompanies; it is between supply chains
  13. 13. 11 - 13© 2011 Pearson Education, Inc. publishing as Prentice HallSupply Chain Management1. Transportation vendors2. Credit and cash transfers3. Suppliers4. Distributors5. Accounts payable and receivable6. Warehousing and inventory7. Order fulfillment8. Sharing customer, forecasting, andproduction informationImportant activities include determining
  14. 14. 11 - 14© 2011 Pearson Education, Inc. publishing as Prentice HallA Supply Chain for BeerFigure 11.1
  15. 15. 11 - 15© 2011 Pearson Education, Inc. publishing as Prentice HallHow Supply ChainDecisions Impact StrategyLow-CostStrategyResponseStrategyDifferentiationStrategySupplier’sgoalSupply demandat lowestpossible cost(e.g., EmersonElectric, TacoBell)Respond quicklyto changingrequirementsand demand tominimizestockouts (e.g.,Dell Computers)Share marketresearch;jointly developproducts andoptions (e.g.,Benetton)PrimaryselectioncriteriaSelect primarilyfor costSelect primarilyfor capacity,speed, andflexibilitySelect primarilyfor productdevelopmentskillsTable 11.1
  16. 16. 11 - 16© 2011 Pearson Education, Inc. publishing as Prentice HallHow Supply ChainDecisions Impact StrategyLow-CostStrategyResponseStrategyDifferentiationStrategyProcesscharact-eristicsMaintain highaverageutilizationInvest in excesscapacity andflexibleprocessesModularprocesses thatlendthemselves tomasscustomizationInventorycharact-eristicsMinimizeinventorythroughout thechain to holddown costDevelopresponsivesystem withbuffer stockspositioned toensure supplyMinimizeinventory in thechain to avoidobsolescenceTable 11.1
  17. 17. 11 - 17© 2011 Pearson Education, Inc. publishing as Prentice HallHow Supply ChainDecisions Impact StrategyLow-CostStrategyResponseStrategyDifferentiationStrategyLead-timecharact-eristicsShorten leadtime as long asit does notincrease costsInvestaggressively toreduceproduction leadtimeInvestaggressively toreducedevelopmentlead timeProduct-designcharact-eristicsMaximizeperformanceand minimizecostsUse productdesigns thatlead to lowsetup time andrapidproductionramp-upUse modulardesign topostponeproductdifferentiationas long aspossibleTable 11.1
  18. 18. 11 - 18© 2011 Pearson Education, Inc. publishing as Prentice HallSupply Chain Risk More reliance on supply chains meansmore risk Fewer suppliers increase dependence Compounded by globalization andlogistical complexity Vendor reliability and quality risks Political and currency risks
  19. 19. 11 - 19© 2011 Pearson Education, Inc. publishing as Prentice HallSupply Chain Risk Mitigate and react to disruptions in1. Processes2. Controls3. Environment
  20. 20. 11 - 20© 2011 Pearson Education, Inc. publishing as Prentice HallSupply Chain Risk Reducing risk in supply chains Process risk at McDonald’s Process risk at Ford Controls at Darden Restaurants Control risk at Boeing Environmental risk at Hard RockCafé Environmental risk at Toyota
  21. 21. 11 - 21© 2011 Pearson Education, Inc. publishing as Prentice HallEthics and Sustainability Personal ethics Institute for Supply ManagementPrinciples and Standards Ethics within the supply chain Ethical behavior regarding theenvironment
  22. 22. 11 - 22© 2011 Pearson Education, Inc. publishing as Prentice HallPrinciples and Standards forEthical Supply ManagementConductLOYALTY TO YOUR ORGANIZATIONJUSTICE TO THOSE WITH WHOM YOUDEALFAITH IN YOUR PROFESSIONTable 11.2
  23. 23. 11 - 23© 2011 Pearson Education, Inc. publishing as Prentice HallPrinciples and Standards forEthical Supply ManagementConductTable 11.21. PERCEIVED IMPROPRIETY Prevent the intent andappearance of unethical or compromisingconduct in relationships, actions andcommunications2. CONFLICTS OF INTEREST Ensure that anypersonal, business or other activity does notconflict with the lawful interests of your employer3. ISSUES OF INFLUENCE Avoid behaviors oractions that may negatively influence, or appearto influence, supply management decisions
  24. 24. 11 - 24© 2011 Pearson Education, Inc. publishing as Prentice HallPrinciples and Standards forEthical Supply ManagementConductTable 11.24. RESPONSIBILITIES TO YOUR EMPLOYERUphold fiduciary and other responsibilities usingreasonable care and granted authority to delivervalue to your employer5. SUPPLIER AND CUSTOMER RELATIONSHIPSPromote positive supplier and customerrelationships6. SUSTAINABILITY AND SOCIAL RESPONSIBILITYChampion social responsibility and sustainabilitypractices in supply management
  25. 25. 11 - 25© 2011 Pearson Education, Inc. publishing as Prentice HallPrinciples and Standards forEthical Supply ManagementConductTable 11.27. CONFIDENTIAL AND PROPRIETARYINFORMATION Protect confidential andproprietary information8. RECIPROCITY Avoid improper reciprocalagreements9. APPLICABLE LAWS, REGULATIONS ANDTRADE AGREEMENTS Know and obey the letterand spirit of laws, regulations and tradeagreements applicable to supply management
  26. 26. 11 - 26© 2011 Pearson Education, Inc. publishing as Prentice HallPrinciples and Standards forEthical Supply ManagementConductTable 11.210.PROFESSIONAL COMPETENCE Develop skills,expand knowledge and conduct business thatdemonstrates competence and promotes thesupply management profession
  27. 27. 11 - 27© 2011 Pearson Education, Inc. publishing as Prentice HallSupply Chain EconomicsSupply Chain Costs as a Percent of SalesTable 11.3Industry % PurchasedAll industry 52Automobile 67Food 60Lumber 61Paper 55Petroleum 79Transportation 62
  28. 28. 11 - 28© 2011 Pearson Education, Inc. publishing as Prentice HallSupply Chain EconomicsDollars of additional sales needed to equal $1saved through the supply chainPercent of Sales Spent in the Supply ChainPercent Net Profitof Firm 30% 40% 50% 60% 70% 80% 90%2 $2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $16.674 $2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $14.296 $2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $12.508 $2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $11.1110 $2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.00Table 11.4
  29. 29. 11 - 29© 2011 Pearson Education, Inc. publishing as Prentice HallMake-or-Buy Decisions Choice between internal productionand external sources
  30. 30. 11 - 30© 2011 Pearson Education, Inc. publishing as Prentice HallOutsourcing Transfers traditional internalactivities and resources of a firm tooutside vendors Utilizes the efficiency that comeswith specialization Firms outsource informationtechnology, accounting, legal,logistics, and production
  31. 31. 11 - 31© 2011 Pearson Education, Inc. publishing as Prentice HallSupply Chain Strategies Negotiating with many suppliers Long-term partnering with fewsuppliers Vertical integration Joint ventures Keiretsu Virtual companies that usesuppliers on an as needed basis
  32. 32. 11 - 32© 2011 Pearson Education, Inc. publishing as Prentice HallMany Suppliers Commonly used for commodityproducts Purchasing is typically based onprice Suppliers compete with oneanother Supplier is responsible fortechnology, expertise, forecasting,cost, quality, and delivery
  33. 33. 11 - 33© 2011 Pearson Education, Inc. publishing as Prentice HallFew Suppliers Buyer forms longer termrelationships with fewer suppliers Create value through economies ofscale and learning curveimprovements Suppliers more willing to participatein JIT programs and contributedesign and technological expertise Cost of changing suppliers is huge
  34. 34. 11 - 34© 2011 Pearson Education, Inc. publishing as Prentice HallVertical IntegrationFigure 11.2Raw material(suppliers)Iron ore Silicon FarmingBackwardintegrationSteelCurrenttransformationAutomobilesIntegratedcircuitsFlour millingForward integrationDistributionsystemsCircuit boardsFinished goods(customers) DealersComputersWatchesCalculatorsBaked goodsVertical Integration Examples of Vertical Integration
  35. 35. 11 - 35© 2011 Pearson Education, Inc. publishing as Prentice HallVertical Integration Developing the ability to produce goodsor service previously purchased Integration may be forward, towards thecustomer, or backward, towardssuppliers Can improve cost, quality, and inventorybut requires capital, managerial skills,and demand Risky in industries with rapidtechnological change
  36. 36. 11 - 36© 2011 Pearson Education, Inc. publishing as Prentice HallJoint Ventures Formal collaboration Enhance skills Secure supply Reduce costs Cooperation without diluting brandor conceding competitive advantage
  37. 37. 11 - 37© 2011 Pearson Education, Inc. publishing as Prentice HallKeiretsu Networks A middle ground between few suppliersand vertical integration Supplier becomes part of the companycoalition Often provide financial support forsuppliers through ownership or loans Members expect long-term relationshipsand provide technical expertise andstable deliveries May extend through several levels of thesupply chain
  38. 38. 11 - 38© 2011 Pearson Education, Inc. publishing as Prentice HallVirtual Companies Rely on a variety of supplierrelationships to provide services ondemand Fluid organizational boundaries thatallow the creation of unique enterprisesto meet changing market demands Exceptionally lean performance, lowcapital investment, flexibility, and speed
  39. 39. 11 - 39© 2011 Pearson Education, Inc. publishing as Prentice HallManaging the Supply Chain Mutual agreement on goals Trust Compatible organizational culturesThere are significant management issues incontrolling a supply chain involving manyindependent organizations
  40. 40. 11 - 40© 2011 Pearson Education, Inc. publishing as Prentice HallIssues in an IntegratedSupply Chain Local optimization - focusing on localprofit or cost minimization based onlimited knowledge Incentives (sales incentives, quantitydiscounts, quotas, and promotions) -push merchandise prior to sale Large lots - low unit cost but do notreflect sales Bullwhip effect - stable demand becomeslumpy orders through the supply chain
  41. 41. 11 - 41© 2011 Pearson Education, Inc. publishing as Prentice HallOpportunities in anIntegrated Supply Chain Accurate “pull” data Lot size reduction Single stage control ofreplenishment Vendor managed inventory(VMI)
  42. 42. 11 - 42© 2011 Pearson Education, Inc. publishing as Prentice HallOpportunities in anIntegrated Supply Chain Collaborative planning,forecasting, andreplenishment (CPFR) Blanket orders Standardization
  43. 43. 11 - 43© 2011 Pearson Education, Inc. publishing as Prentice HallOpportunities in anIntegrated Supply Chain Postponement Drop shipping and specialpackaging Pass-through facility Channel assembly
  44. 44. 11 - 44© 2011 Pearson Education, Inc. publishing as Prentice HallRadio Frequency TagsRadio Frequency Tags: Keeping the Shelves StockedSupply chains work smoothly when sales are steady, but often break down when confronted by a suddensurge in demand. Radio frequency ID (or RFID) tags can change that by providing real-time informationabout what’s happening on store shelves. Here’s how the system works for Proctor & Gamble’s Pampers.
  45. 45. 11 - 45© 2011 Pearson Education, Inc. publishing as Prentice HallE-Procurement Uses the internet to facilitatepurchasing Electronic ordering and fundstransfer Electronic data interchange (EDI) Advanced shipping notice
  46. 46. 11 - 46© 2011 Pearson Education, Inc. publishing as Prentice HallE-Procurement Online catalogs1. Catalogs provided by vendors2. Catalogs published byintermediaries3. Exchanges provided by buyers
  47. 47. 11 - 47© 2011 Pearson Education, Inc. publishing as Prentice HallInternet Trading Exchanges Health care products – ghx.com Retail goods – gnx.com Defense and aerospace products –exostar.com Food, beverage, consumer products– transora.com Steel and metal products –metalsite.com Hotels – avendra.com
  48. 48. 11 - 48© 2011 Pearson Education, Inc. publishing as Prentice HallE-Procurement Auctions Maintained by buyers, sellers,or intermediaries Low barriersto entry Increase inthe potentialnumber ofbuyers
  49. 49. 11 - 49© 2011 Pearson Education, Inc. publishing as Prentice HallE-Procurement RFQs Can make requests for quotes(RFQs) less costly Improves supplier selection Real-time inventory tracking
  50. 50. 11 - 50© 2011 Pearson Education, Inc. publishing as Prentice HallVendor Selection Vendor evaluation Critical decision Find potential vendors Determine the likelihood of thembecoming good suppliers Vendor Development Training Engineering and production help Establish policies and procedures
  51. 51. 11 - 51© 2011 Pearson Education, Inc. publishing as Prentice HallVendor EvaluationCriteria WeightsScores(1-5)Weightx ScoreEngineering/research/innovation skills .20 5 1.0Production process capability(flexibility/technical assistance).15 4 .6Distribution/delivery capability .05 4 .2Quality systems and performance .10 2 .2Facilities/location .05 2 .1Financial and managerial strength(stability and cost structure).15 4 .6Information systems capability (e-procurement, ERP).10 2 .2Integrity (environmental compliance/ethics).20 5 1.0Total 1.00 3.9
  52. 52. 11 - 52© 2011 Pearson Education, Inc. publishing as Prentice HallVendor Selection Negotiations Cost-Based Price Model - supplieropens books to purchaser Market-Based Price Model - pricebased on published, auction, orindexed price Competitive Bidding - used forinfrequent purchases but may makeestablishing long-term relationshipsdifficult
  53. 53. 11 - 53© 2011 Pearson Education, Inc. publishing as Prentice HallLogistics Management Objective is to obtain efficientoperations through the integrationof all material acquisition,movement, and storage activities Is a frequent candidate foroutsourcing Allows competitive advantage tobe gained through reduced costsand improved customer service
  54. 54. 11 - 54© 2011 Pearson Education, Inc. publishing as Prentice HallDistribution Systems Trucking Moves the vast majority ofmanufactured goods Chief advantage is flexibility Railroads Capable of carrying large loads Little flexibility thoughcontainers and piggybackinghave helped with this
  55. 55. 11 - 55© 2011 Pearson Education, Inc. publishing as Prentice HallDistribution Systems Airfreight Fast and flexible for light loads May be expensive
  56. 56. 11 - 56© 2011 Pearson Education, Inc. publishing as Prentice HallDistribution Systems Waterways Typically used for bulky, low-value cargo Used when shipping cost is moreimportantthan speed
  57. 57. 11 - 57© 2011 Pearson Education, Inc. publishing as Prentice HallDistribution Systems Pipelines Used for transporting oil, gas,and other chemical products
  58. 58. 11 - 58© 2011 Pearson Education, Inc. publishing as Prentice HallThird-Party Logistics Outsourcing logistics can reduce costsand improve delivery reliability andspeed Coordinate supplier inventory withdelivery services May providewarehousing,assembly, testing,shipping, customs
  59. 59. 11 - 59© 2011 Pearson Education, Inc. publishing as Prentice HallCost of ShippingAlternatives Product in transit is a form ofinventory and has a carrying cost Faster shipping is generally moreexpensive than slower shipping We can evaluate the two costs tobetter understand the trade-off
  60. 60. 11 - 60© 2011 Pearson Education, Inc. publishing as Prentice HallCost of ShippingAlternativesValue of connectors = $1,750.00Holding cost = 40% per yearSecond carrier is 1 day faster and $20 moreexpensiveDaily cost ofholding product= x /365AnnualholdingcostProductvalue= (.40 x $1,750)/ 365 = $1.92Since it costs less to hold the product one daylonger than it does for the faster shipping ($1.92 <$20), we should use the cheaper, slower shipper
  61. 61. 11 - 61© 2011 Pearson Education, Inc. publishing as Prentice HallSecurity and JIT Borders are becoming more open in theU.S. and around the world Monitoring and controlling stock movingthrough supply chains is more importantthan ever New technologies arebeing developed toallow close monitoringof location, storageconditions, andmovement
  62. 62. 11 - 62© 2011 Pearson Education, Inc. publishing as Prentice HallMeasuring Supply-ChainPerformanceTable 11.6Typical FirmsBenchmarkFirmsLead time (weeks) 15 8Time spent placing an order 42 minutes 15 minutesPercentage of late deliveries 33% 2%Percentage of rejected material 1.5% .0001%Number of shortages per year 400 4
  63. 63. 11 - 63© 2011 Pearson Education, Inc. publishing as Prentice HallMeasuring Supply-ChainPerformance Assets committed to inventoryPercentinvested ininventory= x 100Total inventoryinvestmentTotal assetsInvestment in inventory = $11.4 billionTotal assets = $44.4 billionPercent invested in inventory = (11.4/44.4) x 100 = 25.7%
  64. 64. 11 - 64© 2011 Pearson Education, Inc. publishing as Prentice HallMeasuring Supply-ChainPerformanceTable 11.7Inventory as a % of Total Assets(with exceptional performance)Manufacturing 15%(Toyota 5%)Wholesale 34%(Coca-Cola 2.9%)Restaurants 2.9%(McDonald’s .05%)Retail 27%(Home Depot 25.7%)
  65. 65. 11 - 65© 2011 Pearson Education, Inc. publishing as Prentice HallMeasuring Supply-ChainPerformanceInventory turnoverInventoryturnover =Cost of goods soldInventoryinvestment
  66. 66. 11 - 66© 2011 Pearson Education, Inc. publishing as Prentice HallMeasuring Supply-ChainPerformanceTable 11.8Examples of Annual Inventory TurnoverFood, Beverage, Retail ManufacturingAnheuser Busch 15 Dell Computer 90Coca-Cola 14 Johnson Controls 22Home Depot 5 Toyota (overall) 13McDonald’s 112 Nissan (assembly) 150
  67. 67. 11 - 67© 2011 Pearson Education, Inc. publishing as Prentice HallMeasuring Supply-ChainPerformance Inventory turnoverNet revenue $32.5Cost of goods sold $14.2Inventory:Raw material inventory $.74Work-in-process inventory $.11Finished goods inventory $.84Total inventory investment $1.69
  68. 68. 11 - 68© 2011 Pearson Education, Inc. publishing as Prentice HallMeasuring Supply-ChainPerformance Inventory turnoverNet revenue $32.5Cost of goods sold $14.2Inventory:Raw material inventory $.74Work-in-process inventory $.11Finished goods inventory $.84Total inventory investment $1.69Inventory turnover =Cost of goods soldInventory investment= 14.2 / 1.69 = 8.4
  69. 69. 11 - 69© 2011 Pearson Education, Inc. publishing as Prentice HallMeasuring Supply-ChainPerformance Inventory turnoverNet revenue $32.5Cost of goods sold $14.2Inventory:Raw material inventory $.74Work-in-process inventory $.11Finished goods inventory $.84Total inventory investment $1.69Inventory turnover =Cost of goods soldInventory investment= 14.2 / 1.69 = 8.4Weeks of supply =Inventory investmentAverage weekly cost ofgoods sold= 1.69 / .273 = 6.19 weeksAverage weeklycost of goods sold = $14.2 / 52 = $.273
  70. 70. 11 - 70© 2011 Pearson Education, Inc. publishing as Prentice HallThe SCOR Model Processes, metrics and best practicesPlan: Demand/Supply planning and ManagementSource: Identify,select, manage, andassess sourcesMake: Manageproduction execution,testing and packagingDeliver: Invoice,warehouse, transportand installReturn: Raw material Return: Finished goodsFigure 11.3
  71. 71. 11 - 71© 2011 Pearson Education, Inc. publishing as Prentice HallAll rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted, in any form or by any means, electronic, mechanical, photocopying,recording, or otherwise, without the prior written permission of the publisher.Printed in the United States of America.

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