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Supply-Chain Management

The document discusses the principles and strategies of supply chain management, emphasizing the integration of activities that transform materials into products and deliver them to customers. It covers various supply chain strategies, risks, outsourcing, and vendor selection processes, highlighting the importance of collaboration and maintaining efficiency. Lastly, it examines logistics management and the methods to reduce costs and improve service in supply chains.

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11 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall 11 Supply-Chain Management PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer and RenderHeizer and Render Operations Management, 10eOperations Management, 10e Principles of Operations Management, 8ePrinciples of Operations Management, 8e PowerPoint slides by Jeff Heyl
11 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply-Chain ManagementSupply-Chain Management The objective is to build a chain ofThe objective is to build a chain of suppliers that focuses onsuppliers that focuses on maximizing value to the ultimatemaximizing value to the ultimate customercustomer
11 - 3© 2011 Pearson Education, Inc. publishing as Prentice Hall The Supply Chain’sThe Supply Chain’s Strategic ImportanceStrategic Importance Supply chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system Competition is no longer betweenCompetition is no longer between companies; it is between supply chainscompanies; it is between supply chains
11 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain ManagementSupply Chain Management 1. Transportation vendors 2. Credit and cash transfers 3. Suppliers 4. Distributors 5. Accounts payable and receivable 6. Warehousing and inventory 7. Order fulfillment 8. Sharing customer, forecasting, and production information Important activities include determiningImportant activities include determining
11 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall A Supply Chain for BeerA Supply Chain for Beer Figure 11.1
11 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall How Supply ChainHow Supply Chain Decisions Impact StrategyDecisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Supplier’s goal Supply demand at lowest possible cost (e.g., Emerson Electric, Taco Bell) Respond quickly to changing requirements and demand to minimize stockouts (e.g., Dell Computers) Share market research; jointly develop products and options (e.g., Benetton) Primary selection criteria Select primarily for cost Select primarily for capacity, speed, and flexibility Select primarily for product development skills Table 11.1
11 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall How Supply ChainHow Supply Chain Decisions Impact StrategyDecisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Process charact- eristics Maintain high average utilization Invest in excess capacity and flexible processes Modular processes that lend themselves to mass customization Inventory charact- eristics Minimize inventory throughout the chain to hold down cost Develop responsive system with buffer stocks positioned to ensure supply Minimize inventory in the chain to avoid obsolescence Table 11.1
11 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall How Supply ChainHow Supply Chain Decisions Impact StrategyDecisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Lead-time charact- eristics Shorten lead time as long as it does not increase costs Invest aggressively to reduce production lead time Invest aggressively to reduce development lead time Product- design charact- eristics Maximize performance and minimize costs Use product designs that lead to low setup time and rapid production ramp-up Use modular design to postpone product differentiation as long as possible Table 11.1
11 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain RiskSupply Chain Risk  More reliance on supply chains means more risk  Fewer suppliers increase dependence  Compounded by globalization and logistical complexity  Vendor reliability and quality risks  Political and currency risks
11 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain RiskSupply Chain Risk  Mitigate and react to disruptions in 1. Processes 2. Controls 3. Environment
11 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain RiskSupply 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 Rock Café  Environmental risk at Toyota
11 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall Ethics and SustainabilityEthics and Sustainability  Personal ethics  Institute for Supply Management Principles and Standards  Ethics within the supply chain  Ethical behavior regarding the environment
11 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall Principles and Standards forPrinciples and Standards for Ethical Supply ManagementEthical Supply Management ConductConduct LOYALTY TO YOUR ORGANIZATIONLOYALTY TO YOUR ORGANIZATION JUSTICE TO THOSE WITH WHOMJUSTICE TO THOSE WITH WHOM YOU DEALYOU DEAL FAITH IN YOUR PROFESSIONFAITH IN YOUR PROFESSION Table 11.2
11 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain EconomicsSupply Chain Economics Supply Chain Costs as a Percent of SalesSupply Chain Costs as a Percent of Sales Table 11.3 Industry % Purchased All industry 52 Automobile 67 Food 60 Lumber 61 Paper 55 Petroleum 79 Transportation 62
11 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain EconomicsSupply Chain Economics Dollars of additional sales needed to equal $1Dollars of additional sales needed to equal $1 saved through the supply chainsaved through the supply chain 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 Table 11.4
11 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall Make-or-Buy DecisionsMake-or-Buy Decisions  Choice between internal production and external sources
11 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall OutsourcingOutsourcing  Transfers traditional internal activities and resources of a firm to outside vendors  Utilizes the efficiency that comes with specialization  Firms outsource information technology, accounting, legal, logistics, and production
11 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain StrategiesSupply Chain Strategies  Negotiating with many suppliers  Long-term partnering with few suppliers  Vertical integration  Joint ventures  Keiretsu  Virtual companies that use suppliers on an as needed basis
11 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall Many SuppliersMany Suppliers  Commonly used for commodity products  Purchasing is typically based on price  Suppliers compete with one another  Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery
11 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall Few SuppliersFew Suppliers  Buyer forms longer term relationships with fewer suppliers  Create value through economies of scale and learning curve improvements  Suppliers more willing to participate in JIT programs and contribute design and technological expertise  Cost of changing suppliers is huge
11 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall Vertical IntegrationVertical Integration Figure 11.2 Raw material (suppliers) Iron ore Silicon Farming Backward integration Steel Current transformation Automobiles Integrated circuits Flour milling Forward integration Distribution systems Circuit boards Finished goods (customers) Dealers Computers Watches Calculators Baked goods Vertical Integration Examples of Vertical Integration
11 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall Vertical IntegrationVertical Integration  Developing the ability to produce goods or service previously purchased  Integration may be forward, towards the customer, or backward, towards suppliers  Can improve cost, quality, and inventory but requires capital, managerial skills, and demand  Risky in industries with rapid technological change
11 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall Joint VenturesJoint Ventures  Formal collaboration  Enhance skills  Secure supply  Reduce costs  Cooperation without diluting brand or conceding competitive advantage
11 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall Keiretsu NetworksKeiretsu Networks  A middle ground between few suppliers and vertical integration  Supplier becomes part of the company coalition  Often provide financial support for suppliers through ownership or loans  Members expect long-term relationships and provide technical expertise and stable deliveries  May extend through several levels of the supply chain
11 - 25© 2011 Pearson Education, Inc. publishing as Prentice Hall Virtual CompaniesVirtual Companies  Rely on a variety of supplier relationships to provide services on demand  Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands  Exceptionally lean performance, low capital investment, flexibility, and speed
11 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall Managing the Supply ChainManaging the Supply Chain  Mutual agreement on goals  Trust  Compatible organizational cultures There are significant management issues in controlling a supply chain involving many independent organizations
11 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall Issues in an IntegratedIssues in an Integrated Supply ChainSupply Chain  Local optimizationLocal optimization - focusing on local profit or cost minimization based on limited knowledge  Incentives (sales incentives, quantityIncentives (sales incentives, quantity discounts, quotas, and promotions)discounts, quotas, and promotions) - push merchandise prior to sale  Large lotsLarge lots - low unit cost but do not reflect sales  Bullwhip effectBullwhip effect - stable demand becomes lumpy orders through the supply chain
11 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall Opportunities in anOpportunities in an Integrated Supply ChainIntegrated Supply Chain  Accurate “pull” data  Lot size reduction  Single stage control of replenishment  Vendor managed inventory (VMI)
11 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall Opportunities in anOpportunities in an Integrated Supply ChainIntegrated Supply Chain  Collaborative planning, forecasting, and replenishment (CPFR)  Blanket orders  Standardization
11 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall Opportunities in anOpportunities in an Integrated Supply ChainIntegrated Supply Chain  Postponement  Drop shipping and special packaging  Pass-through facility  Channel assembly
11 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall Radio Frequency TagsRadio Frequency Tags Radio Frequency Tags: Keeping the Shelves StockedRadio Frequency Tags: Keeping the Shelves Stocked Supply chains work smoothly when sales are steady, but often break down when confronted by a sudden surge in demand. Radio frequency ID (or RFID) tags can change that by providing real-time information about what’s happening on store shelves. Here’s how the system works for Proctor & Gamble’s Pampers.
11 - 32© 2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement  Uses the internet to facilitate purchasing  Electronic ordering and funds transfer  Electronic data interchange (EDI)  Advanced shipping notice
11 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement  Online catalogs 1. Catalogs provided by vendors 2. Catalogs published by intermediaries 3. Exchanges provided by buyers
11 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall Internet Trading ExchangesInternet 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
11 - 35© 2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement  Auctions  Maintained by buyers, sellers, or intermediaries  Low barriers to entry  Increase in the potential number of buyers
11 - 36© 2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement  RFQs  Can make requests for quotes (RFQs) less costly  Improves supplier selection  Real-time inventory tracking
11 - 37© 2011 Pearson Education, Inc. publishing as Prentice Hall Vendor SelectionVendor Selection  Vendor evaluation  Critical decision  Find potential vendors  Determine the likelihood of them becoming good suppliers  Vendor Development  Training  Engineering and production help  Establish policies and procedures
11 - 38© 2011 Pearson Education, Inc. publishing as Prentice Hall Vendor EvaluationVendor Evaluation Criteria Weights Scores (1-5) Weight x Score Engineering/research/innovation skills .20 5 1.0 Production process capability (flexibility/technical assistance) .15 4 .6 Distribution/delivery capability .05 4 .2 Quality systems and performance .10 2 .2 Facilities/location .05 2 .1 Financial and managerial strength (stability and cost structure) .15 4 .6 Information systems capability (e- procurement, ERP) .10 2 .2 Integrity (environmental compliance/ ethics) .20 5 1.0 Total 1.00 3.9
11 - 39© 2011 Pearson Education, Inc. publishing as Prentice Hall Vendor SelectionVendor Selection  Negotiations  Cost-Based Price ModelCost-Based Price Model - supplier opens books to purchaser  Market-Based Price ModelMarket-Based Price Model - price based on published, auction, or indexed price  Competitive BiddingCompetitive Bidding - used for infrequent purchases but may make establishing long-term relationships difficult
11 - 40© 2011 Pearson Education, Inc. publishing as Prentice Hall Logistics ManagementLogistics Management  Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities  Is a frequent candidate for outsourcing  Allows competitive advantage to be gained through reduced costs and improved customer service
11 - 41© 2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems  TruckingTrucking  Moves the vast majority ofMoves the vast majority of manufactured goodsmanufactured goods  Chief advantage is flexibilityChief advantage is flexibility  RailroadsRailroads  Capable of carrying large loadsCapable of carrying large loads  Little flexibility thoughLittle flexibility though containers and piggybackingcontainers and piggybacking have helped with thishave helped with this
11 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems  Airfreight  Fast and flexible for light loads  May be expensive
11 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems  Waterways  Typically used for bulky, low- value cargo  Used when shipping cost is more important than speed
11 - 44© 2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems  Pipelines  Used for transporting oil, gas, and other chemical products
11 - 45© 2011 Pearson Education, Inc. publishing as Prentice Hall Third-Party LogisticsThird-Party Logistics  Outsourcing logistics can reduce costs and improve delivery reliability and speed  Coordinate supplier inventory with delivery services  May provide warehousing, assembly, testing, shipping, customs
11 - 46© 2011 Pearson Education, Inc. publishing as Prentice Hall Cost of ShippingCost of Shipping AlternativesAlternatives  Product in transit is a form of inventory and has a carrying cost  Faster shipping is generally more expensive than slower shipping  We can evaluate the two costs to better understand the trade-off
11 - 47© 2011 Pearson Education, Inc. publishing as Prentice Hall Cost of ShippingCost of Shipping AlternativesAlternatives Value of connectors = $1,750.00 Holding cost = 40% per year Second carrier is 1 day faster and $20 more expensive Daily cost of holding product = x /365 Annual holding cost Product value = (.40 x $1,750)/ 365 = $1.92 Since it costs less to hold the product one day longer than it does for the faster shipping ($1.92 < $20), we should use the cheaper, slower shipper
11 - 48© 2011 Pearson Education, Inc. publishing as Prentice Hall Security and JITSecurity and JIT  Borders are becoming more open in the U.S. and around the world  Monitoring and controlling stock moving through supply chains is more important than ever  New technologies are being developed to allow close monitoring of location, storage conditions, and movement
11 - 49© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Table 11.6 Typical Firms Benchmark Firms Lead time (weeks) 15 8 Time spent placing an order 42 minutes 15 minutes Percentage of late deliveries 33% 2% Percentage of rejected material 1.5% .0001% Number of shortages per year 400 4
11 - 50© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance  Assets committed to inventory Percent invested in inventory = x 100 Total inventory investment Total assets Investment in inventory = $11.4 billion Total assets = $44.4 billion Percent invested in inventory = (11.4/44.4) x 100 = 25.7%
11 - 51© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Table 11.7 Inventory 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%)
11 - 52© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Inventory turnover Inventory turnover = Cost of goods sold Inventory investment
11 - 53© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Table 11.8 Examples of Annual Inventory Turnover Food, Beverage, Retail Manufacturing Anheuser Busch 15 Dell Computer 90 Coca-Cola 14 Johnson Controls 22 Home Depot 5 Toyota (overall) 13 McDonald’s 112 Nissan (assembly) 150
11 - 54© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance  Inventory turnover Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69
11 - 55© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance  Inventory turnover Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69 Inventory turnover = Cost of goods sold Inventory investment = 14.2 / 1.69 = 8.4
11 - 56© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance  Inventory turnover Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69 Inventory turnover = Cost of goods sold Inventory investment = 14.2 / 1.69 = 8.4 Weeks of supply = Inventory investment Average weekly cost of goods sold = 1.69 / .273 = 6.19 weeks Average weekly cost of goods sold = $14.2 / 52 = $.273
11 - 57© 2011 Pearson Education, Inc. publishing as Prentice Hall The SCOR ModelThe SCOR Model  Processes, metrics and best practices Plan: Demand/Supply planning and Management Source: Identify, select, manage, and assess sources Make: Manage production execution, testing and packaging Deliver: Invoice, warehouse, transport and install Return: Raw material Return: Finished goods Figure 11.3

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Supply-Chain Management

  • 1.
    11 - 1©2011 Pearson Education, Inc. publishing as Prentice Hall 11 Supply-Chain Management PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer and RenderHeizer and Render Operations Management, 10eOperations Management, 10e Principles of Operations Management, 8ePrinciples of Operations Management, 8e PowerPoint slides by Jeff Heyl
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    11 - 2©2011 Pearson Education, Inc. publishing as Prentice Hall Supply-Chain ManagementSupply-Chain Management The objective is to build a chain ofThe objective is to build a chain of suppliers that focuses onsuppliers that focuses on maximizing value to the ultimatemaximizing value to the ultimate customercustomer
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    11 - 3©2011 Pearson Education, Inc. publishing as Prentice Hall The Supply Chain’sThe Supply Chain’s Strategic ImportanceStrategic Importance Supply chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system Competition is no longer betweenCompetition is no longer between companies; it is between supply chainscompanies; it is between supply chains
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    11 - 4©2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain ManagementSupply Chain Management 1. Transportation vendors 2. Credit and cash transfers 3. Suppliers 4. Distributors 5. Accounts payable and receivable 6. Warehousing and inventory 7. Order fulfillment 8. Sharing customer, forecasting, and production information Important activities include determiningImportant activities include determining
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    11 - 5©2011 Pearson Education, Inc. publishing as Prentice Hall A Supply Chain for BeerA Supply Chain for Beer Figure 11.1
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    11 - 6©2011 Pearson Education, Inc. publishing as Prentice Hall How Supply ChainHow Supply Chain Decisions Impact StrategyDecisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Supplier’s goal Supply demand at lowest possible cost (e.g., Emerson Electric, Taco Bell) Respond quickly to changing requirements and demand to minimize stockouts (e.g., Dell Computers) Share market research; jointly develop products and options (e.g., Benetton) Primary selection criteria Select primarily for cost Select primarily for capacity, speed, and flexibility Select primarily for product development skills Table 11.1
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    11 - 7©2011 Pearson Education, Inc. publishing as Prentice Hall How Supply ChainHow Supply Chain Decisions Impact StrategyDecisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Process charact- eristics Maintain high average utilization Invest in excess capacity and flexible processes Modular processes that lend themselves to mass customization Inventory charact- eristics Minimize inventory throughout the chain to hold down cost Develop responsive system with buffer stocks positioned to ensure supply Minimize inventory in the chain to avoid obsolescence Table 11.1
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    11 - 8©2011 Pearson Education, Inc. publishing as Prentice Hall How Supply ChainHow Supply Chain Decisions Impact StrategyDecisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Lead-time charact- eristics Shorten lead time as long as it does not increase costs Invest aggressively to reduce production lead time Invest aggressively to reduce development lead time Product- design charact- eristics Maximize performance and minimize costs Use product designs that lead to low setup time and rapid production ramp-up Use modular design to postpone product differentiation as long as possible Table 11.1
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    11 - 9©2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain RiskSupply Chain Risk  More reliance on supply chains means more risk  Fewer suppliers increase dependence  Compounded by globalization and logistical complexity  Vendor reliability and quality risks  Political and currency risks
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    11 - 10©2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain RiskSupply Chain Risk  Mitigate and react to disruptions in 1. Processes 2. Controls 3. Environment
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    11 - 11©2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain RiskSupply 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 Rock Café  Environmental risk at Toyota
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    11 - 12©2011 Pearson Education, Inc. publishing as Prentice Hall Ethics and SustainabilityEthics and Sustainability  Personal ethics  Institute for Supply Management Principles and Standards  Ethics within the supply chain  Ethical behavior regarding the environment
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    11 - 13©2011 Pearson Education, Inc. publishing as Prentice Hall Principles and Standards forPrinciples and Standards for Ethical Supply ManagementEthical Supply Management ConductConduct LOYALTY TO YOUR ORGANIZATIONLOYALTY TO YOUR ORGANIZATION JUSTICE TO THOSE WITH WHOMJUSTICE TO THOSE WITH WHOM YOU DEALYOU DEAL FAITH IN YOUR PROFESSIONFAITH IN YOUR PROFESSION Table 11.2
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    11 - 14©2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain EconomicsSupply Chain Economics Supply Chain Costs as a Percent of SalesSupply Chain Costs as a Percent of Sales Table 11.3 Industry % Purchased All industry 52 Automobile 67 Food 60 Lumber 61 Paper 55 Petroleum 79 Transportation 62
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    11 - 15©2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain EconomicsSupply Chain Economics Dollars of additional sales needed to equal $1Dollars of additional sales needed to equal $1 saved through the supply chainsaved through the supply chain 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 Table 11.4
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    11 - 16©2011 Pearson Education, Inc. publishing as Prentice Hall Make-or-Buy DecisionsMake-or-Buy Decisions  Choice between internal production and external sources
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    11 - 17©2011 Pearson Education, Inc. publishing as Prentice Hall OutsourcingOutsourcing  Transfers traditional internal activities and resources of a firm to outside vendors  Utilizes the efficiency that comes with specialization  Firms outsource information technology, accounting, legal, logistics, and production
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    11 - 18©2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain StrategiesSupply Chain Strategies  Negotiating with many suppliers  Long-term partnering with few suppliers  Vertical integration  Joint ventures  Keiretsu  Virtual companies that use suppliers on an as needed basis
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    11 - 19©2011 Pearson Education, Inc. publishing as Prentice Hall Many SuppliersMany Suppliers  Commonly used for commodity products  Purchasing is typically based on price  Suppliers compete with one another  Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery
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    11 - 20©2011 Pearson Education, Inc. publishing as Prentice Hall Few SuppliersFew Suppliers  Buyer forms longer term relationships with fewer suppliers  Create value through economies of scale and learning curve improvements  Suppliers more willing to participate in JIT programs and contribute design and technological expertise  Cost of changing suppliers is huge
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    11 - 21©2011 Pearson Education, Inc. publishing as Prentice Hall Vertical IntegrationVertical Integration Figure 11.2 Raw material (suppliers) Iron ore Silicon Farming Backward integration Steel Current transformation Automobiles Integrated circuits Flour milling Forward integration Distribution systems Circuit boards Finished goods (customers) Dealers Computers Watches Calculators Baked goods Vertical Integration Examples of Vertical Integration
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    11 - 22©2011 Pearson Education, Inc. publishing as Prentice Hall Vertical IntegrationVertical Integration  Developing the ability to produce goods or service previously purchased  Integration may be forward, towards the customer, or backward, towards suppliers  Can improve cost, quality, and inventory but requires capital, managerial skills, and demand  Risky in industries with rapid technological change
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    11 - 23©2011 Pearson Education, Inc. publishing as Prentice Hall Joint VenturesJoint Ventures  Formal collaboration  Enhance skills  Secure supply  Reduce costs  Cooperation without diluting brand or conceding competitive advantage
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    11 - 24©2011 Pearson Education, Inc. publishing as Prentice Hall Keiretsu NetworksKeiretsu Networks  A middle ground between few suppliers and vertical integration  Supplier becomes part of the company coalition  Often provide financial support for suppliers through ownership or loans  Members expect long-term relationships and provide technical expertise and stable deliveries  May extend through several levels of the supply chain
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    11 - 25©2011 Pearson Education, Inc. publishing as Prentice Hall Virtual CompaniesVirtual Companies  Rely on a variety of supplier relationships to provide services on demand  Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands  Exceptionally lean performance, low capital investment, flexibility, and speed
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    11 - 26©2011 Pearson Education, Inc. publishing as Prentice Hall Managing the Supply ChainManaging the Supply Chain  Mutual agreement on goals  Trust  Compatible organizational cultures There are significant management issues in controlling a supply chain involving many independent organizations
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    11 - 27©2011 Pearson Education, Inc. publishing as Prentice Hall Issues in an IntegratedIssues in an Integrated Supply ChainSupply Chain  Local optimizationLocal optimization - focusing on local profit or cost minimization based on limited knowledge  Incentives (sales incentives, quantityIncentives (sales incentives, quantity discounts, quotas, and promotions)discounts, quotas, and promotions) - push merchandise prior to sale  Large lotsLarge lots - low unit cost but do not reflect sales  Bullwhip effectBullwhip effect - stable demand becomes lumpy orders through the supply chain
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    11 - 28©2011 Pearson Education, Inc. publishing as Prentice Hall Opportunities in anOpportunities in an Integrated Supply ChainIntegrated Supply Chain  Accurate “pull” data  Lot size reduction  Single stage control of replenishment  Vendor managed inventory (VMI)
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    11 - 29©2011 Pearson Education, Inc. publishing as Prentice Hall Opportunities in anOpportunities in an Integrated Supply ChainIntegrated Supply Chain  Collaborative planning, forecasting, and replenishment (CPFR)  Blanket orders  Standardization
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    11 - 30©2011 Pearson Education, Inc. publishing as Prentice Hall Opportunities in anOpportunities in an Integrated Supply ChainIntegrated Supply Chain  Postponement  Drop shipping and special packaging  Pass-through facility  Channel assembly
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    11 - 31©2011 Pearson Education, Inc. publishing as Prentice Hall Radio Frequency TagsRadio Frequency Tags Radio Frequency Tags: Keeping the Shelves StockedRadio Frequency Tags: Keeping the Shelves Stocked Supply chains work smoothly when sales are steady, but often break down when confronted by a sudden surge in demand. Radio frequency ID (or RFID) tags can change that by providing real-time information about what’s happening on store shelves. Here’s how the system works for Proctor & Gamble’s Pampers.
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    11 - 32©2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement  Uses the internet to facilitate purchasing  Electronic ordering and funds transfer  Electronic data interchange (EDI)  Advanced shipping notice
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    11 - 33©2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement  Online catalogs 1. Catalogs provided by vendors 2. Catalogs published by intermediaries 3. Exchanges provided by buyers
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    11 - 34©2011 Pearson Education, Inc. publishing as Prentice Hall Internet Trading ExchangesInternet 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
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    11 - 35©2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement  Auctions  Maintained by buyers, sellers, or intermediaries  Low barriers to entry  Increase in the potential number of buyers
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    11 - 36©2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement  RFQs  Can make requests for quotes (RFQs) less costly  Improves supplier selection  Real-time inventory tracking
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    11 - 37©2011 Pearson Education, Inc. publishing as Prentice Hall Vendor SelectionVendor Selection  Vendor evaluation  Critical decision  Find potential vendors  Determine the likelihood of them becoming good suppliers  Vendor Development  Training  Engineering and production help  Establish policies and procedures
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    11 - 38©2011 Pearson Education, Inc. publishing as Prentice Hall Vendor EvaluationVendor Evaluation Criteria Weights Scores (1-5) Weight x Score Engineering/research/innovation skills .20 5 1.0 Production process capability (flexibility/technical assistance) .15 4 .6 Distribution/delivery capability .05 4 .2 Quality systems and performance .10 2 .2 Facilities/location .05 2 .1 Financial and managerial strength (stability and cost structure) .15 4 .6 Information systems capability (e- procurement, ERP) .10 2 .2 Integrity (environmental compliance/ ethics) .20 5 1.0 Total 1.00 3.9
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    11 - 39©2011 Pearson Education, Inc. publishing as Prentice Hall Vendor SelectionVendor Selection  Negotiations  Cost-Based Price ModelCost-Based Price Model - supplier opens books to purchaser  Market-Based Price ModelMarket-Based Price Model - price based on published, auction, or indexed price  Competitive BiddingCompetitive Bidding - used for infrequent purchases but may make establishing long-term relationships difficult
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    11 - 40©2011 Pearson Education, Inc. publishing as Prentice Hall Logistics ManagementLogistics Management  Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities  Is a frequent candidate for outsourcing  Allows competitive advantage to be gained through reduced costs and improved customer service
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    11 - 41©2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems  TruckingTrucking  Moves the vast majority ofMoves the vast majority of manufactured goodsmanufactured goods  Chief advantage is flexibilityChief advantage is flexibility  RailroadsRailroads  Capable of carrying large loadsCapable of carrying large loads  Little flexibility thoughLittle flexibility though containers and piggybackingcontainers and piggybacking have helped with thishave helped with this
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    11 - 42©2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems  Airfreight  Fast and flexible for light loads  May be expensive
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    11 - 43©2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems  Waterways  Typically used for bulky, low- value cargo  Used when shipping cost is more important than speed
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    11 - 44©2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems  Pipelines  Used for transporting oil, gas, and other chemical products
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    11 - 45©2011 Pearson Education, Inc. publishing as Prentice Hall Third-Party LogisticsThird-Party Logistics  Outsourcing logistics can reduce costs and improve delivery reliability and speed  Coordinate supplier inventory with delivery services  May provide warehousing, assembly, testing, shipping, customs
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    11 - 46©2011 Pearson Education, Inc. publishing as Prentice Hall Cost of ShippingCost of Shipping AlternativesAlternatives  Product in transit is a form of inventory and has a carrying cost  Faster shipping is generally more expensive than slower shipping  We can evaluate the two costs to better understand the trade-off
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    11 - 47©2011 Pearson Education, Inc. publishing as Prentice Hall Cost of ShippingCost of Shipping AlternativesAlternatives Value of connectors = $1,750.00 Holding cost = 40% per year Second carrier is 1 day faster and $20 more expensive Daily cost of holding product = x /365 Annual holding cost Product value = (.40 x $1,750)/ 365 = $1.92 Since it costs less to hold the product one day longer than it does for the faster shipping ($1.92 < $20), we should use the cheaper, slower shipper
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    11 - 48©2011 Pearson Education, Inc. publishing as Prentice Hall Security and JITSecurity and JIT  Borders are becoming more open in the U.S. and around the world  Monitoring and controlling stock moving through supply chains is more important than ever  New technologies are being developed to allow close monitoring of location, storage conditions, and movement
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    11 - 49©2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Table 11.6 Typical Firms Benchmark Firms Lead time (weeks) 15 8 Time spent placing an order 42 minutes 15 minutes Percentage of late deliveries 33% 2% Percentage of rejected material 1.5% .0001% Number of shortages per year 400 4
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    11 - 50©2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance  Assets committed to inventory Percent invested in inventory = x 100 Total inventory investment Total assets Investment in inventory = $11.4 billion Total assets = $44.4 billion Percent invested in inventory = (11.4/44.4) x 100 = 25.7%
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    11 - 51©2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Table 11.7 Inventory 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%)
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    11 - 52©2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Inventory turnover Inventory turnover = Cost of goods sold Inventory investment
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    11 - 53©2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Table 11.8 Examples of Annual Inventory Turnover Food, Beverage, Retail Manufacturing Anheuser Busch 15 Dell Computer 90 Coca-Cola 14 Johnson Controls 22 Home Depot 5 Toyota (overall) 13 McDonald’s 112 Nissan (assembly) 150
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    11 - 54©2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance  Inventory turnover Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69
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    11 - 55©2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance  Inventory turnover Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69 Inventory turnover = Cost of goods sold Inventory investment = 14.2 / 1.69 = 8.4
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    11 - 56©2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance  Inventory turnover Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69 Inventory turnover = Cost of goods sold Inventory investment = 14.2 / 1.69 = 8.4 Weeks of supply = Inventory investment Average weekly cost of goods sold = 1.69 / .273 = 6.19 weeks Average weekly cost of goods sold = $14.2 / 52 = $.273
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    11 - 57©2011 Pearson Education, Inc. publishing as Prentice Hall The SCOR ModelThe SCOR Model  Processes, metrics and best practices Plan: Demand/Supply planning and Management Source: Identify, select, manage, and assess sources Make: Manage production execution, testing and packaging Deliver: Invoice, warehouse, transport and install Return: Raw material Return: Finished goods Figure 11.3