The supply chain
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The Supply-Chain. VISA. ®. Credit Flow. Material Flow. Supplier. Manufacturing. Retailer. Consumer. Supplier. Wholesaler. Retailer. Order. Cash. Schedules. Flow. Flow. Supply-Chain Management. Planning, organizing, directing, & controlling flows of materials

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The Supply-Chain

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The supply chain

The Supply-Chain

VISA

®

Credit Flow

Material Flow

Supplier

Manufacturing

Retailer

Consumer

Supplier

Wholesaler

Retailer

Order

Cash

Schedules

Flow

Flow


Supply chain management

Supply-Chain Management

  • 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


The supply chain1

Market research data

scheduling information

Engineering and design data

Order flow and cash flow

Supplier

Customer

Ideas and design to satisfy end customer

Material flow

Credit flow

Inventory

Supplier

Customer

Manufacturer

Inventory

Inventory

Supplier

Customer

Distributor

Inventory

The Supply Chain


Supply chain management1

Supply Chain Management

  • SCM is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the rightquantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.


Conflicting objectives in sc

Conflicting Objectives in SC

  • Purchasing

    • stable volume requirements

    • flexible delivery time

    • little variation in mix

    • large quantities

  • Manufacturing

    • long run production

    • high quality

    • high productivity

    • low production cost


Conflicting objectives in sc1

Conflicting Objectives in SC

  • Warehousing

    • low inventory

    • reduced transportation costs

    • quick replenishment capability

  • Customers

    • short order lead time

    • high in stock

    • enormous variety in products

    • low prices


Material costs in supply chain

Wholesale

8%

9%

COGS

Manufacturing

Payroll

Material

83%

31%

Other

11%

Dir. Wages

Retail

58%

Other

16%

COGS

13%

Payroll

71%

Other

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)


Supply chain support for overall strategy

Low Cost

Response

Differentiation

Supply demand at lowest possible cost

Respond quickly to changing requirements and demand to minimize stockouts

Share market research; jointly develop products and options

Select primarily for cost

Select primarily for capacity, speed, and flexibility

Select primarily for product development skills

Supply-Chain Support for Overall Strategy

Supplier’s

goal

Primary Selection Criteria


Supply chain support for overall strategy continued

Low Cost

Response

Differentiation

Process

Characteristics

Maintain high average utilization

Invest in excess capacity and flexible processes

Modular processes to lend themselves to mass customization

Minimize inventory throughout the chain to hold down costs

Inventory Characteristics

Develop responsive system, with buffer stocks positioned to ensure supply

Minimize inventory in the chain to avoid obsolescence

Supply-Chain Support for Overall Strategy - continued


Supply chain support for overall strategy continued1

Low Cost

Response

Differentiation

Lead-time

Characteristics

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

Use modular design to postpone product differentiation for as long as possible

Product-design Characteristics

Maximize performance and minimize cost

Use product designs that lead to low set-up time and rapid production ramp-up

Supply-Chain Support for Overall Strategy - continued


Global supply chain issues

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


Purchasing

Purchasing

  • 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 costs as a percent of sales

All industry

Automobile

Food

Lumber

Paper

Petroleum

Transportation

52%

61%

60%

61%

55%

74%

63%

Purchasing Costs as a Percent of Sales

Industry

Percent of Sales


Objectives of the purchasing function

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


Purchasing techniques

Purchasing Techniques

  • Drop shipping and special packaging

  • Blanket orders

  • Invoiceless purchasing

  • Electronic ordering and funds transfer

  • Electronic data interchange (EDI)

  • Stockless purchasing

  • Standardization


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

maintain organizational talent

protect proprietary design or quality

increase/maintain size of company

lower acquisition cost

preserve supplier commitment

obtain technical or management ability

inadequate capacity

reduce inventory costs

ensure flexibility and alternate source of supply

reciprocity

item is protected by patent or trade secret

frees management to deal with its primary business

Make/Buy Considerations

Reasons for Making Reasons for Buying


Supply chain strategies

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.


Many suppliers strategy

Many Suppliers Strategy

  • Many sources per item

  • Adversarial relationship

  • Short-term

  • Little openness

  • Negotiated, sporadic PO’s

  • High prices

  • Infrequent, large lots

  • Delivery to receiving dock

© 1995 Corel Corp.


Few suppliers strategy

Few Suppliers Strategy

  • 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

© 1995 Corel Corp.


Supplier selection criteria

Company

Financial stability

Management

Location

Product

Quality

Price

Service

Delivery on time

Condition on arrival

Technical support

Training

Supplier Selection Criteria


Managing the supply chain

Managing the Supply-Chain

  • Options:

    • Postponement

    • Channel assembly

    • Drop shipping

    • Blanket orders

    • Invoiceless purchasing

    • Electronic ordering and funds transfer

    • Stockless purchasing

    • Standardization


Managing the supply chain other options

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


Materials management

Materials Management

  • Integrates all materials functions

    • Purchasing

    • Inventory management

    • Production control

    • Inbound traffic

    • Warehousing and stores

    • Incoming quality control

  • Objective: Efficient, low cost operations


Goods movement options

Goods Movement Options

  • Trucking

  • Railways

  • Airfreight

  • Waterways

  • Pipelines


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