chapter 11 of operations management by heizer and render

7/22/2019 Chapter 11 of Operations Management by heizer and render

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Operations

Management

Supply-Chain ManagementChapter 11


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Outline

Strategic Importance of the Supply-Chain.

Supply-Chain Strategies.

Purchasing & Acquisition.

Logistics & Materials Management.


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Management of integrated activities that procure materials,

transform them into final products, and

deliver them to customers.

Involves everyone in the supply-chain. Example: Your suppliers supplier.

Supply-Chain Management


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Consumer

Retailer

Manufacturing

Material Flow

VISA

Credit Flow

Supplier

Supplier Wholesaler

Retailer

CashFlow

OrderFlow

Schedules

The Supply-Chain

Supplier


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Integration

Integrates operations, logistics, marketing,accounting and finance.

Manage:

Transportation. Suppliers.

Warehousing and distribution.

Inventory levels.

Information sharing.

$ and credit transfers.

Order fulfillment.


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Supply-Chain Trends

Globalsourcing and markets.

Need local expertiseto handle duties, trade, freight,customs and political issues.

Flexibilityto react to sudden changes in partsavailability, distribution, or shipping channels,import duties, and currency rates.

Information technologyto manage storage andtransportation networks.


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Supply-Chain Strategies

How best to work with upstream suppliers anddownstream distributors and customers.

To manage procurement, transportation, inventory,warehousing, distribution, etc.

Outsourcing: Logistics activities (transportation, delivery,

inventory, etc.).

Information systems. Accounting and payroll.

Vertical integration.


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Vertical Integration

Produce a good or service previously purchased. Forward (towards customers) or backwards (towards

supplier.).

Develop the capability independently or buy a firm.

Advantages:

May be less expensive than buying.

Provides more control.

Disadvantages:

Can be expensive.

Hard to do all things well.


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Forms of Vertical Integration

Iron Ore

Steel

Automobiles

Distribution

System

Dealers

Silicon

Integrated

Circuits

Circuit Boards

Computers

Watches

Calculators

Raw Materials

Backward

IntegrationCurrent

Transformation

ForwardIntegration

Finished Goods


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Acquisition of goods & services.Activities:

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 & Acquisition


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Purchasing Costs as a Percent ofSales

All industry

Automobile

Food

Lumber

Paper

Petroleum

Transportation

52%

61%

60%

61%

55%

74%

63%

Industry Percent of Sales


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Make/Buy Considerations

Lower cost to produce.

Unsuitable suppliers.

Poor quality.

Price too high. Item not available.

Utilize surplus labor.

Protect proprietary design.

Increase/maintain size ofcompany.

Lower cost to buy.

Preserve supplier commitment.

Obtain technical or

management ability. Inadequate capacity.

Item is protected by patent ortrade secret.

Frees management to deal withits primary business.

Reasons for Making Reasons for Buying


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Supplier Strategies

Negotiate with many suppliers; play one supplieragainst another.

Negotiated, sporadic small purchase orders.

Adversarial relationship with little openness.

Work with few suppliersand develop long-termpartnering arrangements.

Exclusive long-term contracts with large orders (andlower prices).

Long-term, stable relationship.


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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


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Company criteria

Financial stability.

Management.

Location.

Product criteria

Quality.

Price.

Service criteria

Delivery on time.

Condition on arrival.

Technical support.

Training.

Vendor Selection Criteria


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Vendor Selection Rating Form


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Negotiation Strategies

Cost-based price model. Supplier opens its books to purchaser.

Price based on fixed cost plus escalation clausefor materials and labor.

Market-based price model.

Price based on published price or index.

Competitive bidding. Potential suppliers bid for contract.


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Logistics & Materials Management

All transportation and storage activities fororigin or to consumption.

Integrates: Purchasing.

Inventory management.

Production control.

Inbound and outbound transportation. Warehousing and stores.

Incoming quality control.


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OperationsManagement

E-Commerce and Operations

ManagementSupplement 11


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Outline

Electronic Commerce.

E-commerce Definitions.

B2B B2C

C2C

C2B

E-Procurement


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E-Commerce

The use of computer networks, primarily theinternet, to buy and sell products, services,

and information.


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E-Business

all about cycle time, speed, globalization,

enhanced productivity, reaching new

customers and sharing knowledge acrossinstitutions for competitive advantage.

Louis Gerstner,

Chairman, IBM


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E-Commerce Definitions

Business-to business (B2B) - Both sides of thetransaction are businesses, non-profitorganizations, or governments.

Business-to-consumer (B2C) - Customers areindividual consumers.

Consumer-to-consumer (C2C) - Consumers sell

directly to each other.

Consumer-to-business (C2B) - Individuals sellservices or goods to businesses.


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E-Procurement

On-line purchasinglink buyers and sellerselectronically.

Catalogs.

Auctions. Internet trading exchanges:

Covisint: By auto industry (buyer).

Spot purchasing.

Example: Spare freight capacity.

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