Consumer

Retailer

Manufacturing

Material Flow

VISA®

Credit Flow

Supplier

Supplier Wholesaler

Retailer

CashFlow

OrderFlowSchedules

The Supply-ChainThe Supply-Chain

¨ 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

Supply-Chain ManagementSupply-Chain Management

The Supply ChainThe Supply Chain

Supplier

Supplier

Supplier

Inventory

Inventory

Distributor

Inventory Inventory

Manufacturer

Customer

Customer

Customer

Market research datascheduling information

Engineering and design dataOrder flow and cash flow

Ideas and design to satisfy end customer

Material flowCredit flow

Supply Chain ManagementSupply 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 right quantities, 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 SCConflicting 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 SCConflicting 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

11%

31%

58%

Material

Dir. Wages

Other

71%

16%13% COGS

Payroll

Other

83%

9%8%COGS

Payroll

Other

ManufacturingManufacturing

WholesaleWholesale

RetailRetail

Material Costs inMaterial Costs in Supply-Chain 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 Supply-Chain Support for Overall StrategyOverall Strategy

Supplier’sgoal

Primary Selection Criteria

Supply demand at lowest possible cost

Select primarily for cost

Low CostRespond quickly to changing requirements and demand to minimize stockouts

Select primarily for capacity, speed, and flexibility

ResponseShare market research; jointly develop products and options

Select primarily for product development skills

Differentiation

Supply-Chain Support for Supply-Chain Support for Overall Strategy - continuedOverall Strategy - continued

Process Characteristics

Maintain high average utilization

Low CostInvest in excess capacity and flexible processes

ResponseModular processes to lend themselves to mass customization

Inventory Characteristics

Minimize inventory throughout the chain to hold down costs

Develop responsive system, with buffer stocks positioned to ensure supply

Minimize inventory in the chain to avoid obsolescence

Differentiation

Supply-Chain Support for Supply-Chain Support for Overall Strategy - continuedOverall Strategy - continued

Lead-timeCharacteristics

Shorten lead-time as long as it does not increase costs

Low CostInvest aggressively to reduce production lead-time

ResponseInvest aggressively to reduce development lead-time

Differentiation

Product-design Characteristics

Maximize performance and minimize cost

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

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

Global Supply-Chain IssuesGlobal 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

¨ 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

PurchasingPurchasing

Purchasing Costs as a Percent of Purchasing Costs as a Percent of SalesSales

¨ All industry¨ Automobile¨ Food¨ Lumber¨ Paper¨ Petroleum¨ Transportation

¨ 52%¨ 61%¨ 60%¨ 61%¨ 55%¨ 74%¨ 63%

Industry Percent of Sales

Objectives of the Purchasing Objectives of the Purchasing FunctionFunction

¨ 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 TechniquesPurchasing Techniques

¨ Drop shipping and special packaging¨ Blanket orders¨ Invoiceless purchasing¨ Electronic ordering and funds transfer¨ Electronic data interchange (EDI)¨ Stockless purchasing¨ Standardization

Make/Buy ConsiderationsMake/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

Reasons for Making Reasons for Buying

Supply-Chain StrategiesSupply-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 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.

Many Suppliers StrategyMany 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.

Few Suppliers StrategyFew Suppliers Strategy

¨ Company¨ Financial stability¨ Management¨ Location

¨ Product¨ Quality¨ Price

¨ Service¨ Delivery on time¨ Condition on arrival¨ Technical support¨ Training

Supplier Selection CriteriaSupplier Selection Criteria

Managing the Supply-ChainManaging 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 - Managing the Supply-Chain - Other OptionsOther 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 ManagementMaterials 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 OptionsGoods Movement Options

¨ Trucking¨ Railways¨ Airfreight¨ Waterways¨ Pipelines