Supply Chain Management

2

Supply Chain Management

Supply Chain Management

Outsourcing

Purchasing

Partnership Relationships

The Firm as Supplier

JIT Purchasing

Global Purchasing

3

Supply Chain Management

Apply a total systems approach to managing the entire flow of– information– materials– and services

Rawmaterialsuppliers

Factories &warehouses

Endcustomer

4

Outsourcing

Purchased items account for 50 to 70% of the cost of goods sold.

Outsourcing allows firms to focus on their core competencies.

– Organizations outsource when they decide to purchase something they had been making in-house.

Typically mis-handled by materials management function.

5

Make or Buy

Current trend favors outsourcing all activities that do not directly represent or support core competencies.

Are there any dangers associated with aggressive outsourcing? What are the implications for JIT production?

7

Purchasing

No longer just order takers….

Purchasing need to know– material– performance– availability– suppliers

8

The Firm as a Supplier

In this chapter, we discuss the role of the firm as a buyer of goods and services.

How does the perspective change when the shoe is on the other foot?

9

Partnership Relationship

Continuing relationship involving

– a commitment over an extended time period,

– an exchange of information, and

– an acknowledgement of the risks & rewards of the relationship.

Characteristics of Good Relationships

Commitment Communication Working through change / improvement Principles centered relationship Spending time together Appreciation / recognition / feedback

Special AttentionLow spend - high risk

Long-Term RelationshipHigh spend - high risk

ContractualHigh spend - low risk(Easily substituted)

High

Low High

Ris

k

Annual Spend

Supplier Characterization Matrix

TransactionalLow spend - low risk

Supplier Improvement

Supplier Evaluation - Involves finding potential suppliers and determining the likelihood of their becoming good partners.

Supplier Development - May include everything from training, to engineering and production help, to formats for electronic transfer.

Negotiations - Are of three classic types: cost-based model, market-based price model, and competitive bidding.

11

JIT Purchasing--Requirements

Reduced lot sizes

Frequent and reliable delivery schedules

Reduced and highly reliable lead times

Consistently high quality levels for purchased materials

12

JIT Purchasing--Suppliers

Fewer, nearby suppliers

Repeat business

Support suppliers’ competitiveness

Clusters of remote suppliers

Limit competitive bidding to new parts

Resist vertical integration

Encourage suppliers to implement JIT purchasing

13

JIT Purchasing--Quantities

Steady output rate (a desirable prerequisite)

Frequent deliveries in small lot quantities

Long-term contract agreements with minimal release paperwork

Deliver quantities variable from release to release but fixed for whole contract term

14

JIT Purchasing--Quantities (Ctd)

Little or no permissible overage or underage of receipts

Suppliers encouraged to package in exact quantities

Suppliers encouraged to reduce their production lot sizes (or store unreleased material)

15

JIT Purchasing--Quality

Minimal product specifications imposed on supplier

Help suppliers to meet quality requirements

Close relationships between buyers' and suppliers' quality assurance people

Suppliers encouraged to use process control charts instead of lot sampling inspection

16

JIT Purchasing--Shipping

Scheduling of inbound freight

Gain control by use of – company-owned or contract shipping– contract warehousing– trailers for freight consolidation/storage

17

JIT Purchasing--Benefits

Consistent quality

Savings on resources

Lower costs

Special attention

Saving on tooling

Loyalty associated with long-term relationships with suppliers

18

Global Sourcing

Original strategy was to reduce production costs.

Changing focus of global purchasing includes– local content / market access– product availability– technology– delivery– lead times– labor availability and quality.

Why Long-Term Relationships?

Increasing trend toward global supply Higher baseline performance Increasing focus on time to market Dependence upon suppliers for technology

Why Long-Term Relationships?

A long-term relationship between purchaser and supplier is necessary for best economy. How can a supplier be innovative and develop economy in his production processes when he can only look forward to short-term business with a purchaser?

W. Edwards Deming, Out of the Crisis

Why Long-Term Relationships?

Trend toward LT contracts since 1990

Pressure to reduce price

Pressure to reduce transaction costs

Consolidation pressures

Challenges for a Useful SCR Model

Relationships are critical

Trust may be low

Literature focuses on causes of failure

Challenges for a Useful SCR Model

Limited number of published SCR successes

Successes could be culture-dependent

Model should be simple & proven

Family Strengths Research

Strong families

20+ years of research

Over 6,000 surveyed

Family Strengths Research

Culturally diverse population

Compares favorably with other taxonomies of family success

Summarized in six characteristics

Family Strengths Research6 Characteristics of Strong Families

Commitment (trust) Good communication patterns Ability to deal with crises Spiritual wellness Spending time together Appreciation

Six Characteristics of Successful SCR’s

Commitment Good communication patterns Ability to deal with crises (change) Spiritual wellness (principles-centered) Spending time together Appreciation / feedback

Commitment: Concerns

Is this the right supplier? What about commitment? Is management committed? What are the implementation

issues related to maintaining

commitment?

Commitment: Implementation

Selection prior to initiation Two-way criteria for success Regular performance reviews Management committed to proceed Participation requirements identified early Implementation of complete SCR model

Matrix for SCR Selection

Surveillance (2) Long-TermRelationship (1)

Transactional (4) Contractual (3)

Increasing Spend / Value Potential

Incr

easi

ng

Ris

k /

Com

ple

xity

Communication: Concerns

Replace face-to-face communication with technology?

Good communication = $$$ Communication between technical groups Role of agent

Communication: Implementation

Face-to-face communication increased & facilitated by multiple technologies

Support for communication forums Triad as core team Agent investments in communication

Dealing with Change

New product dev. process Common improvement

process Performance measures Conflict resolution by

team leaders

Shared Principles

Principles Centered Leadership

Two-Way Performance Measures

Follow-through on Commitments

Spending Time Together

Quarterly performance reviews

Team building dinners

Commitment to keep the schedule

Appreciation

Celebration of critical improvement

Recognition distribution

Other forms of recognition

Buil ding S t r o ng C ust o mer -Suppl ierRel at io nships

Time To get herAppr ec iat io n/

Feedbac k

Capacityfor

Change

Capacityfor

Change

Strongcommitment

Strongcommitment

Commonpr incipl esCommon

pr incipl es

Excel l entCommunication

Excel l entCommunication