supply chain strategy and outsourcing
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Supply Chain Strategy and Outsourcing. Students should be able to : Identify the important factors in designing a competitive supply chain. Explain the motivating reasons for outsourcing services or products and their processes. - PowerPoint PPT PresentationTRANSCRIPT
Supply Chain Strategy and Outsourcing
Students should be able to:
• Identify the important factors in designing a competitive supply chain.
• Explain the motivating reasons for outsourcing services or products and their processes.
• Discuss the factors that enabled firms to create virtual supply chains. • Describe the key considerations businesses should make when implementing successful outsourcing decisions.
Key Concepts in Operations Management
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Support Processes Support Processes
Business- to- Business (B2B)
Customer Relationship
Process
Supplier Relationship
Process
Order -Fulfillment
Process
Supplier Relationship
Process
Order -Fulfillment
Process
Business-to-Customer
(B2C)
Customer Relationship
Process
First-Tier Supplier Service/Product Provider
New Service/Product
Development Process
New Service/Product
Development Process
External Value-Chain LinkagesExternal Value-Chain Linkages
“Dell’s Return-on-Invested-Capital Calculation”
ROIC
NOPAT*
InvestedCapital
OperatingIncome
IncomeTaxes
WorkingCapital
FixedAssets
Sales
Cost of Goods Sold
Operating Expense
Inventory
AccountsReceivable
AccountsPayable
AccruedLiabilities
ROIC Drivers:
• Pricing, Product Mix, and Volume• Sales Force Productivity• Forecasting
• Material Costs• Transformation Costs
• R&D & I/S Costs• Capacity Mgt
• Out-of-box Audit• Logistics
• Quality/Cust Service
•Accounts Receivable
Terms and Timing
• Inventory Turns and Delivery
• Backlog/Lead Times
• Excess & Obsolete Risks• Accounts Payable Terms and Timing
• Facilities Mgt
• IBU Risk/Currency Risk
*Net operating profit after taxes.
Inventory Inventory MeasuresMeasures
Average inventory = $2 millionAverage inventory = $2 millionCost of goods sold = $10 millionCost of goods sold = $10 million52 business weeks per year52 business weeks per year
Weeks of supply = = 10.4 weeksWeeks of supply = = 10.4 weeks$2 million$2 million
($10 million)/(52 weeks)($10 million)/(52 weeks)
Inventory turns = = 5 turns/yearInventory turns = = 5 turns/year$10 million$10 million
$2 million$2 million
Example 9.1Example 9.1
• Return on Assets
• Working Capital
• Cost of Goods Sold
• Total Revenue
• Cash Flow
Financial Measures
Suppliers Manufacturer Channels Customers
Suppliers Manufacturer Customers
Suppliers Manufacturer Customers
Consider Also: A Completely Newand Faster Business Model?
DellDell
© 2007 Pearson Education
Supply Chain Strategies
• Efficient supply chains focus on the efficient flows of services and materials, keeping inventories to a minimum.– Work best where demand is highly predictable.
• Responsive supply chains are designed to react quickly.– Work best when firms offer a great variety of
services or products and demand predictability is low.
© 2007 Pearson Education
Environments & Design Features
Design Factors Efficient Supply Chains Responsive Supply Chains
Environment Factors Efficient Supply Chains Responsive Supply Chains
© 2007 Pearson Education
Exhibit 4Delivery Performance and
Profit Margin by Internet Retailer
Deliver asPromised (DP)
Promised DeliveryTime (Days)
Actual DeliveryTime (Days)
Margin (%)
Samgoody.com 9.44 10.00 39.64CDUniverse.com 7.54 8.17 15.62BarnesandNoble.com 9.96 9.78 26.38Amazon.com 10.13 8.79 31.43Towerrecords.com 9.00 8.54 35.14Avg. 9.21 9.05 29.62
Under Promise/Over Deliver (UO)
Promised DeliveryTime (Days)
Actual DeliveryTime (Days)
Margin(%)
FYE.com 6.48 4.84 38.61Alphacraze.com 17.88 13.00 13.81BestBuy.com 11.28 6.33 36.75CDnow.com 13.72 7.08 33.67Walmart.com 8.58 4.19 26.12Alldirect.com 17.24 6.80 -7.72Avg. 12.53 7.04 23.54
© 2007 Pearson EducationSource: David A. Taylor, “A Master Plan for Software Selection,” Supply Chain Management Review.
January/February 2004
© 2007 Pearson Education
Dell
Keyboard
Assembler
Die Casting Speaker ConnectorCable
Cooler
High Value/ComplexLow Value/Simple
Outsourcing/Offshoring
What are the drivers for outsourcing or offshoring?
What are the potential pitfalls for outsourcing or offshoring?
H-P Outsourcing
Here a Part, There a Part …
New H-P server’s path to market:
1. Idea hatched in Singapore
2. Concept approved in Houston
3. Concept design done in Singapore
4. Engineering design in Taiwan; initial manufacture
5. Final assembly in Singapore, Australia, China, and India
The Shaping of Modern Value Chains
Ten Forces that Flattened the World
1. Berlin Wall and Windows Operating System
2. Web Browsers
3. Work Flow Software
4. Open Sourcing
5. Outsourcing
Outsourcing in India
• Began dismantling tariff and export controls in 1991
• Economy expected to grow at 7%
• Focus on business services
• Technology sector is strong
• Low wages – high skills
• 100 million English speakers
© 2007 Pearson Education
The Shaping of Modern Value Chains
Ten Forces that Flattened the World
6. Offshoring
7. Supply Chaining
8. In-Sourcing
9. In-Forming
10. The Steroids
Comments on China’s Role in Global Value Chains
• “Glorious to be wealthy, and some people can be more wealthy than others.”
• Capitalism Chinese style.
• Expect 7 to 8 percent growth for next 10 years.
• Constraints: Much savings but no investment; no support for small innovative businesses; 50 percent of bank loans go unpaid.
• Singapore has the best Asian economy – has joint ventures in China (Singapore Industrial Park in Suzhou)
• Problems for sustainable growth: pollution control; infrastructure development; inconsistent electric power.
• Too much manufacturing – not enough entrepreneurial service firms.
Economic Issues
Comments on China’s Role in Global Value Chains
• Cost, Quality, and dimensions of Customer Service are key competitive priorities.
• System is more important than the people because if leadership changes everything could crumble.
• Must move from an “experience-driven” management style to a “scientific-driven” management style.
• American experience will not always work in China – must incorporate Chinese culture and enterprises
• Lower levels of staff are trained in modern practices, but their bosses are not.
• Need to build a good foundation before introducing elaborate systems: quality improvement; technology from abroad.
Management Issues
1. Merging of the 10 flattners enabled by a global, Web-enabled playing field.
2. Development of business practices to promote horizontal collaboration.
3. Three billion people entering the playing field. (China, India, Russia, Eastern Europe, Latin America, and Central Asia).
Triple Convergence