Course : Operations Management

Year :  2020

Supply Chain Management

 Learning Objectives

1. Explain the strategic importance of the supply

chain.
2. Identify six supply-chain strategies
3. Explain issues and opportunities in the supply
chain.
4. Describe the steps in vendor selection.
5. Explain major issues in logistics management.

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 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

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 The Supply Chain

Market research data

Scheduling information
Engineering and design data
Supplier Order flow and cash flow
Customer
Ideas and design to
Inventory
satisfy end customer
Material flow
Supplier Credit flow

Manufacturer Customer
Inventory Inventory
Supplier

Distributor Customer
Inventory

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 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 schedule and manage the
shipment of parts in and finished products out
– Staffed with local specialists to handle duties,
trade, freight, customs and political issues

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 Supply Chain Economics

• Make-or-Buy Decisions
A choice between producing a component or
service in house or purchasing it from an
outside source.
• Outsorcing
Transferring a firm’s activities that have
traditionally been internal to external
suppliers.
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 Make/Buy Considerations
Reasons for Making Reasons for Buying
1. Maintain core competencies 1. Frees management to deal
and protect personnel from with its primary business
layoff 2. Lower acquisition cost
2. Lower production cost 3. Preserve supplier
3. Unsuitable suppliers commitment
4. Assure adequate supply 4. Obtain technical or
5. Utilize surplus labor and management ability
make a marginal 5. Inadequate capacity
contribution
 Cont’d
Reasons for Making Reasons for Buying
6. Obtain desired quantity 6. Reduce inventory costs
7. Remove supplier collusion 7. Ensure flexibility and
8. Obtain a unique item that alternate source of supply
would entail a prohibitive 8. Inadequate managerial or
commitment from the
supplier technical resources
9. Protect proprietary design 9. Reciprocity
or quality 10. Item is protected by patent
10. Increase or maintain size of or trade secret
company
 Benefits of Supply Chain
Management
• Lower inventories
• Higher productivity
• Greater agility
• Shorter lead times
• Higher profits
• Greater customer loyalty
• Integrates separate organizations into a cohesive operating
system

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 Elements of Supply Chain
Management
Element Typical Issues
Customers Determining what customers want
Forecasting Predicting quantity and timing of demand
Design Incorporating customer wants, mfg., and time
Processing Controlling quality, scheduling work
Inventory Meeting demand while managing inventory costs
Purchasing Evaluating suppliers and supporting operations
Suppliers Monitoring supplier quality, delivery, and relations
Location Determining location of facilities
Logistics Deciding how to best move and store materials
 Supply-Chain Strategies

 Many suppliers
 Few suppliers
 Keiretsu network
 Vertical integration
 Virtual company Plan

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 Many Suppliers Strategy

• Many sources per item

• Adversarial relationship
• Short-term
• Little openness
• Negotiated
• High prices
• Infrequent, large lots
• Delivery to receiving dock

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 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

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 Vertical Integration
Strategy
• Ability to produce Raw Material
goods previously (Suppliers)
purchased
– Setup operations
– Buy supplier Backward
Integration
• Make-buy issue
• Major financial
commitment
Forward
• Hard to do all Integration
things well
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 Keiretsu Network Strategy

• Japanese word for ‘affiliated chain’

• System of mutual alliances and
cross-ownership
– Company stock is held by allied firms
• Lowers need for short-term profits
• Links manufacturers, suppliers, distributors, & lenders
– ‘Partnerships’ extend across entire supply chain

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 Virtual Companies

• Companies that rely on a variety of supplier

relationships to provide services on demand.
• Also known as hollow corporations, or network
corporations

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 Virtual Company Strategy

• Network of independent companies

– Linked by technology
• PC’s, faxes, Internet etc.
– Each contributes core competencies
– Typically provide services
• Payroll, editing, designing
• May be long or short-term
– Usually, only until opportunity is met

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 Managing the Supply-Chain

• Options:
– Postponement
– Channel assembly
– Drop shipping
– Blanket orders
– Invoiceless purchasing
– Electronic ordering and funds transfer
– Stockless purchasing
– Standardization
– Internet purchasing (e-procurement)

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 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

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 Successful Supply-Chain
Management Requires:
• A mutual agreement on goals
• Trust
• Compatible organizational cultures

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 Issues in an Integrated Supply-Chain

• Local optimization
• Incentives
• Large lots

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 Opportunities in an Integrated
Supply-Chain

• Generation of accurate “pull” data

• Reduction of lot size
• Single stage control of replenishment

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 Vendor Managed Inventory (VMI)
• A system in which a supplier maintains material for
the buyer, often delivering directly to the buyer’s
using department.
• The use of a local supplier (usually a distributor) to
maintain inventory for the manufacturer or retailer.

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 Vendor Selection Steps

• 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.
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 Supplier Selection
Criteria
• Company • Service
– Financial stability – Delivery on time
– Management – Condition on arrival
– Location – Technical support
– Training
• Product
– Quality
– Price

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 Negotiation Strategies

• Three types:
– cost-based price model - supplier opens its
books to purchaser; price based upon fixed
cost plus escalation clause for materials and
labor
– market-based price model - published price
or index
– competitive bidding - potential suppliers bid
for contract
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 Logistic Management
• Integrates all materials functions
– Purchasing
– Inventory management
– Production control
– Inbound traffic
– Warehousing and stores
– Incoming quality control
• Objective: Efficient, low cost
operations

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 Goods Movement
Options
• Trucking
• Railways
• Airfreight
• Waterways
• Pipelines

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 Materials Movement
Work center
Work center Work
center

Work Storage
center

Storage

Storage
RECEIVING

Shipping

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