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Operations Management: Sustainability and Supply Chain Management

Thirteenth Edition

Chapter 11

Supply Chain Management

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Outline (1 of 3)

Global Company Profile: Red Lobster

The Supply Chain’s Strategic Importance

Sourcing Issues: Make-or-Buy and Outsourcing

Six Sourcing Strategies

Outline (2 of 3)

Supply Chain Risk

Managing the Integrated Supply Chain

Building the Supply Base

Logistics Management

Distribution Management

Outline (3 of 3)

Ethics and Sustainable Supply Chain Management

Measuring Supply Chain Performance

Red Lobster's Supply Chain (1 of 2)

World's largest seafood restaurant company

Serves 140 million meals annually from over 700 restaurants

A winning operations strategy requires a winning supply chain

Committed to seafood sustainability

Red Lobster's Supply Chain (2 of 2)

Sources food from five continents and thousands of suppliers

Supply chains incorporate supplier qualification, product tracking, independent audits, and just-in-time delivery

Learning Objectives (1 of 2)

When you complete this chapter you should be able to:

11.1 Explain the strategic importance of the supply chain

11.2 Identify six sourcing strategies

11.3 Explain issues and opportunities in the supply chain

11.4 Describe the steps in supplier selection

Learning Objectives (2 of 2)

When you complete this chapter you should be able to:

11.5 Explain major issues in logistics management

11.6 Compute percentage of assets committed to inventory and inventory turnover

Supply-Chain Management

The objective of supply chain management is to structure the supply chain to maximize its competitive advantage and benefits to the ultimate consumer

A Supply Chain for Beer

Figure 11.1

The Supply Chain’s Strategic Importance (1 of 2)

The coordination of all supply chain activities, starting with raw materials and ending with a satisfied customer

Includes suppliers, manufacturers and/or service providers, distributors, wholesalers, retailers, and final customers

The Supply Chain’s Strategic Importance (2 of 2)

Large portion of sales dollars spent on purchases

Supplier relationships increasingly integrated and long term

Improve innovation, speed design, reduce costs

Managing supplier relationships has added emphasis

Supply Chain Costs

Table 11.1 Supply Chain Costs as a Percentage of Sales

INDUSTRY	% PURCHASED
Automobiles	67
Beverages	52
Chemical	62
Food	60
Lumber	61
Metals	65
Paper	55
Petroleum	79
Restaurants	35
Transportation	62

Supply Chain vs. Sales Strategy

Hau Lee Furniture 60% of sales $ in supply chain Current gross profit = $10,000 Increase profits to $15,000 (50%)

Blank	CURRENT SITUATION	SUPPLY CHAIN STRATEGY	SALES STRATEGY
Sales	$100,000	$100,000	$125,000
Cost of materials	$60,000 (60%)	$55,000 (55%)	$75,000 (60%)
Production costs	$20,000 (20%)	$20,000 (20%)	$25,000 (20%)
Fixed costs	$10,000 (10%)	$10,000 (10%)	$10,000 (8%)
Profit	$10,000 (10%)	$15,000 (15%)	$15,000 (12%)

Supply Chain Management

Table 11.2 How Corporate Strategy Impacts Supply Chain Decisions

Blank	LOW-COST STRATEGY	RESPONSE STRATEGY	DIFFERENTIATION STRATEGY
Primary supplier selection criteria	• Cost	• Capacity • Speed • Flexibility	• Product development skills • Willing to share information • Jointly and rapidly develop products
Supply chain inventory	• Minimize inventory to hold down costs	• Use buffer stocks to ensure speedy supply	• Minimize inventory to avoid product obsolescence
Distribution network	• Inexpensive transportation • Sell through discount distributors/retailers	• Fast transportation • Provide premium customer service	• Gather and communicate market research data • Knowledgeable sales staff
Product design characteristics	• Maximize performance • Minimize cost	• Low setup time • Rapid production ramp-up	• Modular design to aid product differentiation

Sourcing Issues

Make-or-buy decisions

Choosing between obtaining products and services externally as opposed to producing them internally

Outsourcing

Transfer traditional internal activities and resources to outside vendors

Efficiency in specialization

Focus on core competencies

Six Sourcing Strategies

Many suppliers

Few suppliers

Vertical integration

Joint ventures

Keiretsu networks

Virtual companies

Many Suppliers

Commonly used for commodity products

Purchasing is typically based on price

Suppliers compete with one another

Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery

Few Suppliers

Buyer forms long-term relationships with fewer suppliers

Create value through economies of scale and learning curve improvements

Suppliers more willing to participate in J I T programs and contribute design and technological expertise

Cost of changing suppliers is huge

Trade secrets and other alliances may be at risk

Vertical Integration (1 of 2)

Figure 11.2

Vertical Integration (2 of 2)

Developing the ability to produce goods or services previously purchased

Integration may be forward, towards the customer, or backward, towards suppliers

Can improve cost, quality, delivery, and inventory but requires capital, managerial skills, and demand

Risky in industries with rapid technological change

Joint Ventures

Formal collaboration

Enhance skills

Secure supply

Reduce costs

The challenge is to cooperate without diluting brand or conceding competitive advantage

Keiretsu Networks

A middle ground between few suppliers and vertical integration

Supplier becomes part of the company coalition

Often provide financial support for suppliers through ownership or loans

Members expect long-term relationships and provide technical expertise and stable deliveries

May extend through several levels of the supply chain

Virtual Companies

Rely on a variety of supplier relationships to provide services on demand

Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands

Relationships may be short- or long-term

Exceptionally lean performance, low capital investment, flexibility, and speed

Supply Chain Risk

More reliance on supply chains means more risk

Fewer suppliers increase dependence

Compounded by globalization and logistical complexity

Vendor reliability and quality risks

Political and currency risks

Risk and Mitigation Tactics (1 of 6)

Research and assess possible risks

Innovative planning

Reduce potential disruptions

Prepare responses to negative events

Flexible, secure supply chains

Diversified supplier base

Risk and Mitigation Tactics (2 of 6)