Operations and Supply Chain Management

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Operations Management: Sustainability and Supply Chain Management

Thirteenth Edition

Week 6

Supply Chain Management

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SCM

SCM is planning and controlling all of the business processes—from end-customer to raw material suppliers—that link together partners in a supply chain in order to serve the needs of the end-customer.

Logistics is the task of coordinating materials flow and information flow across the supply chain.

Supply Chain vs. Sales Strategy

Hau Lee Furniture

Plan: Increase profits to $15,000 (50%)

Strategy 1: using sales strategy

Strategy 2: using supply chain strategy

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%)

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

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

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

Research and assess possible risks

Innovative planning

Reduce potential disruptions

Prepare responses to negative events

Flexible, secure supply chains

Diversified supplier base

Cross-

Managing the Integrated Supply chain

Issues

Local optimization can magnify fluctuations

Incentives push merchandise into the supply chain for sales that have not occurred

Large lots reduce shipping and production costs but increase inventory holding and do not reflect actual sales

Bullwhip effect occurs when orders are relayed through the supply chain with fluctuations increasing at each step

Building the Supply Base (1 of 5)

Supplier evaluation

Finding potential suppliers

Determine likelihood of their becoming good suppliers

Supplier certification

Qualification

Education

Certification

Building the Supply Base (2 of 5)

Supplier development

Integrate the supplier into the system

Quality requirements

Product specifications

Schedules and delivery

Procurement policies

Training

Engineering and production help

Information transfer procedures

Building the Supply Base (3 of 5)

Negotiation

A significant element in purchasing

Highly valued skills

Cost-based price model

Supplier opens books

Market-based price model

Based on published, auction, or indexed prices

Competitive bidding

Common policy for many purchases

Does not generally foster long-term relationships

Building the Supply Base (4 of 5)

Contracting

Share risks, benefits, create incentives

Centralized purchasing

Leverage volume

Develop specialized staff

Develop supplier relationships

Maintain professional control

Devote resources to selection and negotiation

Reduce duplication of tasks

Promote standardization

Building the Supply Base (5 of 5)

E-Procurement

Speeds purchasing, reduces costs, integrates supply chain

Online catalogs and exchanges

Standard items or industry-specific web sites

Online auctions

Low barriers to entry

Reverse auctions for buyers

Price not always the most important factor