Supply Chain Management

2 August 2001

Introduction What: Supply Chain Management Where: Organizations that have

significant costs spent on purchasing

Why: reduce purchasing costs

The Supply Chain

Supplier

Supplier

Supplier

Inventory

Inventory

Distributor

Inventory Inventory

Manufacturer

Customer

Customer

Customer

Market research datascheduling information

Engineering and design dataOrder flow and cash flow

Ideas and design to satisfy end customer

Material flowCredit flow

The Supply Chain Transportation vendors Credit and cash transfers Suppliers Distributors and banks Accounts payable and receivable Warehousing and inventory levels Order fulfillment Customer, forecasting and product

information

The Supply Chain Build a chain of suppliers Reduce repeated steps (waste) Maximize value to ultimate

customer Make suppliers partners in the

firm’s strategy

Low-Cost Strategy Goal: Lowest possible cost Supplier Selection: Based on cost Manufacturing Process: High utilization Inventory: Minimize inventory

throughout chain to hold down costs Lead Time: Shortest lead time possible

without increasing costs Product Design: Maximum performance

for minimum cost

Response Strategy Goal: Respond quickly to changing

requirements and demand Supplier Selection: Based on capacity,

speed, flexibility Manufacturing Process: Excess capacity,

flexible process Inventory: Buffer stocks Lead Time: Reduce aggressively Product Design: Low setup time, rapid

production ramp-up

Differentiation Strategy Goal: Share research, jointly develop

products Supplier Selection: Based on product

development skills Manufacturing Process: Modular, mass

customization Inventory: Minimize to avoid obsolescence Lead Time: Reduce development lead time Product Design: Modular, postpone

differentiation as long as possible

Purchasing Identify products and services that

can be obtained externally Develop, evaluate and determine

the best supplier, price, and delivery for those products and services

Purchasing Functions Purchasing Agent Buyers Expediters Make or Buy Decision

Reasons to Make Lower production cost Unsuitable suppliers Assure adequate supply Use surplus labour / facilities Obtain desired quality Obtain unique item Maintain organizational talents Protect proprietary design Increase size of company

Reasons to Buy Lower cost Commitment to suppliers Obtain supplier’s technical or management

ability Inadequate capacity Reduce inventory costs Ensure alternative sources Inadequate managerial or technical resources Reciprocity Item protected by patent or trade secret Deal with primary business

Supply Chain Strategy: Many Suppliers Purchaser issues Request For

Quote (RFQ) Order goes to lowest bidder Suppliers compete Not partners

Supply Chain Strategy: Few Suppliers Long term relationship with

dedicated suppliers Suppliers understand objectives of

firm and end customers Huge cost to change partners Share trade secrets

Supply Chain Strategy: Vertical Integration Produce goods or services that

were previously purchased Buy a supplier or distributor Opportunities for cost reduction Dangerous during technological

change

Supply Chain Strategy: Keiretsu Large Japanese companies Invest or loan to suppliers Company coalition Middle ground between few

suppliers and vertical integration Long-term relationships

Supply Chain Strategy: Virtual Companies Subcontract almost everything Highly flexible Suppliers provide all variety of

services Relationships may be short or long

term

Vendor Selection Who to buy materials from Vendor evaluation Vendor development

Vendor Negotiation Cost-Based Price Market-Based Price Competitive Bidding

Supply Chain Techniques Postponement Channel Assembly Drop Shipping Blanket Ordering Stockless Purchasing Standardization Electronic Ordering Electronic Funds Transfer Internet Purchasing

Materials Management Efficiency through integration of

material acquisition, movement and storage

Purchasing in Services