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 Inventory Distributor Inventory Manufacturer Customer Market research data scheduling information Engineering and design data Order flow and cash flow Ideas and design to satisfy end customer Material flow Credit 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