Operations Management Supply-Chain Management Chapter 11

Outline Strategic Importance of the Supply-Chain. Supply-Chain Strategies. Purchasing & Acquisition. Logistics & Materials Management.

Supply-Chain Management Management of integrated activities that procure materials, transform them into final products, and deliver them to customers. Involves everyone in the supply-chain. Example: Your supplier’s supplier. Probably the most important point to be made here is the encompassing nature of supply-chain management - from suppliers’ suppliers through internal production through distribution to the customer.

The Supply-Chain Material Flow Credit Flow Supplier Consumer Supplier VISA ® Material Flow Credit Flow Supplier Consumer Supplier Manufacturing Retailer Supplier Wholesaler Retailer Order Cash Schedules Flow Flow

Integration Integrates operations, logistics, marketing, accounting and finance. Manage: Transportation. Suppliers. Warehousing and distribution. Inventory levels. Information sharing. $ and credit transfers. Order fulfillment.

Supply-Chain Trends Global sourcing and markets. Need local expertise to handle duties, trade, freight, customs and political issues. Flexibility to react to sudden changes in parts availability, distribution, or shipping channels, import duties, and currency rates. Information technology to manage storage and transportation networks.

Supply-Chain Strategies How best to work with upstream suppliers and downstream distributors and customers. To manage procurement, transportation, inventory, warehousing, distribution, etc. Outsourcing: Logistics activities (transportation, delivery, inventory, etc.). Information systems. Accounting and payroll. Vertical integration. Subsequent slides expand upon these strategies.

Vertical Integration Produce a good or service previously purchased. Forward (towards customers) or backwards (towards supplier.). Develop the capability independently or buy a firm. Advantages: May be less expensive than buying. Provides more control. Disadvantages: Can be expensive. Hard to do all things well. Subsequent slides expand upon these strategies.

Forms of Vertical Integration Raw Materials Iron Ore Silicon Backward Integration Steel Integrated Circuits Current Transformation Automobiles Forward Integration Distribution System Circuit Boards Students should be asked to consider why, other than on a “cost” basis, a company might want to consider vertical integration. Computers Watches Calculators Dealers Finished Goods

Purchasing & Acquisition Acquisition of goods & services. Activities: Decide whether to make or buy. Identify sources of supply. Select suppliers & negotiate contracts. Control vendor performance. Importance: Major cost center. Affects quality of final product. Students might be asked how they believe the role of purchasing is changing given the increased use of information technology and strategies such as JIT.

Purchasing Costs as a Percent of Sales Industry Percent of Sales All industry Automobile Food Lumber Paper Petroleum Transportation 52% 61% 60% 55% 74% 63% This slide should further impress upon students the importance of the purchasing function.

Make/Buy Considerations Reasons for Making Reasons for Buying Lower cost to produce. Unsuitable suppliers. Poor quality. Price too high. Item not available. Utilize surplus labor. Protect proprietary design. Increase/maintain size of company. Lower cost to buy. Preserve supplier commitment. Obtain technical or management ability. Inadequate capacity. Item is protected by patent or trade secret. Frees management to deal with its primary business.

Supplier Strategies Negotiate with many suppliers; play one supplier against another. Negotiated, sporadic small purchase orders. Adversarial relationship with little openness. Work with few suppliers and develop long-term “partnering” arrangements. Exclusive long-term contracts with large orders (and lower prices). Long-term, stable relationship. Subsequent slides expand upon these strategies.

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. Students should be asked to consider the problems which might be encountered at each step in this process.

Vendor Selection Criteria Company criteria Financial stability. Management. Location. Product criteria Quality. Price. Service criteria Delivery on time. Condition on arrival. Technical support. Training. Students might be asked if they perceive one or another of these criteria to be especially important. Also, are there other criteria they would prefer to use or think should be added? (One such criteria might be the ability to communicate using EDT)

Vendor Selection Rating Form Students might be asked to consider what additional information they might want before approving a vendor selection.

Negotiation Strategies Cost-based price model. Supplier opens its books to purchaser. Price based on fixed cost plus escalation clause for materials and labor. Market-based price model. Price based on published price or index. Competitive bidding. Potential suppliers bid for contract. Ask students under what conditions each of these models might be appropriate.

Logistics & Materials Management All transportation and storage activities for origin or to consumption. Integrates: Purchasing. Inventory management. Production control. Inbound and outbound transportation. Warehousing and stores. Incoming quality control. In addition to framing the materials management function, this slide raises the issue of “how does one begin assigning responsibilities for each of the facets of supply-chain management?”

Operations Management E-Commerce and Operations Management Supplement 11

Outline Electronic Commerce. E-commerce Definitions. E-Procurement B2B B2C C2C C2B E-Procurement

E-Commerce The use of computer networks, primarily the internet, to buy and sell products, services, and information.

E-Business “… all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage.” Louis Gerstner, Chairman, IBM Point out here that e-business is not simply business as usual with computers or other information technology added to the resource mix, but rather a new way of looking at doing business. The main management issues may be the same as before, but the specific environment within which the problems must be solved requires changes in the solutions.

E-Commerce Definitions Business-to business (B2B) - Both sides of the transaction are businesses, non-profit organizations, or governments. Business-to-consumer (B2C) - Customers are individual consumers. Consumer-to-consumer (C2C) - Consumers sell directly to each other. Consumer-to-business (C2B) - Individuals sell services or goods to businesses. You might ask students to consider which of the transactions listed above are most suited to commerce over the internet.

E-Procurement Catalogs. Auctions. Internet trading exchanges: On-line purchasing – link buyers and sellers electronically. Catalogs. Auctions. Internet trading exchanges: Covisint: By auto industry (buyer). Spot purchasing. Example: Spare freight capacity. You might ask students to consider which of the transactions listed above are most suited to commerce over the internet.