Type author names here © Oxford University Press, All rights reserved. Operations Management Chapter 5 Managing Supply Relationships Jones & Robinson

Jones & Robinson: Operations Management Define supply chain management and explain its structure Describe and explain an organization’s procurement function Understand supplier relationship management Explain how logistics operates and alternative modes of delivery and storage Identify and explain trends in supply chain management Learning Objectives

Jones & Robinson: Operations Management A supply chain can be defined as a sequence of business and information processes that link suppliers of products or services to operations, and which then link those operations through distribution channels to end users. Supply Chain

Jones & Robinson: Operations Management A simple supply chain showing suppliers upstream and customers downstream. Note that the operation is both a supplier and a customer. Supply Chain

Jones & Robinson: Operations Management Upstream – suppliers who are operating before the subsequent operation Downstream – those who operate nearer the ultimate customers Inbound – those supplies that are brought in to the operation Outbound – materials and information that are passed further downstream Supply Chain

Jones & Robinson: Operations Management Supply chain management is the planning, designing, organization and control of the flow of information and materials in order to meet customer requirements in an efficient manner. Organized in levels of supply and demand called ‘tiers’. Increasingly complex relationships now more likely to be a network than a single chain. Supply Chain Management

Jones & Robinson: Operations Management Tiers of supply – intermediary organizations in supply chains. First tier supply supplier – the nearest to the finished process, (the next nearest is second- tier supplier) Example: automotive supply chain Supply Chain Management

Jones & Robinson: Operations Management Procurement – the process involved with selecting suppliers, negotiating contracts, purchasing items, and evaluating suppliers. Single sourcing – one supplier of one type of product Multiple sourcing – deciding to purchase the same items but from more than one supplier. Supply Chain Management

Jones & Robinson: Operations Management 1.Rely on secondary sources, such as company websites, promotional material from suppliers, trade asso., data sheets, and word of mouth. 2.Gather primary data from potential suppliers and systematically compare alternative suppliers on clearly established criteria. i.Request for Information – capabilities & performance ii.Request for proposal - iii.Tender for invitation iv.Request for quotation Selecting Suppliers

Jones & Robinson: Operations Management Purchase order. The documentation that specifies the items required and their volume. Order confirmation. An acknowledgement of the order from the suppliers confirming the items are available and will be delivered on time. Delivery monitoring. The buyer may choose to monitor or track where in the supply chain the items have got to. Delivery notification. Confirmation from the supplier as to when the goods will be delivered. Delivery reception. The process that buyers go through upon receipt of the goods. Returns. These are items not accepted by the buyer and returned immediately upon delivery. Payment. Systems will be put in place depending on the nature of the supplier/ buyer relationship on the terms of payment, for example the number of days’ credit or penalties for late payment. Procurement Process – stages

Jones & Robinson: Operations Management 1.Raw materials 2.Components 3.Consumables 4.Plant and equipment 5.Services 6.Labor Purchase items

Jones & Robinson: Operations Management Supplier relationships are strategic Supported by contracts – 4 types –Direct competition –Contracts in direct competition –Operative contracts – based on supplier performance (e.g. delivery times or quality) –Strategic contracts – few suppliers of high value Jonsson (2008) Supplier Relationship Management

Jones & Robinson: Operations Management 1.Direct competition - refers to a buyer deciding who to buy from on each occasion an order is placed. 2.Contracts in direct competition – similar with #1, but instead of competing for single orders, suppliers compete against each for a contract to supply over a specified period. 3.Operatives contracts – these tend to be based on supplier performance rather than on comparing one supplier against another. (3-5 yrs contract. ) 4.. Strategic contracts – few suppliers, the value of their contracts is likely to be high. Four Broad Types of Contractual Relationship

Jones & Robinson: Operations Management 1.Conventional – arms length agreement between two organization 2.Associated - based on a long-term link between the two parties that involves more sophistication in managing the interaction. 3.Partnership – strongest form of relationship. Guaranteed quality delivery, work together on new product dev’t jointly invest in new technology, and create a seamless logistics system between the two parties. Three Basic Types of Strategic Relationship

Jones & Robinson: Operations Management Firms can own their suppliers or their immediate customer (vertical integration, upstream or downstream) Firms can deal directly with customers (disintermediation) A working relationship could be entered into between two or more companies (strategic alliance) Collaboration between firms can be via the internet and eBusiness (virtual integration) Supplier Relationship Management

Jones & Robinson: Operations Management Suppliers can be evaluated against a number of delivery criteria, such as: –Schedule adherence –Ability to keep promises –Volume or mix flexibility –Performance of product or service –Perceived quality –Response speed –Delivery speed Supplier Evaluation

Jones & Robinson: Operations Management Logistics includes all of the physical movement involved in the procurement, movement, storage and accounting for goods, whether in the form of raw materials, partially processed or finished goods. Material flow issues - how and where goods are stored; how they are physically moved; what mode of transport is to be used Information flow issues - shipment planning; traffic management; payment issues Logistics

Jones & Robinson: Operations Management Logistics

Jones & Robinson: Operations Management Alternative Modes of Delivery and Storage This shows the relative position of the ownership and management of goods in a number of different situations

Jones & Robinson: Operations Management 1.Batch delivery to stock – simplest form of delivery pattern. The supplier fulfills an order from the buyer for a specified range and level of stock. The goods are delivered to the buyer’s store or warehouse. 2.Direct delivery to production-key element of so-called just-in-time (JIT) operations. Goods are delivered to the production point where they are needed without ever going into storage. 3.Delivery through warehouse or logistics center – a logistics center is placed between the supplier and the buyer. Alternative Modes of Delivery and Storage

Jones & Robinson: Operations Management 4. Supplier-managed delivery to store – similar to delivery to stock, but instead of the buyer ordering the materials, the supplier determines the range and level of materials to supply. 5. Supplier-managed to store facility – the supplier not only determines the amount of material to supply, it also manages and operates the stores facility on the buyer’s premises. (electrical components) 6. Direct delivery from supplier to buyer’s customer- there may be no store of warehouse at all. materials go directly from the supplier to the buyer’s customers. (flowers, fresh fruit, vegetables) Alternative Modes of Delivery and Storage

Jones & Robinson: Operations Management Third Party Logistics (3PL) - specialist firms who operate an outsourced logistics service Fourth Party Logistics (4PL) - the management of several 3PL’s by another provider Reverse logistics – return of products to source Disintermediation – ‘cutting out the middleman’ E-Procurement – use of the internet to improve cost and time Trends in Supply Chain Management