1. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-1 Operations Management Supply Chain Management & E–Commerce Supplement 11

2. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-2 Planning, organizing, directing, and controlling flows of materials  Raw materials through internal operations through distribution of finished goods to customers  Associated information flows  Associated cash flows  Involves everyone in the supply chain – e.g. your supplier’s supplier  Objective: maximize value & lower waste Supply Chain Management Most firms spend over 50% of their sales on purchases

3. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-3 Supply Chain Performance Typical Firms Benchmark Firms Administrative costs as percent of purchases 3.3%0.8% Lead time (weeks) 15 weeks8 weeks Time spent in placing order 42 minutes15 minutes Percentage of late deliveries 33%2% Percentage of rejected material 1.5%.0001% Number of shortages per year 4004

4. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-4 Consumer Retailer Manufacturing Material VISA ® Supplier Wholesaler Retailer Cash Flow Order Flow Schedules The Supply Chain $ Credit Flow Schedules

5. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-5 Managing the Customer Interface  Order placement process  Order fulfillment process Activities required to register the need for a product or service and to confirm the acceptance of the order Activities required to deliver a product or service to a customer

6. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-6 Managing the Supplier Interface  Supplier selection and certification  Supplier relations  E–commerce

7. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-7 Make vs. Buy  Maintain core competencies  Protect proprietary design or process  Obtain a unique / not-readily available item  Assure adequate supply  Obtain desired quantity  Lower production cost  Unsuitable suppliers  Remove supplier collusion  Increase or maintain size of company / utilize surplus labor / avoid layoffs Reasons for Making

8. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-8 Make vs. Buy  Frees management to deal with its primary business  Inadequate managerial or technical resources  Item is protected by patent or trade secret  Inadequate capacity  Lower acquisition cost  Reduce inventory costs  Ensure flexibility and alternate source of supply  Preserve supplier commitment  Reciprocity Reasons for Buying

9. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-9 Vendor Evaluation

10. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-10 Supplier Strategies  Many sources per item  Arm’s-length relationship  Short-term  Little openness  Negotiated, sporadic PO’s  Infrequent, large lots  Delivery to receiving dock  Cost – business to low bidder  One / few sources per item  Partnership (JIT)  Long-term, stable  Audits, visits, shared work  Exclusive contracts  Frequent, small lots  Delivery to point of use  Cost – create value with large orders, learning curve Multiple SourceSingle Source

11. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-11 Daimler Chrysler’s Supplier Cost Reduction Effort Supplier SuggestionModel Savings Rockwell Use passenger car door locks on trucks Dodge trucks $280,000 Rockwell Simplify design/substitute materials on manual window system Various$300,000 3M Change tooling for wood- grain panels to allow three from one die instead of two Caravan, Voyager $1,500,000 Trico Change wiper-blade formulation Various$140,000 Leslie Metal Arts Exterior lighting suggestionsVarious$1,500,000

12. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-12 Supply Chain Process Measures Purchasing  Percent of suppliers’ deliveries on time  Suppliers’ lead times  Percent defects in purchased materials and services  Cost of purchased materials and services Order Fulfillment  Percent of incomplete orders shipped  Percent of orders shipped on time  Time to fulfill the order  Percent of returned items or botched services  Cost to produce the item or service  Customer satisfaction with the order-fulfillment process Order Placement  Percent orders taken accurately  Time to complete the order-placement process  Customer satisfaction with the order- placement process

13. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-13 Differentiation  Competitive priorities: high-performance design quality, high development speed, customization  Unpredictable demand; high forecast errors  High product variety  Frequent new product introductions  High contribution margins Response  Competitive priorities: fast delivery times, volume flexibility, customization  Unpredictable demand; high forecast errors Low Cost  Competitive priorities: low cost, consistent quality and on-time delivery  Predictable demand; low forecast errors  Low product variety  Infrequent new product introductions  Low contribution margins Supply-Chain Environments

14. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-14 Supply Chain Design Differentiation  Select suppliers for product development skills  Modular processes that lend themselves to mass customization  Minimize inventory in the chain to avoid obsolescence  Invest aggressively to reduce development lead-time  High-performance design, modular design to postpone differentiation Response  Select suppliers for capacity, speed and flexibility  Invest in excess capacity and flexible processes  Responsive systems with buffer stocks to ensure supply  Invest aggressively to reduce lead-time  Product designs that lead to low set-up time and rapid production ramp-up Low Cost  Select suppliers for low cost  Maintain high capacity utilization  Minimize inventory throughout the chain to reduce cost  Shorten lead-time as long as it does not increase costs  Product designs that maximize performance and minimize cost

15. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-15 E–Commerce The use of computer networks, primarily the internet, to buy and sell products, services, and information “… all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage.” Louis Gerstner, Chairman, IBM

16. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-16 E–Commerce Transactions C2C eBay C2B Priceline, Travelocity Consumer B2C Amazon, Dell, Netgrocer.com B2B Covisint Exchange, FreeMarket.com Business ConsumerBusiness

17. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-17 B2B Applications  Product – drawings, specifications, video demonstrations, prices  Processes – capacities, commitments, plans  Transportation – carriers, lead times, costs  Inventory – levels, costs, and location, tracking  Supply Chain – process descriptions, performance measures, partners’ roles and responsibilities, and schedules  Suppliers – product catalogue, quality history, lead times, terms, and conditions  Sales / Marketing – point of sale data, promotions, pricing, discounts  Customer – sales history and forecasts

18. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-18 B2B Applications  Improve development time and cost  Support JIT systems  Improve scheduling and logistics  Reduce physical inventories  Allow internet outsourcing  Dramatically reduce cost  Enable new business models

19. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-19 Benefits of E–Commerce  Improved, lower cost information  Lower entry costs  Available 24/7, virtually anywhere in the world  Availability expands markets for both buyers and sellers  Decreases the cost of paper-based information  Reduces the cost of communication  Provides richer communication than traditional means  Fast delivery of digitized products  Increased flexibility of location

20. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-20 Limitations of E–Commerce  Lack of system security, reliability and standards  Lack of privacy  Insufficient bandwidth  Integrating e-commerce software with existing software is still a challenge  Lack of trust in: (1) unknowns on the other end of the transaction, (2) integrity of the transaction itself, and (3) electronic money that is only bits and bytes

21. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 11-21 Summary  Multiple organizations are needed to create value Purchasing – Other companies Operations / Production Distribution  Reengineering our order placement process and our order fulfillment process can lead to faster, better and cheaper  Cooperative supplier relations can lead to faster, better and cheaper  E–commerce is revolutionizing the way operations managers achieve greater efficiencies, leading to faster, better and cheaper