1. Operations Management Supply-Chain Management Chapter 11

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

3. 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.

4. 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

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

6. 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.

7. 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.

8. 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.

9. 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

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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)

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

17. 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.

18. 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?”

19. Operations Management E-Commerce and Operations Management Supplement 11

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

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

22. 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.

23. 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.

24. 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.