1. Supply Chain Management

2. 2 u Supply Chain Management u Outsourcing u Purchasing u Partnership Relationships u The Firm as Supplier u JIT Purchasing u Global Purchasing

3. 3 Supply Chain Management u Apply a total systems approach to managing the entire flow of – information – materials – and services Raw material suppliers Factories & warehouses End customer

4. 4 Outsourcing u Purchased items account for 50 to 70% of the cost of goods sold. u Outsourcing allows firms to focus on their core competencies. – Organizations outsource when they decide to purchase something they had been making in-house. u Typically mis-handled by materials management function.

5. 5 Make or Buy u Current trend favors outsourcing all activities that do not directly represent or support core competencies. u Are there any dangers associated with aggressive outsourcing? What are the implications for JIT production?

6. 7 Purchasing u No longer just order takers…. u Purchasing need to know – material – performance – availability – suppliers

7. 8 The Firm as a Supplier u In this chapter, we discuss the role of the firm as a buyer of goods and services. u How does the perspective change when the shoe is on the other foot?

8. 9 Partnership Relationship u Continuing relationship involving – a commitment over an extended time period, – an exchange of information, and – an acknowledgement of the risks & rewards of the relationship.

9. Characteristics of Good Relationships u Commitment u Communication u Working through change / improvement u Principles centered relationship u Spending time together u Appreciation / recognition / feedback

10. Special Attention Low spend - high risk Long-Term Relationship High spend - high risk Contractual High spend - low risk (Easily substituted) High Low High Risk Annual Spend Supplier Characterization Matrix Transactional Low spend - low risk

11. Supplier Improvement u Supplier Evaluation - Involves finding potential suppliers and determining the likelihood of their becoming good partners. u Supplier Development - May include everything from training, to engineering and production help, to formats for electronic transfer. u Negotiations - Are of three classic types: cost- based model, market-based price model, and competitive bidding.

12. 11 JIT Purchasing--Requirements u Reduced lot sizes u Frequent and reliable delivery schedules u Reduced and highly reliable lead times u Consistently high quality levels for purchased materials

13. 12 JIT Purchasing--Suppliers u Fewer, nearby suppliers u Repeat business u Support suppliers’ competitiveness u Clusters of remote suppliers u Limit competitive bidding to new parts u Resist vertical integration u Encourage suppliers to implement JIT purchasing

14. 13 JIT Purchasing--Quantities u Steady output rate (a desirable prerequisite) u Frequent deliveries in small lot quantities u Long-term contract agreements with minimal release paperwork u Deliver quantities variable from release to release but fixed for whole contract term

15. 14 JIT Purchasing--Quantities (Ctd) u Little or no permissible overage or underage of receipts u Suppliers encouraged to package in exact quantities u Suppliers encouraged to reduce their production lot sizes (or store unreleased material)

16. 15 JIT Purchasing--Quality u Minimal product specifications imposed on supplier u Help suppliers to meet quality requirements u Close relationships between buyers' and suppliers' quality assurance people u Suppliers encouraged to use process control charts instead of lot sampling inspection

17. 16 JIT Purchasing--Shipping u Scheduling of inbound freight u Gain control by use of – company-owned or contract shipping – contract warehousing – trailers for freight consolidation/storage

18. 17 JIT Purchasing--Benefits u Consistent quality u Savings on resources u Lower costs u Special attention u Saving on tooling u Loyalty associated with long-term relationships with suppliers

19. 18 Global Sourcing u Original strategy was to reduce production costs. u Changing focus of global purchasing includes – local content / market access – product availability – technology – delivery – lead times – labor availability and quality.

20. Why Long-Term Relationships? u Increasing trend toward global supply u Higher baseline performance u Increasing focus on time to market u Dependence upon suppliers for technology

21. Why Long-Term Relationships? A long-term relationship between purchaser and supplier is necessary for best economy. How can a supplier be innovative and develop economy in his production processes when he can only look forward to short-term business with a purchaser? W. Edwards Deming, Out of the Crisis

22. Why Long-Term Relationships? u Trend toward LT contracts since 1990 u Pressure to reduce price u Pressure to reduce transaction costs u Consolidation pressures

23. Challenges for a Useful SCR Model u Relationships are critical u Trust may be low u Literature focuses on causes of failure

24. Challenges for a Useful SCR Model u Limited number of published SCR successes u Successes could be culture-dependent u Model should be simple & proven

25. Family Strengths Research u Strong families u 20+ years of research u Over 6,000 surveyed

26. Family Strengths Research u Culturally diverse population u Compares favorably with other taxonomies of family success u Summarized in six characteristics

27. Family Strengths Research 6 Characteristics of Strong Families u Commitment (trust) u Good communication patterns u Ability to deal with crises u Spiritual wellness u Spending time together u Appreciation

28. Six Characteristics of Successful SCR’s u Commitment u Good communication patterns u Ability to deal with crises (change) u Spiritual wellness (principles-centered) u Spending time together u Appreciation / feedback

29. Commitment: Concerns u Is this the right supplier? u What about commitment? u Is management committed? u What are the implementation issues related to maintaining commitment?

30. Commitment: Implementation u Selection prior to initiation u Two-way criteria for success u Regular performance reviews u Management committed to proceed u Participation requirements identified early u Implementation of complete SCR model

31. Matrix for SCR Selection Increasing Spend / Value Potential Increasing Risk / Complexity

32. Communication: Concerns u Replace face-to-face communication with technology? u Good communication = $$$ u Communication between technical groups u Role of agent

33. Communication: Implementation u Face-to-face communication increased & facilitated by multiple technologies u Support for communication forums u Triad as core team u Agent investments in communication

34. Dealing with Change u New product dev. process u Common improvement process u Performance measures u Conflict resolution by team leaders

35. Shared Principles u Principles Centered Leadership u Two-Way Performance Measures u Follow-through on Commitments

36. Spending Time Together u Quarterly performance reviews u Team building dinners u Commitment to keep the schedule

37. Appreciation u Celebration of critical improvement u Recognition distribution u Other forms of recognition