supply chain management judi prajetno sugiono [email protected] © 2008
TRANSCRIPT
The Supply-Chain
• Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together
• Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer
• The goal is to create a fast, efficient, & low-cost network of business relationships.
partssupplier
partssupplier
partssupplier
warehouse warehouse
suppliersuppliersupplier
toolmanufacturer
Manufacturerworkers
wholesalerwholesaler
distributordistributordistributor
retail storeretail storeretail storeretail store
Consumers
Production Chain
Consumer
Retailer
Manufacturing
Material Flow
VISA®
Credit Flow
Supplier
Supplier Wholesaler
Retailer
CashFlow
OrderFlowSchedules
The Supply-Chain
The Supply Chain
Supplier
Supplier
Supplier
Inventory
Inventory
Distributor
Inventory Inventory
Manufacturer
Customer
Customer
Customer
Market research dataScheduling information
Engineering and design dataOrder flow and cash flow
Ideas and design to satisfy end customer
Material flowCredit flow
11%
31%
58%
Material
Dir Wages
Other
71%
16%13% COGS
Payroll
Other
83%
9%8%COGS
Payroll
Other
ManufacturingManufacturing
WholesaleWholesale
RetailRetail
Material Costs in Supply-Chain
Supply-Chain Support for Overall Strategy
Supplier’sgoal
Primary Selection Criteria
Supply demand at lowest possible cost
Select primarily for cost
Low CostRespond quickly to changing requirements and demand to minimize stockouts
Select primarily for capacity, speed, and flexibility
ResponseShare market research; jointly develop products and options
Select primarily for product development skills
Differentiation
Supply-Chain Support for Overall Strategy - continued
Process Characteristics
Maintain high average utilization
Low CostInvest in excess capacity and flexible processes
ResponseModular processes that lend themselves to mass customization
Inventory Characteristics
Minimize inventory throughout the chain to hold down costs
Develop responsive system, with buffer stocks positioned to ensure supply
Minimize inventory in the chain to avoid obsolescence
Differentiation
Supply-Chain Support for Overall Strategy - continued
Lead-timeCharacteristics
Shorten lead-time as long as it does not increase costs
Low CostInvest aggressively to reduce production lead-time
ResponseInvest aggressively to reduce development lead-time
Differentiation
Product-design Characteristics
Maximize performance and minimize cost
Use product designs that lead to low set-up time and rapid production ramp-up
Use modular design to postpone product differentiation for as long as possible
Global Supply-Chain Issues
• Supply chains in a global environment must be:• Flexible enough to react to sudden changes
in parts availability, distribution, or shipping channels, import duties, and currency rates
• Able to use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out
• Staffed with local specialists to handle duties, trade, freight, customs and political issues
Importance of Purchasing
• Major cost center• Affects quality of final product• Aids strategy of low cost, response,
and differentiation
Supply-Chain Costs as a Percent of Sales
• All industry• Automobile• Food• Lumber• Paper• Petroleum• Transportation
• 52%• 67%• 60%• 61%• 55%• 79%• 62%
Industry Percent of Sales
Dollars of Additional Sales Needed to Equal 1$ Saved Through Purchasing
Percent of Sales Spent in the Supply-Chain
30% 40% 50% 60% 70% 80% 90%
2 $2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $16.67
4 $2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $14.29
6 $2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $12.50
8 $2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $11.11
10 $2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.00
Percent Net Profit of Firm
Objectives of the Purchasing Function
• Help identify the products and services that can be best obtained externally; and
• Develop, evaluate, and determine the best supplier, price, and delivery for those products and services
The Purchasing Focus
Materials Management-High transportation cost-High inventory costs
Supply Management-High costs-Scarcity: national or
international
Source Management-Unique items-Custom-made items-High technology items
PurchasingManagement-Commodity items-Standard products
ReceivingDock
PurchaseOrder
PackingList
OrderProcessing
Invoice
Receivables Report
Check Accounts Receivable
Accounts Payable
MailReconcile
Customer Supplier
Traditional Purchasing Process
Purchasing Techniques
• Drop shipping and special packaging• Blanket orders• Invoiceless purchasing• Electronic ordering and funds transfer• Electronic data interchange (EDI)• Stockless purchasing• Standardization• Outsourcing
Make/Buy Considerations
• Maintain core competencies and protect personnel from layoff
• Lower production cost
• Unsuitable suppliers• Assure adequate
supply• Utilize surplus labor
and make a marginal contribution
• Frees management to deal with its primary business
• Lower acquisition cost
• Preserve supplier commitment
• Obtain technical or management ability
• Inadequate capacity
Reasons for Making Reasons for Buying
Make/Buy Considerations – Cont.
• Obtain desired quantity
• Remove supplier collusion
• Obtain a unique item that would entail a prohibitive commitment from the supplier
• Protect proprietary design or quality
• Increase or maintain size of company
• Reduce inventory costs
• Ensure flexibility and alternate source of supply
• Inadequate managerial or technical resources
• Reciprocity• Item is protected by
patent or trade secret
Reasons for Making Reasons for Buying
Supply-Chain Strategies
• Plans to help achieve company mission• Affect long-term competitive position• Strategic options
• Many suppliers• Few suppliers• Keiretsu network• Vertical integration• Virtual company Plan
Supply-Chain Strategies
• Negotiate with many suppliers; play one supplier against another
• Develop long-term “partnering” arrangements with a few suppliers who will work with you to satisfy the end customer
• Vertically integrate; buy the actual supplier• Keiretsu - have your suppliers become part of
a company coalition• Create a virtual company that uses suppliers
on an as-needed basis.
Many Suppliers Strategy
• Many sources per item
• Adversarial relationship
• Short-term• Little openness• Negotiated, sporadic
PO’s• High prices• Infrequent, large lots• Delivery to receiving
dock
Few Suppliers Strategy
• 1 or few sources per item
• Partnership (JIT)• Long-term, stable• On-site audits & visits• Exclusive contracts• Low prices (large
orders)• Frequent, small lots• Delivery to point of
use
Daimler Chrysler’s Supplier Cost Reduction Effort
Supplier Suggestion Model SavingsRockwell Use passenger car door
locks on trucksDodgetrucks
$280,000
Rockwell Simplify design/substitutematerials on manualwindow system
Various $300,000
3M Change tooling for wood-grain panels to allow threefrom one die instead of two
Caravan,Voyager
$1,500,000
Trico Change wiper-bladeformulation
Various $140,000
Leslie MetalArts
Exterior lighting suggestions Various $1,500,000
Tactics for Close Supplier Relationships
Tactic• Reduce total number of
suppliers• Certify suppliers
• Ask for JIT delivery from key suppliers
• Involve key suppliers in new product design
• Develop software linkages to suppliers
Results• Average 20% reduction
in 5 years• Almost 40% of all
companies surveyed were themselves currently certified
• About 60% ask for this• About 54% do this• Almost 80% claim to do
this• About 50% claim this
Raw Material(Suppliers)
BackwardBackwardIntegrationIntegration
CurrentCurrentTransformationTransformation
ForwardForwardIntegrationIntegration
Finished GoodsFinished Goods(Customers)(Customers)
• Ability to produce goods previously purchased• Setup operations• Buy supplier
• Make-buy issue• Major financial
commitment• Hard to do all things
well
Vertical Integration Strategy
Forms of Vertical Integration
Iron Ore
Steel
Automobiles
DistributionSystem
Dealers
Silicon
IntegratedCircuits
Circuit Boards
ComputersWatches
Calculators
Farming
Flour Milling
Raw Material(Suppliers)
BackwardIntegration
CurrentTransformation
ForwardIntegration
Finished Goods(Customers)Baked Goods
Keiretsu Network Strategy
• Japanese word for ‘affiliated chain’• System of mutual alliances and
cross-ownership• Company stock is held by allied firms
• Lowers need for short-term profits
• Links manufacturers, suppliers, distributors, & lenders• ‘Partnerships’ extend across entire supply
chain
Virtual Companies
• Companies that rely on a variety of supplier relationships to provide services on demand.
• Also known as hollow corporations, or network corporations
Virtual Company Strategy
• Network of independent companies• Linked by technology
• PC’s, faxes, Internet etc.
• Each contributes core competencies
• Typically provide services
• Payroll, editing, designing
• May be long or short-term• Usually, only until
opportunity is met
Managing the Supply-Chain
• Options:• Postponement • Channel assembly• Drop shipping• Blanket orders • Invoiceless purchasing • Electronic ordering and funds transfer• Stockless purchasing• Standardization• Internet purchasing (e-procurement)
Managing the Supply-Chain - Other Options
• Establishing lines of credit for suppliers• Reducing bank “float”• Coordinating production and shipping
schedules with suppliers and distributors
• Sharing market research• Making optimal use of warehouse
space
Successful Supply-Chain Management Requires:
• A mutual agreement on goals• Trust• Compatible organizational cultures
Issues in an Integrated Supply-Chain
• Local optimization• Incentives• Large lots
Opportunities in an Integrated Supply-Chain
• Generation of accurate “pull” data• Reduction of lot size• Single stage control of replenishment
• Vendor Managed Inventory (VMI) – use the local supplier to maintain inventory for the manufacture or retailer. The supplier delivers directly to the purchaser’s using department rather than to a receiving dock or stockroom
• Postponement – keeps product generic as long as possible• Channel Assembly – sends to distributor individual
components and modules rather than finished goods• Drop Shipping and Special Packaging – supplier will ship
to end consumer rather than to seller• Blanket Orders – a long-term purchase commitment to a
supplier for items that are to be delivered against short-term releases to ship
• Standardization – reducing the number of variations in materials and components
• Electronic Ordering and Funds Transfer – “paperless” ordering and 100% material acceptance, payment by “wire”
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.
Supplier Selection Criteria
• Company• Financial stability• Management• Location
• Product• Quality• Price
• Service• Delivery on time• Condition on arrival• Technical support• Training
Vendor Selection Rating Form
Negotiation Strategies
• Three types:• cost-based price model - supplier opens its
books to purchaser; price based upon fixed cost plus escalation clause for materials and labor
• market-based price model - published price or index
• competitive bidding - potential suppliers bid for contract
Logistics Management
• Integrates all materials functions• Purchasing• Inventory management• Production control• Inbound traffic• Warehousing and stores• Incoming quality control
• Objective: Efficient, low cost operations
Goods Movement Options
• Trucking• Railways• Airfreight• Waterways• Pipelines
Supply-Chain Performance Compared
Typical FirmsBenchmark
FirmsAdministrative costs as percent of purchases
3.3% 0.8%
Lead time (weeks) 15 8
Time spent in placing order 42 minutes 15 minutes
Percentage of late deliveries 33% 2%
Percentage of rejected material 1.5% .0001%
Number of shortages per year 400 4
How Information Systems Facilitate SCM
• Decide when, what to produce, store, move• Rapidly communicate orders • Communicate orders, track order status• Check inventory availability, monitor levels• Track shipments • Plan production based on actual demand • Rapidly communicate product design change• Provide product specifications• Share information about defect rates, returns
SCM System Software
• A cross-functional interenterprise system that uses IT to help support & manage the links between some of a company’s key business processes and those of its suppliers, customers, & business partners.
• Supply chain planning system: Enables firm to generate forecasts for a product and to develop sourcing and a manufacturing plan for the product
• Supply chain execution system: Manages flow of products through distribution centers and warehouses