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SUPPLY CHAIN MANAGEMENT

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Introduction

Supply chain management is the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them to customers. The objective is to build a chain of suppliers that focuses on maximizing value to the ultimate customer. Supply chain management includes determining:
Transportation vendors Suppliers Account payable & receivable Order fulfillment Sharing customer, forecasting, credit and cash transfers distributors warehousing & inventory and production information
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How supply chain decisions affect strategy Low-Cost Strategy


Suppliers goal Supply demand at lowest possible cost . Select primarily for cost Maintain high average utilization

Response Strategy
Respond quickly to changing requirement and demand to minimize stockouts Select primarily for capacity, speed, and flexibility Invest in excess capacity and flexible processes Develop responsive system, with buffer stocks positioned to ensure supply Invest aggressively to reduce production lead time Use product design that lead to low setup time and rapid production ramp-up

Differentiation Strategy
Share market research; jointly develop products and options. Select primarily for product development skills Use modular processes that lend themselves to mass customization Minimize inventory in the chain to avoid obsolescence Invest aggressively to reduce development lead time Use modular design to postpone product differentiation for as long as possible
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Primary selection criteria Process characteristics

Inventory characteristics

Minimize inventory throughout the chain to hold down costs Shorten lead time as long as it does not increase costs Maximize performance and minimize cost.

Lead-time characteristics

Product-design characteristics

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Global Supply Chain Issues

Supply chain in a global environment must be able to:


Research to sudden changes in parts availability, distribution or shipping channels, import duties, and currency rates. Use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out. Staff with local specialists who handle duties, freight, customs, and political issues.

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SUPPLY CHAIN ECONOMICS

Make-or-Buy Decisions
A choice between producing a component or service in-house or purchasing it from an outside source.

Outsourcing
Outsourcing transfers some of what are traditional internal activities and resources of a firm to outside vendors, making it slightly different from the traditional make-or-buy decision.

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Considerations for the Make-or-Buy Decision


Reasons for Making 1. 2. 3. 4. Maintain core competence Lower production cost Unsuitable suppliers Assure adequate supply (quantity or delivery) 5. Utilize surplus labor or facilities and make a marginal contribution 6. Obtain desired quality 7. Remove supplier collusion 8. Obtain unique item that would entail a prohibitive commitment for a supplier 9. Protect personnel from a layoff 10. Protect proprietary design or quality 11. Increase or maintain size of the company (management preference) Reasons for Buying 1. Frees management to deal with its core competence. 2. Lower acquisition cost 3. Preserve supplier commitment 4. Obtain technical or management ability 5. Inadequate capacity 6. Reduce inventory costs 7. Ensure alternative sources 8. Inadequate managerial or technical resources 9. Reciprocity 10. Item is protected by a patent or trade secret.

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ETHICS IN SUPPLY CHAIN

LOYALTY TO YOUR ORGANIZATION; JUSTICE TO THOSE WITH WHOM YOU DEAL; FAITH IN YOUR PROFESSION
Avoid the intent and appearance of unethical or compromising practice. Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer. Avoid any activity that would create a conflict between personal and employer interest. Avoid any activity that might influence, or appear to influence, supply management decisions. Handle confidential or proprietary information with due care and proper consideration.

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ETHICS IN SUPPLY CHAIN


Promote positive supplier relationships. Avoid improper reciprocal agreements. Know and obey the letter and spirit of laws. Encourage support for small, disadvantaged, and minority-owned businesses. Acquire and maintain professional competence. Conduct activities in accordance with national and international laws, customs, practices, and ethics. Enhance the stature of the supply management profession.

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SUPPLY CHAIN STRATEGIES

Many suppliers
A supplier responds to the demand and specifications of a request for quotation, with the order usually going to the low bidder.

Few suppliers
Low cost, a buyer is better of forming a long-term relationship with a few dedicated suppliers.

Vertical integration
Developing the ability to produce goods or services previously purchased or actually buying a supplier or a distributor.

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SUPPLY CHAIN STRATEGIES

Keiretsu networks
A Japanese term that describes suppliers who become part of a company coalition.

Virtual companies
Companies that rely on a variety of supplier relationships to provide services on demand. Also known as hollow corporations or network companies.

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MANAGING THE SUPPLY CHAIN

Mutual Agreement on Goals


Partners in the chain must appreciate that the only entity that puts money into a supply chain is the end customer.

Trust
Members of the chain must enter into a relationship that share information.

Compatible Organizational Cultures


A positive relationship between the purchasing and supplying organizations that comes with compatible organizational cultures can be a real advantage when making a supply chain hum.

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Issues in an Integrated Supply Chain

Local optimization
Members of the chain are inclined to focus on maximizing local profit or minimizing immediate cost based on their limited knowledge.

Incentives (sales incentives, quantity discounts, quotas, and promotions)


Incentives push merchandise into the chain for sales that have not occurred.

Large lots
Bullwhip effect is the increasing fluctuation in orders that often occurs as orders move through the supply chain.

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Opportunities in an Integrated Supply Chain

Accurate Pull Data


Accurate sales data that initiate transactions to pull product through the supply chain.

Lot Size Reduction


Developing economical shipments of less than truckload lots. Providing discounts based on total annual volume rather than size of individual shipment Reducing the cost of ordering through techniques such as standing orders and various forms of electronic purchasing.

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Opportunities in an Integrated Supply Chain

Single Stage Control of Replenishment


Fixing responsibility for monitoring and managing inventory for the retailer.

Vendor-Managed Inventory (VMI)


A system in which a supplier maintain material for the buyer, often delivering directly to the buyers using department.

Blanket Orders
A long-term purchase commitment to a supplier for items that are to be delivered against short-term releases to ship.

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Opportunities in an Integrated Supply Chain

Standardization
The purchasing department should make special efforts to increase levels of standardization.

Postponement
Delaying any modifications or customization to a product as long as possible in the production process.

Drop Shipping and Special Packaging


Shipping directly from the supplier to the end consumer rather than from the seller, saving both time and reshipping costs.

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Opportunities in an Integrated Supply Chain

Pass-through Facility
Expedites shipment by holding merchandise and delivering from shipping hubs.

Channel Assembly
Postpones final assembly of a product so the distribution channel can assemble it.

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E-PROCUREMENT
E-procurement uses the Internet to facilitate purchasing. E-purchasing speeds purchasing, reduces costs, and integrates the supply chain, enhancing an organizations competitive advantage. Electronic Ordering and Funds Transfers are traditional approaches to speeding transactions and reducing paperwork. Electronic data interchange (EDI) is a standardized data-transmittal format for computerized communications between organizations. Advanced shipping notice (ASN) is a shipping notice delivered directly from vendor to purchaser. 6/22/2013

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E-PROCUREMENT
Online Catalogs Auctions RFQs

When purchasing requirement are nonstandard, time spent preparing requests for quote (RFQ) and the related bid package can be substantial.

Real-Time Inventory Tracking

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VENDOR SELECTION

Vendor Evaluation
Involves finding potential vendors and determining the likelihood of their becoming good suppliers.

Vendor Development
How integrate the supplier into the system. Include everything from training, to engineering and production help, to procedures for information transfer.

Negotiations
Approaches taken by supply chain personnel to develop contractual relationships with suppliers.

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Negotiations

Cost-Based Price Model


Requires that the supplier open its books to the purchaser. The contract price is based on time and materials or on a fixed cost with an escalation clause to accommodate changes in the vendors labor and materials cost.

Market-Based Price Model


Price is based on a published, auction, or index price.

Competitive Bidding
When suppliers are not willing to discuss costs or where near-perfect markets do not exist, competitive bidding is often appropriate.

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LOGISTICS MANAGEMENT

Logistics management is an approach that seeks efficiency of operations through the integration of all material acquisition, movement, and storage activities.
Distribution Systems
Trucking,

railroads, airfreight, pipelines, and waterways.

Third-Party Logistics
Supply

chain managers may find that outsourcing logistics is advantageous in driving down inventory investment and costs while improving delivery reliability and speed.

Cost of Shipping Alternatives Logistics, Security, and JIT 6/22/2013

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MEASURING SUPPLY CHAIN PERFORMANCE

Supply Chain Performance


Typical Firms Lead time (weeks) Time spent placing an order Percent of late deliveries Percent of rejected material 15 42 minutes 33% 1.5% Benchmark Firms 8 15 minutes 2% 0.0001%

Number of shortages per year

400

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MEASURING SUPPLY CHAIN PERFORMANCE

Assets Committed to Inventory


The amount of money invested in inventory
(total

inventory investment / total assets) X 100

Inventory turnover
Cost

of goods sold / inventory investment investment / (Annual of CGS / 52 weeks)

Weeks of supply
Inventory

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GOOD LUCK

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