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Supply Chain Management

Overview
• What is it? • Supply chain strategies • Purchasing -> Read
– Outsourcing – Partnering

• Managing the supply chain
– Postponement – Channel assembly – READ others

• Efficient vs. responsive supply chain ========================= • Vendor selection -> Read

Supply Chain Management
• Coordinates and manages all activities
of the supply chain • Components of the supply chain:
– External distribution – Internal functions – External suppliers

Supply Chain

Distribution center

Distribution center

Manufacturer

Tier 1

Tier 2

Tier 3

Legend

Supplier of services

Supplier of materials

External Distributors Distribution center Distribution center Internal functions Tier 1 Manufacturer External Suppliers Tier 2 Tier 3 Legend Supplier of services Supplier of materials .

Milk Supply Chain External Distributors Packaging Operation Internal functions External Suppliers Tier 1 Tier 2 Tier 3 .

Supply-Chain Strategies • Many suppliers • Long-term suppliers • Vertically integrate • Keiretsu • Virtual company .

large lots • Delivery to receiving dock © 1995 Corel Corp. . sporadic PO’s • Infrequent.Many Suppliers Strategy • Many sources per item • Adversarial relationship • Short-term • Little openness • Negotiated.

• Delivery to point of use . stable • On-site audits & visits • Exclusive contracts • Frequent.Few Suppliers Strategy • 1 or few sources per item • Partnership (JIT) • Long-term. small lots © 1995 Corel Corp.

Few suppliers strategy – Wallace Co. • Partnering • Listening to the needs of the customer • Vendor-stocking program • 98% on-time delivery • Quick response on problems for customer .

500.500.000 $1.000 Exterior lighting suggestions Various .000 $300.000 3M Caravan.000 Trico Leslie Metal Arts $140.Daimler Chrysler’s Supplier Cost Reduction Effort Supplier Suggestion Rockwell Rockwell Use passenger car door locks on trucks Simplify design/substitute materials on manual window system Change tooling for woodgrain panels to allow three from one die instead of two Change wiper-blade formulation Model Savings Dodge trucks Various $280. Voyager Various $1.

Vertical Integration Strategy • Ability to produce goods previously purchased – Setup operations – Buy supplier Raw Material (Suppliers) Backward Integration Current Transformation Forward Integration Finished Goods (Customers) • Make-buy issue • Major financial commitment • Hard to do all things well .

Vertical Integration RAC "MiG" is the first Russian "vertically" integrated aircraft manufacturing company .

Keiretsu Network Strategy • Uniquely Japanese form of corporate organization • System of mutual alliances and cross-ownership – Company stock is held by allied firms • Lowers need for short-term profits • Two types: horizontal and vertical .

Nissan. Toshiba. Hitachi. Toyota. Sony . & lenders – ‘Partnerships’ extend across entire supply chain • Primarily cars and electronics industries • Ex. distributors. Honda-Matsushita. suppliers.Vertical Keiretsu • Links manufacturers.

– Each contributes core competencies – Typically provide services • Payroll. designing • May be long or short-term – Usually. faxes.Virtual Company Strategy • Network of independent companies – Linked by technology • PC’s. editing. Internet etc. only until opportunity is met © 1995 Corel Corp. .

Biogen • Formed in 1978 with a simple.Virtual company .S.) . research-centered business model – Develop drugs and sell licenses to pharmaceutical companies • Received preliminary approval to market Avonex (reduces the progression of M.

Biogen Four major tasks to produce Avonex Bulk manufacturing Formulation Packaging Warehousing /Distribution .Virtual company .

Virtual company .Biogen Four major tasks to produce Avonex Bulk manufacturing Formulation Packaging Warehousing /Distribution Ben Venue Labs (OH) .

Biogen Packaging Four major tasks to produce Avonex Coordinators (Philadelphia Bulk manufacturing Formulation Packaging Warehousing /Distribution Ben Venue Labs (OH) .Virtual company .

Biogen Packaging Four major tasks to produce Avonex Coordinators (Philadelphia Bulk manufacturing Formulation Packaging Warehousing /Distribution Ben Venue Labs (OH) Amgen Louisville facility .Virtual company .

Virtual company .Biogen • Biogen managed the network of partners • Success story – FDA approval to market was 35 hours – No product shortages – No recalls – Production increased 5-fold over the next 3 years .

Biogen • Benefits to Biogen – Competitive cost structure – Had limited and small scale production experience – Fixed assets low – Capital investment was low compared to the size of its business – Investment risk was shared by partners .Virtual company .

Managing the Supply-Chain • Options: – Postponement – Channel assembly – Drop shipping – Blanket orders – Electronic ordering and funds transfer – Vendor managed inventory – Standardization – Internet purchasing (e-procurement) .

g. When orders are received then produce tablets in the dosage for which the order was received.Postponement • A tactic used by assemble-to-order and mass-customization firms • Delay the customization of a product or service until the last possible moment • e. Drug company produces the drug as a powder. .

Channel assembly • A form of postponement • Utilize the distribution channel as an assembly station • Warehouse performs a value-added service • e. When orders are received. The manufacturer ships unmarked batteries to warehouse. Car battery manufacturer produces batteries for several private labels. . warehouse places decals for the brand name and packages for that private label.g.

Purchasing • Outsourcing – Make or buy decision • Partnering .

• Make or buy decision – Insourcing vs. outsourcing decision • Advantages – Allows the firm to focus on core competencies – Adds capacity without additional fixed cost and overhead – Can be more cost effective – Supports market agility .Outsourcing • Choosing to purchase a service or part from an outside source.

47 $13.t02.00 $15.Hourly Labor Rates Germany Belgium Scand Japan Austria U.K.75 $1.htm (1997data)+company records .89 $4.gov/news.50 $22.24 $17.97 $16.82 $30.55 $15. Ireland US CEM Taiwan Brazil Czech Republic Mexico Malaysia China $2.S.00 Source: http://stats.52 $0.82 $22.75 $19.24 $28.37 $18.bls.57 $13.50 $18.00 $1.00 $5.28 Key Is Total Cost Of Ownership $0.release/ichcc. France Canada U.

000 garments: – Purchase yarn from Korean company – Have the yarn dyed and woven by a company in Taiwan – Purchase Japanese buttons and zippers from YKK’s Chinese plants – Garments made in 5 different plants in Thailand .Li & Fung .Outsourcing • • • • Hong Kong based exporter American and European customer base The Limited is one of their customers Receive order for 10.

Partnering • Process of developing a long-term relationship with a supplier based on: – – – – mutual trust shared vision shared information shared risk .

Beer distribution game • Consider a simplified beer supply chain. – – – – A retailer who sells to the customer A wholesaler which supplies the retailer A distributor which supplies the wholesaler A factory with unlimited raw materials which makes (brews) the beer and supplies the distributor • Each component in the supply chain has: – unlimited storage capacity – fixed supply lead-time – order delay time between each component .

Beer distribution game .

and are met as soon as possible. • Any orders that cannot be met are recorded as backorders. each component in the supply chain tries to meet the demand of the downstream component. and all orders must eventually be met. . • No orders will be ignored.Beer distribution game • Each week.

– the wholesaler owns inventory in transit to the retailer. Each component owns the inventory at that facility. In addition.50 inventory holding cost per inventory item that it owns.Beer distribution game • At each period. each location is charged $. . – the distributor owns inventory in transit to the wholesaler. – the factory owns both items being manufactured and items in transit to the distributor.00 shortage cost per backordered item. • At each period. each component in the supply chain is charged a $1.

• There is a two week transportation delay before the material being shipped by the supplier arrives at the customer who placed the order. • It takes one week for this order to arrive at the supplier. the supplier attempts to fill it with available inventory. • Once the order arrives.Beer distribution game • Each supply chain member orders some amount from its upstream supplier. .

Supply-Chain Dynamics .

Supply-Chain Dynamics Customer Customer Firm A (a) .

Supply-Chain Dynamics Customer Customer Firm A Firm B (a) .

Supply-Chain Dynamics Customer Customer Firm A Firm B Firm C (a) .

Supply-Chain Dynamics Customer Customer Materials requirements Firm A Firm B Firm C Time (a) (b) .

Supply-Chain Dynamics Customer Customer Materials requirements Firm A Firm B Firm A Firm C Time (a) (b) .

Supply-Chain Dynamics Customer Customer Materials requirements Firm C Firm A Firm B Firm A Firm C Time (a) (b) .

Supply-Chain Dynamics Materials requirements Bullwhip effect Inaccurate or distorted demand information created in the supply chain Firm C Firm A Time .

Supply-Chain Environments • Two supply chain designs for competitive advantage – Efficient supply chain • Goal is to minimize inventories and maximize the efficiency of manufacturers and suppliers in the chain – Responsive supply chain • Goal is to react quickly to market demands by positioning inventories and capacities in order to hedge against uncertainties of demand .

Supply-Chain Environments Environments Best Suited for Efficient and Responsive Supply Chains .

Supply-Chain Environments Environments Best Suited for Efficient and Responsive Supply Chains Factor Demand Competitive priorities New-product introduction Contribution margins Product variety .

low forecast errors Low cost.Supply-Chain Environments Environments Best Suited for Efficient and Responsive Supply Chains Factor Demand Competitive priorities Efficient Supply Chains Predictable. on-time delivery New-product introduction Contribution margins Product variety Infrequent Low Low . consistent quality.

customization. fast delivery times. high forecast errors Development speed. highperformance design quality Frequent High New-product introduction Contribution margins Product variety Infrequent Low Low High . volume flexibility. low forecast errors Low cost.Supply-Chain Environments Environments Best Suited for Efficient and Responsive Supply Chains Factor Demand Competitive priorities Efficient Supply Chains Predictable. consistent quality. on-time delivery Responsive Supply Chains Unpredictable.