The Supply-Chain

1. The Supply-Chain VISA ® Credit Flow Material Flow Supplier Manufacturing Retailer Consumer Supplier Wholesaler Retailer Order Cash Schedules Flow Flow

2. Supply-Chain Management • Planning, organizing, directing, & controlling flows of materials • Begins with raw materials • Continues through internal operations • Ends with distribution of finished goods • Involves everyone in supply-chain • Example: Your supplier’s supplier • Objective: Maximize value & lower waste

3. Market research data scheduling information Engineering and design data Order flow and cash flow Supplier Customer Ideas and design to satisfy end customer Material flow Credit flow Inventory Supplier Customer Manufacturer Inventory Inventory Supplier Customer Distributor Inventory The Supply Chain

4. Supply Chain Management • SCM is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the rightquantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.

5. Conflicting Objectives in SC • Purchasing • stable volume requirements • flexible delivery time • little variation in mix • large quantities • Manufacturing • long run production • high quality • high productivity • low production cost

6. Conflicting Objectives in SC • Warehousing • low inventory • reduced transportation costs • quick replenishment capability • Customers • short order lead time • high in stock • enormous variety in products • low prices

7. Wholesale 8% 9% COGS Manufacturing Payroll Material 83% 31% Other 11% Dir. Wages Retail 58% Other 16% COGS 13% Payroll 71% Other Material Costs in Supply-Chain Source: U.S. Department of Commerce, Bureau of Census, 1987 Census of Manufacturers: General Summary of Retail Trade (Washington, D.C.: Government Printing Office, 1991)

8. Low Cost Response Differentiation Supply demand at lowest possible cost Respond quickly to changing requirements and demand to minimize stockouts Share market research; jointly develop products and options Select primarily for cost Select primarily for capacity, speed, and flexibility Select primarily for product development skills Supply-Chain Support for Overall Strategy Supplier’s goal Primary Selection Criteria

9. Low Cost Response Differentiation Process Characteristics Maintain high average utilization Invest in excess capacity and flexible processes Modular processes to lend themselves to mass customization Minimize inventory throughout the chain to hold down costs Inventory Characteristics Develop responsive system, with buffer stocks positioned to ensure supply Minimize inventory in the chain to avoid obsolescence Supply-Chain Support for Overall Strategy - continued

10. Low Cost Response Differentiation Lead-time Characteristics Shorten lead-time as long as it does not increase costs Invest aggressively to reduce production lead-time Invest aggressively to reduce development lead-time Use modular design to postpone product differentiation for as long as possible Product-design Characteristics Maximize performance and minimize cost Use product designs that lead to low set-up time and rapid production ramp-up Supply-Chain Support for Overall Strategy - continued

11. 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 manage the shipment of parts in and finished products out • staffed with local specialists to handle duties, trade, freight, customs and political issues

12. Purchasing • Acquisition of goods & services • Activities • Help 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

13. All industry Automobile Food Lumber Paper Petroleum Transportation 52% 61% 60% 61% 55% 74% 63% Purchasing Costs as a Percent of Sales Industry Percent of Sales

14. 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

15. Purchasing Techniques • Drop shipping and special packaging • Blanket orders • Invoiceless purchasing • Electronic ordering and funds transfer • Electronic data interchange (EDI) • Stockless purchasing • Standardization

16. lower production cost unsuitable suppliers assure adequate supply utilize surplus labor and make a marginal contribution obtain desired quantity remove supplier collusion obtain a unique item that would entail a prohibitive commitment from the supplier maintain organizational talent protect proprietary design or quality increase/maintain size of company lower acquisition cost preserve supplier commitment obtain technical or management ability inadequate capacity reduce inventory costs ensure flexibility and alternate source of supply reciprocity item is protected by patent or trade secret frees management to deal with its primary business Make/Buy Considerations Reasons for Making Reasons for Buying

17. 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.

18. 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 © 1995 Corel Corp.

19. 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 © 1995 Corel Corp.

20. Company Financial stability Management Location Product Quality Price Service Delivery on time Condition on arrival Technical support Training Supplier Selection Criteria

21. Managing the Supply-Chain • Options: • Postponement • Channel assembly • Drop shipping • Blanket orders • Invoiceless purchasing • Electronic ordering and funds transfer • Stockless purchasing • Standardization

22. 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

23. Materials Management • Integrates all materials functions • Purchasing • Inventory management • Production control • Inbound traffic • Warehousing and stores • Incoming quality control • Objective: Efficient, low cost operations

24. Goods Movement Options • Trucking • Railways • Airfreight • Waterways • Pipelines