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Supply Chain Management

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.

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Supply Chain Management

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  1. Supply Chain Management

  2. 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

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

  4. Distribution center Distribution center Manufacturer Tier 1 Tier 2 Tier 3 Legend Supplier of services Supplier of materials Supply Chain

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

  6. Milk Supply Chain

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

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

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

  10. 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

  11. Daimler Chrysler’s Supplier Cost Reduction Effort

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

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

  14. 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

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

  16. 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 © 1995 Corel Corp.

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

  18. Virtual company - Biogen Four major tasks to produce Avonex

  19. Ben Venue Labs (OH) Virtual company - Biogen Four major tasks to produce Avonex

  20. Ben Venue Labs (OH) Packaging Coordinators (Philadelphia Virtual company - Biogen Four major tasks to produce Avonex

  21. Ben Venue Labs (OH) Packaging Coordinators (Philadelphia Amgen Louisville facility Virtual company - Biogen Four major tasks to produce Avonex

  22. 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

  23. Virtual company - 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

  24. 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)

  25. 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.g. Drug company produces the drug as a powder. When orders are received then produce tablets in the dosage for which the order was received.

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

  27. Purchasing • Outsourcing • Make or buy decision • Partnering

  28. Outsourcing • Choosing to purchase a service or part from an outside source; • 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

  29. Hourly Labor Rates Key Is Total Cost Of Ownership Source:http://stats.bls.gov/news.release/ichcc.t02.htm(1997data)+company records

  30. Li & Fung - Outsourcing • Hong Kong based exporter • American and European customer base • The Limited is one of their customers • Receive order for 10,000 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

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

  32. 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

  33. Beer distribution game

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

  35. Beer distribution game • At each period, each component in the supply chain is charged a $1.00 shortage cost per backordered item. • At each period, each location is charged $.50 inventory holding cost per inventory item that it owns. Each component owns the inventory at that facility. In addition, • the wholesaler owns inventory in transit to the retailer; • the distributor owns inventory in transit to the wholesaler; • the factory owns both items being manufactured and items in transit to the distributor.

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

  37. Supply-Chain Dynamics

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

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

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

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

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

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

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

  45. 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

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

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

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

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

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