1. Operations Management Supply-Chain Management 供應鏈管理 Chapter 11

2. Outline GLOBAL COMPANY PROFILE (全球性公司的槪述): VOLKSWAGEN
THE STRATEGIC IMPORTANCE OF THE SUPPLY-CHAIN(供應鏈的策略性重點)
Global Supply-Chain Issues
SUPPLY-CHAIN CONOMICS(供應鏈的經濟性)
Make-or-Buy Decisions(自製與外購決策) Ref:
Outsourcing (外包)

3. Outline - Continued SUPPLY-CHAIN STRATEGIES (供應鏈的策略)
Many Suppliers
Few Suppliers
Vertical Integration
Keiretsu Networks
Virtual Companies
Managing the Supply Chain(管理供應鏈)
Issues In an Integrated Supply Chain
Opportunities in an Integrated Supply Chain

4. Outline - Continued INTERNET PURCHASING(綱路採購)
VENDOR SELECTION(供應商的選擇) Ref:
Vendor Evaluation
Vendor Development
Negotiations
MATERIALS MANAGEMENT(配送選擇的成本)
BENCHMARKING SUPPLY-CHAIN MANAGEMENT
(供應鏈管理的標竿)

5. Learning Objectives
When you complete this chapter, you should be able to :
Identify or Define:
Supply-chain management
Purchasing
Outsourcing
E-procurement
Materials management
Keiretsu
Virtual companies

6. Learning Objectives
When you complete this chapter, you should be able to :
Describe or Explain:
Supply-Chain Strategies
Purchasing strategies
Approaches to negotiations

7. Volkswagen Brazilian plant employs 1000 workers
200 work for VW
800 work for other contractors:
Rockwell International, Cummins Engines, Deluge Automotiva, MWM, Remon and VDO, etc.
VW responsible for overall quality, marketing, research and design
VW looks to innovative supply-chain to improve quality and drive down costs
Is this the future? Is our increased application of technology forcing both individuals and organizations to become specialists in relatively narrow areas? What problems is this likely to cause?
This is probably a good example to discuss in detail. Points which might be raised include:
- What differences might one expect between Volkswagen’s employment of 800 of its own workers versus 800 workers from a variety of companies?
- What risks does this practice raise for VW?
- What changes must VW make to integrate the workers from the other companies into the VW organization?
- While this might work in Brazil, would it work equally well in the U.S.?

8. Volkswagen Unusual elements:
VW is buying not only materials, but also the labor and related services
Suppliers are integrated tightly into VW’s own network, right down to assembly work in the plant
Ask students what are the benefits and pitfalls of such tight integration.

9. 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
Probably the most important point to be made here is the encompassing nature of supply-chain management - from suppliers’ suppliers through internal production through distribution to the customer.

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

11. The Supply Chain Customer Manufacturer Market research data
Supplier
Inventory
Distributor
Manufacturer
Customer
Market research data
Scheduling information
Engineering and design data
Order flow and cash flow
Ideas and design to satisfy end customer
Material flow
Credit flow
This slide might be used to make the point about the various “flows” - material, information, money.

12. Material Costs in Supply-Chain
11%
31%
58%
Material
Dir Wages
Other
71%
16%
13%
COGS
Payroll
83% 9% 8%
Manufacturing
Wholesale
Retail
Students should be asked to explain the differences illustrated by these graphs.

13. Supply-Chain Support for Overall Strategy
Supply demand at lowest possible cost
Select primarily for cost
Low Cost
Respond quickly to changing requirements and demand to minimize stockouts
Select primarily for capacity, speed, and flexibility
Response
Share market research; jointly develop products and options
Select primarily for product development skills
Differentiation
Supplier’s
goal
Primary Selection Criteria
This and the following two slides look at how supply-chain strategy can support overall strategy.

14. Supply-Chain Support for Overall Strategy - continued
Process
Characteristics
Maintain high average utilization
Low Cost
Invest in excess capacity and flexible processes
Response
Modular 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

15. Supply-Chain Support for Overall Strategy - continued
Lead-time
Characteristics
Shorten lead-time as long as it does not increase costs
Low Cost
Invest aggressively to reduce production lead-time
Response
Invest 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

16. 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
Ask students how these requirements differ from those in a national or domestic environment.

17. Importance of Purchasing
Major cost center
Affects quality of final product
Aids strategy of low cost, response, and differentiation
Students might be asked how they believe the role of purchasing is changing given the increased use of information technology and strategies such as JIT.

18. Supply-Chain Costs as a Percent of Sales
Industry
Percent of Sales
All industry
Automobile
Food
Lumber
Paper
Petroleum
Transportation
52%
67%
60%
61%
55%
79%
62%
This slide should further impress upon students the importance of the purchasing function.

19. 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
This slide emphasizes the role of efficiency of purchasing.

20. 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
While these are the main functions of purchasing, one would also expect the purchasing department to participate in make-buy decisions.

21. The Purchasing Focus Supply Management 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
Purchasing
Management
-Commodity items
-Standard products

22. Traditional Purchasing Process
Receiving
Dock
Purchase
Order
Packing
List
Processing
Invoice
Receivables Report
Check
Accounts Receivable
Accounts Payable
Mail
Reconcile
Customer
Supplier
Students should be asked to consider how this traditional process might be changed through process reengineering and the effective application of information technology. (paperless purchasing?)
How does the nature of this process change in a virtual company?

23. Purchasing Techniques
Drop shipping and special packaging
Blanket orders
Invoiceless purchasing
Electronic ordering and funds transfer
Electronic data interchange (EDI)
Stockless purchasing
Standardization
Outsourcing
You might provide examples of the use of each of these techniques.

24. Make/Buy Considerations
Reasons for Making Reasons for Buying
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
Ask students to consider the product characteristics which might cause a company to choose one or the other of the make/buy options.

25. Make/Buy Considerations - Continued
Reasons for Making Reasons for Buying
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
Ask students to consider the product characteristics which might cause a company to choose one or the other of the make/buy options.

26. 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
The strategic options listed are expanded upon in later slides.
Plan
© 1995 Corel Corp.

27. 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.
Subsequent slides expand upon these strategies.

28. 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
We read in the management literature more and more about “managing relationships.” If you use the “many supplier” strategy, how do you develop useful relationships?
© 1995 Corel Corp.

29. 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.
The risk of having only a single supplier will probably be obvious to most students. What nature of relationship must you have with your supplier to reduce this risk?

30. Daimler Chrysler’s Supplier Cost Reduction Effort
Suggestion
Model
Savings
Rockwell
Use passenger car door
locks on trucks
Dodge
trucks
$280,000
Simplify design/substitute
materials on manual
window system
Various
$300,000 3M
Change tooling for wood-
grain panels to allow three
from one die instead of two
Caravan,
Voyager
$1,500,000
Trico
Change wiper-blade
formulation
$140,000
Leslie Metal
Arts
Exterior lighting suggestions

31. Tactics for Close Supplier Relationships
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

32. Vertical Integration Strategy
Ability to produce goods previously purchased
Setup operations
Buy supplier
Make-buy issue
Major financial commitment
Hard to do all things well
Raw Material
(Suppliers)
Backward
Integration
Current
Transformation
Forward
Integration
Under what conditions is vertical integration an appropriate strategy? Would we choose it simply if the item production/purchase cost would be less?
Finished Goods
(Customers)

33. Forms of Vertical Integration
Iron Ore
Silicon
Farming
Raw Material
(Suppliers)
Steel
Flour Milling
Backward
Integration
Integrated
Circuits
Current
Transformation
Automobiles
Distribution
System
Forward
Integration
Circuit Boards
Students should be asked to consider why, other than on a “cost” basis, a company might want to consider vertical integration.
Computers
Watches
Calculators
Finished Goods
(Customers)
Dealers
Baked Goods

34. Vertical Integration Can be Forward or Backward
Examples of Vertical Integration
Raw material (suppliers)
Iron ore
Silicon
Farming
Backward Integration
Steel
Current Transformation
Automobiles
Integrated Circuits
Flour Milling
Forward Integration
Distribution System
Circuit boards
Finished goods (customers)
Dealers
Computers, watches, calculators
Baked Goods

35. 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
Students might be asked to consider what it would take to implement such a system in the U.S.

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

37. 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
Students should be asked to consider the problems in establishing a virtual company, such as:
- how does one decide which companies to ask to join their alliance?
- how is the decision to share revenues made?
- how is performance evaluated?
- etc.
© 1995 Corel Corp.

38. 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)
Ask students to consider the conditions under which each of these options might be appropriate.

39. 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

40. Successful Supply-Chain Management Requires:
A mutual agreement on goals
Trust
Compatible organizational cultures

41. Issues in an Integrated Supply-Chain
Local optimization
Incentives
Large lots

42. Opportunities in an Integrated Supply-Chain
Generation of accurate “pull” data
Reduction of lot size
Single stage control of replenishment

43. Vendor Managed Inventory (VMI)
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”

44. 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.
Students should be asked to consider the problems which might be encountered at each step in this process.

45. Supplier Selection Criteria
Company
Financial stability
Management
Location
Product
Quality
Price
Service
Delivery on time
Condition on arrival
Technical support
Training
Students might be asked if they perceive one or another of these criteria to be especially important. Also, are there other criteria they would prefer to use or think should be added? (One such criteria might be the ability to communicate using EDT)

46. Vendor Selection Rating Form
Students might be asked to consider what additional information they might want before approving a vendor selection.

47. 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
Ask students under what conditions each of these models might be appropriate.

48. Logistics Management Integrates all materials functions
Purchasing
Inventory management
Production control
Inbound traffic
Warehousing and stores
Incoming quality control
Objective: Efficient, low cost operations
In addition to framing the materials management function, this slide raises the issue of “how does one begin assigning responsibilities for each of the facets of supply-chain management?”

49. Goods Movement Options
Trucking
Railways
Airfreight
Waterways
Pipelines
Here you might simply discuss some of the options available under each of the categories listed.

50. Supply-Chain Performance Compared
Typical Firms
Benchmark Firms
Administrative 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
This slide summarizes some of the benefits of effective supply-chain management.