RETURN ON INVESTMENT METHODS TO MAXIMIZE

WORKING CAPITAL COMPONENTS RAW MATERIAL, FINISHED GOODS AND GOODS IN SERVICE INVENTORIES, ACCOUNTS PAYABLE AND ACCOUNTS RECEIVABLE WHEN MONEY IS USED FOR WORKING CAPITAL ITEMS, IT CANNOT BE USED FOR OTHER FORMS OF INVESTMENT IDEALLY THE AMOUNT OF WORKING CAPITAL IS MINIMIZED SMALL INVENTORIES\ RAPID PROCESSING FROM RAW MATERIALS TO FINISHED GOODS

SUPPLY CHAIN MANAGEMENT ATTEMPTS TO OPTIMIZE WORKING CAPITAL FOR PROCESSES – MAXIMUM PROFIT/MINIUM INVESTMENT FOR SOME OPERATIONS, THIS METHOD SHIFTS INVENTORIES TO SUPPLIERS AND/OR CUSTOMERS

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11 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall 11 Supply-Chain Management PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl

11 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply-Chain Management The objective is to build a chain of suppliers that focuses on maximizing value to the ultimate customer

11 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall The Supply Chains Strategic Importance Supply chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system Competition is no longer between companies; it is between supply chains

11 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain Management 1.Transportation vendors 2.Credit and cash transfers 3.Suppliers 4.Distributors 5.Accounts payable and receivable 6.Warehousing and inventory 7.Order fulfillment 8.Sharing customer, forecasting, and production information Important activities include determining

11 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall A Supply Chain for Beer Figure 11.1

© 2011 Pearson Education, Inc. publishing as Prentice Hall How Supply Chain Decisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Suppliers goal Supply demand at lowest possible cost (e.g., Emerson Electric, Taco Bell) Respond quickly to changing requirements and demand to minimize stockouts (e.g., Dell Computers) Share market research; jointly develop products and options (e.g., Benetton) Primary selection criteria Select primarily for cost Select primarily for capacity, speed, and flexibility Select primarily for product development skills Table 11.1

© 2011 Pearson Education, Inc. publishing as Prentice Hall How Supply Chain Decisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Process charact- eristics Maintain high average utilization Invest in excess capacity and flexible processes Modular processes that lend themselves to mass customization Inventory charact- eristics Minimize inventory throughout the chain to hold down cost Develop responsive system with buffer stocks positioned to ensure supply Minimize inventory in the chain to avoid obsolescence Table 11.1

© 2011 Pearson Education, Inc. publishing as Prentice Hall How Supply Chain Decisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Lead-time charact- eristics 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 Product- design charact- eristics Maximize performance and minimize costs Use product designs that lead to low setup time and rapid production ramp-up Use modular design to postpone product differentiation as long as possible Table 11.1

© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain Risk More reliance on supply chains means more risk Fewer suppliers increase dependence Compounded by globalization and logistical complexity Vendor reliability and quality risks Political and currency risks

© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain Risk Mitigate and react to disruptions in 1.Processes 2.Controls 3.Environment

JUST-IN-TIME MANUFACTURING THIS PROCESS WAS OPTIMIZED INITIALLY IN JAPAN ( FOR A BRIEF HISTORYhttp:// THE BALDRIGE NATIONAL QUALITY PROGRAM ( ) SPONSORED THROUGH NATIONAL INISTITUTE OF STANDARDS AND TECHNOLGY (NIST), MAKES ANNUAL AWARDS TO FIRMS THAT ARE MOST SUCCESSFUL IN INSTITUTING NEW EFFICIENCY CONCEPTS

APPLIED TO A RANGE OF PROCESSES

SPARE PARTS MANAGEMENT ACTUAL PARTS MAY BE BASED ON RECOMMENDATION FROM ENGINEERS AND VENDORS FOR SOME COMPONENTS COMPONENTS MAY BE DFC IF THEY ARE CUSTOM UNITS MAJORITY ARE PROBABLY CATALOGUE ITEMS, WHICH MAKE THEM WORKING CAPITAL aftermarket/images/STOCKR M.jpg

SPARE PARTS MANAGING SPARE PARTS INVENTORIES CAN BE ORGANIZED TO MINIMIZE MONEY COMMITMENTS WHILE PROVIDING RELIABLE SOURCES FOR SPARES (fp.tm.tue.nl/beta/publications/ working%20papers/Beta_wp110.pdf)fp.tm.tue.nl/beta/publications/ working%20papers/Beta_wp110.pdf

OTHER CAPITAL COST COMPONENTS CATEGORIES SHOWN IN TABLE (6-18) ALLOCATED PLANT COSTS TYPICALLY INCLUDE ITEMS THAT ARE NOT INCLUDED IN COST CENTERS FUNCTIONAL UNITS NECESSARY FOR PRODUCTION- UTILITIES, LABS, SAFETY & SECURITY, STORAGE OVERHEAD COMPONENTS USED FOR MANAGEMENT – ACCOUNTING, PERSONNEL, AND ADMINISTRATIVE PERSONNEL

ALLOCATED CORPORATE COSTS FUNCTIONAL UNITS NECESSARY TO DISTRIBUTE AND SELL THE PRODUCT MARKETING, SALES, AND DISTRIBUTION OVERHEAD COMPONENTS USED FOR MANAGEMENT RESEARCH & DEVELOPMENT, CORPORATE ENGINEERING, CORPORATE LEVEL ACCOUNTING, PERSONNEL, AND ADMINISTRATIVE PERSONNEL

VALUES APPLIED TO ALLOCATED COSTS THESE HAVE BEEN CORPORATE DECISIONS IN THE PAST FOR GOVERNMENT CONTRACTS THE FEDERAL ACQUISITION REGULATIONS NORMALLY LIMIT THE AMOUNTS THAT CAN BE CHARGED TO THESE COMPONENTS ( ) PRIVATE INDUSTRY DID NOT HAVE THESE TYPES OF RESTRICTIONS AND WERE SELF-REGULATED UNTIL 2002 ( )

RESPONSES OF SHAREHOLDERS TO ETHICAL LAPSES VIOLATIONS BY SEVERAL CORPORATIONS (ENRON, TYCO, ETC.) CONGRESS PASSED THE SARBANES- OXLEY ACT OF 2002, TO PROVIDE CORPORATE SHAREHOLDERS WITH A MORE ACCURATE ACCOUNTING SYSTEM

SOX MAP

IMPACT OF SOX THESE REGULATIONS: HAVE ADDED COSTS TO CORPORATE OPERATIONS, RESULTED IN CHANGES IN RELATIONSHIPS BETWEEN MANAGEMENT AND BOARDS OF DIRECTORS, GENERALLY IMPROVED INTERNAL ACCOUNTING FUNCTIONS TO PROVIDE CORPORATIONS WITH BETTER DATA ( d5f76b48e b00739e22/3b79ecb3fefa cfd085256f94005d5098/$FILE/Finding_the_Silver_ Lining.pdf ) d5f76b48e b00739e22/3b79ecb3fefa cfd085256f94005d5098/$FILE/Finding_the_Silver_ Lining.pdf ysimplified.com/sarboxo utline.shtml

TRANSPORTATION AND DISTRIBUTION COSTS NORMALLY INCLUDED IN DELIVERED COST TO CUSTOMERS ALTERNATE METHODS NEED TO BE CONSIDERED BASED ON THE TYPE OF PRODUCT

TRANSPORT OF BULK CHEMICALS LEAST EXPENSIVE PIPELINE TO THE CUSTOMER OR CONVEYOR TO THE CUSTOMER IF PIPELINE OR CONVERYOR IS LEASED BY THE COMPANY

BULK CHEMICAL TRANSPORT BARGES ARE ALSO INEXPENSIVE IF FACILITIES FOR LOADING AND UNLOADING (INCLUDING INVENTORIES) ARE PRESENT IF BARGES BELONG TO COMPANY

BULK CHEMICAL TRANSPORT RAIL SHIPMENT MAY BE IN LEASED OR OWNED CARS, UNIT TRAINS. CHARGES ARE HIGH BECAUSE OF LACK OF COMPETITION technology.com/projects/twentymil e/twentymile7.htmlhttp:// technology.com/projects/twentymil e/twentymile7.html)

BULK CHEMICAL TRANSPORT TRUCKING IS THE NORMALLY THE MOST EXPENSIVE FOR BULK SHIPMENTS, BUT NECESSARY WHEN NO OTHER OPTIONS ARE LOCALLY AVAILABLE. ( XDQWHFA/HomeWork/Tour/ Trucking.jpg) XDQWHFA/HomeWork/Tour/ Trucking.jpg

OTHER SHIPPING PRACTICES FREIGHT ADJUSTED PRICING ALLOWS FOR SOME REDUCTION IN SHIPPING COSTS USE OF A COMPETITIVE SUPPLIER TO MANUFACTURE PRODUCTS TO YOUR SPECIFICATIONS AND DELIVER TO CUSTOMERS NEAR THEIR PLANT, REDUCES COSTS TO CUSTOMERS AND SUPPLIERS THIS METHOD ASSURES PLANTS OPERATE AT HIGHER RATES, SO UNNECESSARY CAPACITY IS NOT CREATED PROVIDES SOME INSURANCE IN THE EVENT ONE OF THE PARTICIPANTS SUFFERS A CATASTROPHIC LOSS THAT RESULTED IN EXTENDED DOWN TIME. CAN REDUCE THE INVENTORIES AT MANUFACTURING SITES IF THE DELIVERY TIMES ARE REDUCED

BULK CHEMICAL DISTRIBUTION SYSTEMS OFF-SITE WAREHOUSING AND TANKAGE FREES UP PLANT REAL ESTATE FOR PRODUCTION CAN REDUCE HAZARDS DUE TO FIRES OR RELEASES ( MAY BE PRACTICAL WHEN PIPELINE SYSTEMS CANNOT BE ECONOMICALLY USED FOR SMALL QUANTITY CUSTOMERS. ontent_stock_001.jpg

SMALL VOLUME/MASS PRODUCTS SUCH AS SPECIALITY FOOD AND FINE CHEMICALS OR BIO-PHARM CHEMICALS SHIPPING IS NOT A SIGNIFICANT COST CAN USE TRUCKING OR AIR SHIPMENT MAY REQUIRE SPECIAL HANDLING IF MATERIALS HAVE HAZARDOUS PROPERTIES OR THERMAL SENSITIVITIES.