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

¨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 Supply-Chain Management

The Supply Chain Supplier Inventory Distributor Inventory 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

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 right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.

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

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

11% 31% 58% Material Dir. Wages Other 71% 16% 13% COGS Payroll Other 83% 9% 8% COGS Payroll Other ManufacturingWholesaleRetail 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)

Supply-Chain Support for Overall Strategy Supplier’s goal Primary Selection Criteria 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

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 to 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

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

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

¨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 Purchasing

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

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

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

Make/Buy Considerations ¨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 Reasons for Making Reasons for Buying

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.

¨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. Many 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. Few Suppliers Strategy

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

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

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

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

Goods Movement Options ¨Trucking ¨Railways ¨Airfreight ¨Waterways ¨Pipelines