Operations Management Supply Chain Management 1 1
Volkswagen Resende Plant
Volkswagen Brazilian plant employs 1565 workers 265 work for VW 1300 work for other sub-contractors/suppliers: VW employees responsible for overall quality, marketing, research and design Supplier/subcontractor employees responsible for supply of parts/components and overall assembly of truck, being provided space in the VW plant VW looks to innovative supply-chain to improve quality and drive down costs
Supply-Chain Management Management of all activities concerned with Procurement Transformation Distribution Involves everyone in supply-chain Objective: Maximize value & lower waste Key is to make suppliers “partners” in firm’s strategy
The Supply-Chain Consumer Retailer Manufacturing Material Flow ® Credit Flow Supplier Wholesaler Mkt research data Order/Cash Flow Schedules
Importance of Purchasing Major cost center More wise to reduce cost than increase sales to increase overall profits Affects quality of final product Aids strategy of low cost, response, and differentiation
Objectives of the Purchasing Function Helps identify the products and services that can be best obtained externally – Make / Buy decisions – outsourcing? Develops, evaluates, and determines the best supplier, price, and delivery for those products and services
Supply-Chain Strategies Must be in sync with OM strategy which in turn should support overall company strategy Affects long-term competitive position Strategic options Many suppliers Few suppliers Vertical backward integration
Many Suppliers Strategy Many sources per item Lowest bidder wins order – focus on low cost Infrequent, large lots Long-term relations is not a goal Negotiated, sporadic Suppliers held responsible for reqd technology, expertise, cost, quality and delivery competencies
Few Suppliers Strategy 1 or few sources per item Partnership (JIT); long-term, stable relations Allows suppliers to have economies of scale and a learning curve, thus cutting down on prodn costs Reliability and quality given primary importance Frequent, small lots Delivery to point of use Drawback – both buyer and supplier run risk of becoming captives to one another
Vertical Integration Strategy Ability to produce goods previously purchased Setup operations Buy supplier Results in cost reduction, quality adherence, timely delivery Issues Major financial commitment Hard to do all things well Dangerous for firms in industries undergoing technological change if management not knowledgeable enough about the next wave of change
Forms of Vertical Integration Iron Ore Steel Automobiles Distribution System Dealers Silicon Integrated Circuits Circuit Boards Computers Watches Calculators Farming Flour Milling Raw Material (Suppliers) Backward Integration Current Transformation Forward Finished Goods (Customers) Baked Goods
Vendor Selection Vendor evaluation Vendor development Negotiations Engineering/research/innovation skills Production capability Distribution capability Quality systems Facilities Financial and managerial strength Vendor development Integration of the chosen supplier to the system Negotiations Cost based; market based; competitive bidding