Supply Chain Management

2 u Supply Chain Management u Outsourcing u Purchasing u Partnership Relationships u The Firm as Supplier u JIT Purchasing u Global Purchasing

3 Supply Chain Management u Apply a total systems approach to managing the entire flow of – information – materials – and services Raw material suppliers Factories & warehouses End customer

4 Outsourcing u Purchased items account for 50 to 70% of the cost of goods sold. u Outsourcing allows firms to focus on their core competencies. – Organizations outsource when they decide to purchase something they had been making in-house. u Typically mis-handled by materials management function.

5 Make or Buy u Current trend favors outsourcing all activities that do not directly represent or support core competencies. u Are there any dangers associated with aggressive outsourcing? What are the implications for JIT production?

7 Purchasing u No longer just order takers…. u Purchasing need to know – material – performance – availability – suppliers

8 The Firm as a Supplier u In this chapter, we discuss the role of the firm as a buyer of goods and services. u How does the perspective change when the shoe is on the other foot?

9 Partnership Relationship u Continuing relationship involving – a commitment over an extended time period, – an exchange of information, and – an acknowledgement of the risks & rewards of the relationship.

Characteristics of Good Relationships u Commitment u Communication u Working through change / improvement u Principles centered relationship u Spending time together u Appreciation / recognition / feedback

Special Attention Low spend - high risk Long-Term Relationship High spend - high risk Contractual High spend - low risk (Easily substituted) High Low High Risk Annual Spend Supplier Characterization Matrix Transactional Low spend - low risk

Supplier Improvement u Supplier Evaluation - Involves finding potential suppliers and determining the likelihood of their becoming good partners. u Supplier Development - May include everything from training, to engineering and production help, to formats for electronic transfer. u Negotiations - Are of three classic types: cost- based model, market-based price model, and competitive bidding.

11 JIT Purchasing--Requirements u Reduced lot sizes u Frequent and reliable delivery schedules u Reduced and highly reliable lead times u Consistently high quality levels for purchased materials

12 JIT Purchasing--Suppliers u Fewer, nearby suppliers u Repeat business u Support suppliers’ competitiveness u Clusters of remote suppliers u Limit competitive bidding to new parts u Resist vertical integration u Encourage suppliers to implement JIT purchasing

13 JIT Purchasing--Quantities u Steady output rate (a desirable prerequisite) u Frequent deliveries in small lot quantities u Long-term contract agreements with minimal release paperwork u Deliver quantities variable from release to release but fixed for whole contract term

14 JIT Purchasing--Quantities (Ctd) u Little or no permissible overage or underage of receipts u Suppliers encouraged to package in exact quantities u Suppliers encouraged to reduce their production lot sizes (or store unreleased material)

15 JIT Purchasing--Quality u Minimal product specifications imposed on supplier u Help suppliers to meet quality requirements u Close relationships between buyers' and suppliers' quality assurance people u Suppliers encouraged to use process control charts instead of lot sampling inspection

16 JIT Purchasing--Shipping u Scheduling of inbound freight u Gain control by use of – company-owned or contract shipping – contract warehousing – trailers for freight consolidation/storage

17 JIT Purchasing--Benefits u Consistent quality u Savings on resources u Lower costs u Special attention u Saving on tooling u Loyalty associated with long-term relationships with suppliers

18 Global Sourcing u Original strategy was to reduce production costs. u Changing focus of global purchasing includes – local content / market access – product availability – technology – delivery – lead times – labor availability and quality.

Why Long-Term Relationships? u Increasing trend toward global supply u Higher baseline performance u Increasing focus on time to market u Dependence upon suppliers for technology

Why Long-Term Relationships? A long-term relationship between purchaser and supplier is necessary for best economy. How can a supplier be innovative and develop economy in his production processes when he can only look forward to short-term business with a purchaser? W. Edwards Deming, Out of the Crisis

Why Long-Term Relationships? u Trend toward LT contracts since 1990 u Pressure to reduce price u Pressure to reduce transaction costs u Consolidation pressures

Challenges for a Useful SCR Model u Relationships are critical u Trust may be low u Literature focuses on causes of failure

Challenges for a Useful SCR Model u Limited number of published SCR successes u Successes could be culture-dependent u Model should be simple & proven

Family Strengths Research u Strong families u 20+ years of research u Over 6,000 surveyed

Family Strengths Research u Culturally diverse population u Compares favorably with other taxonomies of family success u Summarized in six characteristics

Family Strengths Research 6 Characteristics of Strong Families u Commitment (trust) u Good communication patterns u Ability to deal with crises u Spiritual wellness u Spending time together u Appreciation

Six Characteristics of Successful SCR’s u Commitment u Good communication patterns u Ability to deal with crises (change) u Spiritual wellness (principles-centered) u Spending time together u Appreciation / feedback

Commitment: Concerns u Is this the right supplier? u What about commitment? u Is management committed? u What are the implementation issues related to maintaining commitment?

Commitment: Implementation u Selection prior to initiation u Two-way criteria for success u Regular performance reviews u Management committed to proceed u Participation requirements identified early u Implementation of complete SCR model

Matrix for SCR Selection Increasing Spend / Value Potential Increasing Risk / Complexity

Communication: Concerns u Replace face-to-face communication with technology? u Good communication = $$$ u Communication between technical groups u Role of agent

Communication: Implementation u Face-to-face communication increased & facilitated by multiple technologies u Support for communication forums u Triad as core team u Agent investments in communication

Dealing with Change u New product dev. process u Common improvement process u Performance measures u Conflict resolution by team leaders

Shared Principles u Principles Centered Leadership u Two-Way Performance Measures u Follow-through on Commitments

Spending Time Together u Quarterly performance reviews u Team building dinners u Commitment to keep the schedule

Appreciation u Celebration of critical improvement u Recognition distribution u Other forms of recognition