3 Module: Supply Chain Management Learning Objectives At the end of this module, each student will be able to: 1.Describe an overview of supply chain management 2.Describe information sharing 3.Analyze insourcing or outsourcing problems 4.Describe the role of virtual organizations 5.Describe the role of vertical integration
4 1. Overview A supply chain is the network of activities that deliver a product/service to the customer Raw materials, assembly, warehousing, order entry, distribution, delivery Supply Chain Management is the business function that coordinates all of the network links Coordinates movement of goods through supply chain from suppliers to manufacturers to distributors Promotes information sharing along chain like forecasts, sales data, & promotions
5 Module: Supply Chain Management A Basic Supply Chain
6 Module: Supply Chain Management Overview (Cont.) Several factors have emerged that now require companies to use supply chain management as part of their competitive strategy. Globalization Increased competition Information technology Shorter product life cycles
7 Module: Supply Chain Management Overview (Cont.) Globalization has led to new markets, but at the same time it increases the competition. One way of winning market share is introducing new products, leading to shorter product life cycles. One way to be more competitive is through supply chain management.
8 Module: Supply Chain Management 2. Information Sharing Traditionally, information has been shared only between adjacent supply chain pairs, and that information has been very limited. This limited approach to information sharing leads to “bullwhip effect.” To reduce the bullwhip effect, supply chains use a hub and spoke approach to sharing information.
9 Module: Supply Chain Management 3. Insourcing vs. Outsourcing What questions need to be asked before sourcing decisions are made? Is product/service technology critical to firm’s success? Is operation a core competency? Do you have the capital to provide capacity & keep the process current? Will outsourcing extend lead times and limit flexibility? Can others do it for less cost and better quality?
10 Module: Supply Chain Management Make or Buy Analysis Analysis will look at the expected sales levels and cost of internal operations vs. cost of purchasing the product or service
11 Module: Supply Chain Management Make or Buy Example A small snowboard manufacturing company is presently sourcing the major portion of its manufacturing process. The cost for the purchased board is $50 each and they estimate their current fixed manufacturing costs at $25,000. A consultant has presented a plan which would reduce the variable cost to $20 each, but requires a major in-house investment which would increase their fixed cost to $400,000.
12 Module: Supply Chain Management Make or Buy Analysis The owner wants to know what unit sales must be to justify the new proposal. FC Buy + (VC Buy x Q) = FC Make + (VC Make x Q) $25,000 + ($50 x Q) = $400,000 + ($20 x Q) Q = 12,500 units Purchasing has identified a new supplier that can produce a board for $30 each. Now what is the Indifference Point? $25,000 + ($30 x Q) = $400,000 + ($20 x Q) Q = 37,500 units
13 Module: Supply Chain Management 4. Virtual Organizations Outsourcing is gaining in popularity because of cost advantages and the opportunities for greater coordination. This system has even led to “virtual corporations,” that exist only as an administrative shell, with all other functions outsourced.
14 Module: Supply Chain Management 5. Vertical Integration If a company owns its suppliers, it is called backward vertical integration. If companies own the distribution systems and retail outlets that sell their products, then that is forward vertical integration. Both integration help the companies to get a close coordination with suppliers.