1. Operations Management Supply Chain Management1 1

2. Volkswagen Resende Plant

3. 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

4. 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

5. The Supply-Chain Consumer Retailer Manufacturing Material Flow
Credit Flow
Supplier
Wholesaler
Mkt research data
Order/Cash
Flow
Schedules

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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