Supply Chain Exam 3
Why do we care about logistics?
"The lifeblood of the US economy" 8%-9% of US GDP is logistics related activities Employs millions of people For individual firms, cost of logistics can be 25%-30% of every dollar of revenue
What are the 4 types of supplier relationships
1. Adversarial 2. Arm's length 3. Acceptance of mutual goals 4. Full partnerships
What are the 5 steps of the Strategic sourcing process?
1. Analyze spend & markets 2. Develop sourcing strategy 3. Identify potential suppliers 4. Assess & Select Suppliers 5. Manage relationships
What are the 8 steps for making an insourcing/outsourcing decision?
1. Asses fit with the firm's core competencies 2. Evaluate the suitability for outsourcing 3. Evaluate the reasons for outsourcing 4. Assess All relative quantitative cots 5. Assess all qualitative factors 6. Review the capabilities of suppliers 7. Make and implement a decision 8. Monitor the decision and revise it as necessary
What are the six primary goals of supply management?
1. Ensure timely availability of resources 2. Identify, assess, and mitigate supply chain risk 3. Reduce total costs 4. Enhance quality 5. Access technology and innovation 6. Foster sustainability
What are the 6 primary activities involved in accomplishing logistics management objectives?
1. Inventory management 2. Order management/processing - should be designed to ensure accuracy, efficiency, and speed 3. Transporation management 4. Warehousing 5. Packaging and materials handling 6. Network design
3 types of consolidation
1. Market area consolidation 2. Pooled delivery consolidation 3. Scheduled delivery consolidation
What are the five dimensions of service characteristics for transportation?
1. Speed: the elapsed time required to move from the point of origin to destination 2. Availability: the ability to service any possible location 3. Dependability: the variance in the expected delivery times 4. Capability: the ability to handle any type of product and/or size of load 5. Frequency: the number of scheduled movements that can be arranged by a shipper
Ensure Timely Availability of Resources
Ensure that the right purchases are available at the right time to support new product launches, operations, and shipments
Weighted point model
Establishes performance categories that are weighted according to importance - Develop the criteria to consider and the weight for each criteria - Assign scores to each supplier for each criteria based on RFP, other research on the suppliers - Select the best score
Scheduled delivery consolidation
Establishing specific times when deliveries to customers will be made - once a day deliveries from govery DCs to stores
Assess the fit with firm's core competencies
Evaluate the product's or processes's relationship to the firm's core competencies Compare the savings from outsourcing to the risk of losing core competencies or intellectual property
Purchase requisition
An internal document that communicates what, when, and how many to the supply management department - The requisition for a cell phone cover would include a blueprint showing dimensions, materials, tolerances, color, etc.
Cost-to-service tradeoff
As service levels increase, typically so do costs - to avoid stock outs, more inventory is needed, increasing carrying costs - faster transit to customers -> product gets to customer quicker but transportation costs go up
Center of gravity method
Attempts to find the lowest cost location for a facility based on demand and distance
What is the tradeoff for adding more suppliers?
Benefits: Increased competition, lower supply chain risk Costs: higher complexity, higher administrative costs, lower economies of scale/purchasing - Multisourcing is especially problematic when there are high tooling costs, suppliers unwilling to share info with competitors, etc.
Access Technology and Innovation
Buying firm's often turn to their suppliers for innovation For example, SAP uses SmartOps for cutting edge inventory Auto manufacturers often outsource their electronic systems - Speakers, interfaces, controls, etc. Boeing relies on suppliers to continually innovate
Advantages for outsourcing
Capital not needed for equipment and facilities Easier to add or remove capacity if demand changes Lower costs because suppliers gain economies of scale and supplier often pay lower wages Increased flexibility to change technology or suppliers Better access to supply market information
Contract carriers
Carriers that have specific contracts with a limited number of shippers
Evaluate the suitability for outsourcing
Certain characteristics favor outsourcing. Mature products, standard processes are often outsourced. Known technology means that there are many capable suppliers and intellectual property risk is low.
What are the two primary tradeoffs in logistics?
Cost to service tradeoff Cost to cost tradeoff
Costs after the transaction
Costs of inventory, supply risk, production down-time, defects in finished goods, warranties, safety recalls, replacements, repairs, lost sales, liability, and damaged reputation
Relevant costs when making a manufacturing plant location decision
Costs within each country of manufacture Costs in transit from country of manufacture to country of sale Costs within the country of sale
Why is sourcing and supply management important?
Critical because purchased goods and services typically account for a large percentage of a product's costs - 75-80% of the costs of cars made by Honda of America comes from purchased parts and components - Part costs for Apple's iPhone are 50 times larger than the assembly cost
Uses of strategic network design?
Determine the best #, location and size of distribution centers, Cross Docks, etc. Determine the best number, location and size of distribution plants, vendors, lines, etc. Identify the best assignment of customers and allocation of products to DCs and Plants Optimize the trade-offs between -inbound and outbound transportation costs - transportation costs and warehousing costs - costs and service levels
Network design
Determines the number and location of facilities Establishes linkages among facilities that information and material flows through Choose the "best" network for a particular supply chain
Supply chain resileince
The capability of a supply chain to minimize the impact of a disruption and to recover after a disruption
Sourcing strategy must also consider:
The number of suppliers Capabilities and location of suppliers Type of relationship and contract length
Sourcing
Identification, evaluation, selection, and management of suppliers
Make and implement a decision
If decide to outsource, select a supplier and document the reasons and anticipated benefits of outsourcing
Cost-to-cost tradeoff
Increasing the costs of one logistics activity reduces the cost of another
Truck
Most common form in supply chains in the US
Economies of scope
Multiple shipments between interconnected locations are cheaper than those same shipments on unconnected locations - denser, more interconnected networks of freight are more efficient - generally want to minimize empty miles - good to make roundtrips - match origin destination pairs with flows in the reverse direction
Is Sourcing only important for physical product companies?
No, insurance/wealth management companies source credit scores, actuarial models/analysis, health tests for life insurance, software products -Consulting services company might source travel services or IT services
Review capabilities of suppliers
Once decision is largely made, review the capabilities of current and new suppliers This includes technical, financial, manufacturing, and quality-related capabilities.
Identifying potential suppliers
Once sourcing strategy is decided upon, need to find suppliers Starting point - current suppliers Other sources to look - internet, trade journals, trade associations, specialized consultants
What are the 6 modes of transportation?
Ranked from highest speed and cost (except intermodal): 1. Air 2. Truck 3. Rail - train moves the cargo from origin to destination 4. Water - travel by ship (canal, ocean-going) 5. Pipeline - liquid 6. Intermodal
Safety (and social) regulation
Regulation designed to ensure that transportation carriers conduct their activities in a safe and responsible manner
Adversarial relationships
Relationships characterized by distrust and limited communications - buyers beating up suppliers to reduce prices - suppliers increasing prices in period of shortages or positions of power
Arm's-length relationships
Relationships limited to simple purchasing transactions - Focuses on the efficiceny of the business transaction, not much information sharing, low levels of trust - efficient level of relationship - best for commoditized products or services with competitive bidding
Full partnerships
Relationships that have close working relations, trust, mutual respect, and highly integrated operations - Partners who recognize the interdependencies of the relationship and work together to reduce costs so that both parties benefit - Exchange schedules, information, new product designs, cost data - Highly specialized and critical products or services
Intermodal
Shipment that uses multiple modes of transportation - Most commonly refers to truck -> rail -> truck movements
Reverse auctions
The right to supply a product or service is auctioned, and bidders submit prices at which they'll provide it - prices descend until only one bidder is left, and that bidder is the winner of the item up for bid - high spend, relatively standard product
Total landed cost
The sum of all production and logistics related costs in the supply chain
Reduce Total Costs
The true cost of using a product can be much higher than simply the purchase price -Used car example: the purchase price will be lower but ongoing maintenance will be higher, break downs more likely, fuel economy worse - Low cost supplier will often be worse along other dimensions
Production support warehouse
a warehouse dedicated to storing parts and components needed to support a plant's operation
Warehouse consolidation
combining shipments from a number of sources into one larger shipment goint to a single location
Automated storage and retrieval systems (AS/RS)
computer controlled systems that use robots to automatically select, find, retrieve, and convey product items from storage bins to loading docks
Warehouses (distribution centers)
locations that are used to store inventory and configure/sort product for delivery to a customer - enable quick response to customer orders - sortation of various products from various locations into single orders
Offshoring
moving operations outside of a country - different than outsourcing
Truckload (TL)
one "load" occupies a full trailer
Supply chain risk
the probability of an unplanned event that negatively affects a firm's ability to serve its customers
Acceptance of mutual goals
A collaborative relationship that lacks the commitment of a full partnership - Buyers and suppliers that work together to achieve the same objective
Third party logistics service providers (3PLs)
A common term used in the industry to describe integrated service providers
Negotiation is a better choice when:
A high degree of uncertainty in the requirements exists or the requirements may change because of a long lead time Different combinations of requirements may be acceptable Early supplier involvement in product development is required A complex start-up or customized equipment is needed
Spend analysis
A process that identifies what purchases are being made in an organization
Enhance Quality
A product's quality depends largely on the quality of its inputs Important to select suppliers that supply quality parts Hence certifications such as ISO 9000, continuous improvement efforts, etc.
Competitive bidding
A selection process in which suppliers submit bids to win the buyer's business - used when price is most important factor, spend level is reasonably high, and multiple suppliers are available - typically buying firm will make suppliers aware that multiple are bidding and ask for "best price" - although negotiations may take place after submissions
KPIs measure
A variety of things such as delivery quality, on-time performance, responsiveness/support, innovation
Bottleneck purchases
High risk, low spend level Purchases typically are not core Use at least two suppliers to assure supply and develop new suppliers
Strategic purchases
High spend level, high risk Purchases are unique and core to the firm's performance Tactics: use one or tow suppliers and build partnerships with them to foster colaboration and innovation
What factors might favor a long and drawn out selection process?
Higher level of spend; more critical components; smaller number of suppliers competing in the space; highly unique components
What are some way to increase supply chain resilience?
Holding higher inventory levels of critical materials Using more than one supplier for critical purchases Working closely with suppliers to improve capabilities Requiring suppliers to have geographically dispersed operations
Key questions for considering capabilities and location
How important is it to use a close, local supplier? Closer proximity makes communication, collaboration, and delivery costs relatively low Is it important to source nationally/regionally? Countries often have laws about where a company can source products Should the supplier have a global presence? Yes so suppliers can expand where firm is Is low cost the primary objective? Source from emerging economies
Weaknesses of this approach
Kind of arbitrary (ratings and weight) Weights are subjective; changing weights could change outcomes Ratings can be subjective; changing ratings could change outcomes
Factors to consider in network design
Locations of suppliers, customers Transportation costs Facility costs Labor cots and availability Import/export duties and tariffs Network robustness
Costs of purchasing from a low-cost country
Long lead times Higher transporation costs Higher inventory costs because of higher safety stock and in-transit inventory Lack of flexibility to make changes in quantity or specifications Costs of travel and communication Complexity due to customs clearance, duties, border security Potential quality problems - harder to monitor
Disadvantages of outsourcing
Lose direct control over assets Lose intellectual property Lose competitive advantage if outsource your expertise Can be difficult to communicate what is needed to suppliers Supplier may have quality or delivery problems Supplier may increase costs Must have sourcing and supply management capabilities May be difficult to integrate information and materials flow with supplier
Noncritical items
Low spend, low risk Tactics: vendor-managed inventory, allow users to make their own purchases Ex. items for corp headquarters, employee travel, non-production related expenses
Negotiation
A bargaining process (planning, reviewing, analyzing, compromising) involving a buyer and seller seeking to reach mutual agreement - negotiate over prices, quantities, and terms of trade in contracts are often lengthy
Outsourcing
Acquiring inputs from operational processes provided by suppliers
Insourcing
Acquiring inputs from operational processes provided within the firm
Assess and Select Suppliers
After potential suppliers are identified, a selection process must take place Evaluation of suppliers can be simple and quick or detailed and though out For more detailed assessment and selection, a procurement process takes place
Manage Supplier Relationships
After the relationship is started and supply is flowing, suppliers must be continuously monitored and measured Information sharing such as electronic data interchange (EDI) are often set up to make ordering more efficient More closely manage inventories - perhaps even vendor-managed inventory (VMI)
Total Cost of Ownership (TCO)
All of the costs incurred before, during, and after a purchase
Pooled delivery consolidation
Combine small shipments from multiple shippers that are going to the same market area - done by different shippers - typically independent companies such as UPS or FedEx
Cross-docking
Combines break-bulk and consolidation. Large shipments from many sources are scheduled to arrive at the facility's receiving docks simultaneously. Several vehicles are positioned at the shipping docks each bound for a different destination - most dc's do cross docking
Market area consolidation
Combining several small shipments from one shipper that are going to the same market area into one shipment - shipments need to fit within capacitylimits of vehicle - delivery windows need to be close to one another but with some flexibility - products need to be able to travel on same vehicle
Consolidation
Combining small orders or shipments into one larger shipment to take advantage of transportation economies
Load consolidation
Combining small orders or shipments into one larger shipment to take advantage of transportation economies
Private carriers
Companies that own and operate transportation equipment to transport their own products
Integrated service providers
Companies that provide a range of logistics services
For-hire
Company that offers service "for-hire" to many buyers
Evaluate the reasons for outsourcing
Compare the benefits of outsourcing versus the benefits of insourcing - Outsourcing might free up internal resources to do other, more productive work; however, if those resources don't have other good uses, then outsourcing doesn't make sense
Assess all relevant quantitative costs
Compare the costs to make the product internally versus the total cost of purchasing it. Fixed costs per contract - one-time costs Fixed costs per order - costs incurred each time the firm places an order Variable costs - costs associated with each unit produced
Less-than-truckload
Customers orders that occupy less than a full trailer (typically used cutoff is 10,000 lbs)
Strategic Network Design
Deciding which DC's and plants you are going to use to serve your customers
Monitor Decision and Revise if necessary
Decisions aren't made in a static environment; circumstances may change, suppliers may perform worse than expected, new information might indicate a different decision would be better.
Economic regulation
Government controls of the entry, rates, and services provided by transportation carriers
Factors to consider that can vary among suppliers
Operations processes and systems Quality processes and systems Labor skills, training, and morale Technological capabilities Supply management processes Logistics systems Financial stability Management capabilities and attitudes
Costs during the transaction
Purchase price and costs of ordering, transporting, expediting, receiving, inspecting, and following up
Leverage purchases
Purchases typically involve standard goods or services where many possible suppliers are available Tactics: standardize purchases across the company, use competition to select suppliers, and consolidate purchases to get discounts Ex. windshield wipers, tires/rims
Break-bulk
Splitting a large shipment into individual orders and arranging for local delivery to customers
Strategies to reduce suppliers
Standardize purchases, buy families of similar items from a single supplier Standardization of components of different products - same dashboard for different car models Modularize design - purhcase an entire modular from a single supplier
Stockpiling
Store product for seasonal peaks
What are the four categories of purchases?
Strategic Leverage Noncritical Bottleneck
Logistics postponement
Strategy that involves stocking products in a single or only a few locations rather than spreading inventory across a large number of warehouses
What does McDonalds insource?
Strategy, pricing, store design, process design, recipes
Factors that contribute to risk
Supplier technical, operational, or quality problems Supplier financial problems Labor disputes Major increases or decreases in demand Lack of transparency in the supply chain Inadequate physical, information, and intellectual property security Disasters Political instability Changes in government regulations Concentration of suppliers within the same geographical region
Transportation Management
The movement of something from one point to another In most supply chain contexts, this involves some material good of commercial value (or cost)
Sustainability
The ability or capacity of the system to maintain or sustain itself by improving its performance in terms of how it manages pollution, people, and changes in the business model
Make or buy decision
The choice to insource or outsource
Economies of distance
The cost per unit of distance decreases as the distance moved increases
Economies of scale
The cost per unit of weight decreases as the size of the shipment increases - A 40,000 lb shipment is cheaper than a 30,000 lb shipment on a per unit basis - This depends on capacities of vessels during the transporting
Supply base optimization
The determination of the number of suppliers to use
Supply management
The identification, acquisition, positioning, and management of resources and capabilities that a firm needs to attain its strategic objectives
Logistics Management
The management of the movement and storage of materials at the lowest cost while still meeting customers requirements - Generally everything in a supply chain non-production related - Transportation, storage/warehousing, inventory
Generating competitive prices from suppliers
There are multiple ways to get prices from suppliers Could simply ask one or two suppliers tp name their price Could hold on auction, where the right to supply the product is being auctioned off Could negotiate directly with potential suppliers
Assess all qualitative factors
They include: Loss of control by releasing work to a supplier Risk of dealing with a supplier Importance of supplier's location and convenience of site visits Quality of supplier's management team Compatibility of organizational cultures and values
Costs before the transaction
Time spent and costs of searching for, visiting, and evaluation, and certifying suppliers
Common carriers
Transportation companies that provide service to the public
Private fleet
Trucks owened and operated by an individual shipper
Analyze spend and supply markets
Understand what your firm is buying Market analysis gathers data on the market's structure, including the number of suppliers, what they are providing, the number of buyers, and the nature of competition
Supplier scorecard
Used to report a supplier's performance on key performance indicators (KPIs)
