Week 9: Supply Chain Management (chapter 9)

What are the stages in the Vendor Selection process? What is a weighted approach? *in pic*

*1. Vendor Evaluation* -critical -Find potential vendors -Determine how likely they are to become good supplier -Requires development of evaluation criteria *2.Vendor Development* -Refers to the concept of incorporating selected vendors into the supply chain. -Buyer makes sure vendors has an appreciation of: >Quality requirements >Product specifications >Schedules and delivery >Purchaser's payment system >Procurement policies May include: -Traning -engineering production help -Establishing policies and procedures for information transfer *3.Negotiations* focus on: -Quality -Delivery -Payment -Cost

Reducing risk requires mitigate and react to disruptions in?

*1. processes* -Raw material and component availability quality, and logistics *2. Controls* -Management metrics and reliable secure communication for financial transactions, product designs, and logistics scheduling *3. Environment* Customs duties, tariffs security screening, natural disaster, currency changes, attacks, politcs.

Opportunities in an Integrated Supply Chain -Accurate pull data -Lot size reduction -Single-stage control of replenishment

*Accurate Pull Data* Accurate sales data that initiate transactions to "pull" product through the supply chain. -Generated by sharing point-of-sales (POS) information and computer-assisted ordering *Lot Size Reduction* Developing economical shipments of less truckload lots -Providing discounts based on annual volume rather than size of individual shipments -Reducing the cost of placing orders e.g., various forms of electronic purchasing *Single Stage Control of Replenishment* Fixing responsibility for monitoring and managing inventory for the retailer. -Designating one supply chain member to monitor & manage inventory for the whole system •Control may be in the hands of: >A sophisticated retailer who understand demand patterns(e.g., Walmart) >A distributer who manages inventory for a particular distribution area (e.g., distributors of grocery, beer, soft drink >A manufacturer who has a well-managed forecasting, manufacturing & distribution system (e.g., Manga International)

Eprocurement -Auctions

*Auctions* Online auction sites can be maintained by sellers, buyers, or intermediaries. -Lower entry barriers -Encourage sellers to join -Increase the potential number of buyers Operations managers find online auctions a rich area for: -Disposing of excess raw material -Discontinued or excess inventory

Opportunities in an Integrated Supply Chain -CPFR -Blanket Order -Standardization

*Collaborative Planning, Forecasting, & Replenishment (CPFR)* -A joint effort of members of a supply chain to share planning, forecasting, and inventory information in order to reduce supply-chain costs. *Blanket Order* - long-term purchase commitment to a supplier for items that are to be delivered against short-term releases to ship. -A contract to purchase certain items from a vendor. -Unfilled orders with vendor -Shipment is made only on receipt of an agreed-on document, perhaps a shipping requisition or shipment release. *Standardization* Employing the use of common components in different products and across production facilities.

Eprocurement -Electronic Ordering and Funds Transfer Uses what? -Online Catalogues What does this provide? >Versions?

*Electronic Ordering and Funds Transfer* -Electronic Data Interchange (EDI) >A standardized data-transmittal format for computerized communications between organizations. -Purchase orders -Shipping notices -Payments -Can extend to sales and inventory data -Advanced Shipping Notice ASN >A shipping notice delivered directly from vendor to purchaser.(i.e., notifies the purchaser that the vendor is ready to ship) *Online Catalogue* -Purchase of standard items is often accomplished via online catalogues. -Current information about products is provided in electronic format -Often supports cost comparison *Versions of catalogue* -Catalogues provided by Vendors (e.g., IKEA , Grand & Toy) -Catalogues provided by Intermediaries eg. Internet sites where buyers and sellers can meet(e.g.www.covisint.com); Set up by the Big Three automobile manufacturers for buying and selling auto parts) -Online exchanges provided by Buyers(e.g., Avendra(www.avendra.com); an online exchange created by Marriott and Hyatt to economically purchase the huge range of goods needed by 2800 hotels in the exchange

Supply Chain Strategies con't.. -Joint ventures? >Formal collaboration what are the pros? Why are joint ventures nice?

*Joint ventures*: A business arrangement in which 2+ parties agree to pool their resources for the purpose of accomplishing a specific task -task can be new project or any other business activity Formal collaboration: -Enhancing skills -Securing Supply -Reduce Costs -nice way to gain benefits of partnering while retaining independence and being in a relatioship that is easier to dissolve

Issues in an Integrated Supply Chain -Local optimization -Incentives -Large lots >bullwhip effect

*Local optimization* Members of the chain focus on maximizing local profit or minimizing immediate cost based on their limited knowledge EXAMPLE: For instance, a pasta distributor does not want to run out of pasta for its retail customers; the natural response to an extra large order from the retailer is to compensate with an even larger order to the manufacturer on the assumption that retail sales are picking up. Neither the distributor nor the manufacturer knows that the retailer had a major one-time promotion that moved a lot of pasta. This is exactly the issue that complicated the implementation of efficient distribution at the Italian pasta maker Barilla. *Incentives* (sales incentives, quantity discounts, quotas, and promotions) -Push merchandise into the chain prior to sale -Generate fluctuations that are ultimately expensive to all members of the chain *Large lots* A logistics manager wants to ship large lots, preferably in full trucks, and a production manager wants long production runs. Both actions drive down unit shipping and production costs, but they increase holding costs and fail to reflect actual sales. >*Bullwhip Effect* - The bullwhip effect occurs as orders are relayed from retailers, to distributors, to wholesalers, to manufacturers, with fluctuations increasing at each step in the sequence -Stable demand becomes lumpy orders through the supply chain

SUPPLY CHAIN ECONOMICS -Sourcing Issues- What is a make or buy deicison? Outsourcing? Pros of outsourcing?

*Make or Buy:* A choice between producing a component or service in house or purchasing it from an outside store *Outsourcing:* Transferring a firm's activities that have traditionally been internal to external supplier Pros: -Utilizes efficiency that comes with specialization -Firms outsource information technology, accounting, Legal, logistics and production

SUPPLY CHAIN STRATEGIES: -Many Suppliers -Few Suppliers

*Many suppliers* -Commonly used for commodity products -Purchasing is typically based on price -Suppliers compete -Long term partnerships not the goal -Supplier responsible for technology, expertise, forecasting, cost and quality *Few suppliers* Buy forms lon term relationship with fewer suppliers -Create value through economies of scale, and learning curve improvements -Suppliers more willing to participate in JIT programs and contribute design and technological expertise -Cost of changing suppliers is huge

Managing the Supply Chain. What are.. Mutual agreement on goals? Trust? Compatible Organizational Cultures?

*Mutual agreement on goals* -establishing a mutual understanding of the mission, strats, and goals of the firm is essential *Trust* Sharing information and visibility throughout the supply chain (e.g.,risk & cost savings, sales analysis, forecasting, production planning) *Compatible Organizational Cultures* -A positive relationship between purchasing and supplying organizations (ie comes with compatible organizational cultures) can be real advantage.

Opportunities in an Integrated Supply Chain -Postponement -Drop shipping and special packaging -Pass through facility -Channel Assembly

*Postponement* Delaying any modifications or customization to a product as long as possible in the production process. > Minimizing internal variety while maximizing external variety > An approach to Mass Customization *Drop Shipping and Special packaging* -Shipping directly from the supplier to the end consumer rather than from the seller (e.g., ordering a PC from Dell) -Saving both time and reshipping cost *Pass-through Facility* -A facility that expedites shipment by holding merchandise and delivering from shipping hubs. -Instead of storing incoming inventory for some time in a warehouse, they are directly placed into an outgoing truck. (e.g., Purolator, a courier company owned by Canada Post) *Channel Assembly* A system that postpones final assembly of a product so the distribution channel can assemble it. -Distributors are treated more as manufacturing partners than distributers. -Individual components & modules (rather than finished products) are sent to distributer. -Distributor then assembles, tests, packs, & ships the product. -Successful in industries where products are undergoing rapid changes (e.g., PCs)

Eprocurement -RFQs

*RFQs* Nonstandard purchasing requirements -Necessitate substantial preparing time for: >Request for quotes(RFQ) >Related bid packages >RFQ is a request to get the prices of items Eprocurement provides opportunity for purchasing agents to inexpensively attach electronic copies of the necessary drawings to RFQs

Logistics Management Distribution Systems >Trucking >Railroads >Airfreight >Waterways >Pipelines >Multimodal Benefits of each? when are they used?

*Trucking:* -Moves the vast majority of manufactured goods -Major advantage is flexibility of shipping *Railroads* -Capable of carrying large loads -Less flexibility *Airfreight* >fast and flexible for light loads >Expensive *Waterways* >Bulky low value cargo (iron ore, grain, cement, coal, limestone, petroleum) >when cost is more important than speed *Pipelines* Used for transporting crude oil, gas, petroleum products *Multimodal* -Combines shipping methods -Particularly for international shipment purposes -Size and speed of shipment(s) are determinant fact

Ethics and Sustainability What is personal ethics? Why is ethics of suppliers important? Why is ethical behaviour regarding the environment important?

*personal ethics* Temptations of bribery, and kickbacks must be resisted -firms are being held accountable for the actions of their suppliers -Firms have to be aware of environmental impact and support consercation of renewal resources

Supply Chain Strategies con't.. -Vertical Integration (forwards and backwards, examples?) Vertical Integration can improve what? What does it necessitate? Risky when?

*vertical Integration* -Developing the ability to product goods or services previously purchased or actually buying a supplier or a distributor BACKWARDS INTEGRATION: towards supplier, FORD manufactures own radios. FORWARD INTEGRATION: Towards customer, texas instruments manufactures circuit and calculators, and flat screens containing integrated circuits ffor TVs, or apple creating revolutionary retail stores CAN IMPROVE: -Cost -Quality -Inventory Necessitates: -Capital -Managerial skills -Demand Risky in industries with rapid technological change

What are the Principles and Standards of Ethical Supply Chain Management Conduct?

- Integrity in your decisions and actions -Value for your employer -Loyal to your profession

Supply Chain Strategies con't.. What is Keiretsu? What is a Keiretsu network?

-A japanese term that describes suppliers who become part of a company coalition Network: -a middle ground between few suppliers and vertical integration -supplier becomes part of company coalition -Often provide financial support for suppliers through loans ands or ownership (officers of some companies serve on the board of other companies within network) -Members expect long-term relationships and provide technical expertise and stable deliveries -May extend through several levels of the supply chain

LOGISTICS MANAGEMENT What is it? How is competitive advantage gained? Is distributions covered? What company is amazing at this?

-An approach that seeks efficiency of operations through the integration of all material acquisition, movement, and storage activities. Competitive advantage gained through: >reduced costs >improved customer service Distribution is covered under logistics management -Walmart

Supply Chain Strategies con't.. virtual companies What are the boundaries like? Advantages?

-Companies that rely on a variety of supplier relationships to provide services on demand (short or longterm relationships. true partners, collaborators, or simply able suppliers and subcontractors) (aka, hollow corporations or network companies) Fluid organizational boundaries, that sllows unique enterprises to meet changing market demands -Whatever the formal relationship, the result can be exceptionally lean performance. *Advantages* -Specialized management expertise -Low capital investment -Flexibility -Speed (^^EFFICIENCY)

Logistics Management -Security and JIT

-Monitoring and controlling stock moving through supply chains is more important than ever. -New technologies are being developed to allow close monitoring of location, storage conditions, and movement Improving in security may help JIT AND Improving in JIT may help security

What are the concepts of supply chain risk?

-More reliance on supply chains means more risk -Fewer suppliers increase dependence between suppliers and customers (increases risk for both) -compounded by globalization and logistical complexity -vendor reliability and quality risks -Political and currency risks

Logistics Management -Cost of Shipping Alternatives How do we obtain insight into the shipping/price trade off?

-Product in transit is a form of inventory and has a carrying cost. -The longer a product is in transit, the longer the firm has its money invested. -Faster shipping is generally more expensive than slower shipping. -A simple way to obtain some insight into this trade-off is to evaluate holding cost against shipping options.

A huge portion of firm's revenues are spent on? So...?

-Purchases So, proper control of SC costs can ensure success for an organization and viceversa

Vendor Selection Is this important? Factors involved in Vendor Selection

-Selecting the appropriate vendors can have an enormous impact on quality and production efficiency. -This is arguably the most important task of a purchasing professional. Factors: >Strategic fit >Vendor competence >Delivery performance >Quality functioning

How supply chain decisions affect strategy

-Supplier's goal -Primary selection criteria Process characteristics* See Table 9.1 in the Text for more details. -Inventory characteristics -Lead-time characteristics -Product-design characteristic

What organizations are striving to increase awareness and expertise within SCM?

-Supply Chain Sector Council (CSCSC) -Supply Chain management Association -American production and inventory control society each has own mandate/constitutions

Logistics Management Warehousing What is the purpose? What other crucial functions can warehouses provide?

-To store goods -Can be a backroom at retail, or enormous stadium sized facilities -Can serve as consolidation point >Gathering shipments from multiple sources to send outbound in one cheaper, fully loaded truck. -Can provide a break-bulk function >accepting a cheaper, full truckload inbound shipment and then dividing it for distribution to individual sites. -Can serve as cross-docking facility(similar to a major airport hub) >Accepting shipments from variety of sources & recombining them for distribution to a variety of destinations, often without actually storing any goods during the transition. -Can serve as a point of postponement in the process >Providing final customer-specific value-added processing to the product before final shipment.

What is Eprocurement? Advantages?

-Use of internet to facilitate purchasing -Speeds purchasing -Reduces costs -Reduces the involved paperwork (e.g., requisitions, purchase orders, receiving documents, invoices, cheques -Integrates the supply chain -Enhances competitive advantage

MEASURING SUPPLY CHAIN PERFORMANCE Assets Committed to Inventory What three specific measurements are helpful?

1. The amount of money invested in inventory (i.e., usually expressed as a percentage of assets) >Generally, the lower the better 2. Inventory Turnover (i.e., computed on an annual basis) >Generally, the higher the better 3.Weeks of Supply (i.e., reciprocal of Inventory Turnover

Important SCM activities include determining? (8points)

1.Transportation vendors 2.Credit and cash transfers 3.Suppliers 4.Distributors 5.Accounts payable and receivable 6.Warehousing and inventory 7.Order fulfillment 8.Sharing customer, forecasting, & production information

3. Negotiations -NEGOTIATION STRATEGIES >Cost-based Price model >MArket Based Price model >Competitive Bidding (what are the disadvantages of this)

Approaches taken by supply chain personnel to develop contractual relationships with suppliers. *Cost Based Price Model* -Supplier opens books to purchaser -The contract price is based on: >Time & Materials or >A fixed cost with an escalation clause to accommodate changes in the vendor's labour& materials cost *Market Based Price Model* Price is based on published, auction, or indexed price -Many commodities are priced this way: Agriculture products, Paper, Metal *Competitive Bidding* -When suppliers are not willing to discuss costs -Where near-perfect markets do not exist >Used for infrequent work (e.g., construction, tooling, & dies) >May take place via mail, fax, or an internet auction. >Usually requires availability of several potential suppliers of the product (or its equivalent) and quotations from each DISADVANTAGES: >May make establishing long-term relationships between buyer and seller difficult >Make the required communication & performance for engineering changes, quality, & delivery difficult

EXAMPLE OF Shipping/Cost Tradeoff

Example: A shipment of new products needs to go from city A to city B. The value of the products is $2500 and holding cost is 35% per year. One carrier can ship the products 1 day faster than its competitor, at an extra cost of $15.Which carrier should be selected

Eprocurement -Realtime Inventory Tracking

FedEx's pioneering efforts at tracking packages from pickup to delivery have shown the way for operations managers to do the same for their shipments & inventory. -Using bar codes and the internet, Ford dealers are now able to log onto a website & find out exactly where the ordered vehicles are in the distribution system. -Supported by barcodes and RFID, eProcurement can provide economical inventory tracking in the supply chain. (e.g., on the shop floor, in warehouses, in logistic

Logistics Management -Third Party Logistics What is it? benefits?

Firms completely outsource their logistics efforts -Can reduce costs -Enhance delivery reliability -Improve speed -Coordinate supplier inventory with delivery services -May provide warehousing, assembly, testing, shipping, customs FedEx, UPS, and DHL have expanded their roles from shipping companies to full-service logistics providers.

The Importance of SCM to Strategy -Key term for SCM? -Effective SCM is all about? How does competition change?

Key term is *integration* -SCM is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through distribution system. Effective: all about getting members of SC working together as though they were a vertically integrated company Competition: Is no longer between companies, but now between supply chains

What is supply-chain management? (SCM) What is the objective?

Management of activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system. Objective: To build a chain of suppliers that focuses on maximizing value to the ultimate customer.

CHECKLIST OF TOPICS COVERED

Supply-Chain (Definition, Risks, and Economics) Ethics and Sustainability Supply-Chain Strategies Managing the Supply-Chain Eprocurements Vendor Selection Logistics Management Measuring Supply-Chain Performance

What is the SCOR? What are the 5 parts?

Supply-Chain Operations Reference (SCOR) Model -A set of processes, metrics, and best practices developed by the SSC (Supply chain Council) 1. Plan 2. Source 3. Make 4. Deliver 5. Return

Managing Supply Chain Performance. How does metrics help?

Supply-chain metrics focusing on procurement & vendor performance issue

Opportunities in an Integrated Supply Chain -Vendor Managed Inventory

The use of a local supplier (usually a distributor) to maintain inventory for the manufacturer or retailer. -The supplier delivers directly to the purchaser's using department rather than to a receiving dock or stockroom. -Agreement for supplier to access and maintain customer's inventory. e.g., Soft drink companies keeping the shelves stocked weekly at a local convenience store