2006 Prentice Hall, Inc. 11 – 1 Operations Management Chapter 6 – Supply-Chain Management 2006 Prentice Hall, Inc. PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer/Render Heizer/Render Principles of Operations Management, 6e Principles of Operations Management, 6e Operations Management, 8e Operations Management, 8e
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PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer/Render Heizer/Render Principles of Operations Management, 6ePrinciples of Operations Management, 6eOperations Management, 8e Operations Management, 8e
The Strategic Importance The Strategic Importance of the Supply Chainof the Supply Chain
Supply-chain management is the Supply-chain management is the integration of the activities that integration of the activities that procure materials and services, procure materials and services,
transform them into intermediate transform them into intermediate goods and the final product, and goods and the final product, and
deliver them to customersdeliver them to customers
Competition is no longer between Competition is no longer between companies; it is between supply chainscompanies; it is between supply chains
Global Supply-Chain IssuesGlobal Supply-Chain Issues
React to sudden changes in parts React to sudden changes in parts availability, distribution, or shipping availability, distribution, or shipping channels, import duties, and currency rateschannels, import duties, and currency rates
Use the latest computer and transmission Use the latest computer and transmission technologies to schedule and manage the technologies to schedule and manage the shipment of parts in and finished products shipment of parts in and finished products outout
Staff with local specialists who handle Staff with local specialists who handle duties, freight, customs and political issuesduties, freight, customs and political issues
Supply chains in a global environment Supply chains in a global environment must be able tomust be able to
8.8. Obtain unique item that would entail a prohibitive Obtain unique item that would entail a prohibitive commitment for a suppliercommitment for a supplier
9.9. Protect personnel from a layoffProtect personnel from a layoff
10.10. Protect proprietary design or qualityProtect proprietary design or quality
11.11. Increase or maintain size of companyIncrease or maintain size of company
Transfers traditional internal Transfers traditional internal activities and resources of a firm to activities and resources of a firm to outside vendorsoutside vendors
Utilizes the efficiency that comes Utilizes the efficiency that comes with specializationwith specialization
Firms outsource information Firms outsource information technology, accounting, legal, technology, accounting, legal, logistics, and productionlogistics, and production
Ethics in the Supply ChainEthics in the Supply Chain
Opportunities for unethical behavior Opportunities for unethical behavior are enormous and temptations are highare enormous and temptations are high
Many companies have strict rules and Many companies have strict rules and codes of conduct that define codes of conduct that define acceptable behavioracceptable behavior
Institute for Supply Management has Institute for Supply Management has developed a detailed set of principles developed a detailed set of principles and standards for ethical behaviorand standards for ethical behavior
Principles and Standards for Principles and Standards for Ethical Supply Management Ethical Supply Management
ConductConduct
1.1. Avoid the intent and appearance of unethical or Avoid the intent and appearance of unethical or compromising practice in relationships, actions, and compromising practice in relationships, actions, and communicationscommunications
2.2. Demonstrate loyalty to the employer by diligently Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer, using following the lawful instructions of the employer, using reasonable care and granted authorityreasonable care and granted authority
3.3. Avoid any personal business or professional activity that Avoid any personal business or professional activity that would create a conflict between personal interests and would create a conflict between personal interests and the interests of the employerthe interests of the employer
Principles and Standards for Principles and Standards for Ethical Supply Management Ethical Supply Management
ConductConduct
4.4. Avoid soliciting or accepting money, loans, credits, or Avoid soliciting or accepting money, loans, credits, or preferential discounts, and the acceptance of gifts, preferential discounts, and the acceptance of gifts, entertainment, favors, or services from present or entertainment, favors, or services from present or potential suppliers that might influence, or appear to potential suppliers that might influence, or appear to influence, supply management decisionsinfluence, supply management decisions
5.5. Handle confidential or proprietary information with due Handle confidential or proprietary information with due care and proper consideration of ethical and legal care and proper consideration of ethical and legal ramifications and government regulationsramifications and government regulations
6.6. Promote positive supplier relationships through courtesy Promote positive supplier relationships through courtesy and impartialityand impartiality
Principles and Standards for Principles and Standards for Ethical Supply Management Ethical Supply Management
ConductConduct
8.8. Know and obey the letter and spirit of laws applicable to Know and obey the letter and spirit of laws applicable to supply managementsupply management
9.9. Encourage support for small, disadvantaged, and Encourage support for small, disadvantaged, and minority-owned businessesminority-owned businesses
10.10. Acquire and maintain professional competenceAcquire and maintain professional competence
11.11. Conduct supply management activities in accordance Conduct supply management activities in accordance with national and international laws, customs, and with national and international laws, customs, and practices, your organization’s policies, and these ethical practices, your organization’s policies, and these ethical principles and standards of conductprinciples and standards of conduct
12.12. Enhance the stature of the supply management Enhance the stature of the supply management professionprofession Table 11.5Table 11.5
Commonly used for commodity Commonly used for commodity productsproducts
Purchasing is typically based on Purchasing is typically based on priceprice
Suppliers are pitted against one Suppliers are pitted against one anotheranother
Supplier is responsible for Supplier is responsible for technology, expertise, forecasting, technology, expertise, forecasting, cost, quality, and deliverycost, quality, and delivery
Buyer forms longer term Buyer forms longer term relationships with fewer suppliersrelationships with fewer suppliers
Create value through economies of Create value through economies of scale and learning curve scale and learning curve improvementsimprovements
Suppliers more willing to participate Suppliers more willing to participate in JIT programs and contribute in JIT programs and contribute design and technological expertisedesign and technological expertise
Cost of changing suppliers is hugeCost of changing suppliers is huge
Developing the ability to produce goods or Developing the ability to produce goods or service previously purchasedservice previously purchased
Integration may be forward, towards the Integration may be forward, towards the customer, or backward, towards supplierscustomer, or backward, towards suppliers
Can improve cost, quality, and inventory Can improve cost, quality, and inventory but requires capital, managerial skills, and but requires capital, managerial skills, and demanddemand
Risky in industries with rapid technological Risky in industries with rapid technological changechange
Keiretsu NetworksKeiretsu Networks Supplier becomes part of the company Supplier becomes part of the company
coalitioncoalition
Often provide financial support for Often provide financial support for suppliers through ownership or loanssuppliers through ownership or loans
Members expect long-term relationships Members expect long-term relationships and provide technical expertise and stable and provide technical expertise and stable deliveriesdeliveries
May extend through several levels of the May extend through several levels of the supply chainsupply chain
Rely on a variety of supplier Rely on a variety of supplier relationships to provide services on relationships to provide services on demanddemand
Fluid organizational boundaries that Fluid organizational boundaries that allow the creation of unique enterprises allow the creation of unique enterprises to meet changing market demandsto meet changing market demands
Exceptionally lean performance, low Exceptionally lean performance, low capital investment, flexibility, and speedcapital investment, flexibility, and speed
There are significant management issues in There are significant management issues in controlling a supply chain involving many controlling a supply chain involving many independent organizationsindependent organizations
Issues in an Integrated Issues in an Integrated Supply ChainSupply Chain
Local optimization - focusing on local Local optimization - focusing on local profit or cost minimization based on profit or cost minimization based on limited knowledgelimited knowledge
Incentives (sales incentives, quantity Incentives (sales incentives, quantity discounts, quotas, and promotions) - discounts, quotas, and promotions) - push merchandise prior to salepush merchandise prior to sale
Large lots - low unit cost but do not Large lots - low unit cost but do not reflect salesreflect sales
Bullwhip effect - stable demand becomes Bullwhip effect - stable demand becomes lumpy orders through the supply chainlumpy orders through the supply chain
NegotiationsNegotiations Cost-Based Price Model - supplier Cost-Based Price Model - supplier
opens books to purchaseropens books to purchaser
Market-Based Price Model - price Market-Based Price Model - price based on published, auction, or based on published, auction, or indexed priceindexed price
Competitive Bidding - used for Competitive Bidding - used for infrequent purchases but may make infrequent purchases but may make establishing long-term relationships establishing long-term relationships difficultdifficult
Objective is to obtain efficient Objective is to obtain efficient operations through the integration operations through the integration of all material acquisition, of all material acquisition, movement, and storage activitiesmovement, and storage activities
A frequent candidate for A frequent candidate for outsourcingoutsourcing
Gain competitive advantage Gain competitive advantage through reduced costs and through reduced costs and improved customer serviceimproved customer service
Cost of Shipping Cost of Shipping AlternativesAlternatives
Value of connectors = Value of connectors = $1,750.00$1,750.00Holding cost Holding cost = 40%= 40% per year per yearSecond carrier is Second carrier is 11 day faster and day faster and $20$20 more more expensiveexpensive
Daily cost of Daily cost of holding productholding product == xx /365/365
annual annual holding holding
costcost
product product valuevalue
= (.40 x $1,750)/ 365 = $1.92= (.40 x $1,750)/ 365 = $1.92
Since it costs less to hold the product one day longer than it does for the faster shipping ($1.92 < $20), we should use the cheaper, slower shipper
Logistics, Security, and JITLogistics, Security, and JIT
Borders are becoming more open in Borders are becoming more open in the U.S. and around the worldthe U.S. and around the world
Monitoring and controlling stock Monitoring and controlling stock moving through supply chains is moving through supply chains is more important than evermore important than ever
New technologies are being New technologies are being developed to allow close monitoring developed to allow close monitoring of location, storage conditions, and of location, storage conditions, and movementmovement