RETURN ON INVESTMENT METHODS TO MAXIMIZE. WORKING CAPITAL COMPONENTS RAW MATERIAL, FINISHED GOODS AND GOODS IN SERVICE INVENTORIES, ACCOUNTS PAYABLE AND.

RETURN ON INVESTMENT

METHODS TO MAXIMIZE

WORKING CAPITAL COMPONENTS

RAW MATERIAL, FINISHED GOODS AND GOODS IN SERVICE INVENTORIES, ACCOUNTS PAYABLE AND ACCOUNTS RECEIVABLEWHEN MONEY IS USED FOR WORKING CAPITAL ITEMS, IT CANNOT BE USED FOR OTHER FORMS OF INVESTMENTIDEALLY THE AMOUNT OF WORKING CAPITAL IS MINIMIZED

SMALL INVENTORIES\RAPID PROCESSING FROM RAW MATERIALS TO FINISHED GOODS

SUPPLY CHAIN MANAGEMENT

ATTEMPTS TO OPTIMIZE WORKING CAPITAL FOR PROCESSES – MAXIMUM PROFIT/MINIUM INVESTMENT

FOR SOME OPERATIONS, THIS METHOD SHIFTS INVENTORIES TO SUPPLIERS AND/OR CUSTOMERS

()

11 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall

1111 Supply-Chain ManagementSupply-Chain Management

PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e

PowerPoint slides by Jeff Heyl

11 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall

Supply-Chain Management

The objective is to build a chain of suppliers that focuses on

maximizing value to the ultimate customer

11 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall

The Supply Chain’s Strategic Importance

Supply chain management is the integration of the activities that procure materials and services,

transform them into intermediate goods and final products, and deliver them through a distribution system

Competition is no longer between companies; it is between supply chains

11 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall

Supply Chain Management

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, and production information

Important activities include determining

11 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall

A Supply Chain for Beer

Figure 11.1

11 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall

How Supply Chain Decisions Impact Strategy

Low-Cost Strategy

Response Strategy

Differentiation Strategy

Supplier’s goal

Supply demand at lowest possible cost (e.g., Emerson Electric, Taco Bell)

Respond quickly to changing requirements and demand to minimize stockouts (e.g., Dell Computers)

Share market research; jointly develop products and options (e.g., Benetton)

Primary selection criteria

Select primarily for cost

Select primarily for capacity, speed, and flexibility

Select primarily for product development skills

Table 11.1

11 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall

How Supply Chain Decisions Impact Strategy

Low-Cost Strategy

Response Strategy

Differentiation Strategy

Process charact-eristics

Maintain high average utilization

Invest in excess capacity and flexible processes

Modular processes that lend themselves to mass customization

Inventory charact-eristics

Minimize inventory throughout the chain to hold down cost

Develop responsive system with buffer stocks positioned to ensure supply

Minimize inventory in the chain to avoid obsolescence

Table 11.1

11 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall

How Supply Chain Decisions Impact Strategy

Low-Cost Strategy

Response Strategy

Differentiation Strategy

Lead-time charact-eristics

Shorten lead time as long as it does not increase costs

Invest aggressively to reduce production lead time

Invest aggressively to reduce development lead time

Product-design charact-eristics

Maximize performance and minimize costs

Use product designs that lead to low setup time and rapid production ramp-up

Use modular design to postpone product differentiation as long as possible

Table 11.1

11 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall

Supply Chain Risk

More reliance on supply chains means more risk

Fewer suppliers increase dependence Compounded by globalization and

logistical complexity Vendor reliability and quality risks Political and currency risks

11 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall

Supply Chain Risk

Mitigate and react to disruptions in1. Processes

2. Controls

3. Environment

JUST-IN-TIME MANUFACTURING

THIS PROCESS WAS OPTIMIZED INITIALLY IN JAPAN

(http://www.strategosinc.com/just_in_time.htm) FOR A BRIEF HISTORY

THE BALDRIGE NATIONAL QUALITY PROGRAM

(http://www.quality.nist.gov/index.html )SPONSORED THROUGH NATIONAL INISTITUTE OF STANDARDS AND TECHNOLGY (NIST) , MAKES ANNUAL AWARDS TO FIRMS THAT ARE MOST SUCCESSFUL IN INSTITUTING NEW EFFICIENCY CONCEPTS

APPLIED TO A RANGE OF PROCESSES

SPARE PARTS MANAGEMENT

ACTUAL PARTS MAY BE BASED ON RECOMMENDATION FROM ENGINEERS AND VENDORS FOR SOME COMPONENTSCOMPONENTS MAY BE DFC IF THEY ARE CUSTOM UNITSMAJORITY ARE PROBABLY CATALOGUE ITEMS , WHICH MAKE THEM WORKING CAPITAL

http://www.insightcontrol.com/aftermarket/images/STOCKRM.jpg

SPARE PARTS

MANAGING SPARE PARTS INVENTORIES CAN BE ORGANIZED TO MINIMIZE MONEY COMMITMENTS WHILE PROVIDING RELIABLE SOURCES FOR SPARES (fp.tm.tue.nl/beta/publications/ working%20papers/Beta_wp110.pdf)

http://www.friotherm.com/impeller.jpg

OTHER CAPITAL COST COMPONENTS

CATEGORIES SHOWN IN TABLE (6-18)

ALLOCATED PLANT COSTS

TYPICALLY INCLUDE ITEMS THAT ARE NOT INCLUDED IN COST CENTERS

FUNCTIONAL UNITS NECESSARY FOR PRODUCTION- UTILITIES, LABS, SAFETY & SECURITY, STORAGE

OVERHEAD COMPONENTS USED FOR MANAGEMENT – ACCOUNTING, PERSONNEL, AND ADMINISTRATIVE PERSONNEL

ALLOCATED CORPORATE COSTS

FUNCTIONAL UNITS NECESSARY TO DISTRIBUTE AND SELL THE PRODUCT

MARKETING, SALES, AND DISTRIBUTION

OVERHEAD COMPONENTS USED FOR MANAGEMENT

RESEARCH & DEVELOPMENT, CORPORATE ENGINEERING, CORPORATE LEVEL

ACCOUNTING, PERSONNEL, AND ADMINISTRATIVE PERSONNEL

VALUES APPLIED TO ALLOCATED COSTS

THESE HAVE BEEN CORPORATE DECISIONS IN THE PASTFOR GOVERNMENT CONTRACTS THE FEDERAL ACQUISITION REGULATIONS NORMALLY LIMIT THE AMOUNTS THAT CAN BE CHARGED TO THESE COMPONENTS (http://www.whitehouse.gov/omb/circulars_a087_2004)PRIVATE INDUSTRY DID NOT HAVE THESE TYPES OF RESTRICTIONS AND WERE SELF-REGULATED UNTIL 2002 (http://en.wikipedia.org/wiki/Cost_Accounting_Standards)

RESPONSES OF SHAREHOLDERS TO ETHICAL LAPSES

VIOLATIONS BY SEVERAL CORPORATIONS (ENRON, TYCO, ETC.)

CONGRESS PASSED THE SARBANES-OXLEY ACT OF 2002, TO PROVIDE CORPORATE SHAREHOLDERS WITH A MORE ACCURATE ACCOUNTING SYSTEM

SOX MAP

http://www.iflexconsulting.com/images1/section.gif)

IMPACT OF SOXTHESE REGULATIONS: HAVE ADDED COSTS TO CORPORATE OPERATIONS, RESULTED IN CHANGES IN RELATIONSHIPS BETWEEN MANAGEMENT AND BOARDS OF DIRECTORS, GENERALLY IMPROVED INTERNAL ACCOUNTING FUNCTIONS TO PROVIDE CORPORATIONS WITH BETTER DATA (http://www.pwc.com/extweb/pwcpublications.nsf/4bd5f76b48e282738525662b00739e22/3b79ecb3fefacfd085256f94005d5098/$FILE/Finding_the_Silver_Lining.pdf)

http://www.sarbanesoxleysimplified.com/sarboxoutline.shtml

TRANSPORTATION AND DISTRIBUTION COSTS

NORMALLY INCLUDED IN DELIVERED COST TO CUSTOMERS

ALTERNATE METHODS NEED TO BE CONSIDERED BASED ON THE TYPE OF PRODUCT

TRANSPORT OF BULK CHEMICALS

LEAST EXPENSIVEPIPELINE TO THE CUSTOMER

OR CONVEYOR TO THE CUSTOMER

IF PIPELINE OR CONVERYOR IS LEASED BY THE COMPANY

BULK CHEMICAL TRANSPORT

BARGES ARE ALSO INEXPENSIVEIF FACILITIES FOR LOADING AND UNLOADING (INCLUDING INVENTORIES) ARE PRESENTIF BARGES BELONG TO COMPANY

BULK CHEMICAL TRANSPORT

RAIL SHIPMENT MAY BE IN LEASED OR OWNED CARS,

UNIT TRAINS.

CHARGES ARE HIGH BECAUSE OF LACK OF COMPETITION

http://www.mining-technology.com/projects/twentymile/twentymile7.html)

BULK CHEMICAL TRANSPORT

TRUCKING IS THE NORMALLY THE MOST EXPENSIVE FOR BULK SHIPMENTS, BUT NECESSARY WHEN NO OTHER OPTIONS ARE LOCALLY AVAILABLE.

(http://www.braums.com/CRXDQWHFA/HomeWork/Tour/Trucking.jpg)

OTHER SHIPPING PRACTICES

FREIGHT ADJUSTED PRICING ALLOWS FOR SOME REDUCTION IN SHIPPING COSTSUSE OF A COMPETITIVE SUPPLIER TO MANUFACTURE PRODUCTS TO YOUR SPECIFICATIONS AND DELIVER TO CUSTOMERS NEAR THEIR PLANT, REDUCES COSTS TO CUSTOMERS AND SUPPLIERSTHIS METHOD

ASSURES PLANTS OPERATE AT HIGHER RATES, SO UNNECESSARY CAPACITY IS NOT CREATED PROVIDES SOME INSURANCE IN THE EVENT ONE OF THE PARTICIPANTS SUFFERS A CATASTROPHIC LOSS THAT RESULTED IN EXTENDED DOWN TIME.CAN REDUCE THE INVENTORIES AT MANUFACTURING SITES IF THE DELIVERY TIMES ARE REDUCED

BULK CHEMICAL DISTRIBUTION SYSTEMS

OFF-SITE WAREHOUSING AND TANKAGEFREES UP PLANT REAL ESTATE FOR PRODUCTIONCAN REDUCE HAZARDS DUE TO FIRES OR RELEASES (http://chemical-safety.com/security.htm)MAY BE PRACTICAL WHEN PIPELINE SYSTEMS CANNOT BE ECONOMICALLY USED FOR SMALL QUANTITY CUSTOMERS.

http://www.dairyland.com/media/content_stock_001.jpg

SMALL VOLUME/MASS PRODUCTS

SUCH AS SPECIALITY FOOD AND FINE CHEMICALS OR BIO-PHARM CHEMICALS

SHIPPING IS NOT A SIGNIFICANT COST

CAN USE TRUCKING OR AIR SHIPMENT

MAY REQUIRE SPECIAL HANDLING IF MATERIALS HAVE HAZARDOUS PROPERTIES OR THERMAL SENSITIVITIES.