Professional Documents
Culture Documents
Management
MBA 570
Summer 2007
1
Outline
¨ Global Company Profile: Volkswagon
¨ The Strategic Importance of the Supply-Chain
¨ Global Supply-Chain Issues
¨ Supply Chain Economics
¨ Make-or-Buy Decisions
¨ Outsourcing
2
Outline - continued
¨ Supply-Chain Strategies
¨ Many Suppliers
¨ Few Suppliers
¨ Vertical Integration
¨ Keiretsu Networks
¨ Virtual Companies
¨ Vendor Selection
¨ Vendor Evaluation
¨ Vendor Development
¨ Negotiations
3
Outline - continued
¨ Managing the Supply-Chain
¨ Materials Management
¨ Distribution Systems
¨ Benchmarking Supply-Chain Management
4
Learning Objectives
5
Volkswagon
¨ Unusual elements:
¨ VW is buying not only materials, but also the
labor and related services
¨ Suppliers are integrated tightly into VW’s
own network, right down to assembly work in
the plant
7
Definition
8
Supply-Chain Management
9
The Supply Chain
Suppliers Suppliers
Tier 2 Tier 1 Distributors Retailers C
U
S
Manufacturing T
Inbound Logistics O
M
Operations
E
Outbound Logistics
R
S
Information
The time to act is now!
D. M. Lambert
T. C. Harrington
The Supply-Chain
VISA
®
12
The Supply Chain
Market research data
scheduling information
Engineering and design data
Supplier Order flow and cash flow Customer
Ideas and design to
Inventory satisfy end customer
Material flow
Supplier Credit flow
Manufacturer Customer
Inventory Inventory
Supplier
Distributor Customer
Inventory
13
Supply Chain Management Components:
Information Management
•Traditional supply chain: Forecasts based on different data.
Contributes to the bullwhip effect, excess inventory, and
stockouts.
Supply Chain Management Components:
Information Management
Improved approaches enabled by technology to collect,
store and communicate data
Collaborative planning, forecasting, and
replenishment (CPFR) – Approach to demand
planning in which partners negotiate and agree on a
plan for meeting demand
Material Costs in
Supply-Chain
Wholesale
8% 9%
COGS
Manufacturing
Payroll
31% Material 83%
Other
11% Dir Wages
58% Retail
Other
16% COGS
13%
Payroll
71%
Other
14
Supply-Chain Support for
Overall Strategy
Low Cost Response Differentiation
Supplier’s
goal Supply Respond Share
demand at quickly to market
lowest changing research;
possible cost requirement jointly
s and develop
demand to products and
minimize options
stockouts
Primary Select Select Select
Selection primarily primarily primarily for
Criteria for cost for capacity, product
speed, and development
flexibility skills
15
Supply-Chain Support for
Overall Strategy - continued
Low Cost Response Differentiation
Process Maintain high Invest in Modular
Characteristics average excess processes to
utilization capacity and lend
flexible themselves to
processes mass
customization
18
Purchasing
¨ Acquisition of goods & services
¨ Activities
¨ Help decide whether to make or buy
¨ Identify sources of supply
¨ Select suppliers & negotiate contracts
¨ Control vendor performance
¨ Importance
¨ Major cost center
¨ Affects quality of final product
19
Purchasing Costs as a Percent of
Sales
20
Dollars of Additional Sales Needed to
Equal 1$ Saved Through Purchasing
Percent of Sale
Firm's 30% 40%
Percent
Net
Profit 21
Motivating Forces: Supply Savings
Example
¨ U.S. businesses spend 20-30% of revenue acquiring goods
from outside suppliers
¨ 60% for manufacturing).
¨ Purchase cost savings have strong impact on bottom line.
¨ e.g., if the business saves just 6% in supply costs
($432,000), profit will increase by 45%.
Objectives of the Purchasing
Function
¨ Help identify the products and services
that can be best obtained externally;
and
¨ Develop, evaluate, and determine the
best supplier, price, and delivery for
those products and services
22
The Purchasing Focus
Materials Management Supply Management
-High transportation cost -High costs
-High inventory costs -Scarcity: national or
international
Purchasing
Management
-Commodity items
-Standard products
Source Management
-Unique items
-Custom-made items
-High technology items
23
Traditional Purchasing Process
Customer Supplier
Purchase Mail Order
Order Processing
Receiving
Receivables Dock
Report Packing
List
24
Purchasing Techniques
¨ Drop shipping and special packaging
¨ Blanket orders
¨ Invoiceless purchasing
¨ Electronic ordering and funds transfer
¨ Electronic data interchange (EDI)
¨ Stockless purchasing
¨ Standardization
25
Make/Buy Considerations
Reasons for Making Reasons for Buying
¨ lower production cost ¨ Frees management to deal with
¨ unsuitable suppliers primary business lower acquisition
cost
¨ assure adequate supply
¨ preserve supplier commitment
¨ utilize surplus labor and make a marginal
contribution ¨ obtain technical or management ability
¨ obtain desired quantity ¨ inadequate capacity
¨ remove supplier collusion ¨ reduce inventory costs
¨ obtain a unique item that would entail a ¨ ensure flexibility and alternate source
prohibitive commitment from the supplier of supply
¨ maintain organizational talent ¨ reciprocity
¨ protect proprietary design or quality ¨ item is protected by patent or trade
secret
¨ increase/maintain size of company
¨ frees management to deal with its
primary business
26
Purchasing Strategies
¨ Virtual company
© 1995 Corel Corp.
27
Supply-Chain Strategies
¨ Negotiate with many suppliers; play one supplier against
another
¨ Develop long-term “partnering” arrangements with a few
suppliers who will work with you to satisfy the end
customer
¨ Vertically integrate; buy the actual supplier
¨ Keiretsu - have your suppliers become part of a company
coalition
¨ Create a virtual company that uses suppliers on an as-
needed basis.
28
Many Suppliers Strategy
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Few Suppliers Strategy
30
Chrysler’s Supplier Cost
Reduction Effort
SupplierSugge
R ockw ell U se passe
locks on
R ockw ell 31
Sim plify
Tactics for Close Supplier
Relationships
Tactic Results
¨ Reduce total number of suppliers ¨ Average 20% reduction in 5
¨ Certify suppliers years
Integrated Current
Automobiles
Circuits Transformation
Distribution Forward
Circuit Boards
System Integration
Computers
Finished Goods
Dealers Watches Baked Goods
(Customers)
Calculators
34
Keiretsu Network Strategy
¨ Japanese word for ‘affiliated chain’
¨ System of mutual alliances and
cross-ownership
¨ Company stock is held by allied firms
¨ Lowers need for short-term profits
¨ Links manufacturers, suppliers, distributors,
& lenders
¨ ‘Partnerships’ extend across entire supply chain
35
Virtual Company Strategy
36
Vendor Selection Steps
¨ Vendor evaluation
¨ Identifying & selecting potential vendors
¨ Vendor development
¨ Integrating buyer & supplier
¨ Example: Electronic data exchange
¨ Negotiations
¨ Results in contract
¨ Specifies period of agreement, price, delivery
terms etc.
37
Supplier Selection Criteria
¨ Company ¨ Service
¨ Financial stability ¨ Delivery on time
¨ Management ¨ Condition on arrival
¨ Location ¨ Technical support
¨ Product ¨ Training
¨ Quality
¨ Price
38
Negotiation Strategies
¨ Three types:
¨ cost-based price model - supplier opens its books
to purchaser; price based upon fixed clause plus
escalation clause for materials and labor
¨ market-based price model - published price or
index
¨ competitive bidding - potential suppliers bid for
contract
39
Managing the Supply Chain
¨ Postponement – keeps product generic as long as possible
¨ Channel Assembly – sends to distributor individual components and
modules rather than finished goods
¨ Drop Shipping and Special Packaging – supplier will ship to end
consumer rather than to seller
¨ Blanket Orders – a long-term purchase commitment to a supplier for
items that are to be delivered against short-term releases to ship
¨ Standardization – reducing the number of variations in materials and
components
¨ Electronic Ordering and Funds Transfer – “paperless” ordering and
100% material acceptance, payment by “wire”
40
Managing the Supply-Chain -
Other Options
41
Logistics Management
42
Goods Movement Options
¨ Trucking
¨ Railways
¨ Airfreight
¨ Waterways
¨ Pipelines
43
Benchmarking Supply-Chain
Management
Typical Benchmark
Firms Firms
Number of suppliers 34 5
per purchasing agent
Purchasing costs as 3.3%
percent of purchases .8%
44
Supply-Chain Performance
Compared
Number of suppliers per 34 5
purchasing agent
Purchasing costs as percent of 3.3% 0.8%
purchases
Lead time (weeks) 15 8
Time spent in placing order 42 minutes 15 minutes
Percentage of late deliveries 33% 2%
Percentage of rejected material 1.5% .0001%
Number of shortages per year 400 4
45