Chatper 11

• Supply chain management impacts: Financials (ex: Profits, ROA, Inventory Turnover), Product development capabilities and agility, Product quality and reliability, Customer service and response levels, Global reach for sourcing and marketing
• Corporate strategy & supply chain design

  1. Low Cost Strategy
  2. Supply selection, primary criteria: cost
  3. Supply chain inventory: minimize inventory to hold down costs
  4. Distribution network: inexpensive transportation, sell through discount retailers
  5. Product design characteristics: maximum performance, minimum cost
• Differentiation strategy


  • Supply selection, primary criteria: product development skills, willing to share information, jointly and rapidly develop products
  • Supply chain inventory: minimum inventory to avoid product obsolescence with a quick change
  • Distribution network: ability to gather/communicate market research data, knowledgeable sales staff
  • Product design characteristics: modular design for customizable and product differentiation
• Sourcing issues: make-or-buy (choosing between obtaining products externally as opposed to producing them internally). Outsourcing (transfer traditional internal activities to outside vendors)
• Reasons for buying/outsourcing: cost advantage (suppliers have economies of scale). Specialization/expertise (firm doesn’t have expertise of outside provider). Technology/quality (suppliers have better tech. & processes). Insufficient capacity (firm at or near capacity/subcontracting from a supplier makes sense) 
• Reasons for making: protect proprietary tech, no competent supplier, better quality control, better control on lead time, transportation, & warehousing costs, lower product cost. 
• Six sourcing strategies


  • Many suppliers
  • Few suppliers
  • Vertical Integration
  • Keiretsu Networks
  • Joint Ventures
  • Virtual companies
• Many suppliers


  • Used when buying commodity products
  • Need capacity flexibility
  • Spread risk of supply interruption
  • Purchasing is based on price
  • Suppliers compete with one another
  • Supplier responsible for tech/expertise/forecast/cost/quality/delivery
• Few suppliers


  • Buyer forms longer term relationships with fewer suppliers
  • Create value through economies of scale/learning curve improvements
  • Suppliers participate in JIT programs and contribute design & tech expertise
  • Cost of changing suppliers is significant
  • Trade secrets may be used in other alliances
• Joint Ventures


  • Formal collaboration to: enhance skills [combined resources], secure supply [limited resources], reduce costs [economies of scale], cooperation w/o diluting brand/conceding competitive advantage
• Virtual companies


  • Rely on a variety of supplier relationships to provide services on demand
  • Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demand
  • May have short/long term relation
  • Exceptionally lean performance
  • Low capital investment
  • Flexible, agile
• Supply chain risk: more reliance on supply chains means more risk. Fewer supplies increase dependence. Vendor reliability and quality risks. Globalization and logistical complexities compound the risk factor. Political and currency risks. 
• Building the supply base: supplier evaluation: Finding potential suppliers. 2. Determining their capacities for becoming good suppliers. 3 supplier certifications: external certs (ISO-90001/ISO-14000), internal certs (qualification, education, certification)
• negotiation: significant element in purchasing, highly valued skills.

  
  

  Types of negotiation strategies: cost-based price model (suppliers open books to show cost/profit). Market-based price model (based on published/indexed pricing). Competitive bidding (common policy for many purchases but does not generally foster long-term relations). 
• Rewarding supplier performance: provides an incentive to surpass performance goals. Strategic supplier agreements can reward suppliers by allowing: a share of the cost reduction rewards, more business and/or longer contracts, access to in-house training/other resources, company/public recognition.
• Punishment is a negative reward: reduce future business, bill-back incremental costs from a late delivery or poor quality.
• Early supplier involvement (ESI): highly effective supply chain integrative techniques. Key suppliers become more involved in the internal operations of the firm, with respect to new product/process design, concurrent engineering/design for manufacturability techniques.

  Value engineering activities: help the firm to reduce cost/improve quality&reduce time for new product development.

  Supplier co-location: supplier’s employee is embedded in buyer’s purchasing dpt. To forecast demand, monitor inventory, & place orders with access to sensitive files/records.
• Common supplier selection performance metrics:

  • on-time delivery
  • quality of goods/services
  • service capability/performance
  • price competitiveness
  • compliance with contract terms
  • response
  • lead time
  • technical capability
  • performance, innovation
• Logistics management:

  • part of SCM that plans, implements, & controls the efficient, effective forward/reverse flow & storage of goods/services and related info.
  • A frequent candidate for outsourcing. A
  • Allows competitive advantage to be gained through reduced costs & improved customer service. (8.0% – logistics costs as a percentage of GDP for US) 
• Transportation: of goods to & from frim is up to 25% of total product’s cost.
• Establishing sustainability in supply chains:

  • return/reverse logistics (sending returned products back up the supply chain for resale, repair, reuse, remanufactured, recycling, or disposal)
  • closed-loop supply chain design (tries to optimize forward and reverse flows, prepares for returns prior to product introduction). 
• Order fulfillment:

  • make-to-stock (MTS) ⇒ performance measures: service level (number of orders filled when requested, inventory turnover, inventory replenishment time, capacity utilization, time to fill backorders, shrinkage rate.
  • Make-to-order (MTO) ⇒ lead time, % orders completed on time (customer request date, promise date) 
• Supply chain management enablers

  • Human resources (how job descriptions are designed, how positions are filled, how people are recognized/compensated, and how career paths are directed)
  • Organizational infrastructure design/strategic alignment (how functional strategies are align with corp. How business units /functional areas are organized; how change-management programs are led/coordinated)
  • Information technology (how tech (not just IT but also the materials-management techs for material design/operations/materials handling) affect a company's operational & strategic chain processes)
  • Measurement and benchmarking (how organizations select/act on supply chain management areas of measurement and benchmarking)