Operations

Management
Chapter 11 –
Supply-Chain Management
(SCM)

11 – 1
 The Strategic Importance
of the Supply Chain
Supply-chain management is the
……………………. of the activities that
……………….. materials and services,
……………… them into intermediate
goods and the final product, and
…………………… them to customers
Competition is no longer between
companies; it is between supply chains
11 – 2
A Supply Chain

Figure 11.1
11 – 3
Global Supply-Chain Issues
Supply chains in a global environment
must be able to
 React to …………………. in parts availability,
distribution, or shipping channels, import
duties, and currency rates
 Use the latest computer and transmission
technologies ……………………… and
……………………………………….. of parts in
and finished products out
 Staff with local specialists who handle
duties, freight, customs and political issues
11 – 4
 Make-or-Buy Decisions
Reasons for Making
1. Maintain core competence
2. Lower production cost
3. Unsuitable suppliers
4. Assure adequate supply (quantity or delivery)
5. Utilize surplus labor or facilities
6. Obtain desired quality
7. Remove supplier collusion
8. Obtain unique item that would entail a prohibitive
commitment for a supplier
9. Protect personnel from a layoff
10. Protect proprietary design or quality
11. Increase or maintain size of company
Table 11.4
11 – 5
 Make-or-Buy Decisions
Reasons for Buying
1. Frees management to deal with its primary
business
2. Lower acquisition cost
3. Preserve supplier commitment
4. Obtain technical or management ability
5. Inadequate capacity
6. Reduce inventory costs
7. Ensure alternative sources
8. Inadequate managerial or technical resources
9. Reciprocity
10. Item is protected by a patent or trade secret

Table 11.4
11 – 6
 Outsourcing
 ………………. traditional ……………..
and …………………….. of a firm to
outside vendors
 Utilizes the efficiency that comes
with ………………………………
 Firms outsource information
technology, accounting, legal,
logistics, and production

11 – 7
Principles and Standards for
Ethical Supply Management
Conduct

…………………………………………
JUSTICE TO THOSE WITH WHOM
YOU DEAL
………………………………………………

Table 11.5
11 – 8
 Supply-Chain Strategies
 Negotiating with …………………..
 Long-term partnering with
…………………………………….
 Vertical integration
 ……………………………………..
 Virtual companies that use
suppliers on an as needed basis
11 – 9
 Many Suppliers
 Commonly used for
………………………………………….
 Purchasing is typically based on
……………………….
 Suppliers are ………………..
against one another
 Supplier is responsible for
technology, expertise, forecasting,
cost, quality, and delivery
11 – 10
 Few Suppliers
 Buyer forms ……………………….
relationships with fewer suppliers
 Create value through …………………
and learning curve improvements
 Suppliers more willing to participate
in ………. programs and contribute
design and technological expertise
 Cost of changing suppliers is huge

11 – 11
 Vertical Integration
Vertical Integration Examples of Vertical Integration
Raw material Iron ore Silicon Farming
(suppliers)

Backward integration Steel

Current transformation Automobiles Integrated circuits Flour milling

Forward integration Distribution systemsCircuit boards

Finished goods Dealers Computers Watches Baked goods

(customers) Calculators

Figure 11.2
11 – 12
 Vertical Integration
 Developing the ability to produce goods or
service previously purchased
 Integration may be ……………, towards the
……………, or …………….., towards ………
 Can improve cost, quality, and inventory
but requires capital, managerial skills, and
demand
 Risky in industries with
…………………………………………………
11 – 13
 Keiretsu Networks
 A ………………………….. between few
suppliers and vertical integration
 Supplier becomes part of the company
………………………………….
 Often provide financial support for
suppliers through ……..…. or ………………
 Members expect long-term relationships
and provide technical expertise and stable
deliveries
 May extend through several levels of the
supply chain
11 – 14
 Internet Purchasing
Four Common Variations
 Internet used to communicate
order releases against
……………………………………
 Internet replaces other forms of
electronic order releases

11 – 15
 Internet Purchasing
Four Common Variations
 Internet used to buy non-
standard items from catalogs
 ………………………………………
……………………………………..
 ………………………………………
……………………………………..

11 – 16
 Internet Purchasing
Four Common Variations
 Traditional purchasing system,
but Internet-based
 Significantly speeds up
requisitioning, bidding, supplier
selection, and order placement

11 – 17
 Internet Purchasing
Four Common Variations
 Internet auctions
 May be used for commodity
items for which long-term
contracts do not exist

11 – 18
 Internet Purchasing

 Suppliers …………….. to their customers

 Shorter cycle times may
………………………………………………
 ……………………………………… is low
 Buyers enjoy comparison shopping,
rapid ordering, reduced transaction
costs, and lower inventory
 May be part of an integrated
……………………………………….. system

11 – 19
 Vendor Selection
 Vendor evaluation
 Critical decision
 Find potential vendors
 Determine the …………………… of
them becoming good suppliers
 Vendor Development
 Training
 Engineering and production help
 Establish policies and procedures
11 – 20
 Vendor Selection
 Negotiations
 ………………………… - supplier opens
books to purchaser
 …………………… - price based on
published, auction, or indexed price
 …………………….. - used for
infrequent purchases but may make
establishing long-term relationships
difficult

11 – 21
 Logistics Management
 Objective is to obtain efficient
operations through the
……………………………………………
……………………………………………
 A frequent candidate for
…………………………
 Gain competitive advantage
through ……………….. and
………………………………………
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 Distribution Systems
 Trucking
 Moves the vast majority of
……………………………………
 Chief advantage is ………………
 Railroads
 Capable of carrying …………….
 Little …………………. though
containers and piggybacking
have helped with this
11 – 23
 Distribution Systems
 Airfreight
 Fast and flexible for …………….
 May be ………………………..
 Waterways
 Typically used for ……………….
 Used when ………………………
is more important than speed

11 – 24
 Distribution Systems
 Pipelines
 Used for transporting oil, gas,
and other chemical products

11 – 25
 Cost of Shipping
Alternatives
 Product in transit is a form of
inventory and has a ………………..
 Faster shipping is generally more
…………….. than slower shipping
 We can evaluate the two costs to
better understand the
……………………………

11 – 26
 Cost of Shipping
Alternatives
Value of connectors = $1,750.00
Holding cost = 40% per year
Second carrier is 1 day faster and $20 more
expensive

Daily cost of = annual x product /365

holding product holding
value
cost
= (.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
11 – 27
 The Internet
 International computer network
 Connects companies and people
around the world
 Enables the integration of internal
information systems and enhanced
communications between organizations
 Ties together global design,
manufacturing, delivery, sales, and
after-service

11 – 28
 The Internet
 Reshaping how businesses think about
delivering value to customers
 Prime benefits are speed and access
 Important vehicle for change in
Operations Management
 Intranets are internal networks not
available to external users
 Growing daily with over 300 million
domains registered worldwide

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 Electronic Commerce
 E-commerce (or e-business) –
…………………………………………………
………………………………………………..
 Low cost rapid exchanges
 A whole new way of doing business
“… all about cycle time, speed, globalization,
enhanced productivity, reaching new
customers and sharing knowledge across
institutions for competitive advantage.”
Louis Gerstner
Former Chairman, IBM
11 – 30
 E-Commerce Definitions
 Business-to-business (B2B)
 Business-to-consumer (B2C)
 Consumer-to-consumer (C2C)
 Consumer-to-business (C2B)

11 – 31
Economics of E-Commerce

 …………………………………………
…………………………
 ………………………………………
 Time constraints almost disappear
 Information and communication is
………………………………………..

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 Types of Information
 Product — drawings, specifications,
video, or simulation demonstrations,
prices
 Production Processes — capacities,
commitments, product plans
 Transportation — carrier availability,
lead times, costs
 Inventory — inventory tracking, levels,
costs, and location
Table S11.1

11 – 33
 Types of Information
 Suppliers — product catalog, quality
history, lead times, terms, and
conditions
 Supply Chain Alliances — key contact,
partners’ roles and responsibilities,
schedules
 Supply Chain Process and Performance
— process descriptions, performance
measures such as quality and delivery
Table S11.1

11 – 34
 Types of Information
 Competitor — benchmarking, product
offerings, market share
 Sales and Marketing — point of sale
(POS) data entry, promotions, pricing,
discounts
 Customer — sales history and forecasts
 Costs — market indexes, auction results

Table S11.1

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 Benefits and Limitations
Benefits of E-Commerce
 Improved, lower-cost information that
makes buyers and sellers more
knowledgeable has an inherent power to
drive down costs
 …………………………………………………
 Available 24 hours a day, virtually any
place in the world, enabling convenient
transactions for those concerned

Table S11.2
11 – 36
 Benefits and Limitations
 …………………………………………………
…………………………………………………
 Decreases the cost of creating,
processing, distributing, storing, and
retrieving paper-based information
 ………………………………………………..
 Richer communication than traditional
paper and telephone communication
because of video clips, voice, and
demonstrations
Table S11.2
11 – 37
 Benefits and Limitations
 Fast delivery of digitized products such
as drawings, documents, and software
 Increased flexibility of location. (That is,
it allows some processes to be located
anywhere electronic communications
can be established, and allows people
to shop and work from home.)

Table S11.2
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 Benefits and Limitations
Limitations of E-Commerce
 Lack of system security, reliability, and
standards
 ……………………………………………
 ………………………………………………
 Integrating e-commerce software with
existing software and databases is still
a challenge

Table S11.2
11 – 39
 Benefits and Limitations
 Lack of trust in (1) unknowns about the
integrity of those on the other end of a
transaction, (2) integrity of the
transaction itself, and (3) electronic
money that is only bits and bytes

Security and risk are major

factors in E-commerce

Table S11.2
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 Collaborative Project
Management

 Project management software

allows for establishing intranet
sites for sharing documents and
maintaining status reports
 Intranets can also be used for
document libraries

11 – 41
 Inventory Tracking

 Technologies like bar code

scanners, radio frequency,
electronic communications can be
used by almost any firm to track
inventory in transit, on the shop
floor, or in a warehouse

11 – 42
 Inventory Reduction
 Warehousing for E-Commerce
 Managed by a logistics vendor
 Pass-through facility rather than
storage
 Just-in-Time Delivery for E-
Commerce
 ……………………………………………
……………………………………………
 E-commerce service companies
manage complex transactions
11 – 43