Lecture Principle of inventory and material management - Lecture 16

Lecture 16 - Purchasing and Supply Chain (continued). The contents of this chapter include all of the following: Supply chain strategies, suppliers, vertical integration, managing supply chain, issues in integrated supply chain, opportunities in integrated supply chain, keiretsu networks, E-Procurement, distribution, managing supply chain performance.

Lecture 16 Purchasing and Supply Chain (continued) Books • Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming  College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M.  Clive, P.E., CFPIM, Fleming College • Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005,  N.Y.: McGraw­Hill/Irwin • Operations Management, 11/E, Jay Heizer, Texas Lutheran University, Barry Render, Graduate School of  Business, Rollins College, Prentice Hall Objectives • • • • • • • • • • Supply Chain Strategies Suppliers Vertical Integration Managing Supply chain Issues in integrated supply chain Opportunities in integrated supply chain KeiretsuNetworks EưProcurement Distribution Managingsupplychainperformance SupplyChainStrategies Negotiating with many suppliers ỵ Long-term partnering with few suppliers ỵ Vertical integration ỵ Keiretsu þ Virtual companies that use suppliers on an as needed basis ỵ ManySuppliers Commonly used for commodity products ỵ Purchasing is typically based on price ỵ Suppliers compete with one another ỵ Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery ỵ FewSuppliers Buyer forms longer term relationships with fewer suppliers ỵ Create value through economies of scale and learning curve improvements ỵ Suppliers more willing to participate in JIT programs and contribute design and technological expertise ỵ Cost of changing suppliers is huge ỵ VerticalIntegration Vertical Integration Examples of Vertical Integration Raw material (suppliers) Iron ore Backward integration Steel Current transformation Automobiles Forward integration Finished goods (customers) Distribution systems Dealers Silicon Integrated circuits Farming Flour milling Circuit boards Computers Watches Calculators Baked goods Vertical Integration Developing the ability to produce goods or service previously purchased ỵ Integration may be forward, towards the customer, or backward, towards suppliers ỵ Can improve cost, quality, and inventory but requires capital, managerial skills, and demand ỵ Risky in industries with rapid technological change ỵ KeiretsuNetworks A middle ground between few suppliers and vertical integration ỵ Supplier becomes part of the company coalition þ Often provide financial support for suppliers through ownership or loans ỵ Members expect long-term relationships and provide technical expertise and stable deliveries ỵ May extend through several levels of the supply chain ỵ VirtualCompanies Rely on a variety of supplier relationships to provide services on demand ỵ Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands ỵ Exceptionally lean performance, low capital investment, flexibility, and speed ỵ ManagingtheSupplyChain Therearesignificantmanagementissuesin controllingasupplychaininvolvingmany independentorganizations Mutual agreement on goals ỵ Trust ỵ Compatible organizational cultures ỵ DistributionSystems þ Pipelines þ Used for transporting oil, gas, and other chemical products ThirdưPartyLogistics ỵ ỵ ỵ Outsourcinglogisticscanreducecostsand improvedeliveryreliabilityandspeed Coordinatesupplierinventorywithdelivery services May provide  warehousing,  assembly, testing,  shipping, customs Cost of Shipping Alternatives Product in transit is a form of inventory and has a carrying cost ỵ Faster shipping is generally more expensive than slower shipping ỵ We can evaluate the two costs to better understand the trade-off þ Cost of Shipping Alternatives Value of connectors = $1,750.00 Holding cost = 40% per year Second carrier is day faster and $20 more expensive Daily cost of holding product = Annual holding cost x Product value /365 = (.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