BUSSPP 0200 1st Edition Lecture 17 Outline of Last Lecture I. Introduction to supply chain management II. The Basic Supply Chain ModelIII. Having Estimated DemandIV. Manufacturer to End UserOutline of Current Lecture I. Supply Chain Layout in Depth II. What Holds the Chain Together? III. Markets Experience Instability IV. Responses to Instability Current LectureI. Recall general supply chain layout A. Potentially multiple players at each level B. Ford’s assembly line method 1. This is how all cars are made now 2. Most parts are purchased as Intermediate Goods a. Ex. Sound systems – build by INTERMEDIATE GOODS b. Long chain of production from intermediate goods 3. 3 Tiers of IG in the car manufacturing industry a. THIS A REMARKABLY COMPLEX SUPPLY CHAIN II. So what holds the supply chain together? A. Transactions – go waaay back to chapter two. What kinds? 1. Market transactions – between a firm and some other entity within its environment (alternative being transfer) a. Assume from now on that all entities of the supply chain are separate entities b. Stable markets (the goal) – price, attributes, availability i. So assume… whenever you need something, it’s available with reliable attributes at an assumed/expected price ii. If this is true, most of these transactions will be SPOT (super These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.high probablility, NOT CERTAINTY THOUGH) iii. If this is true, most of these transactions will be PURCHASE (super high probablility, NOT CERTAINTY THOUGH) III. Except these markets go through instability A. These markets are typically cyclical/seasonal 1. Market behaves may behave in small segments that are stable, but not overall 2. Random effects: weather, laborer issues B. So how does this affect supply chain mgmt? 1. Instability at the top of the chain is much more catastrophic than lower in the chain IV. Responses to Instability A. ex. supply chain of Intermediate Goods – Manufacturer – Retailer 1. IG quality, price, or availability is starting to get a little wonky B. Solution: Change vendors (pretty obvious) 1. Solution: Change customers (less obvious) C. Transaction Cost: how much does it cost to maintain a stable market? 1. Also includes the idea of searching – time and money D. Spot vs. Future transaction markets 1. Spot if possible 2. Assume something catastrophic happens: company may want to begin future transactions to lock in price/availability a. Futures transactions help manage risk, but are inherently risky 3. Special relationships – manufacturer of cookies needs flour a. 10K Tons of flour/week i. May be buying from 1+ vendors ii. Vendor with the best reputation can only supply 5 tons a week -enter long-term agreement with this vendor as long as quality and service remain constant, more leeway with price iii. Vendor can now reduce many costs (marketing, delivery…) b. Manufacturer eliminates search costs i. Increasing trust between manufacturer and vendor c. Issues: the purchaser is vulnerable because half of your flour comes from one vendor, vendor is vulnerable if the manufacturer suddenly drops them 4. Captured supplier relationship ↑ a. sole sourceb. Limited distribution – retailer is good at what they do (selling!) i. Exclusive – selling through one entity ii. Has emerged from luxury goods to more common goods 6. Franchise Relationship – operating under a well-known name to reduce risk offailure a. Parent company receives: i. Franchise fee ii. Royalty pay iii. Supply pay iv. Reduced risk E. Maybe vertical integration is less costly and will produce better results 1. Hierarchical costs: acquiring, starting, and operating the up-stream/down-stream
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