Lecture 6Lecture 2CHAPTER 1 Lecture 3CHAPTER 2- PART 1 Lecture 4CHAPTER 2-PART 2 Lecture 5Chapter 3-Part 1 Lecture 6Chapter 3-Part 2 Lecture 7Chapter 4-Part 1 Lecture 8Chapter 4- Part 2 Lecture 9SCM 3301 1st EditionOutline of Previous LecturesLecture 6Supply Chain- consists of the flow of products and service from:- Raw materials manufacturers- Component and intermediate manufacturers- Final product manufacturers- Wholesalers, distributers, and retailers- Customer-Connected by transportation and storage activities, and integrated through planning and information sharing.Supply Chain Management: The integration of key business processes regarding the flow of materials from raw to the final customer.What is a Supply Chain?“Buy, Make, Ship”Suppliers > Materials > Transformation > Finished Goods > Distribution Centers > Customers1SCM 3301 1st EditionLecture 2Supply Chain Management (SCM) can be defined as the planning and control of all activities across the supply chain- a network of companies that buy, produce, move, store, and transform materials into finished products and services for eventual consumption by the end-user (customer).Manufacturing: Raw Materials > WIP > Finished Goods2SCM 3301 1st EditionWhy is Supply Chain Management Important?Firms have discovered value-enhancing and long term benefits (“better, cheaper, faster”)CHAPTER 1 Lecture 3Origins of Supply Chain Management1950’s & 1960s: mass production techniques1960s-1970s: new computer technology (MRP, MRP2)1980s & 1990s: intense global competition (JIT, TQM, BPR, and 3PL)2000s and Beyond: >supply chain relationships>sustainability and social responsibility>accelerated increase in SCM capabilities3SCM 3301 1st Edition- The middle of the supply chain is the Focal FirmExpanding (Contracting) the Supply Chain- Off-shoring, on-shoring, and right-shoring vs. outsourcingIncreasing Supply Chain Responsiveness- Agile Manufacturing, JIT (Lean), Mass Customization- Time-to-market and velocityThe Greening of Supply Chains- Sustainable Supply ChainReducing Overall Supply Chain CostsCHAPTER 2- PART 1 Lecture 4 The primary goals of purchasing are:- Ensure uninterrupted flows of raw materials, component parts.- Improve the quality of the finished goods produced- Acquire goods and services at the lowest total cost (TCO)Purchasing accomplishes these objectives by:- Activity seeking better materials and reliable suppliers- Working closely with and exploiting the expertise of strategic suppliers to improve quality and materials4SCM 3301 1st Edition- Involving suppliers and purchasing personnel in new product design and development efforts- Coordinating with production and operations to provide the right materials at theright time- Assisting suppliers with improving strategic capabilities - Revenue in 2010: $135.6 BILLION- Annual Direct Material Spend: $118.9 BILLIONo Direct Material Spend= 87.68% of Revenueo Gross Margin= 12.32%- If purchasing reduces direct material spend 1%o New Direct Material Spend= $117.71 BILLIONo Pre-tax profit increase= $1.19 BILLION- For sales to affect pre-tax profit of $1.19 Billion:o Sales would need to increase revenue by $9.66 Billiono This is equivalent to a 7.1% increase in sales revenueThe Purchasing Process (Procurement Cycle) “Manual Purchasing”Purpose:Standardization to reduce errorsOversight and internal controlDocumentation of the processStep 1- Material Requisition/Purchase RequisitionStep 2- The Request for Quotation (RFQ)Step 3- The Purchase Order (PO)Step 4- Receiving Document (Packing Slip)Step 5- Supplier InvoiceInterface with: Suppliers, Purchasing, Receiving, Storage (Inventory), Users (Operations), and Accounting (Accounts Payable).The Purchasing Process- e-ProcurementStep 1- Material user inputs a materials requisitionStep 2- Materials requisition submitted to buyerStep 3- Buyer assigns qualified suppliers to bidStep 4- Buyer reviews closed bids & selects a supplierBenefits:o Time and Cost Savingso Accuracy and Traceability5SCM 3301 1st Editiono Real Time and Mobile Datao Management Reporting CapabilitiesSourcing Decisions- Strategic Make or Buy Decision- Reasons to Buy or Outsource:o Cost advantageo Insufficient capacityo Lack of expertiseo Quality- Reasons to Make or Vertically Integrate:o Protect proprietary technologyo No competent suppliero Better quality controlo Utilize existing idle capacityo Control and minimization of lead-time transportationo Lower warehousing costsCHAPTER 2-PART 2 Lecture 5 Supplier Selection Criteria- SSQDC- Safety: Internal, External- Sustainability: Green, Ethics- Quality: Consistency, Conformance, Service- Delivery: Reliability, Speed, Capacity- Cost: Total Cost of Ownership- Other Considerations:o Product and Process Technologieso Willingness to Share Technologies and Informationo Communication CapabilityTotal Cost of Ownership- Per Piece Price (Unit Price)- Quantity Requirements (or Discounts)- Payment Terms (Cash Location)- Transportation Costs (Location)6SCM 3301 1st Edition- Ordering Costs- Cost of Quality (Maintenance Costs)- Delivery PerformanceHow Many Suppliers to Use-Supplier RationalizationSingle-Source- a risky proposition; Current trends favor fewer sources (tension between supply disruption risk and leveraged spend).Reasons Favoring a Single Supplier:o To establish a Good relationshipo Less quality variabilityo Lower costo Transportation economieso Proprietary product or processo Volume too small to splitReasons Favoring Multiple Suppliers:o Need capacityo Spread risk of supply interruption (redundancy)o Create competitiono Informationo Dealing with special kinds of businessSourcing StrategyDemand Aggregation + Supplier Rationalization = Leveraged Spend- Demand Aggregationo Combining the material requirements across the enterprise into a single purchase.- Supplier Rationalizationo Assuring that approved suppliers possess the optimal characteristics- Accomplishing both of these gives a company maximum “leveraged spend”7SCM 3301 1st EditionPurchasing-Centralized vs. DecentralizedAdvantages-Centralizationo Concentrated volumeo Leveraging purchase volumeo Avoid duplicationo Specializationo Lower transportation costso No competition within unitsAdvantages-Decentralizationo Closer knowledge of requirementso Local sourcingo Less bureaucracyA center led sourcing organizationA hybrid purchasing organizationChapter 3-Part 1