Production and Operations Management Eighth Edition Manufacturing and

Production and Operations Management: Eighth Edition Manufacturing and Services Power. Point Presentation for Chapter 12 Managing the Supply Chain Chase Aquilano Jacobs Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1998

Chapter 12 Managing the Supply Chain u Supply Chain Management u Outsourcing u Value Density u Purchasing u The Firm as Supplier u JIT Purchasing u Global Purchasing 2

Supply Chain Management u Apply a total systems approach to managing the entire flow of – – – information materials and services Raw material suppliers Factories & warehouses End customer 3

Outsourcing u Purchased items account for 60 to 70% of the cost of goods sold. u Outsourcing allows firms to focus on their core competencies. – Organizations outsource when they decide to purchase something they had been making in-house. u Typically handled by materials management function. 4

Make or Buy u Current trend favors outsourcing all activities that do not directly represent or support core competencies. u Are there any dangers associated with aggressive outsourcing? What are the implications for JIT production? 5

Value Density u Value per unit of weight u Why is it important to know value per unit of weight? Is high value density good or bad? 6

Purchasing u No longer just order takers…. u Purchasing – – need to know material performance availability suppliers 7

The Firm as a Supplier u In this chapter, we discuss the role of the firm as a buyer of goods and services. u How does the perspective change when the shoe is on the other foot? 8

Partnership Relationship u Continuing relationship involving – a commitment over an extended time period, – an exchange of information, and – an acknowledgement of the risks & rewards of the relationship. 9

Supplier Selection Using the Analytical Hierarchy Process (AHP) u Process used to determine weights for supplierselection criteria. – – AHP allows individuals to use their own personal psychometric scale for making pair-wise comparisons between criteria used to evaluate suppliers. Consistency measures can be calculated as a crosscheck to determine how well the scale is being followed. 10

JIT Purchasing--Requirements u Reduced lot sizes u Frequent and reliable delivery schedules u Reduced and highly reliable lead times u Consistently high quality levels for purchased materials 11

JIT Purchasing--Suppliers u Fewer, nearby suppliers u Repeat business u Support suppliers’ competitiveness u Clusters of remote suppliers u Limit competitive bidding to new parts u Resist vertical integration u Encourage suppliers to implement JIT purchasing 12

JIT Purchasing--Quantities u Steady output rate (a desirable prerequisite) u Frequent deliveries in small lot quantities u Long-term contract agreements with minimal release paperwork u Deliver quantities variable from release to release but fixed for whole contract term 13

JIT Purchasing--Quantities (Ctd) u Little or no permissible overage or underage of receipts u Suppliers encouraged to package in exact quantities u Suppliers encouraged to reduce their production lot sizes (or store unreleased material) 14

JIT Purchasing--Quality u Minimal product specifications imposed on supplier u Help suppliers to meet quality requirements u Close relationships between buyers' and suppliers' quality assurance people u Suppliers encouraged to use process control charts instead of lot sampling inspection 15

JIT Purchasing--Shipping u Scheduling u Gain – – – of inbound freight control by use of company-owned or contract shipping contract warehousing trailers for freight consolidation/storage 16

JIT Purchasing--Benefits u Consistent u Savings u Lower quality on resources costs u Special attention u Saving on tooling u Loyalty associated with long-term relationships with suppliers 17

Global Sourcing u Original strategy was to reduce production costs. u Changing – – – focus of global purchasing includes product availability technology delivery lead times labor availability and quality. 18

Electronic Information Flow u Electronic u Quick Data Interchange (EDI) Response (QR) u Efficient Consumer Response (ECR) 19