Supply Chain Management Chapter 17 Supply Chain Management

Supply Chain Management Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -1

Supply Chain Management A key determinant of a company’s ability to compete n Today, competition is not “company vs. company but supply chain vs. supply chain” n Globalization has made supply chains longer and more complex n Global purchasing increases risk n Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -2

Supply Chain Risks Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -3

Supply Chain Management n n Companies spend nearly $20 trillion on goods and services each year Shaving 2% from a company’s CGS can increase net income by as much as 25% Aberdeen Group survey: 82% of companies had experienced a supply disruption or outage within the last two years Requires a sound purchasing plan Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -4

Components of a Purchasing Plan Right Quality Right Vendor Right Quantity The Purchasing Plan Right Time Chapter 17 Supply Chain Management Right Price Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -5

The Purchasing Plan n Quality Ø Kaizen Ø Total Quality Management n Deming’s Ø Six n 14 Points Sigma Quantity Ø Economic Order Quantity Analysis (EOQ) Ø Economic Order Quantity with Usage Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -6

The Purchasing Plan (Continued) n Price Ø Purchase n n Discounts Time Ø Reorder Point Analysis Vendor Ø Sources of Supply Ø Vendor Rating Scale Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -7

Quality n n n “Higher quality is less expensive to produce than lower quality. ” — W. Edwards Deming The endless pursuit of quality produces lower costs, higher productivity, greater market share, and more satisfied customers Kaizen, continuous improvement, is the most commonly used quality improvement strategy Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -8

Quality Total Quality Management (TQM) is a philosophy that strives for getting everything a company does for a customer right the first time n TQM involves a lifelong process of continuous improvement; a successful TQM process requires a company to change everything it does n Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -9

Implementing TQM Success requires following 11 principles: 1. Use benchmarking to discover the best practices that will produce quality results 2. Shift from a management-driven culture to a participative, team-based one 3. Modify the reward system to encourage teamwork and innovation Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -10

Implementing TQM Success requires following 11 principles: 4. Train workers constantly to give them the tools they need to produce quality and to upgrade the company’s knowledge base 5. Train employees to measure quality with the tools of statistical process control (SPC) 6. Use Pareto’s Law to focus TQM efforts 7. Share information with everyone in the organization Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -11

Implementing TQM Success requires following 11 principles: 8. Focus quality improvements on astonishing the customer 9. Don’t rely on inspection to produce quality products and services 10. Avoid using TQM to place blame on those who make mistakes 11. Strive for continuous improvement in processes as well as in products and services Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -12

Deming’s 14 Points 1. Constantly strive to improve products and services 2. Adopt a total quality philosophy 3. Correct defects as they happen rather than rely on mass inspection of end products 4. Don’t award business on price alone Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -13

Deming’s 14 Points 5. Constantly improve the system of production and service 6. Institute training 7. Institute leadership 8. Drive out fear Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -14

Deming’s 14 Points 9. Break down barriers among staff areas 10. Eliminate superficial slogans and goals 11. Eliminate standard quotas Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -15

Deming’s 14 Points 12. Remove barriers to pride in workmanship 13. Institute vigorous education and retraining 14. Take demonstrated management action to achieve transformation Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -16

Six Sigma Like TQM, Six Sigma uses data-driven statistical tools to improve quality n Threshold: Just 3. 4 defects per 1 million opportunities n Built on the Quality DMAIC Process n Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -17

Principle Define Process Improvement Technique Identify the problem. Define the requirements. Set the goal for improvement. Measure Validate the process problem by mapping the process and gathering data about it. Refine the problem statement and the goal. Measure current performance by examining the relevant process inputs, steps, and output to establish a baseline. Analyze Develop a list of potential root causes. Identify the vital few. Use data analysis tools to validate the cause and effect connections between root causes and the quality problem. Improve Develop potential solutions to remove root causes by making changes to the process. Test potential solutions and develop a plan for implementing those that are successful. Measure the results of the improved process. Control Establish standard measures for the new process. Establish standard procedures for the new process. Review performance periodically and make adjustments as needed. Source: Adapted from Andrew Spanyi and Marvin Wurtzel, “Six Sigma for the Rest of Us, ” Quality Digest, July 2003, http: //www. qualitydigest. com/july 03/articles/01_article. shtml.

Four Tenets of Six Sigma 1. 2. 3. 4. Delight customers with quality and speed Constantly improve the process Use teamwork to improve the process Make changes to the process based on facts, not guesses Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -19

Price Discounts: n Trade discounts – established on a graduated scale and depend on a company’s position in the channel of distribution Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -20

Trade Discount Structure Manufacturer sells for $80. Customer buys at $175. Wholesaler buys at $80; sells at $100. Retailer buys at $100; sells at $175. Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -21

Price Discounts: n Trade discounts - established on a graduated scale and depend on a company’s position in the channel of distribution n Quantity discounts - offer price breaks on large-volume purchases n Cash discounts - offered as incentives to pay early. (e. g. , “ 2/10, net 30”) Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -22

Selecting the Right Vendors Factors to consider: n Number of suppliers n Reliability n Proximity n Speed n Services n Collaboration n Price Chapter 17 Supply Chain Management Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 17 -23