Supply Chain Management

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Supply Chain Management
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References

• Dobler D.W. and Burt D.N. (1996) Purchasing and
  supply management text and cases 6th Edition,
  McGraw Hill, Singapore, ISBN 0-07-114144-8
• Hicks C., Earl C.F. and McGovern T. (1999)
  Supply Chain Management a Strategic Issue in
  Engineer-to-Order Manufacturing, International
  Journal of Production Economics 65(2) pp179-190

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A 5 reduction in costs can have the same effect
on the bottom line as a 25 increase in turnover
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Drivers

• Companies in all sectors are seeking ways to
• reduce costs
• shorten product development times
• manage risk.

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Supply Chains

• There are two types of supply chain
• External supply chain - involving other
  companies. Supply chain management involves
  relationships with the customer through
  marketing and sales and with suppliers through
  the procurement function.
• Internal supply chain - involving functions /
  departments / business units within the
  organisation.

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Supply Chains

• The transactions in supply chains are
  characterised by
• adding value up through the chain
• incurring costs (and consequent payments) down
  the chain.
• A market economy can be viewed in terms of
  competing supply chains. Many sectors have
  therefore focused on reducing waste in the supply
  chain as a whole e.g. automotive industry, CRINE
  in the oil industry.

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Types of supply chain relationship

• Single stage - sourcing standard items for steady
  state production
• Double stage - tendering stage, followed by
  contract execution stage. May involve significant
  engineering activity and the development of
  conceptual designs. Probability of success often
  low lt30

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Supply Chain Management Aims

• Reduction of costs
• Reduction of lead times
• Reduction in transactions
• Release of value
• Ensuring appropriate quality

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Trends

• Outsourcing of non-core activities to suppliers
• Focusing of operations
• A reduction in supply base as companies shift
  from multiple to single sourcing
• Long-term buyer supplier relationships.
• Partnerships rather than adversarial trading
• The outcome of these changes are that companies
  are establishing new relationships with their
  suppliers.

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Traditional model

• Adversarial arms-length trading.
• Buyers defined production and process
  specifications.
• Components were obtained from multiple sources.
• Little information was disclosed to suppliers on
  technologies, processes and production targets
• Price competition was the primary criterion on
  which contracts were awarded.

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Multi-sourced trading

• Characterised by win-lose transactions and mutual
  mistrust
• Multiple sourcing constitutes a strategy for
  reducing purchasing uncertainty.
• Moving towards single sourcing partnership
  arrangements can be frustrated by long-term
  adversarial attitudes.
• Cultural change, the absence of trust and the
  prevalence of opportunism are major barriers to
  change in buyer-supplier relationships.

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Evolution of partnership models

• Adversarial relationships proved counter
  productive to both parties.
• By 1980s a partnership model was being adopted
  to reduce costs, resolve scheduling problems and
  other technical difficulties.
• Strategic change was required to implement total
  quality principles and JIT.
• The partnership, or obligational model, is
  characterised by close operational and strategic
  links between buyer and supplier the provision
  of technical and managed assistance to suppliers
  and the establishment of preferred supplier
  status or single sourcing agreements.

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Outsourcing opportunities

• Strategic benefits of outsourcing to
  best-in-class suppliers
• Greater flexibility in the purchase of rapidly
  developing new technologies
• A reduction in design cycle times
• Higher quality
• Cost advantages due to higher volume production
• Risk is transferred to the supplier
• Less capital is required as the requirement for
  investment is transferred to the supplier. This
  is a major driver for companies aiming to
  optimise ROCE.
• Technology critical to success should not be
  outsourced.

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Power Relationships

• In many cases collaborative relationships are
  underpinned by strong buyer control, enforced
  through vetting and monitoring
• Powerful buyers impose terms on weaker dependent
  suppliers (e.g. supermarkets)
• Research has concentrated upon focal producers
  able to exert a significant degree of control
  over smaller suppliers (e.g. automotive
  companies)
• Other sectors such as engineer-to-order, low
  volume manufacture may have different power
  relationships.

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Core Activities

• Core activities can be interpreted in several
  ways
• an activity traditionally performed internally
• critical to business performance
• creating current or potential competitive
  advantage
• driving future growth, innovation or rejuvenation
  of the enterprise.

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Common doubts

• Research suggests that adoption of new practices
  is piecemeal and concentrated in particular
  sectors e.g. automotive and electronics
  industries.
• Even in leading-edge companies mistrust between
  buyers and suppliers has been found to be
  prevalent
• There have been difficulties experienced in
  establishing tiered systems of component supply.
• Many companies have struggled to implement JIT
• Despite the importance of quality and delivery,
  price and cost are still the main determinant of
  contract awards

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Comments

• Large batch and flow line systems generally
  exhibit the characteristics of standardisation of
  products, repetitive manufacturing and assembly
  processes that are necessary to allow the full
  application of JIT techniques.
• Some techniques such as supplier quality
  certification and point of use delivery may far
  broader applicability.
• Development of partnership relationships may
  require a significant volume of business.
• The impetus for product development may reside
  with either the buyer or the supplier.

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Traditional Purchasing

• Traditionally the purchasing function was
  evaluated in terms
• The purchase price of materials.
• The ability to keep production running
• The cost of the Purchasing Departments operation
• It was often a reactive clerical function that
  responded to requests from other business
  functions such as engineering or production.

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Current Perspective

• World-class companies expect supply chain
  management to focus on the following value adding
  outputs
• Quality purchased materials and services should
  be virtually defect free. Many defects can be
  traced back to bought in items.
• Cost minimisation of total cost of acquiring,
  transporting, holding, converting items as well
  as quality costs.
• Time need to minimise time to market for new
  products as well as minimising lead-times to
  increase flexibility.

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Current perspective (continued)

• Technology - ensuring that the firms supply base
  provides appropriate technology in a timely
  manner ensuring that technology associated with
  core competence is carefully controlled.
• Continuity of supply - need to reduce risk of
  supply disruptions. These may have impact on
  other functions (aluminium vs carbon fibre
  reinforced plastics in the aerospace industry).
  May involve the development of alliances.

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Strategic Focus

• Integration - the firms supply chain strategy
  should be integrated with marketing, production
  and financial strategies.
• Business environment - supply chain must address
  the identification of threats and opportunities
  (with particular reference to suppliers and
  customers).
• Technology - access and control, avoid turning
  suppliers into competitors.
• Information systems - need timely, accurate and
  cost effective transfer of information with
  buyers and suppliers (e.g. electronic data
  interchange).

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Strategic focus (cont.)

• Value chain - need to ensure that the value chain
  of which the company is a part is competitive
  (e.g. careful management of margins through the
  supply chain)
• ABC analysis - concentrate on high value items -
  decentralise decision making for low value items.

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Major Developments

• Cross functional teams - engineering,
  procurement, marketing, tendering, accounting
• Supply chains - management and development to
  ensure competitiveness
• Partnerships and alliances - relationships may be
  either mutually beneficial open relationships or
  the creation of a separate legal entity called a
  joint venture (e.g. capital goods for the oil
  industry).