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Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-11
Supply Chain Management
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-22
Supply Chain Supply Chain ManagementManagement A key determinant of a A key determinant of a
company’s ability to competecompany’s ability to compete Today, competition is not Today, competition is not
“company vs. company but “company vs. company but supply chain vs. supply chain” supply chain vs. supply chain”
Globalization has made supply Globalization has made supply chains longer and more complexchains longer and more complex
Global purchasing increases risk Global purchasing increases risk
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1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
EastWestNorth
Supply Chain Risks
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 17-3
Chapter 17 Supply Chain Management
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-44
Supply Chain Supply Chain ManagementManagement Companies spend nearly $20 trillion on Companies spend nearly $20 trillion on
goods and services each yeargoods and services each year Shaving 2% from a company’s CGS can Shaving 2% from a company’s CGS can
increase net income by as much as 25%increase net income by as much as 25% Aberdeen Group survey: 82% of Aberdeen Group survey: 82% of
companies had experienced a supply companies had experienced a supply disruption or outage within the last two disruption or outage within the last two years years
Requires a sound purchasing planRequires a sound purchasing plan
Components of a Components of a Purchasing PlanPurchasing Plan
Right Quality
Right Vendor
Right Time
Right Quantity
Right Price
The Purchasing
Plan
Copyright ©2012 Pearson Education, Inc. publishing as Prentice HallChapter 17 Supply Chain Management
17-5
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-66
The Purchasing PlanThe Purchasing Plan
QualityQuality Kaizen Kaizen Total Quality ManagementTotal Quality Management
Deming’s 14 PointsDeming’s 14 Points Six SigmaSix Sigma
QuantityQuantity Economic Order Quantity Analysis Economic Order Quantity Analysis
(EOQ)(EOQ) Economic Order Quantity with UsageEconomic Order Quantity with Usage
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-77
PricePrice Purchase DiscountsPurchase Discounts
TimeTime Reorder Point AnalysisReorder Point Analysis
VendorVendor Sources of SupplySources of Supply Vendor Rating ScaleVendor Rating Scale
(Continued)(Continued)
The Purchasing PlanThe Purchasing Plan
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-88
QualityQuality
““Higher quality is less expensive to Higher quality is less expensive to produce than lower quality.” produce than lower quality.” —— W. W. Edwards DemingEdwards Deming
The endless pursuit of quality produces The endless pursuit of quality produces lower costs, higher productivity, greater lower costs, higher productivity, greater market share, and more satisfied market share, and more satisfied customerscustomers
KaizenKaizen, continuous improvement, is the , continuous improvement, is the most commonly used quality improvement most commonly used quality improvement strategystrategy
Quality
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-99
Total Quality Management (TQM) is a Total Quality Management (TQM) is a philosophy that strives for getting philosophy that strives for getting everything a company does for a everything a company does for a customer customer right the first timeright the first time
TQM involves a lifelong process of TQM involves a lifelong process of continuous improvement; a continuous improvement; a successful TQM process requires a successful TQM process requires a company to change company to change everythingeverything it it doesdoes
QualityQualityQuality
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-1010
Implementing Implementing TQMTQM
1. Use benchmarking to discover the 1. Use benchmarking to discover the best practices that will produce best practices that will produce quality results quality results
2. Shift from a management-driven 2. Shift from a management-driven culture to a participative, team-culture to a participative, team-based onebased one
3. Modify the reward system to 3. Modify the reward system to encourage teamwork and innovation encourage teamwork and innovation
Success requires following 11 principles:Success requires following 11 principles:
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-1111
4. Train workers constantly to give them 4. Train workers constantly to give them the tools they need to produce quality the tools they need to produce quality and to upgrade the company’s and to upgrade the company’s knowledge base knowledge base
5. Train employees to measure quality 5. Train employees to measure quality with the tools of statistical process with the tools of statistical process control (SPC)control (SPC)
6. Use Pareto’s Law to focus TQM efforts6. Use Pareto’s Law to focus TQM efforts7. Share information with everyone in 7. Share information with everyone in
the organizationthe organization
Implementing Implementing TQMTQMSuccess requires following 11 principles:Success requires following 11 principles:
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-1212
8. Focus quality improvements on 8. Focus quality improvements on astonishing the customerastonishing the customer
9. Don’t rely on inspection to 9. Don’t rely on inspection to produce quality products and produce quality products and services services
10. Avoid using TQM to place blame 10. Avoid using TQM to place blame on those who make mistakeson those who make mistakes
11. Strive for continuous 11. Strive for continuous improvement in processes as well improvement in processes as well as in products and services as in products and services
Implementing Implementing TQMTQMSuccess requires following 11 principles:Success requires following 11 principles:
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-1313
Deming’s 14 PointsDeming’s 14 Points
1. Constantly strive to improve 1. Constantly strive to improve products and servicesproducts and services
2. Adopt a total quality philosophy2. Adopt a total quality philosophy
3. Correct defects as they happen 3. Correct defects as they happen rather than rely on mass rather than rely on mass inspection of end productsinspection of end products
4. Don’t award business on price 4. Don’t award business on price alonealone
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-1414
5. Constantly improve the system 5. Constantly improve the system of production and serviceof production and service
6. Institute training6. Institute training
7. Institute leadership7. Institute leadership
8. Drive out fear8. Drive out fear
Deming’s 14 PointsDeming’s 14 Points
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-1515
9. Break down barriers among staff 9. Break down barriers among staff areasareas
10. Eliminate superficial slogans and 10. Eliminate superficial slogans and goalsgoals
11. Eliminate standard quotas11. Eliminate standard quotas
Deming’s 14 PointsDeming’s 14 Points
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-1616
12. Remove barriers to pride in 12. Remove barriers to pride in workmanshipworkmanship
13. Institute vigorous education and 13. Institute vigorous education and retrainingretraining
14. Take demonstrated 14. Take demonstrated management action to achieve management action to achieve transformationtransformation
Deming’s 14 PointsDeming’s 14 Points
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-1717
Like TQM, Six Sigma uses data-Like TQM, Six Sigma uses data-driven statistical tools to improve driven statistical tools to improve quality quality
Threshold: Just 3.4 defects per 1 Threshold: Just 3.4 defects per 1 million opportunities million opportunities
Built on the Quality DMAIC ProcessBuilt on the Quality DMAIC Process
Six SigmaSix Sigma
Principle Process Improvement Technique
Define 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/july03/articles/01_article.shtml.
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-1919
Four Tenets of Six Four Tenets of Six SigmaSigma
1.1. Delight customers with quality Delight customers with quality and speedand speed
2.2. Constantly improve the processConstantly improve the process
3.3. Use teamwork to improve the Use teamwork to improve the processprocess
4.4. Make changes to the process Make changes to the process based on facts, not guesses based on facts, not guesses
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-2020
PricePrice
Discounts:Discounts: Trade discounts – established on a Trade discounts – established on a
graduated scale and depend on a graduated scale and depend on a company’s position in the channel of company’s position in the channel of distributiondistribution
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-2121
Trade Discount StructureTrade Discount Structure
Manufacturer sells for $80.Manufacturer sells for $80.
Wholesaler buys at $80;Wholesaler buys at $80;sells at $100.sells at $100.
Retailer buys at $100;Retailer buys at $100;sells at $175.sells at $175.
Customer buys at $175.Customer buys at $175.
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-2222
Quantity discounts - offer price breaks Quantity discounts - offer price breaks on large-volume purchaseson large-volume purchases
Cash discounts - offered as incentives Cash discounts - offered as incentives to pay early. (e.g., “2/10, net 30”) to pay early. (e.g., “2/10, net 30”)
PricePrice
Discounts:Discounts: Trade discounts - established on a Trade discounts - established on a
graduated scale and depend on a graduated scale and depend on a company’s position in the channel of company’s position in the channel of distributiondistribution
Chapter 17 Supply Chain ManagementChapter 17 Supply Chain Management Copyright Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall 17-17-2323
Selecting the Right Selecting the Right Vendors Vendors
Factors to consider:Factors to consider: Number of suppliersNumber of suppliers ReliabilityReliability ProximityProximity SpeedSpeed ServicesServices Collaboration Collaboration PricePrice