MMM341/1 © Dr. C.Hicks, MMM Engineering University of Newcastle upon Tyne Supply Chain Management.
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Transcript of MMM341/1 © Dr. C.Hicks, MMM Engineering University of Newcastle upon Tyne Supply Chain Management.
MMM341/1
© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
Supply Chain Management
MMM341/2
© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
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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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
“A 5% reduction in costs can have the same effect on the bottom line
as a 25% increase in turnover”
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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
Drivers
Companies in all sectors are seeking ways to:
• reduce costs
• shorten product development times
• manage risk.
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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
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 <30%
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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
Supply Chain Management Aims
• Reduction of costs
• Reduction of lead times
• Reduction in transactions
• Release of value
• Ensuring appropriate quality
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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
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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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
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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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
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 1980’s 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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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
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 Department’s 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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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
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 firm’s 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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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
Strategic Focus• Integration - the firm’s 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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© Dr. C.Hicks, MMM EngineeringUniversity of Newcastle upon Tyne
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).