Supply Chain Management

Supply Chain Management

Introduction

Session Agenda 1) Introduction to module 2) Assessments 3) Source of information Text Books  On-line sources  Digital Library 4) Activity on Negotiation Skills 

Text Books 

Joel D. Wisner; G.Keong Leong, “Principles Of Supply Chain management” (A balanced Approach). FT Prentice Hall. 7th Edition 2006



Simchi-Levi, D and E and Kaminsky, P. (2003), Designing and Managing the Supply Chain, McGraw-Hill, Second Edition

Supply Chain Management Management of the flow of goods or services between entities in the chain to realize delivery of end products or services, satisfying customers at minimum cost.

OR Set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and distributed in the right quantities, to the right locations at the right time in order to minimize system wide costs while satisfying service level requirements.

Returned Goods Material Flow Cash Flow

Supplier Supplier

Retailer

Factory

Distr. Center Information Flow

Consumer Retailer

GOODS/SERVICES

EXTERNAL SUPPLIER

GOODS/SERVICES

A BUSINESS

INFORMATION

PAYMENT £££

EXTERNAL CUSTOMER

INFORMATION

PAYMENT £££

Why is SCM difficult? Different facilities may have different, conflicting objectives

◦ Suppliers want manufacturers to commit themselves to purchasing large quantities in stable volumes with flexible delivery dates ◦ Manufacturers want large production runs ◦ Warehouses and Distribution Centers want to reduce inventory ◦ Reduction in inventory levels increase transportation costs

Conclusion 

Supply chains compete, not companies



Most of the opportunities for cost reduction and value enhancement lie at the interface between supply chain partners



Supply chain integration implies process integration

Purchasing

Purchasing 

The acquisition of goods and services needed to support the various activities of an organization, at the best possible cost and from reliable suppliers.

Purchasing professional's goal to a company should be to provide:     

The best pricing Communication Research in finding sources Supplier performance Evaluation Service level agreements (SLA’s)

Importance of purchasing: • • • • •

Competition Material cost Lead time Customer Demand Quality

Labour Bought-out materials, components, etc.

22%

Labour 45%

38%

Bought-out materials, components, etc.

Other costs 18%

60% Other costs 17%

Cost of a manufacturing company, 1979

Cost of manufacturing company, 1979

Costs of the same manufacturing company, 1979

Cost of same manufacturing company, 2004

(Lysons (2000), pp3-4)

Single Sourcing Advantages     

 

Potentially better quality because more SQA possibilities. Strong relationships Greater dependency encourages more commitment and effort. Better communication. Easier to cooperate on new product/service development. More scale economies. Higher confidentiality.

Disadvantages   

More vulnerable to disruption if a failure to supply occurs. Individual supplier more affected by volume fluctuations. Supplier might exert upward pressure on prices if no alternative supplier is available.

Multi-sourcing Advantages   

Purchaser can drive price down by competitive tendering. Can switch sources in case of supply failure. Wide sources of knowledge and expertise to tap.

Disadvantages   

 

Difficult to encourage commitment by supplier. Less easy to develop effective SQA. More effort needed to communicate. Suppliers less likely to invest in new processes. More difficult to obtain scale economies.

Purchasing Process • • • • • • •

Recognize, describe and define the need Transmit the need (requisitions) Determine sources, investigate, and select supplier/analyze bids Prepare and issue the PO Follow-up the order (including expediting and deexpediting) Receive and inspect the material Clearance of the invoice and payment to supplier

The purchasing function brings together the operation and its suppliers

Purchasing Function

Suppliers

Suppliers prepare quotations of  specifications  price  delivery etc.

Requests

Quotations

Produce goods/services

Order

The internal operation

Prepare requests for quotations

Requests for products and services

Select the preferred supplier

Discuss with the Operation

Prepare purchase order

Liaise with the Operation

Deliver Goods /Services

(Slack, 2001, p417) (Slack. 2001. p417)

Receive goods/services

Inform Purchasing Function

Input to the Operation

Negotiation

Negotiation Definition and Comments: 

The process whereby two or more parties decide what each will give and take in an Exchange between them.” (Lysons & Farrinton)



“Negotiation is the process by which we search for terms to obtain what we want from somebody who wants something from us.” (Total Success Training)



“Negotiation is discussing or bargaining in order to reach agreement.” (Owen)

Negotiation (What it isn’t):  

Negotiation is not selling. Negotiation is not ‘giving in’ or conceding.

(Owen)

Types of Negotiation  

Adversarial Negotiation Collaborative Negotiation

Adversarial Negotiation (distributive or win-lose negotiation)



Is an approach in which the focus is on ‘positions’ staked out by the participants and the assumption is that every time one party wins, the other loses, so, as a result the other party is regarded as an adversary (opponent). (Lysons & Farrington)

Collaborative Negotiation (integrative or win -win negotiation) 

Is an approach in which the assumption is that, by means of creative problem solving, one or both parties can gain without the other having to lose and, as other party is regarded as a collaborator rather than an adversary, the participants may be more willing to share concerns, ideas and expectations than would otherwise be the case. (Lysons & Farrington)

Make OR

Buy

Why would we buy something (items, components, services) when we could provide it ourselves?

Reasons to buy:      



The unit cost is cheaper, We don't use it enough, We don't have space, We don't understand the technology, We don't have the skill, It's not our core business/expertise, It's expensive to set up the process,

Reasons to provide in-house:      



The unit cost is cheaper, It's critical to the business, Retain specialist knowledge/skills, We have control over the supply, Quality issues are critical, No suitable supplier, It's part of our core business/expertise

All Manual (I.e. Non-Clerical) Workmen in Habib Bank Ltd. Retrenchment (cutback) 





In order to focus on core banking activities and rationalize our staff strength, HBL had introduced Voluntary Separation Schemes in the past. Currently there are over 2300 employees working in HBL dedicated to non-core activities including Security, Driver and other manual work. The administration and management of these activities is causing a severe lack of focus on core activities like business development and customer service etc. the market practices amongst progressive Bank dictates an Urgent need for outsourcing such services.

Ethics in Buying: • • • •

Child Labor Company’s Environment Green Supply Chain Fair Trade

End of Topic