Chapter 11 Of Operations Management By Heizer And Render 5q4yr

Operations Management Supply-Chain Management Chapter 11 11-1

Outline Strategic Importance of the Supply-Chain. Supply-Chain Strategies. Purchasing & Acquisition.

Logistics & Materials Management.

11-2

Supply-Chain Management  Management of integrated activities that 

procure materials,



transform them into final products, and



deliver them to customers.

 Involves everyone in the supply-chain. 

Example: Your supplier’s supplier.

11-3

The Supply-Chain VISA

®

Credit Flow

Material Flow

Supplier

Supplier

Manufacturing

Supplier

Consumer

Retailer

Wholesaler Schedules

Order Flow 11-4

Retailer Cash Flow

Integration  Integrates operations, logistics, marketing, ing and finance.  Manage: Transportation.  Suppliers.  Warehousing and distribution.  Inventory levels.  Information sharing.  $ and credit transfers.  Order fulfillment. 

11-5

Supply-Chain Trends Global sourcing and markets. 

Need local expertise to handle duties, trade, freight, customs and political issues.

Flexibility to react to sudden changes in parts availability, distribution, or shipping channels, import duties, and currency rates. Information technology to manage storage and transportation networks. 11-6

Supply-Chain Strategies  How best to work with upstream suppliers and downstream distributors and customers. 

To manage procurement, transportation, inventory, warehousing, distribution, etc.

 Outsourcing: Logistics activities (transportation, delivery, inventory, etc.).  Information systems.  ing and payroll. 

Vertical integration. 11-7

Vertical Integration  Produce a good or service previously purchased. Forward (towards customers) or backwards (towards supplier.).  Develop the capability independently or buy a firm. 

 Advantages: May be less expensive than buying.  Provides more control. 

 Disadvantages: 

Can be expensive.



Hard to do all things well. 11-8

Forms of Vertical Integration Raw Materials Iron Ore

Silicon

Backward Integration

Steel

Automobiles

Integrated Circuits

Distribution System

Circuit Boards

Dealers

Computers Watches Calculators 11-9

Current Transformation

Forward Integration Finished Goods

Purchasing & Acquisition  Acquisition of goods & services.  Activities: 

Decide whether to make or buy.



Identify sources of supply.



Select suppliers & negotiate contracts.



Control vendor performance.

 Importance: 

Major cost center.



Affects quality of final product. 11-10

Purchasing Costs as a Percent of Sales Industry

Percent of Sales

 All industry  Automobile  Food  Lumber  Paper  Petroleum  Transportation

 52%  61%  60%  61%  55%  74%  63% 11-11

Make/Buy Considerations Reasons for Making  Lower cost to produce.  Unsuitable suppliers.   

Poor quality. Price too high. Item not available.

 Utilize surplus labor.  Protect proprietary design.  Increase/maintain size of company.

Reasons for Buying  Lower cost to buy.  Preserve supplier commitment.  Obtain technical or management ability.  Inadequate capacity.  Item is protected by patent or trade secret.  Frees management to deal with its primary business.

11-12

Supplier Strategies  Negotiate with many suppliers; play one supplier against another. Negotiated, sporadic small purchase orders.  Adversarial relationship with little openness. 

 Work with few suppliers and develop long-term “partnering” arrangements. 

Exclusive long-term contracts with large orders (and lower prices).



Long-term, stable relationship. 11-13

Vendor Selection Steps  Vendor evaluation. 

Identifying & selecting potential vendors.

 Vendor development. 

Integrating buyer & supplier. 

Example: Electronic data exchange.

 Negotiations. 

Results in contract.



Specifies period of agreement, price, delivery , etc. 11-14

Vendor Selection Criteria  Company criteria

 Service criteria



Financial stability.



Delivery on time.



Management.



Condition on arrival.



Location.



Technical .



Training.

 Product criteria 

Quality.



Price.

11-15

Vendor Selection Rating Form

11-16

Negotiation Strategies  Cost-based price model. 

Supplier opens its books to purchaser.



Price based on fixed cost plus escalation clause for materials and labor.

 Market-based price model. 

Price based on published price or index.

 Competitive bidding. 

Potential suppliers bid for contract.

11-17

Logistics & Materials Management  All transportation and storage activities for origin or to consumption.  Integrates:      

Purchasing. Inventory management. Production control. Inbound and outbound transportation. Warehousing and stores. Incoming quality control. 11-18

Operations Management E-Commerce and Operations Management Supplement 11 11-19

Outline Electronic Commerce. E-commerce Definitions. B2B  B2C  C2C  C2B 

E-Procurement 11-20

E-Commerce The use of computer networks, primarily the internet, to buy and sell products, services, and information.

11-21

E-Business “… all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage.” Louis Gerstner,

Chairman, IBM

11-22

E-Commerce Definitions Business-to business (B2B) - Both sides of the transaction are businesses, non-profit organizations, or governments. Business-to-consumer (B2C) - Customers are individual consumers. Consumer-to-consumer (C2C) - Consumers sell directly to each other. Consumer-to-business (C2B) - Individuals sell services or goods to businesses. 11-23

E-Procurement  On-line purchasing – link buyers and sellers electronically.

Catalogs. Auctions. Internet trading exchanges: 

Covisint: By auto industry (buyer).

 Spot purchasing. 

Example: Spare freight capacity. 11-24