Module 6 Supply Chain Management

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Module 6 - Supply Chain Management
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Course Framework

• 1. Cost
• - Design Selection
• 2. Quality
• - TQM
• - SQC
• 3. Speed
• - Project Management
• - Supply Chain

• 4. Flexibility
• - Inventory
• - Location
• - Forecasting
• - Aggregate Planning

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Learning Objectives

• 1. Describe an overview of supply chain
  management
• 2. Describe information sharing
• 3. Analyze insourcing vs. outsourcing decisions
• 4. Describe the role of virtual organizations
• 5. Describe the role of vertical integration

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1. Overview

• A supply chain is a network of activities that
  deliver a product/service to a customer
• Supply Chain Management is the business function
  that coordinates all network links
• Coordinates movement of goods
• Promotes information

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A Basic Supply Chain
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1. Overview (continued)

• Several factors have emerged that now require
  companies to use supply chain management as part
  of their competitive strategy
• Globalization
• Increased competition
• Information technology
• Shorter product life cycles

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1. Overview (continued)

• Globalization has led to new markets
• At the same time it increases competiton
• One way to win market share is introducing new
  products
• Leads to shorter product life cycles
• This all leads to increased emphasis on having an
  appropriate supply chain management strategy.

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2. Information Sharing

• Phase 1
• Companies kept all information secret.
• Phase 2
• Information sharing between adjacent supply chain
  pairs
• Limited amounts

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A Basic Supply Chain
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2. Information Sharing (cont.)

• Both the Phase 1 and Phase 2 strategies of
  limited or no information sharing leads to the
  bullwhip effect.
• Bullwhip effect Inaccurate, distorted
  information flow through the chain
• Causes erratic order replenishment, poor customer
  service, and lost revenues
• To reduce the bullwhip effect, supply chains use
  a hub and spoke approach to sharing information.

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A Basic Supply Chain
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3. Insourcing vs. Outsourcing

• Critical issues to resolve first
• Critical to firms success?
• Core competency?
• Effect on lead times and flexibility?
• Less cost and better quality?

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3. Outsourcing vs. Insourcing (cont.)
Total Cost of Buying (Outsourcing) TCOutsourcing
FCOutsoucing (VCOutsourcing ? Q)
Total Cost of Making (Insourcing) TCInsourcing
FCInsoucing (VCInsourcing ? Q)
Indifference Point FCOutsoucing (VCOutsourcing
? Q) FCInsoucing (VCInsourcing ? Q)
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3.Outsourcing vs. Insourcing (cont.)

• Outsource A small snowboard manufacturing
  company can outsource the manufacturing of its
  surfboards for 50 for each board and a fixed
  cost of 25,000.
• Insource Alternatively, they can reduce their
  in-house variable cost to 20 each, but would
  increase their in-house fixed cost to 400,000.

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3. Outsourcing vs. Insourcing (cont).

• Indifference Point
• FCOutsourcing (VCOutsourcing ? Q)
  FCInsourcing (VCInsourcing ? Q)
• 25,000 (50 ? Q) 400,000 (20 ? Q)
• 30 Q 375,000
• Q 12,500 units
• gt 12,500 ? Use Insource
• lt 12,500 ? Use Outsource

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4. Virtual Organizations

• Outsourcing is gaining popularity
• Cost advantages coordination opportunities
• Virtual organizations (corporations)
• Exist only as an administrative shell
• All other functions outsourced

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5. Vertical Integration

• Backward vertical integration
• Company owns suppliers
• Forward vertical integration
• Company own distribution systems and retail
  outlets that sell their products
• Integration helps companies get close
  coordination in their supply chain