Supply Chain Management and Purchasing Flashcards
Definition: Supply chain (player’s view)
A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. (manufacturer, suppliers, transporters, warehouses, retailers, customers…)
What does every player in a supply chain do (player’s view)
Source-make-deliver
Name the supply chain macro processes
- Supplier Relationship Management (SRM) - collect supplier data, manage them
- Internal Supply Chain Management (ISCM)
- Customer Relationship Management (CRM)
Definition: Supply chain (process view)
A supply chain is a sequence of processes and flows that take place within and between different stages and combine to fill a customer need for a product.
What cycles exist in the supply chain process view?
- Customer order cycle (customer-retailer)
- Replenishment cycle (retailer-distributor)
- Manufacturing cycle (distributor-manufacturer)
- Procurement cycle (manufacturer-supplier)
What occurs in each cycle?
(A) Place order =>
(B) receive order =>
(B) deliver =>
(A) receive product/check for problems
Supply Chain Management Definition 1
Supply Chain Management is the integration of these activities (all activities associated with the flow and transformation of goods from the raw materials stage through to the end user, as well as the associated information flows) through improved supply chain relationships, to achieve a sustainable competitive advantage.
Supply Chain Management 2
Supply Chain Management can be described as the management of all activities, information, knowledge and financial resources associated with the flow and transformation of goods and services from the raw materials suppliers, component suppliers and other suppliers in such a way that the expectations of the end users of the company are being met or surpassed.
Symbols for drawing a supply chain - describe
Factory/production site - for manufacturing or assembly
Customisation site, packing station (rectangle) - if more like a service and is not a transformation of goods.
Warehouse (triangle) - for keeping stock
Truck / Plane
Customer (man or warehouse triangle if it’s the customer’s warehouse)
Rules: Flow from left to right, right angles, not curves, only vertical or horizontal relations.
Describe the assembly-to-order production layout
Start: inbound warehouse
1st part of production process: according to forecast on a monthly basis. Semi production: cutting, edging, drilling, milling, veneering.
Middle: Interim warehouse, then order penetration point (Assembly-to-order ATO)
Interim production: cutting, edging, drilling, veneering
Semi-finished products warehouse
Final assembly: assembly, packing
What dilemma does every production system try to solve
Dilemma of efficiency (mass production / economies of scale)
and
Flexibility (customisation, economies of scope)
Describe order penetration points
Make-to-order (MTO) - only raw materials and components are kept in stock. Every customer order is a specific project.
Assemble-to-order (ATO) - manufacture of components is based on forecasts. Order penetration point then assembly based on a specific customer order.
Make-to-stock (MTS) - Finished products are kept in stock based on forecasts, and shipped directly to customers
Describe Kanban-supply
- Pull-principle
- Logistic chain as a decentralised, interlinked control system with self-control
- Buffer between customer and supplier (internal and external to cover breaks in production)
- Kanban-card as information media
- No central production control. The workers are self-responsible for the control of their unit/team.
Describe just-in-time supply
- Pull-principle: production process is “pulled” by customer orders
- Reducing goods in stock to one box on the conveyor belt.
- Logistic chain as a decentralised, interlinked control system (Orders are sent with defined lead)
- All activities in the supply chain are focused to reduce waiting time, storage time, transport time.
- Not too late, but not too early
Describe just-in-sequence-supply
- Pull-principle
- No goods in stock (from customer perspective)
- Logistic chain as a decentralised, interlinked control system (orders are sent with defined lead)
- All activities in the supply chain are focused to reduce waiting time, storage time, transport time.
- Staging of materials
Functions of warehousing
TRAVVVOD
- Time buffer (Christmas season)
- Risk avoiding (run out of stock, customer is Daimler)
- Volume buffer (big production capacity, not much ordered)
- Creating variety (same production line for different kinds of screws)
- Value increase (wine, antiques, collectibles)
- Overcoming distances between production and market (e.g. for repairs- customer assurance they’ll get spare parts)
What types of warehouses are there?
Central warehouse (big red triangle) - stores all products. High availability, lower responsiveness due to distance to markets.
Regional warehouse (flat red triangle): stores regional products near to the customer
Pool warehouse (middle red triangle): aggregates regional warehouses. It is a step of recentralisation in a supply chain.
Consignment warehouse (small blue triangle) for B2B: products in customer’s warehouse belong to the supplier until customer picks it out.
Modes of transportation:
Truck: advantages or disadvantages
Advantages
- Cheaper for small distances for small volumes
- Flexible – door to door
Disadvantages
- Time of delivery not fixed – risk of traffic jams, ice on road
- Expensive for longer distances or large volumes – length and weight limits
Modes of transport:
Train: advantages or disadvantages
Advantages:
- Can transport high volume and weight cheaper
- Time of delivery is fairly certain
Disadvantages:
- Low flexibility – need a train station
- Need to transfer goods from station to the factor sites
- Train strikes
Modes of transport:
Ship: advantages or disadvantages
Advantages:
- Big, heavy loads possible
- Cheap
Disadvantages:
- Slow
- Weather/sea conditions not favourable – up to 10% of containers fall off the ship
- Condensation in top layers so risk of rust
Modes of transport:
Plane: advantages or disadvantages
Advantages:
- Faster for long distances
- Higher security than ships, with climate control
Disadvantages:
• Expensive
Describe what a hub is
A special service of the carrier.
Goods are taken to 1 hub, transferred to another hub, then transferred in small trucks for last-mile delivery.
Good for low transportation cost and last-mile-delivery.
For big logistics suppliers, e.g. international airports, then smaller airports. Post office does this.
Describe the milk run
Regular delivery and picking of empty pallets - within a factory and between factories.
Kanban concept.
Metabo uses trucks for the replenishment milk run.
Explain the concept of the experience curve
With increasing cumulative volume, the real unit cost decreases.
Can decrease unit costs by 20-30%.
Strategic direction: go for growth/high market share.
NB If too much supply, price decreases, margin decreases.
Explain the reason for value advantage
If can’t distinguish product from competitors => viewed as commodity => sale goes to cheapest supplier
Therefore important to add additional value to your offering to distinguish it from the competition. The customer defines value.
Explain how value advantage works.
Value advantage is based on Maslow’s pyramid of motivation (so customer needs).
Basic needs => trust, security
Security => technical support
Social motives => customer club
Myself-motives => after sales service, image
Self-realisation => different products
Explain the hybrid-strategy
Hybrid strategy = combine value advantage with cost advantage
Ongoing and increasing competition => need to operate with low cost AND offer high value advantage.
Low value advantage, low cost advantage = commodity market
Low value advantage, high cost advantage = cost leader
High value advantage, low cost advantage = service leader
High value advantage, high cost advantage = cost and service leader (hybrid strategy)
Give examples of companies that follow the hybrid strategy.
Mass-customisation like dolzer suits or individual levi’s jeans
Platform-strategies like having the same platform for the Porsche Cayenne and Volkswagen Tuareg.
How might customer demand vary?
Depends on attributes: Q-PRIVS
1. Quantity needed in each lot: emergency orders have low volume
- Price: emergency order is less sensitive to price
- Response time that customers are willing to tolerate: Must be short for an emergency order
- Desired rate of innovation in the product: customers at high-end department stores expect a lot of innovation and new designs in store apparel
- Variety: wide range allows “one-stop shopping”
- Service level required: Emergency order customer expects high availability
Describe value chain analysis
It is a good tool to identify success-potential of a company.
Secondary activities (ICHTP): • Infrastructure of the company
- Human Resources
- Technology Development
- Procurement
Primary activities (IOMOS): Inbound logistics => Operations => Marketing and sales => Outbound logistics=> Service
Right-hand side: Margin
What does supply chain responsiveness encompass?
SUROQ-SHILV
- Handle supply uncertainty.
- Respond to wide ranges of quantities demanded
- Meet a very high service level
- Build highly innovative products
- Meet short lead times
- Handle a large variety of products
What is the conflict in increasing responsiveness?
High responsiveness generally means high cost.
Questions:
Can we improve responsiveness without cost-increase?
Is an efficient supply chain sufficient?
Give the generic supply chain strategies
Long lead time and predictable: LEAN (used to be the focus)
Short lead time and predictable: continuous replenishment, Kanban
Short lead time and unpredictable: Agile - quick response to customer needs (new focus)
Long lead time and unpredictable: Hybrid - de-couple through postponenment (customise late). This is LEAN, then agile following order penetration.
Explain the supply chain sustainability model
Source - make - deliver - return
Dimensions (SEF):
Social: health (incl psychological), worker safety, training
Environmental: CO2 footpring, scarce resources, dispose hazardous materials
Financial: fair wages, fair tax, health insurance
Why have supply chain management?
- Customer markets: More and more marketplaces become “customer markets” – supply is higher than demand
- Demanding quality and service: Customers are becoming more demanding, not just of product quality, but also of service.
- Commodity markets: More and more markets become “commodity” markets, where the customer perceives little technical difference between competing offers. Differential advantage comes from customer service.
- Price competitive markets: Most markets are more price competitive than a decade ago. Prices in shops fall, prices of components, raw materials and industrial products follow the same downward pattern.
- Global competition: New global competitors with low-cost manufacturing bases entered the marketplace.
- Removed trade barriers: Removal of barriers to trade enabled new players to rapidly gain ground, leading to overcapacity in many industries.
- Price comparison with internet: Price comparison became much easier with the internet, driving down prices.
The challenge to business is to find new opportunities for cost reduction and service improvement. The old cost cutting methods with not be able to solve this dilemma.
What makes a distribution channel good?
- Reaching the customers/preferred by customers
- Low cost for the company
- Low transaction cost
- Low stock channels
- Margin (profit) of the channel
- Provides a competitive edge – e.g. Edeka – deliver groceries
Today => multi-channel management
What types of distribution networks have PC manufacturers used?
hp: Through re-sellers
DELL: Direct sales
Gateway: Gateway country store for customers to examine the goods, but direct shipping.
Advantages and disadvantages of using re-sellers
Advantages:
- Ability for customers to test and consult store personnel
- No wait time to receive products
- Customised price possible.
Disadvantages:
- Must share 20-50% of the profit with the resellers
- Stock needed
Advantages and disadvantages of direct sales
Advantages:
- No profit sharing
- No stock needed
Disadvantages:
- Customers can’t test the product or consult.
- Customer must wait to receive the product
Advantages and disadvantages of Gateway country store channel
Advantages:
- No profit sharing
- Limited stock needed for the Gateway store
- Ability for customers to test the product and consult store personnel
Disadvantages:
• Customer must wait to receive the product
What factors influence distribution network design?
- Customer needs
- Response time
- Product variety
- Product availability
- Customer Experience (internet and in shop), e.g. Nespresso - exclusive
- Order visibility (tracking and tracing, especially B2B)
- Returnability (Aldi computer, internet business…)
- Balanced with cost of meeting customers’ needs – more facilities means:
o lower response time
o higher inventory
o decreasing, then increasing transport costs.
What are key decisions in deciding on a distribution network (manufacturer to end consumer)?
- Will product be delivered to the customer location or picked up from a preordained site?
- Will product flow through an intermediary (or intermediate location)?
What are possible design options for a distribution network (manufacturer to end consumer)?
Give examples
- Manufacturer storage with direct shipping (ebay)
- Manufacturer storage with direct shipping and in-transit merge (Amazon)
- Distributor storage with package carrier delivery (e.g. Rieger furniture)
- Distributor storage with last mile delivery (e.g. food boxes, milk run)
- Manufacturer/distributor storage with customer pick-up (Quelle)
- Retail storage with customer pick-up (Ikea)
Describe manufacturer storage with direct shipping.
Give an example
- Retailer only takes order. No inventory – e.g. virtual retailer ebay
- Direct shipping from manufacturer warehouses to customer location
- IT investment necessary for information flows
- MTO possible
e.g. ebay
Describe manufacturer storage with direct shipping and transit merge.
Give an example
- Virtual retailer only takes order
- In-transit merge combines pieces of the order coming from different locations so customer gets a single delivery
- Cheaper but slower
- MTO possible
e.g. Amazon
Describe distributor storage with carrier delivery
Give an example
- Inventory is held by retailer, not manufacturer, for fast-moving parts
- Retailer delivers to customer.
- Higher level of inventory due to aggregated demand uncertainty
e.g. Rieger - furniture
Describe distributor storage with last mile delivery
Give an example
- Inventory held by distributors
- More warehouses needed for last-mile delivery
- Minimum order required
E.g. vege boxes, milk run
Describe manufacturer/distributor storage with customer pick-up
Give an example
- Inventory held at manufacturer/distributor warehouse
- Customers order online/by phone
- Customers come to designated pickup points to collect their orders
e.g. Quelle shops
Describe retail storage with consumer pick-up
- Inventory held locally at retail stores
- Customers place order in store / online / by phone
- Customers pick up their orders at the retail store
e.g. Ikea
How do distributors add value?
TROCSIT
- Keep transportation costs low
- Provide desired response times of 1-2 days
- Serve as one-stop shop for smaller OEMs (original equipment manufacturers) – by stocking goods from multiple suppliers
- Hold centralised safety stock => channel can operate with much lower safety stock
- Use in-transit merge to reduce transporting costs – when moving parts of 2 manufacturers to the customer in one load.
What factors influence network design decisions?
- Strategic factors: cost leadership, responsiveness, variety…define the strategic role of facilities!
- Technological facts: characteristics and availability of technologies, fixed costs of technology, flexibility of production technology
- Macroeconomic factors: tariffs and tax incentives, exchange rate and demand risk
- Political factors: stability, rules of commerce well defined, clear and independent legal systems
- Infrastructure factors: availability of sites and labor, airports, seaports, highways, railway
- Competitive factors: positive externalities (locating together), locating to split the market
- Customer response time: convenience
- Logistics and facility costs: total logistics costs = inventory + transportation + facility costs
What are the key implications of network design decisions in practice?
- Facilities have an enduring impact on a firm’s performance
- Cultural implications: the distance between facilities has an impact on communication
- Quality of life issues influence the availability and morale of the workforce
- Tariffs and tax incentives often overcome all other cost factors combined (e.g. BMW and Mercedes facilities in the USA)
What does SCOR stand for?
Supply-Chain Operations Reference-Model
What does the SCOR Model do?
SCOR supports the implementation of supply-chain improvements by:
- Giving orientation to capture the “as-is” state of supply chain processes (checklist of what to look for)
- Describing the desired “to-be” future state of supply chain processes
- Preparing different companies for benchmarking activities (clear definitions)
- Proposing supply chain metrics for performance measurement, MbO (clear definitions)
Draw the configuration level of the SCOR Model (Level 2)
Left – Suppliers, Right - Customers
Top (Plan): P1 Plan Supply Chain (top)
Below top: P2 Plan Source, P3 Plan Make, P4 Plan Deliver, P0 Plan Infrastructure (arrows going up)
Lower level: Source, Make, Deliver
Source: S1 Source Stocked Products, S2 Source MTO Products, S3 Source ETO Products, S0 Source Infrastructure (arrows going up)
Make: M1 Make to Stock, M2 Make-to-Order, M3 Engineer-to-Order, M0 Make Infrastructure (arrows going up)
Deliver: D1 Deliver stocked products, D2 Deliver MTO Products, D3 Deliver ETO Products, D0 Deliver Infrastructure (arrows going up)
Bottom right: R1 – Manage return
NB: complexer as it goes down.
What does planning do?
Planning allows a supply chain manager to be proactive and manage demand and supply to ensure that profits are maximized.
What are the levels of planning?
Planning demand by forecast (often by sales and marketing)
Aggregate planning
• Plan production, plan distribution, plan allocation of resources
o Capacity, inventory, back-logged orders
What must the company understand to pick the right forecasting method?
- past demand
- product lead time
- planned advertising or marketing efforts
- state of the economy
- planned price discounts
- actions competitors have taken
Describe different forecasting methods
- Qualitative forecasting: primarily subjective, relies on human judgment. Good if no historical data, or if expert market intelligence is needed to define future demand
- Time series forecasting: uses historical demand data. Good as starting point if demand pattern doesn’t vary significantly
- Causal forecasting (with indicators): assumes demand forecast is highly correlated with certain factors in the environment (e.g. interest rates, economy growth)
- Simulation forecasting: imitates consumer choices that give rise to demand to arrive at a forecast. Can be a combination of time series and causal methods, and allows what-if-analysis with different scenarios.
How does forecasting work in practice?
Each party forecasts demand one down the line. So:
- Collaborate in building forecasts
- Vale of data depends where you are in the supply chain
- Distinguish between demand and sales
- Forecasts are always wrong, so should include the expected value of the forecast and a measure of forecast error
- Long-term forecasts are usually less accurate than short-term forecasts
- Aggregate forecasts are usually more accurate than disaggregate forecasts
- The further up the supply chain a company is (or the further they are from the customer), the greater the distortion of information they receive.
Explain the bull-whip effect
This occurs when parties don’t collaborate with their forecasting.
- Exploding peaks in demand back down the supply chain
- Difficult scheduling
- Increasing safety inventory
- Shortages in materials
- Longer delivery times
Why does cycle inventory exist?
Cycle inventory exists in a supply chain because different stages exploit economies of scale to lower total cost. The costs considered include material cost, fixed ordering cost, and holding cost.
How to calculate cycle inventory?
When demand is steady:
Lot size / 2
Why is lower cycle inventory desirable?
- Decreases working capital requirements for a firm
* Reduces large time lags, leaving the company vulnerable to demand changes
How to calculate the average flow time
Average flow time = average time the material remains in inventory
Cycle inventory / demand
= batch size / 2 / demand per day
Draw cycle inventory
x axis: time
y axis: number of inventory
Equal triangles reducing to 0, then new batch.
Safety inventory: purpose, why, how a trade-off, how risky, why needed now more than ever
- Purpose = satisfy demand that exceeds the amount forecasted for a given period (=> availability)
- Why carried? Demand forecasts are uncertain, want to avoid product shortage. E.g. penalty (Daimler), lost customers
- Is a trade-off between availability and inventory holding costs
- Risky in industries where product life cycles are short and demand is very volatile
- Increased ease of searching for product availability in the internet puts pressure on firms to improve product availability.
Draw safety inventory
Same as cycle inventory, but instead of triangles going down to 0, it goes down to a line above 0 (the safety inventory)
What is the product fill rate?
Product demand satisfied / product demand
Better for supplier to use this: maybe just one part is missing => not so bad
What is the order fill rate?
Orders satisfied / all orders
Worse for supplier to use this: maybe just one part is missing => whole order is worth 0.
What is the cycle service level?
Replenishment cycles that end with all the customer demand being met / replenishment cycles
What is a replenishment policy?
A replenishment policy consists of decisions regarding when to reorder and how much to reorder.
What replenishment policies are there?
- Continuous review
- Periodic review
3.
What is the continuous review replenishment policy? Draw it.
Inventory is continuously tracked and an order for a defined lot size is placed when the inventory declines to the Reorder Point.
X-axis: time
Y-axis: inventory
Dotted reorder line above 0 inventory. Triangles go below this line due to lead time, but don’t always go to 0.
What is the periodic review replenishment policy? Draw it.
Inventory status is checked at regular periodic intervals and an order is placed to raise the inventory level to a specified threshold. The size of each order is variable.
x-axis: time
y-axis: inventory
Equally spaced vertical dotted lines (review intervals). Triangles start shortly after the dotted lines. Danger of it falling to 0.
What does specialisation of fast- or slow-moving items mean, and what is it’s purpose?
fast-moving items => stock at decentralised locations (regional warehouses) close to the customer
slow-moving items => stock at centralised location (central warehouse).
Purpose: reduce the safety invenotry carried without hurting customer response time or adding to transportation costs.
What is component commonality, and what is its purpose and what is the risk?
Use common components in a variety of products
- exploit aggregation (experience curve)
- reduce component inventories (demand is more predictable because it depends on a variety of products for which it is used).
- cost reduction
Major risk: supplier has a quality issue => VW had to call back millions of cars.
What is postponement?
= the ability of a supply chain to delay product differentiation or customization until closer to the time the product is sold.
Goal = have common components in the supply chain for most of the production push phase (production according to forecast, before order penetration point).
Draw postponement
X-axis: steps in production process
y-axis: number of variants
Diamond shape:
- rises steeply, then flattens (bad, early product differentiation)
- Rises slowly, then steeply (good, uses postponement)
How to manage product availability in practice
- Use the analytic framework to increase profits. Often, inventory levels are set without supporting analysis
- Beware of preset levels of availability. Check regularly if it’s right. Nb if Daimler supplier, need high availability.
- Use approximate costs – profit maximizing solutions are quite robust.
- Estimate a range for the cost of stock running out – they are hard to quantify.
- Ensure levels of product availability fit with strategy => if they aren’t there, will the customer want it even more? (Zara)
- High inventory can be an indicator for bad performing processes.
How can you use LEAN to reduce inventory?
High safety inventory => can’t see the process obstacles it is hiding.
So reduce inventory, see where the problems are, and fix them => don’t need the high safety inventory any more.
Definition: purchasing function
The purchasing function is defined as obtaining from external sources all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities at the most favourable conditions.
What are the targets of purchasing?
Targets in short, the purchasing function should obtain the proper equipment, material, supplies and services
Traditional purchasing focus:
- Of the right quality (not always the best quality)
- In the right quantity
- At the right price (not lowest) and
- From the right supplier (image, reliable, good distance, solvent, CSR (fair wages, worker safety, pollution)
Traditional logistics focus:
- Right time
- Right place
Describe the strategic position of parts/modules
Closed four squares.
X-axis: Impact on profitability (ABC-Analysis based on annual volume): Company – internal dimension. Labels: C-Part, B-Part, A-Part
Y-axis: Supply risk (specifics, complexity, uncertainty): Source of supply – external dimension. Labels: low, medium, high
C-Part, low supply risk: Standard parts, e.g. screws – cheap, can buy it anywhere => reduce effort
C-Part, high supply risk: Bottleneck parts, e.g. raw materials, small copper parts – not many available to buy => more effort
A-Part, low supply risk: Core parts, e.g. ABS system – high volume of money, but several suppliers => more effort
A-Part, high supply risk: Strategic parts, e.g engine casting => high effort and resource allocation – update supplier scanning and assessment more often, negotiation, stock/inventory
Explain the strategic position of suppliers
X-axis: Chances for good collaboration. Labels: low, medium, high
Y-axis: Power of the supplier. Labels: Low, medium, high
Low chances for good collaboration, low power of supplier: Standard suppliers => not very personal
Low chances for good collaboration, high power of supplier: Bottleneck suppliers – e.g. BASF for Daimler – BASF does chemistry – colour, varnishing => low volume for Daimler.
High chances for good collaboration, low power of the supplier: Core suppliers – e.g. Visiocorp – small, family-owned business.
High chances for good collaboration, high power of the supplier: Strategic suppliers – e.g. Bosch – biggest automotive supplier, monopoly on some parts.
What are strategies with regard to parts and suppliers?
X-axis: Standard suppliers, bottleneck suppliers, core suppliers, strategic suppliers
Y-axis: Standard parts, Bottleneck parts, core parts, strategic parts
Standard suppliers:
• Standard parts: efficient supplier (e-supply).
• Core parts or strategic parts: multiple sourcing
Bottleneck suppliers:
• Bottleneck parts: supply security
• Core parts or strategic parts: in-sourcing
Core suppliers and strategic suppliers:
• Core parts: select partners, collaborate, select again
• Strategic parts: Value-adding partnership – e.g. Daimler may design sth for the manufacturer
What are the two purchasing-related processes a company needs:
- Key sourcing-related processes (preparatory, more strategic level)
- Purchasing process (hands-on, more operational level)
3.
Describe the key sourcing-related processes
- Identify markets/suppliers worldwide
- Supplier scoring and assessment
- Supplier selection and contract
negotiation - Design collaboration
- Purchasing
- Sourcing planning and analysis
7.
Describe the purchasing process
- Define specification
- Select supplier
- Contract agreement
- Ordering
- Expediting
- Evaluation
7.
What are INCO-Terms?
International commercial terms from the International Chamber of Commerce
They define who has to pay for what, and who bears the risk.
Name three INCO-Terms
- Ex Works
- Free on Board
- Cost and Freight
What does Ex Works mean?
Supplier: produces, sets it outside the factory
Customer: responsible for transport (payment, risk, insurance)
What does Free on Board mean?
Supplier: produces, responsible for loading goods in transport vehicle
Customer: responsible once goods are in transport vehicle (e.g. loaded onto the ship)
What does Cost and Freight mean?
Supplier: responsible until goods are at customer’s factory
Customer: take goods inside factory
Making sourcing decisions in practice: what to keep in mind.
- Use multifunctional teams: purchasing, manufacturing, engineering and planning should collaborate
- Ensure appropriate coordination across regions and business units to maximize economies of scale
- Always evaluate the total cost of ownership: identify all factors that influence the total cost of ownership, and use that for supplier selection – e.g. training cost, recycling cost
- Build long-term relationships with key suppliers: especially important for direct materials (critical and strategic). This enables solid cooperation.
Describe ABC analysis
Purpose: tool to help focus on most important supply chain processes to start improving. Focus is on A products or A customers.
Focus on important products => focus on important processes.
Graph: x-axis – Revenue, y-axis – Product No.
A: goods creating 80% of revenue, B: 95% of revenue, C: 100% of revenue
What are other tools to help focus supply chain process improvements?
- Predictability of demand – X,Y, Z analysis: X is clear, Y need statistics, Z is chaotic
- Replenishment lead time – U,V, W analysis: U in 1 day, V in 1 week, W don’t know.
- Emergency parts
d
Why do we need detailed mapped processes?
To:
• Discuss, define and understand the responsibility of organizational units in the supply chain
- Define control points / points of measurement
- Identify ways for optimisation
How can the overall performance of the company be divided?
- Value performance: develop, make, sell (product in the hand)
- Support performance: plan, advertise
- Blind performance: transportation, double work – not necessary, customer can’t see benefit
- Error performance: returns, sth breaks
Blind performance and error performance should be 20% of overall performance together through process optimisation.
NB: managers won’t do anything until they need to save 15-20%.
What are the 10 questions to analyse a process map and their purposes?
- What is done in the process? – Task
- Why is it done? – Intention, objective, is it necessary
- How is it done? – Process, errors, can we do it more efficiently
- Why is it done like this? – Process, any reasons for this inefficiency – e.g. legal
- Who has to do it? – Responsibility, competence, salary
- Which resources/means? – Tools, information, can’t we use better tools
- How often? How much? – Frequency, is this too often
- When is it done? – point of time, simultaneous
- How long does it take? – duration, cycle time, any stoppers
- Where is it done? – location, too many changes
What are the general principles to optimize processes?
- Give way to value creation (zero defect, no waiting time, data coverage only once)
- Customer focus (external and internal customer focus)
- Standardisation and modularization – do it the same way
- Process focus first (function follows process) – look at the full process, not just at one function at a time, e.g. marketing
- Flat hierarchy (no additional approval processes)
- Self-responsibility (job, competencies and responsibilities must match)
- Just-in-time (right time, right place, right volume, right quality, no stock)
- Daily process finish (everything achieved until today) – need to finish what was planned for the day, not leave at close time.
Describe basic ways to optimize.
- Cancel – don’t do it
- Combine – one person does it => no waiting time
- Parallelise => faster
- Outsoucing => cheaper, higher quality
- Compress – e.g. accelerate factory belt
- Segmentation into standard (very efficient) and exotic (exotic/special products – take longer)
