Week 5 Managing Suppliers, Customers and Inventory Flashcards
What is a Supply Chain?
Interlinked customers and suppliers that work together to convert, distribute and sell goods and services among themselves, leading to a specific end product
The network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product
What is Supply Chain Management?
concerned with the efficient integration of customers, suppliers, warehouses and stores.
what is involved in supply chain management?
- ensure correct quantity to right location at right time
- accelerate time to market of new products
- measure performance of activities
- create rel/ship with customer and suppliers
- improve performance
Benefits of Supply Chain Management
- lower inventory
- productivity
- greater agility
- shorter lead times
- profit
- customer loyalty
importance of managing suppliers?
- Improved supplier relationships can
- reduce supplier and inventory-related costs
3 steps in managing suppliers?
- selecting suppliers - based on criteria e.g. price, quality, delivery, history, comm, location
- analysing supplier cost - total cost of ownership e.g. cost of purchasing/holding inventory/ poor quality/ delivery failure
- Evaluating supplier performance (index)
how do you analyse/calculate supplier costs?
- Activity based costing = to estimate total cost of ownership
- Hierarchy of supplier activities: unit-level, order-level, supplier-level
Supplier cost/activity based - what are the 3 hierarchy of supplier activities?
Unit Level Activities
• Rework product due to poor quality material
• Downtime due to poor quality material
• Machine setup
Order Level Activities • Place purchase orders • Receive orders • Inspect material • Invoicing suppliers for orders
Supplier Level Activities
• Manage the relationship with suppliers
• Quality audit
• Research and development
example of supplier performance measures criteria?
delivery, quality, cost, org change, rel/ship
supplier performance measures criteria: Delivery = example of measures and explanation?
- percentage of order delivered on time, average lead time for deliveries
- suppliers required to deliver within short timeframe
supplier performance measures criteria: Quality - example measure and explanation
- percentage of order rejected; achieved of quality certification
- quality inspection not undertaken; financial penalty for defective delivered
- buying org require supplier to achieve certain quality accreditation
supplier performance measures criteria: Cost measure and explanation
- success meeting cost-down target; achieving manufacturing cost reduction target
- buying org set supplier targets for ‘cost downs’ (expected to reduce price each year); buying org assist in reducing manufacturing cost
supplier performance measures criteria: Org Change measure and explanation
- implementation team structure; adoption EDI system
- buying org require suppliers to change production method and admin system with assistance
supplier performance measures criteria: Relationship measure and explanation
- supplier satisfaction survey; disputes resolved within 7 days;days downtime due to industrial actions
- measures developed to assess quality of rel/ship (survey employees); industrial actions at suppliers can lead to late or no supply to firm
Managing inventory
Why hold inventory?
- Cope with uncertainties in customer demand and in production processes
- Qualify for quantity discounts
- Avoid future price increases in raw materials
- Avoid the costs of placing numerous small orders
Three classes of inventory costs
Conventional approaches to inventory management focus on balancing:
- Ordering costs : incremental costs of placing an order e.g. cost of finding suppliers, clerical cost, transportation
- Carrying/holding costs: the costs of carrying inventory in stock e.g. storage, handling, insurance
- Shortage (or out-of-stock costs) e.g. lost sales, cost of interrupted production, wages of idle workers
Economic Order Quantity Assumptions
- Demand is known and constant
- Incremental ordering costs are known and constant per order
- Acquisition cost per unit is constant
- Entire order is delivered at one time
- Carrying costs are known and constant per unit
- On average, one-half of order is in stock at any time
what is Safety stock?
- The extra inventory kept on hand to cover any above-average usage or demand
- May be costly to maintain extra inventory
Inventory re-order point (ROP) is/
- The level of inventory on hand that triggers the placement of a new order (or setup)
- Lead time- the length of time between placing an order and receiving the order
Just in time (JIT) inventory and production system is?
processing and movement of materials and goods occur just as they are needed, usually in small batches
- can cover all aspects of production process
= Inventory management is crucial
= Inventory is a major cause of non-value-added activities and cost
Key features of JIT production?
- A pull method of coordinating production processes
- Simplified production processes
- Purchase of materials, and manufacture of sub-assemblies and products in small lots
- Quick and inexpensive setups of production machinery
- High-quality levels for raw materials, components and
finished products - Effective preventative maintenance of equipment
- Flexible work teams
JIT purchasing involves?
- The purchase of materials or goods so they are delivered just as needed for production or sales
- Reduces the number of suppliers
- Long-term contracts with suppliers
- Specifies quality standards in supplier contracts to reduce need for inspection
- Use of e-commerce to place orders, and provide supplier on-line access to inventory files
Costs of JIT?
- Substantial investment to change production facilities to minimise non-value-added activities
- An increase in the risk of inventory shortages and the associated loss of production and sales
Benefits of JIT
- Savings in inventory-carrying and insurance costs
- Fewer losses due to spoilage, obsolescence and theft
- No opportunity costs of high inventory
- Eliminates non-value-added activities
- Meets customers’ needs more effectively
What is Customer relationship management (CRM)?
is “the development and maintenance of mutually beneficial long-term relationships with strategically significant customers” (Buttle, 2000)
Collecting and analysing data to understand individual customers’ behaviour patterns and needs
what does Customer relationship management (CRM) provide?
selling organisations with the platform to obtain a competitive advantage by embracing customer needs and building value-driven long-term relationships.
benefits of Customer relationship management (CRM)?
- Improved customer service
- Customer retention
- New customers
- More effective and efficient marketing
- Increased sales and customer profitability
Why calculate customer profitability?
to know who generates most profit and how to keep
who generate least and how to increase
what type of customers should we focus on?
How to Calculate Customer Profitability?
COMPARE
- Costs of all activities used to support a customer or customer group
- Revenue generated by that customer or customer group
How To Analyse Customer Cost?
Customer Cost Analysis:
Analysis of cost of products purchased by customers and the costs of customer-driven activities
Calculating Customer Cost: involves which 3 levels of activities?
order
customer
market
Calculating Customer Cost: Order level activities involve?
Triggered when order is placed by a customer
For example:
- Processing customer’s order
- Packing ordered products
- Delivering goods
Calculating Customer Cost:
Customer level activities?
Related to acquiring new customers or retaining existing
For example:
- Ongoing sales calls
- Complaint handling
- Technical support
- Provision of samples
Calculating Customer Cost: Market level activities?
Related to a particular market or class of customers
For example:
- Analyse customer
needs
- Maintain presence in particular market
- Develop technologies to satisfy customer needs
