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Lecture 11

OM 300 Lecture 11: OM Chapter 11 Notes

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University of Alabama
Operations Management
OM 300
David Cooper

Operations Management Chapter 11 Notes Supply-Chain Management Analytics Darden’s Supply Chain • Largest publicly traded casual dining company in the world • Serves over 400 million meals annually in more than 1,900 restaurants in the us and Canada • Annual sales of flagship brands totals $6 billion • Operations is the strategy • Sources food from five continents and thousands of suppliers • Four distinct supply chains • Over $2 billion spent annually in supply chains • Competitive advantage achieved through superior supply chain Supply Chain Management • The objective of supply chain management is to coordinate activities within the supply chain to maximize the supply chain’s competitive advantage and benefits to the ultimate customer The Supply Chain’s Strategic Importance • The coordination of all supply chain activities, starting with raw materials and ending with a satisfied customer • Includes suppliers, manufacturers and/or service providers, distributors, wholesalers, retailers, and final customer • Large portion of sales dollars spent on purchases • Supplier relationships increasingly integrated and long term ➢ Improved innovation, speed design, reduce costs Sourcing Issues • Make-or-buy vs. outsourcing ➢ Choosing between obtaining products and services externally as opposed to producing them internally • Outsourcing ➢ Transfer traditional internal activities and resources to outside vendors ➢ Efficiency in specialization ➢ Focus on core competencies Six Sourcing Strategies • Many suppliers • Few suppliers • Vertical integration • Joint ventures • Keiretsu networks • Virtual companies Many Suppliers • Commonly used for commodity products • Purchasing is typically based on price • Suppliers compete with one another • Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery Few Suppliers • Buyer forms longer term relationships with fewer suppliers • Create value through economies of scale and learning curve improvements • Suppliers more willing to participate in JIT programs and contribute design and technological expertise • Cost of changing suppliers is huge • Trade secrets and other alliances Vertical Integration • Developing the ability to produce goods or service previously purchased • Integration may be forward, towards the customer, or backward, towards suppliers • Can improve cost, quality, and inventory but requires capital, managerial skills, and demand • Risky in industries with rapid technological change Joint Ventures • Formal collaboration ➢ Enhance skills ➢ Secure supply ➢ Reduce costs • Cooperation without diluting brand or conceding competitive advantage Keiretsu Networks • A middle ground between few suppliers and vertical integration • Supplier becomes part of the company coalition • Often provide financial support for suppliers through ownership or loans • Members expect long-term relationships and provide technical expertise and stable deliveries • May extend through several levels of the supply chain Virtual Companies • Rely on a variety of supplier relationships to provide services on demand • Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands • Relationships may be short or long-term • Exceptionally lean performance, low capital investment, flexibility, and speed Supply Chain Risk • More reliance on supply chains means more risk • Fewer suppliers increase dependence • Compound by globalization and logistical complexity • Vendor reliability and quality risks • Political and currency risks Risk and Mitigation Tactics • Research and assess possible risks • Innovative planning • Reduce potential disruptions • Prepare responses for negative events • Flexible, secure supply chains • Diversified supplier base • Risk: supplier failure to deliver ➢ Risk reduction tactic: use multiple suppliers; effective contracts with penalties, subcontractors on retainer, pre-planning • Risk: supplier quality failure ➢ Risk reduction tactic: careful supplier selection, training, certification, and monitoring • Risk: logistics delays or damage ➢ Risk reduction tactic: multiple/redundant transportation modes and warehouses; secure packaging; effective contracts with penalties • Risk: distribution ➢ Risk reduction tactic: careful selection, monitoring, and effective contracts with penalties • Risk: information loss or distortion ➢ Risk reduction tactic: redundant databases; secure IT systems, training of supply chain partners on the proper interpretations and uses of information • Risk: political ➢ Risk reduction tactic: political risk insurance; cross-country diversification; franchising and licensing • Risk: economic ➢ Risk reduction tactic: hedging to combat exchange rate risk; purchasing contracts that address price fluctuations • Risk: natural catastrophes ➢ Risk reduction tactic: insurance; alternate sourcing; cross-country diversification • Risk: theft, vandalism, and terrorism ➢ Risk reduction tactic: insurance’ patent protection; security measures including RFID and GPS; diversification Security and JIT • Shipments get misrouted, stolen, damaged, or excessively delayed • Technological innovations are improving security and inventory management ➢ Location, motion sensors, broken seals, temperature • Tracking can help expedite shipments Managing the Integrated Supply Chain • Issues ➢ Local optimization…… ➢ Incentives push merchandise into the supply chain for sales that have not occurred ➢ Large lots reduce shipping costs but increase inventory holding and do not reflect actual sales ➢ Bullwhip effect occurs when orders are relayed through the supply chain increasing at each step • Opportunities ➢ Accurate “pull” data, shared information ➢ Lot size reduction, shipping, discounts, reduced ordering costs ➢ Single stage control of replenishment o Single supply chain member responsible for ordering ➢ Vendor managed inventory (VMI) • Opportunities ➢ Collaborative planning, forecasting, and replenishment (CPFR) through the supply chain ➢ Blanket orders against which actual orders are released ➢ Standardization ➢ Postponement withholds modification as long as possible ➢ Electronic ordering and funds transfer speed transactions and reduce paperwork ➢ Drop shipping and special packaging bypasses the seller and reduces costs Building the Supply Base • Supplier evaluation ➢ Finding potential suppliers ➢ Determine likelihood of their becoming good suppliers ➢ Supplier certification 1. Qualification 2. Education 3. Certification • Supplier development ➢ Integrate the supplier into the system o Quality requirements o Product specifications o Schedules and delivery o Procurement policies
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