Chapter 11.docx

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Food Agricultural and Resource Economics
FARE 3310
Jamie Gruman

Chapter 11- Supply-Chain Management and Outpouring Supply chain- network of activities that delivers a finished product or service to customer -system of organizations, people, activities (transform raw materials and components into finished product), information and resources involved in moving product or service from suppler to customer -competitive advantage may depend on close long-term strategic relationship with a few suppliers -supply-chain management coordinates and manages all activities of the supply chain linking suppliers, transporters, internal departments, third-party companies and information systems Reasons it is difficult to match supply and demand: -uncertainty in demand and/or supply -changing customer requirements -decreasing product life cycle -fragmentation of supply chain ownership -conflicting objectives in supply chain -conflicting objectives within a single firm Strategic Importance of The Supply Chain Low-cost Strategy Response Strategy Differential Strategy Suppliers goal -supply demand at lowest -respond quickly to -share market research possible cost changing requirements jointly develop products and demand to minimize and options stockouts Primary selection criteria -select primarily for cost Select primarily for -select primarily for capacity, speed and product development flexibility skills Process characteristics -maintain high average -invest in excess capacity -use modular processes utilization and flexible processes that lend themselves to mass customization Inventory characteristics -minimize inventory -develop responsive -minimize inventory in the throughout the chain to system, with buffer stocks chain to avoid hold down costs positioned to ensure obsolescence supply Lead-time characteristics -shorten lead time as long -invest aggressively to -invest aggressively to as it does not increase reduce production lead reduce development lead costs time time Product-design -maximize performance -use product designs that =use modular design to characteristics and minimize cost lead to low setup time and postpone product rapid production ramp-up differentiation for as long as possible Supply Chain Risks -companies that depend on supply chain are making less and buying more; more reliance on supply chains means more risk -management must mitigate and react to disruptions in: -process- raw material and component availability, quality, and logistics -controls- management metrics and reliable secure communication for financial transactions, product designs and logistic scheduling -environment- custom duties, tariffs, security screening, natural disaster, currency fluctuations, terrorist attacks, and political issues Supply chain Economics -for both goods and services, supply chain costs as a percent of sales are often substantial -make/buy decisions- a choice between producing a component or service in-house or purchasing it from external source Outsourcing- transferring a firm’s activities that have traditionally been internal to external suppliers -if a company owns more than one plant and reallocates production from one to another it is not outsourcing -if company moves some business processes to foreign country buy retains control it is referred to as offshoring Example- Determine the total annual cost of in-sourcing and outsourcing for a part. Make (in-source) Buy (outsource) Expected annual quantity 20 000 units 20 000 units (X) $5.00 $6.00 Variable cost per unit (v) $30 000 $0 Annual fixed (F) The theory of competitive advantage Theory of competitive advantage- states you should allow another firm to perform work activities for you company if that company can do it more productively than you can Advantages and Disadvantages of Outsourcing Advantages Disadvantages -cost savings -increased transportation costs -gaining outside experience -loss of control -improving operations and service -creating future competition -focusing on core competencies -negative impact on employees -gaining outside technologies -longer-term impact Risk of outsourcing -outsourcing can be risky -as many as half of all outsourcing agreements fail because f inappropriate planning and analysis -erratic power grids, government difficulties, inexperienced managers, unmotivated labour can create problems -failure to achieve unrealistic goals sometimes creates impression of failure Example- Suppose a firm as narrowed its choice of outsourcing to two firms located in different countries. The manager want to decide which one of the two countries is the better choice, based on risk avoidance criteria. The manager identified the following criteria with rating (1=lower risk, 3=higher risk) Selection Criteria England USA Piece of service from outsourcer 2 3 Nearness of facilities to client 3 1 Level of technology 1 3 History of successful outsourcing 1 2 Which country would you select using the unweighted factor-rating method? If the first two factors are given a weight of 2, and the last two weights of 1, how does your answer change? Supply Chain Strategies Negotiating with many suppliers- supplier responds to the demands and specifications of a ‘request for quotation’ with the order usually going to the low bidder Long-term partnering with few suppliers- rather than looking for short-term attributes, such as low cost, a buyer is better off forming long term relationship with a few dedicated suppliers Vertical integration- developing the ability to produce goods are services previously purchased or actually buying a supplier or a distributer Join ventures- collaboration among companies Keiretsu networks-is a strategy that is part collaboration, part purchasing from few suppliers and part vertical integration Virtual companies- companies that rely on a variety of supplier relationships to provide service on demand. Also known as hollow corporations or network companies Managing the supply chain -there are significant management issues in controlling a supply chain involving many independent organizations: -trust -mutual agreement on goals -compatible organizational cultures -accurate pull data -lot size reduction -single stage control of replenishment -vendor managed inventory (VMI) -collaborative planning, forecasting, and replenishment (CPFR) -blanket orders -standardization -postponement -drop shipping and special packaging -pass-through facility -channel assembly Logistics Management -objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities frequent candidate for outsourcing -allows
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