Learning ObjectivesUnderstand the concept of supply chain management

Recognize the relationship between design and supply chain management

Describe the five global sourcing arrangements

Appreciate the importance of added costs of global sourcingUnderstand the increasing role of electronic purchasing for global sourcing

Chapter Objectives

Understand synchronous manufacturing and customization

Comprehend the concept of Six Sigma systems and their application

Explain the potential of global standardization of production processes and procedures, and identify impediments to standardization efforts

Know the two general classes of activities in manufacturing systems, productive and supportive, that must be performed in all manufacturing systems

Supply Chain ManagementProcess of coordinating and integrating the flow of materials, information, finances, and services within and among companies in the value chain from suppliers to the ultimate consumer

Lower Costs/Improved ProductsDesired results may be obtained throughImprovement within existing operationsOpening new operationsfinding outside sources for inputsOutsourcingHiring others to perform some of the noncore activities and decision making in a companys value chain, rather than having the company and its employees continue to perform those activitiesCombination of above

Global Supply Chain Management

Involves total systems approach to managing flow ofMaterialsInformationFinancesServices

Supply Chain Network: A Hypothetical Example of an American Laptop Computer Company

Design of Products and ServicesDesign has fundamental relationship with type of inputs requiredImportant consideration is extent to which products and services will be standardized or adaptedOver-the-Wall approach is traditional approachSequential stepsAlternative approach is cross-functional participationMay involve customers

OutsourcingIncreasingly common optionRelocating some or all of a businesss activities or processes outside of the companyFocus on core competenciesLeverage skills of other companiesReduce costsImprove flexibility and speed of responseEnhance qualityCan outsource in same country or another countryOffshoring: a foreign locationChoices increased byGlobal access to vendorsFalling costs of interactionsImproved information technology and communication

Global SourcingConsiderationsCostsControlExpertise DistanceLanguagesLaws and regulationsBegin simpleThen move to complex

Global SourcingThe Lure of Global SourcingSuppliers with improved competitiveness CostQualityTimelinessSuppliers in less developed countries with low-cost laborAttractive for labor-intensive products with low skill requirements

Global Sourcing ArrangementsArrangement that provide a firm with foreign productsWholly owned subsidiaryOverseas joint ventureIn-bond plant contractorOverseas independent contractorIndependent overseas manufacturer

Use of ElectronicPurchasing for Global SourcingGrowth of electronic procurement exchangesIdentify potential suppliers or customers

Facilitate efficient and dynamic interactions among prospective buyers and suppliers

Recognize strategic function of purchasing

Global Electronic ProcurementElectronic Exchange OptionsCatalog purchasesPermits buyers and suppliers to interact through a standard bid/quote systemFacilitates obtaining letters of credit, contracting for logistics and distribution, and monitoring dailyBenefitsCut costs and invoice and ordering errorsImprove productivity and internal purchasing processesReduce trading cycle time, paperCompare bids

Global SourcingProblems

Unanticipated added costsCurrency fluctuationsTransportation cost increases

E-procurement exposes business systems to wide range of potential security issues

Added CostsInternational freight, insurance and packingImport dutiesCustomhouse brokers feesTransit or pipeline inventoryCost of letter of creditInternational travel and communication costsCompany import specialistsReworking of products out of specification

Standards for Global OperationsStandardsDocumented agreements on technical specifications or other precise criteria used consistently as guidelines, rules, or definitions of the characteristics of a product, process, or serviceISO 9000 (International Organization for Standards) most used in Europe, for quality ISO 9001 most comprehensive standard

Impediments to StandardizationEconomic ForcesWide range of market sizesCost of productionBackward vertical IntegrationArrangement in which facilities are established to manufacture inputs used in the production of firms final products

Impediments to StandardizationCultural Forces

Developing countries may lack skilled workers

Resources directed to professional vs. technical education

Use of specialized machines favored

Absenteeism

Impediments to StandardizationPolitical Forces

Country needs new jobs

Government insists on most modern equipment

Local Manufacturing SystemCommonly scaled-down version of that found in the parent companyHorizontal/Vertical integrationVertical more traditional Horizontal less prevalent in foreign subsidiaries

Design of the Manufacturing SystemManufacturing system:Functionally related group of activities for creating valueFactors involved in efficient operationPlant locationPlant layoutMaterials handlingHuman element

Design of the Manufacturing SystemPlant locationAffects both production and distribution costsNeeds labor, raw materials, water and powerMust locate in export processing zonesPlant layoutArrangement of machinery, personnel and service facilitiesMaterials HandlingCareful planning can save production costsPoor handling leads to excessive inventory, idle machinery, late deliveries and damaged goodsHuman elementEffectiveness depends on peoplePeople are affected by the system

Operation of the Manufacturing SystemManufacturing system has two classes of activitiesProductive activitiesSupportive activities

Operation of the Manufacturing SystemObstacles to Meeting Manufacturing StandardsLow outputInferior qualityExcessive manufacturing costs

Obstacles to Meeting Manufacturing StandardsLow OutputSupplier problems, absenteeismPoor coordination of production schedulingCulture differences,attitudes, educational levels, planningInferior Product QualityGood quality is relativeLack of maintenance and operating skillsExcessive Manufacturing CostsLow outputBudget problemsOveroptimistic sales forecastSupply problems, supplier, water/powerOverstocked inventoryResistance to lay off workers

Supportive ActivitiesQuality controlInventory controlPurchasingMust consider costsDevelop suppliersKnow import procedures and key government officialsMonitor foreign exchange

Supportive ActivitiesMaintenanceGoal to ensure acceptable level of productionTwo alternativesPreventiveBreakdownTechnical FunctionProvides operations with manufacturing specificationsChecks quality of inputs and finished productsInfluential in selecting sources of supply

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