Supply Chain Chapters 7-9

Supplier Relationship Management (SRM)

The discipline of strategically planning for, and managing all interactions with the third party organizations that supply goods or services to an organization, in order to maximize the value of those interactions

10 Keys to Successful Strategic Partnerships

1. Build trust

2. Having shared vision and objectives

3. Developing personal relationships

4. Establishing mutual benefits and needs

5. Gaining commitment from top management

6. Managing change

7. Information sharing and lines of communication

8. Understanding and influencing capabilities

9. Continuous improvement

10. Measuring performance

Building Trust

Partners are more willing to work together and compromise solutions

Shared Vision and Objectives

Partners share the same vision and have clear and mutually agreeable objectives

Personal Relationships

People communicate and make things happen

Mutual Benefits and Needs

Results in a win-win situation, can only achieved if companies have compatible needs

Commitment from Top Management

Top executives actively support the partnership

Managing Change

Must be adaptable when forming new partnerships

Information Sharing

Both formal and informal lines of communication must be set up

Understanding Capabilities

Suppliers must have right technological capabilities to meet cost, quantity, and delivery requirements

Continuous Improvement

Making a series of small improvements with a willingness to do so

Continuous Improvement Steps

Plan, Do, Check, Act

Measure Performance

Can’t improve without measuring

Total Cost of Ownership

All costs associated with the acquisition, use, and maintenance of a good or service

Benefits of Strategic Partnership for Buyers

Increased operating efficiency

Access to suppliers’ best people

Influence over supplier investments

Access to suppliers’ ideas

Increased innovation

Sustainable competitive advantage

Benefits of Strategic Partnership for Suppliers

Increased operating efficiency

Greater visibility into buyers’ plans

Increased scope of business

Opportunities for innovative solutions

Long-term buyer commitments

Sustainable competitive advantage

Supplier Evaluation

Process to identify the best and most reliable suppliers, decisions based on fact not perception

Weighted-Criteria Evaluation System

Select and measure key dimensions of performance, assign weights to each, score each on a scale from 1-100 and multiply by weights to get total score

Supplier Ratings

Preferred, Acceptable, Developmental

Benefits of Supplier Certification Programs

Reducing the amount of time and labor necessary for the buyer to conduct inspections

Building long-term relationships

Recognizing excellence

Decreasing supplier base

Internal Certification Programs

Criteria include analysis of product rejections, late deliveries, negative quality incidents

External Certification Programs

International Organization for Standardization (ISO) certifications represents achieving and maintaining a standard of excellence verified by an independent third party organization

ISO 9000

A series of 8 management and quality standards in design, development, production, installation, and service

ISO 14000

A family of standards for environmental management

Supplier Development

Technical and financial assistance given by buyers to existing and potential suppliers to improve quality and/or delivery performance

Early Supplier Involvement (ESI)

Key suppliers become more involved in the internal operations of the buyer’s company, particularly with respect to new product and process design, concurrent engineering, and design for manufacturability

Value Engineering

Help the buyer’s company to reduce cost, improve quality and reduce new product development time beginning with the initial design

Supplier Recognition

Program to recognize suppliers who achieve the high performance standards necessary to meet customer expectations

Three Attributes of Supplier Recognition

Companies should recognize and celebrate the achievements of their best suppliers

Award winners exemplify true partnerships

Award-winning suppliers serve as role models for other suppliers

Benefits of Supplier Recognition Programs

Motivate suppliers, improve supplier loyalty, encourage suppliers to adopt company culture, create entry barriers for competitors, encourage supplier innovation

Characteristics of SRM Systems

Automation - handle routine transactions
Integration - spans multiple departments, processes, and software
Visibility - clear information and concise process flows
Collaboration - information sharing
Optimization - in processes and decision making

Operations Management

Managing the process to convert resources into goods and services as efficiently and effectively as possible

Manufacturing

To process or make raw materials or components into a finished product

Manufacturing Management

Management of all the processes which are involved in manufacturing

LEAN

Operating philosophy of waste reduction and value enhancement, improves supply chain flow

Six Sigma

disciplined, statistical-based, data-driven methodology for identifying and removing causes of defects and minimizing variability, improve supply chain process

Manufacturing Strategies

Make-to-Stock
Make-to-Order
Assemble-to-Order
Engineer-to-OrderMa

Make-to-Stock

Manufacture stock based on forecasted demand, challenge is to avoid excess inventory

Make-to-Order

Manufacturing starts only after a customer’s order is received, not appropriate when customer’s expect immediate delivery

Assemble-to-Order

Products ordered by customers are produced quickly and are customizable to a certain extent, hybrid between MTS and MTO

Engineer-to-Order

Product is designed, engineered, and built to the customer’s specifications after receipt of the order, creates a unique product every time

Manufacturing Processes

Job Shop Production

Batch Production

Line Flow Production

Continuous Flow Production

Intermittent Processes

Used to produce a large variety of products with different processing requirements in lower volumes

Repetitive Processes

Used to produce one, or a few, standardized products in high volumes

Job Shop Production

Creates a custom product for each customer, high customization, low volume (intermittent)

Batch Production

Manufacturing of a small fixed quantity of an item in a single production run (intermittent)

Line Flow Production

Product moves on an assembly line through various stages of production, when one task is finished the next begins immediately (repetitive)

Continuous Flow Production

Involves a series of highly automated and inflexible processes which raw materials flow through, high volume (repetitive)

Total Cost of Manufacturing

Complete cost of producing and delivering products to your customers, includes manufacturing, procurement, inventory, warehousing, and transportation costs

As volume goes up…

Manufacturing, procurement, and transportation costs go down, while inventory and warehousing costs go up

LEAN History

Henry Ford’s mass production line (1910), Toyota Production System (1940), term first coined in 1988

LEAN

A management philosophy based on the Toyota Production System that combines quick response, efficient consumer response, just in time, and Keiretsu relationships

Value

Inherent worth of a product judged by the customer and reflected in its selling price and market demand

Components of LEAN

LEAN Manufacturing, Respect for People, and Total Quality Management

7 Elements of LEAN Manufacturing

1. Waste Reduction

2. LEAN Layouts

3. Inventory, Setup Time, & Changeover Time Reduction

4. Small Batch Scheduling and Uniform Plant Loading

5. LEAN Supply Chain Relationships

6. Workforce Empowerment

7. Continuous Improvement

Waste Reduction

Firms reduce costs and add value by eliminating waste from the production system, go from scattered to streamlined processes

Waste

Encompasses wait times, inventories, material and people movement, processing steps, variability, any other non-value-adding activity

LEAN Layout

Facility design strategy that minimizes waste, reduces material handling, and optimizes flow to improve productivity and safety (focus on visibility)

Five S’s

Sort, Set in Order, Shine, Standardize, Sustain, used for creating a LEAN layout

Pull System

Each stage in the supply chain requests quantities needed from the previous stage, no excess inventory is generated

Setup Time

Time taken to prepare and format the manufacturing equipment and systems for production

Changeover Time

Time taken to adapt and modify the manufacturing equipment and systems to produce a different product or a new batch of the same product

Small Batch Scheduling

Creates a smooth workload as production can be synchronized with customer demand, facilitating a pull system

Kanbans

Signal that is used for communication between work stations

Uniform Plant Loading

Planning up to capacity in earlier time periods to meet demand in later time periods

LEAN Supply Chain Relationships

Firms develop lean supply chain relationships with key customers and key suppliers, easy exchange of information

Workforce Commitment

Managers provide subordinates with the skills, tools, time, and other necessary resources to identify problems and implement solutions

Role of Management

Create the cultural change needed for LEAN to succeed by providing an atmosphere of cooperation and incentivize LEAN behaviors

Total Quality Management (TQM)

Management philosophy based on the principle that every employee must be committed to maintaining high standards of work in every aspect of a company's operations

W. Edwards Denning

Father of TQM, creator of Plan-Do-Check-Act model

Philip Crosby

Coined phrase “quality is free”, introduced the concepts of zero defects, and focus on prevention and not inspection

Joseph Juran

defined quality as “fitness for use”, developed concept of cost of quality

Kaoru Ishikawa

Developed cause and effect diagram

Voice of the Customer

Term used in business to describe the in-depth process of capturing internal and external customers expectations, likes, dislikes, and preferences

Cost of Quality

An approach that supports a company’s efforts to determine the level of resources necessary to prevent poor quality, and to evaluate the quality of the company’s products and services

Appraisal Costs

Under cost of good quality, associated with the evaluation of purchased materials, processes, products, and services to ensure they conform to specifications

Prevention Costs

Under cost of good quality, related to the design, implementation, and maintenance of the quality management system, experienced before materials are acquired or produced

Internal Failure Costs

Under cost of poor quality, occur when the product or service does not meet the designed quality standards, and are identified before the product or service is delivered to the customer

External Failure Costs

Under cost of poor quality, occur when the product or service does not meet the designed quality standards, but is not detected until after the product or service is delivered to the customer

Acceptance Sampling

When shipment is received, a statistically significant representative sample is taken and measured against the quality acceptance standard

Supplier’s Risk

Buyer rejects a shipment of good-quality units because the sample quality level did not meet the acceptance standard (type I error)

Buyer’s Risk

Buyer accepts a shipment of poor-quality units because the sample falsely provides a positive result against the acceptance standard (type II error)

Six Sigma

Quality management process that focuses on improving the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability, originated by Motorola

Foundational Aspects of Six Sigma

1. Quality is Defined by the Customer

2. The Use of Technical Tools

3. People Involvement

Root Cause Analysis

Collective term that describes a wide range of approaches, tools, and techniques used to uncover causes of problems.

Root Cause

Core issue that sets in motion the entire cause-and-effect reaction that ultimately leads to the problem

Seven Tools of Quality Control

Check Sheets

Histograms

Pareto Analysis

Cause & Effect Diagrams

Flow Diagram

Control Charts

Scatter Diagrams

Check Sheets

Used to determine frequencies for specific problems

Histograms

A graphical display where the data is grouped into ranges

Pareto Analysis

For presenting data in an organized fashion, indicating process problems from most to least severe

Cause and Effect Diagrams

Used to aid in brainstorming and isolating the causes of a problem

Flow Diagram

Sequence of movements or actions of people or things involved in a complex system

Control Charts

Graph to study how a process changes over time

Scatter Diagram

The values of two variables plotted along two axes, to reveal any correlation present

Six Sigma Methodologies

DMADV - Define, Measure, Analyze, Design, Verify (for design)
DMAIC - Define, Measure, Analyze, Improve, Control (for improvement)

5 Why’s

Questioning technique for identifying the root cause of a problem

5 How’s

Questioning technique for drilling down into the details of a potential solution to a known problem

Logistics

Part of supply chain management that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information, from the point of origin to point of consumption in order to meet customer requirements

Inbound Logistics

Move goods and materials from suppliers to buyers

Material Handling

Move goods and materials between sites