Supply Chain Midterm 3

Strong Supplier Partnerships

Important to achieving win-win competitive performance for the buyer and supplier

10 keys to developing successful strategic partnerships:

1. Building Trust

2. Having a 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

Supplier Evaluation

A process to identify the best and most reliable suppliers

Supplier Evaluation: Performance

Some relevant metrics include:

 Price and cost performance

 Product quality

 Delivery performance

 Contractual compliance

 Participation in product development initiatives

 Cooperativeness in third-party production management

 Support of ethics and sustainable practices

Key Supplier Selection

Conducted by a cross functional team using evaluation forms or scorecards.

Benefits of Supplier Certification Programs

1. Reducing the amount of time and labor necessary for the buyer to conduct incoming inspections of products and materials from certified suppliers, creates cost savings.

2. Building long term relationships

3. Recognizing excellence

4. Decreasing the supplier base

Supplier Certification

Used as verification that select suppliers operate, maintain, improve, and document effect procedures that relate to the buyer’s requirements for supply elements such as cost, quality, delivery, flexibility, etc.

International Organization for Standardization

an independent, non-governmental international organization that develops voluntary, consensus-based, market-relevant international standards for various industries

Example of Criteria used for an internal Certification Program

 Supplier has no incoming product rejections for a specified time period.

 Supplier has no incoming late deliveries for a specified time period

 Supplier has no significant negative quality related incidents for a specified time period

 Supplier is ISO 9000 certified or has successfully passed a recent on-site quality system evaluation

 Supplier consistently meets a mutually agreed-upon set of clearly specified quality performance measures

 Supplier has a fully documented process and quality system with cost controls and continuous improvement capabilities

 Supplier’s processes are determined to be stable and in control

Examples of Major Manufacturing Strategies

Make-to-Stock (MTS)

Make-to-Order (MTO)

Assemble-to-Order (ATO)

Engineer-to-Order (ETO)

Make-to-Stock (MTS)

Means to manufacture products for stock based on demand forecasts. Push system.

Make-to-Order (MTO)

a manufacturing strategy in which manufacturing starts only after a customer's order is received. Creates additional wait time for the customer to receive the product, but allows customers to purchase products that are customized to their specifications.

Assemble-to-Order

manufacturing strategy where products ordered by customers are produced quickly and are customizable to a certain extent. ATO is a hybrid strategy, attempting to combine the benefits of both Make-to-Stock and Make-to-Order strategies, getting products into customers' hands quickly while allowing for some customization to take place.EX: Dell laptops

Engineer to Order (ETO)

a manufacturing strategy in which the product is designed, engineered, and built to the customer’s specifications after receipt of the order.

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 aka Project Production

− Creates a custom product for each customer

− One-off or small number of items produced, generally one unit manufactured at a time.

− High customization - Normally made to customs specifications

− Often undertaken by small, specialist businesses

− Examples: Architects - Custom Home Construction, Ship Builders, Road Builders

Total Cost of Manufacturing

the complete cost of producing and delivering products to your customers, includes manufacturing and procurement activities, inventory and warehousing activities, transportation activities

What Happens as Volume Goes Up?

A. Manufacturing and Procurement costs go down due to economies of scale. Generally-step function applies as more capital is required to produce.

B. Inventory and Warehousing costs go up.

C. Transportation costs go down, but level off at high volumes as the shipping container gets filled to capacity and another container must be used.

Lean

A management philosophy based on the Toyota Production System (TPS)

Goals of Lean:

1. Eliminate everything that does not add value

   (waste) in the customer’s eyes

2. Using Value Stream Mapping as primary work unit

3. Focusing on improving process performance

4. Having a clear view of the end state

5. A wide range of Lean tools are available

6. Learn-by-doing approach to performance

   improvement and capability-building

LEAN Manufacturing

 Satisfying internal customer demand

 Communicating demand forecasts and production schedules up the supply chain

 Quickly moving products in the production system

 Optimizing inventory levels across the supply chain

 Increasing the value, capabilities, and flexibility of the workforce through cross-training

 Extending collaboration and alliances beyond just 1st tier

suppliers and customers to include 2nd and 3rd tier suppliers and customers as well

LEAN Layout

Move people and materials when and where needed, and as soon as possible

 Are very visual (lines of visibility are unobstructed) with operators at one processing center able to monitor work at another

 Manufacturing cells:

─ Process similar parts or components saving duplication of

equipment and labor

─ Are often U-shaped to facilitate easier operator and material movements

LEAN Layout Photo

Notable Examples of LEAN Layouts

McDonalds

Voice of the Customer

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

Ways to Capture VOC

 Customer Interviews

 Market Surveys

 Focus Groups

 Customer Specifications

 Observation

 Warranty Data

 Field Reports

 Complaint Logs

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.

Cost of Good Quality

─ Appraisal Costs

─ Prevention Costs

Cost of Poor Quality

─ Internal Failure Costs

─ External Failure Costs

Appraisal Costs

Costs associated with the evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications.

Prevention Costs

Costs related to the design, implementation, and maintenance of the quality management system. They are planned, and experienced before actual products or materials are acquired or produced.

Internal Failure Costs

Occurs 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

Occurs 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 a shipment is received from a supplier, a statistically significant representative sample is taken and measured against the quality acceptance standard.The entire shipment is assumed to have the same quality as the representative sample that was taken.

Supplier’s Risk for Acceptance Sampling

The 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 for Acceptance Sampling

The 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

A quality management process that focuses on improving the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes.

Goal of Six Sigma

Attain less than 3.4 Defects Per Million Opportunities (DPMO)

History of Six Sigma

1. Motorola developed the concept in the 1980’s, created the methodology, and copyrighted it as well.

2. Motorola has documented > $16 Billion in savings as a result of Six Sigma.

3. Six Sigma became famous when Jack Welch made

   it central to his successful business strategy at

   General Electric in 1995

4. Thousands of companies globally have adopted Six Sigma.

Three foundational aspects of Six Sigma

1. Quality is Defined by the Customer

2. The Use of Technical Tools

3. People Involvement

The Seven Tools of Quality Control

1. Check Sheets

2. Histograms

3. Pareto Analysis

4. Cause & Effect Diagrams

5. Flow Diagram

6. Control Charts

7. Scatter Diagrams

Warehouse Ownership Types

 Public Warehouses

 Contract Warehouses

 Private Warehouses

Public Warehouse

1. A business that provides storage and related warehouse functions to companies on a short or long-term basis, generally on a monthto-month basis for a fee. (Hotel for Inventory)

2. Own their own equipment and hire their own staff to manage the facility.

3. Fees are typically a combination of a monthly storage fee plus a pallet-in fee

   and a pallet-out fee.

4. They may also have some document fees and account management fees.

Advantages of Public Warehouse

• No capital investment or property taxes

• Flexibility

  • Can be short or long term contract

  • For seasonal products

  • Add storage capacity even on short notice

• Lower costs and reduced risk

• Access to special features and services:

  • Temperature-controlled storage

  • Customer Service, Inventory Ordering, etc

  • Office space for customer’s sales, accounting, etc

Disadvantages of Public Warehouse

• Potential for incompatible computer systems

• Specialized services may not be what is required/needed

• Space may not be available when/where needed

Contract Warehouse

• A variation of public warehousing that handles the shipping, receiving, and storage of goods on a contract basis for a fee. (Renting an apartment for inventory)

• The contract can be for an entire building, or for a defined portion within a building

• Usually requires a client to commit to services for years rather than months

• The fee structure may be fixed cost, cost-plus, or a combination of both.

• The company providing the space handles the employees, equipment, and maintenance.

Advantages of Contract Warehouse

• Services: client can obtain specialized services tailor-made to suit their needs.

• Cost: can be bundled in the contract and negotiated at a lower cost.

• Cost: can be bundled in the contract and negotiated at a lower cost.

Disadvantages of Contract Warehouse

Duration: The client company is expected to enter into a contract for a specific period of time; generally three years

Private Warehouse

• A storage facility that is owned by the company that owns the goods being stored in the facility. (Buying House for Inventory)

• Generally established by companies that have a large volume or highly valuable goods, or the need for some type of specialized storage or handling

• Can be operated as a separate division within a company

• Can be co-located on-site with manufacturing, or off-site.

Advantages of Private Warehouse

• Control: Offers greater flexibility in designing the warehouse and gives users significant control over operations.

• Visibility: inventory, material flow, handling, supervision, and associated costs.

• Cost: Operating cost can be 15% - 25% lower if the company achieves at least 75% utilization.

Disadvantages of Private Warehouse

• High Start-up Cost: Capital to build or buy a warehouse. Long, risky investment. Cost of hiring and training employees. Purchase of material handling equipment.

• Fixed Location: Not easy to move to another location if the market changes.

• Fixed Size and Costs: When volume is low, the company still assumes the fixed costs.

Types of Warehouses:

• Consolidation

• Break-Bulk

• Cross-Docking

Consolidation Warehouse

Warehouse operation that receives products from different plants or suppliers, stores them, and then combines them with similar shipments from other plants or suppliers for further distribution.