Chapter Review 1-3 Principles of Supply Chain Management

Chapter Review 1-3 Principles of Supply Chain Management, 3ed Wisner, Leong, Tan 2012 Chapter Review 1-3 Chapter One: Introduction To Supply Chain Management A Supply Chain is the steps necessary for a manufacturer to procure materials, build a product, and transport the product to consumers. The consumers buy the products based on a combination of cost, quality, availability, maintainability and reputation factors. They hope these products will live up to their needs and expectations. An example of a supply chain that I was involved in while serving in the Air Force would be when I worked in the Supply Squadron. One of our customers, the jet engine maintenance shop, would need a part to repair and F101 engine for use on a B1B bomber aircraft. They would place the order through us. We would place the order with one of our depots that manage the assets. The depots would then place an order with the manufacturer of the asset. The manufacturer of the asset would be our second-tier supplier. The depots would be our first-tier supplier. The jet engine maintenance shop would be our first-tier customer, and the flight line mechanics would be our second-tier customer that needed the engine to install on the aircraft. The end product consumers would be the recipients of the mission to be accomplished by the aircraft crew. The three definitions of supply chain management in the text are all stated differently but pretty much mean the same thing; planning and managing the processes of procuring assets, converting assets into products, and delivering them to a customer. Of course there is much more detail involved getting from one end of the chain to the other and back again when necessary. There are four foundation elements of supply chain management. The supply elements are all about the purchasing and strategic concepts of supply management. The operations elements consist of several internal operations that oversee the assembling of parts into a finished product that meets all specifications and customer requirements. The logistics elements deal with the storing of the completed product and transporting it to the customer. The integration elements deal with the process integration of all the processes among the focal firm and their partners. Through the use of lean and Six Sigma methodology, improvements in the supply chain processes can be made and costs lowered. As the conditions change around the world, supply chain management will continue to change with it. Questions 1. What is a company that is hired to manage all of a firm’s logistics and supply chain management called? Answer: Fourth-Party Logistics Provider or 4PL (Page 10) 2. What is meant by perfect order fulfillment? Answer: Orders that arrive on time, complete and damage free. (Page 20) 3. What is right-shoring? Answer: The combination of on-shore, near-shore and far-shore operations into a single, flexible, low-cost approach to supply chain management. (Page 23) 4. What are Reverse Logistics Activities? Answer: When customers return products, get warranty repairs or recycle items. . What is the radical rethinking and redesigning of business processes to reduce waste and increase performance? Answer: Business Process Reengineering or BPR. (Page 14) Chapter Two: Purchasing Management The goal of Supply Management in an organization is to ensure a continual flow of raw materials at the lowest cost possible. Another goal is to improve the quality of the finished goods produc ed as well as increase customer satisfaction. By obtaining these goals supply management has proven to be a key strategic business process and not just another supporting function of the business. Done well a company can give itself an edge over other companies that are not meeting these goals. Using smarter purchasing is another way for a company to increase profitability. Cutting costs and boosting sales are not the only way to improve profits. For instance, if a firm reduces its purchase spend on materials through a more effective purchasing strategy they will increase their return on assets. This is also likely to lower raw material inventory and total assets. E-Procurement brought many benefits to companies. It has proven to be a time saver and cost effective. It is more accurate as the information is only entered once instead of twice. Before the users had to enter the information and the buyer had to reenter the information creating another error point in the process. E-procurement is more flexible as it can be used without the restrictions of location or time of day. Status of orders can be looked at without having to check paper trails. There are different reasons why a firm may use a single supplier instead of favoring multiple suppliers. Using a single supplier gives a firm the chance to build a stronger relationship with the supplier. Costs would be lower due to larger purchases keeping the cost per unit down and transportation would be cheaper as the firm can take advantage of full truckloads. Single sourcing would also make sense if the firm’s requirements are too small. It would not be worthwhile to split the order among multiple suppliers. There is a disadvantage with sole sourcing as well. If the purchase was for a proprietary product or process and the supplier holds the patents to them, the firm has no choice but to buy from them. Multiple sourcing is advantageous for many reasons. If the demand is greater than the capacity of a single supplier, having more than one supplier would help to keep up with the demand. It gives firms options in case of interruptions that have affected any given supplier. Competition is created among the suppliers in terms of price and quality. You would have more sources of information about the market conditions, product developments and new technologies. Questions 1. What are the primary goals of purchasing? Answer: To ensure uninterrupted flow of raw materials at the lowest total cost, to improve quality of the finished product and to maximize customer satisfaction. (Page 40) 2. The list of suppliers that a firm uses to acquire materials, services, supplies and equipment is called what? Answer: The supply base or supplier base. (Page 57) 3. What are the six advantages of centralization? Answer: Concentrated volume, avoid duplication, specialization, lower transportation costs, no competition within units and common supply base. (Page 62) 4. What is the difference between direct and indirect offset? Answer: Direct offset usually involves co-production, or a joint venture and exchange of related goods or services; whereas indirect offset involves exchange of goods or services unrelated to the initial purchase. Page 65) 5. What are the three basic types of bid bonds? Answer: Surety bonds, performance bonds and payment bonds. (Page 67) Chapter Three: Creating and Managing Supplier Relationships To have a successful supplier partnership you must understand the key factors for developing them. You must be able to build trust at all levels of management and trust i s very crucial to the success. The partnership should have clear and mutually agreeable shared vision and objectives. When both parties involved have the same goal in mind and have equal decision-making control, the partnership has a higher chance of succeeding. Interpersonal relationships are important as well. It is not just companies talking, it is people talking to people. It is people who make up the companies and are representing them. The companies must be able to manage the change that comes with a new partnership. Communicating information to the people affected by the change. This internal communication is very important so employees can understand why the partnership was formed. Developing performance metrics are a way to evaluate how well suppliers are doing. Information gathered can help improve the entire supply chain. Organizations can identify suppliers that have exceptional performance and recognize them as such. It can also show where improvements are needed. The data used is based on a set of mutually agreed performance measures. This will provide information for continuous improvement that can result in eliminating mistakes and will lead to ensuring that products are always meeting customer requirements. A supplier certification program is a way for organizations to identify suppliers who are the most committed to maintaining a partnership and who have the best capabilities. The results of a supplier certification are being able to reduce the supplier base, build long-term relationships, reduce time spent on incoming inspections, improving delivery, recognizing excellence, developing a commitment to continuous improvement and improving overall performance. Supplier recognition programs are another way to nurture a healthy supplier relationship. An award program is a good way to promote excellent supplier performance. This allows the award winner to serve as a role model for the other suppliers. The other suppliers will want to do better and also be recognized. Supplier relationship management involves streamlining the processes and communication between the buyer and seller using software applications to manage the processes more efficiently and effectively. Questions 1. What are the seven steps in the approach to supplier development? Answer: Identify critical goods and services, identify critical suppliers not meeting performance requirements, form a cross-functional supplier development team, meet with top management of suppliers, rank supplier development projects, define the details of the buyer-supplier agreement, and monitor project status and modify strategies. (Pages 89-90) 2. What are the two types of SRM? Answer: Transactional and analytic. (Page 94) 3. What are the three major cost categories? Answer: Pre-transaction, transaction and post-transaction. (Page 81) 4. Why is a supplier evaluation and certification process important? Answer: So organizations can identify their best and most reliable suppliers. (Page 82) 5. What are the benefits of investing in an environmental management system based on ISO4000 standards? Answer: Reduced energy and other resource consumption, decreased environmental liability and risk, reduced waste and pollution and improved community goodwill. (Page 89)