Dr.

Rameez Khalid, PMP, CQSSBB

Faculty, Department of Management
Institute of Business Administration, Karachi
Volkswagen
Brazilian plant employs 1000 workers
200 work for VW
800 work for other contractors:
Rockwell International, Cummins Engines, Deluge Automotiva,
MWM, Remon and VDO, etc.
VW responsible for overall quality, marketing,
research and design
VW looks to innovative supply-chain to improve
quality and drive down costs
Unit-11: SCM rameezkhalid@iba.edu.pk 2
Planning, organizing, directing, & controlling flows
of materials
Begins with raw materials
Continues through internal operations
Ends with distribution of finished goods
Involves everyone in supply-chain
Example: Your suppliers supplier
Objective: Maximize value & lower waste
Supply-Chain Management
Unit-11: SCM rameezkhalid@iba.edu.pk 3



consumer
Retailer
Manufacturing
Material Flow
VISA

Credit Flow
Supplier
Supplier Wholesaler
Retailer
Cash
Flow
Order
Flow
Schedules
Flows in a Supply Chain
4
Supply-Chain Support for Overall Strategy
Suppliers
goal





Suppliers
goal





Primary
Selection
Criteria
Primary
Selection
Criteria
Supply demand
at lowest
possible cost
Supply demand
at lowest
possible cost
Select
primarily for
cost
Select
primarily for
cost
Low Cost Low Cost
Respond
quickly to
changing
requirements
and demand
to minimize
stockouts
Respond
quickly to
changing
requirements
and demand
to minimize
stockouts
Select
primarily for
capacity,
speed, and
flexibility
Select
primarily for
capacity,
speed, and
flexibility
Response Response
Share market
research;
jointly develop
products and
options
Share market
research;
jointly develop
products and
options
Select primarily
for product
development
skills
Select primarily
for product
development
skills
Differentiation Differentiation
Process
Characteristics


Process
Characteristics


Maintain high
average
utilization
Maintain high
average
utilization
Low Cost Low Cost
Invest in
excess
capacity and
flexible
processes
Invest in
excess
capacity and
flexible
processes
Response Response
Modular
processes that
lend themselves
to mass
customization
Modular
processes that
lend themselves
to mass
customization
Inventory
Characteristics
Inventory
Characteristics
Minimize
inventory
throughout
the chain to
hold down
costs
Minimize
inventory
throughout
the chain to
hold down
costs
Develop
responsive
system, with
buffer stocks
positioned to
ensure supply
Develop
responsive
system, with
buffer stocks
positioned to
ensure supply
Minimize
inventory in
the chain to
avoid
obsolescence
Minimize
inventory in
the chain to
avoid
obsolescence
Differentiation Differentiation
Supply-Chain Support for Overall Strategy -
continued
Supply-Chain Support for Overall Strategy -
continued
Lead-time
Characteristics


Lead-time
Characteristics


Shorten lead-
time as long as
it does not
increase costs
Shorten lead-
time as long as
it does not
increase costs
Low Cost Low Cost
Invest
aggressively
to reduce
production
lead-time
Invest
aggressively
to reduce
production
lead-time
Response Response
Invest
aggressively to
reduce
development
lead-time
Invest
aggressively to
reduce
development
lead-time
Differentiation Differentiation
Product-design
Characteristics
Product-design
Characteristics
Maximize
performance
and minimize
cost
Maximize
performance
and minimize
cost
Use product
designs that
lead to low
set-up time
and rapid
production
ramp-up
Use product
designs that
lead to low
set-up time
and rapid
production
ramp-up
Use modular
design to
postpone
product
differentiation
for as long as
possible
Use modular
design to
postpone
product
differentiation
for as long as
possible
Global Supply-Chain Issues
Supply chains in global environment must be:
Flexible enough to react to sudden changes in parts
availability, distribution, or shipping channels,
import duties, and currency rates
Able to use the latest computer and transmission
technologies to schedule and manage the shipment
of parts in and finished products out
Staffed with local specialists to handle duties, trade,
freight, customs and political issues
Unit-11: SCM rameezkhalid@iba.edu.pk 8
Purchasing Function Objectives
Help identify the products and services
that can be best obtained externally; and
Develop, evaluate, and determine the best
supplier, price, and delivery for those
products and services
Unit-11: SCM rameezkhalid@iba.edu.pk 9
Make/Buy Considerations
1. Maintain core
competencies and protect
personnel from layoff
2. Lower production cost
3. Unsuitable suppliers
4. Assure adequate supply
5. Utilize surplus labor
1. Frees management to
deal with its primary
business
2. Lower acquisition cost
3. Preserve supplier
commitment
4. Obtain technical or
management ability
5. Inadequate capacity
Reasons for Making Reasons for Buying
Bullwhip Effect
Tier 2
Suppliers
Tier 1
Suppliers
Producer Distributor Retailer
Final
Customer
Amount of
inventory
=
Unit-11: SCM rameezkhalid@iba.edu.pk 11
Plans to help achieve company mission
Affect long-term competitive position
Strategic options
Many suppliers
Few suppliers
Keiretsu network
Vertical integration
Virtual company
Plan
Supply-Chain Strategies
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Supply-Chain Strategies
Negotiate with many suppliers; play one supplier against
another
Develop long-term partnering arrangements with a few
suppliers who will work with you to satisfy the end customer
Vertically integrate; buy the actual supplier
Keiretsu - have your suppliers become part of a company
coalition
Create a virtual company that uses suppliers on an as-needed
basis.
Unit-11: SCM rameezkhalid@iba.edu.pk 14
Many sources per item
Adversarial relationship
Short-term
Little openness
Negotiated, sporadic POs
High prices
Infrequent, large lots
Delivery to receiving dock
Many Suppliers Strategy
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1 or few sources per item
Partnership (JIT)
Long-term, stable
On-site audits & visits
Exclusive contracts
Low prices (large orders)
Frequent, small lots
Delivery to point of use
1995
Corel
Corp.
Few Suppliers Strategy
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Raw Material
(Suppliers)
Backward
Integration
Current
Transformation
Forward
Integration
Finished Goods
(Customers)
Ability to produce goods
previously purchased
Setup operations
Buy supplier
Make-buy issue
Major financial
commitment
Hard to do all things well
Vertical Integration Strategy
Unit-11: SCM rameezkhalid@iba.edu.pk 17
Japanese word for affiliated chain
System of mutual alliances and
cross-ownership
Company stock is held by allied firms
Lowers need for short-term profits
Links manufacturers, suppliers, distributors, &
lenders
Partnerships extend across entire supply chain
Keiretsu Network Strategy
Unit-11: SCM rameezkhalid@iba.edu.pk 18
Virtual Company Strategy
Companies that rely on a variety of supplier
relationships to provide services on demand.
Also known as hollow corporations, or network
corporations
Network of independent companies
Linked by technology
PCs, faxes, Internet etc.
Each contributes core competencies
Typically provide services
Payroll, editing, designing
May be long or short-term
Usually, only until opportunity is met
Successful
Supply-Chain Management Requires:
A mutual agreement on goals
Trust
Compatible organizational cultures
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Vendor Managed Inventory (VMI)
Postponement keeps product generic as long as possible
Channel Assembly sends to distributor individual
components and modules rather than finished goods
Drop Shipping and Special Packaging supplier will ship to
end consumer rather than to seller
Blanket Orders a long-term purchase commitment to a
supplier for items that are to be delivered against short-
term releases to ship
Standardization reducing the number of variations in
materials and components
Electronic Ordering and Funds Transfer paperless
ordering and 100% material acceptance, payment by wire

Vendor evaluation
Identifying & selecting potential vendors
Vendor development
Integrating buyer & supplier
Example: Electronic data exchange
Negotiations
Results in contract
Specifies period of agreement, price, delivery
terms etc.
Vendor Selection Steps
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Logistics Management
Integrates all materials functions
Purchasing
Inventory management
Production control
Inbound traffic
Warehousing and stores
Incoming quality control
Objective: Efficient, low cost operations
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Goods Movement Options
Trucking
Railways
Airfreight
Waterways
Pipelines
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REFERENCES


Operations Management
William J . Stevenson

Operations Management
Barry Render & J ay Heizer
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