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OPM CHAP 6 - Coggle Diagram
OPM CHAP 6
Supply Chain
- Includes the entire process from extracting raw materials to delivering the finished product to the end customer
Supply Chain Management
- The management of all the activities aimed at satisfying the end customer in a way that maximises the effectiveness of the process
- Has a strategic role within the organisation
- Help the company to achieve competitive advantage
Benefit in Improving the Supply Chain
- Help the manufacturer to achieve its strategic objective of achieving and maintaining competitive advantage
Supply Chain Network
- A group of organisation which relate to each other through the linkages between the different processes involved in producing the finished product
- Four main sourcing strategies:
a. Single sourcing
- The organisation choose one source of suppply
b. Multiple sourcing
- The organisation choose several sources of supply
c. Delegated sourcing
- The organisation choose one supplier (1st tier). This supplier then co-ordinates and works with other suppliers (2nd tier) to ensure the supply requirement are fulfilled.
d. Parallel sourcing
- The organsation uses a mix pf the three approaches
Reck and Long Strategic Positioning Tool
- Stages of development that purchasing function should pass through
- Involved four stages: (PISI)
- Stage 1: Passive
- Stage 2: Independent
- Stage 3: Supportive
- Stage 4: Integrative
Stage 1: Passive
- Purchasing is seen as an administrative task
- Emphasis on processing transactions efficiently (payroll process)
Stage 2: Independent
- Greater awareness of the financial importance of purchasing
- Emphasis on price negotiations
Stage 3: Supportive
- Greater awareness that purchasing can affect the firm's strategic goals
- Emphasis on better coordination between department (involving timely communication about changes in price and availability of materials
Stage 4: Integrative
- Purchasing is seen as a key part of strategic planning
- Emphasis on developing relationships with supplier, who are seen as vital partners
Cousin’s Strategic Supply Wheel
1 identify an integrated approach towards handling the supply chain, thereby balancing five ‘spokes’ in the wheel
- Five spokes in the wheel:
- Organisation structure
- Relationship
- Cost/Benefit
- Competences
- Performance measures
1. Organisation structure
- Centralised/decentralised structure impacts control and interaction
- The purchasing department may be a major formal part of the organisational structure
2. Relationship
- Can be competitive or collaborative relationships with supplier
- For a company that focused on high levels of quality, a collaborative approach is suitable.
- For a company focused on pressurizing the suppliers to reduce costs, while overlooking quality. the traditional supply chains were typically defined by competitive relationship
3. Cost/Benefit
- Supply based decisions have a cost. Will the benefits justify the costs?
4. Competences
- In order for a company to meet its strategic objectives, it must have people employed with the required level of skill and competence
5. Performance measures
- Critical for effective management of the supply chain. The organisation must know how well it is performing both as whole and at individual team and department level
Kyoryoko kai (Supplier association)
- organised by a major buyer/customer in the industry
- Example: Toyota
- to provide an assurance of business to suppliers who were suffering from the consequances of the war effort in Japan
- Main focus of interest in these supplier association are improving quality, reducing costs, health and safety standard
- Benefit of having supplier association:
- buyer is able to exert strong influence over its supplier
- encourage open exchange of ideas and information between suppliers
Process Maps
- To visualise the flow of material and information as the product makes its way through the supply chain
- Benefit of process maps:
- standardise the process
- find areas of improvement
- assist understanding of the process due to the visual representation
- link the supply chain strategy to the corporate strategy
Inventory Management Systems
- Continuous Inventory System
- Periodic Inventory System
- ABC System
- Just-in-time System
1. Continuous Inventory System
- Keeps the level of inventory under continual review
- Each new addition and withdrawal is recorded as it occurs
- The Economic Order Quantity (EOQ) model can be used
Economic Order Quantity (EOQ) model
- EOQ minimise the total inventory cost
- It is assumed that there are no price discounts available for larger sized order, the total annual inventory costs therefore consist of:
- ordering costs e.g. delivery cost
- holding costs e.g. finance cost of holding inventory, storage inventory
2. Periodic Inventory System
- Does not keep inventory levels under continual review
- Inventory is checked on a regular basis
- Variable order is placed depending on the usage during the period
3. ABC System
- Based on Pareto's law
- Pareto's law state that 80% of inventory usage can be accounted for by 20% of inventory items
4. Just in Time (JIT) System
- to produce or procure products or components as they are required by the customer or for use, rather than for inventory
- inventory levels of raw materials, work-in-progress and finished goods can be kept to a minimum.
JIT Purchasing
- A method of purchasing that involve ordering materials only when customer place an order
JIT Production
- A production system that is driven by demand for the finished products (a 'pull' system)
Benefit of JIT
- High quality and reliability
- Elimination of non-value added activites
- Speed of throughput
- Flexibility
- Lower costs
Advantages of Develop Close Relationship with Suppliers
- No rejects/returns
- On time deliveries
- Low inventory
- Close proximity
Kanban
- inventory control system used in just-in-time (JIT) manufacturing to track production and order new shipments of parts and materials
- improve the delivery of products and services
- eliminate bottlenecks in system
- improve flow
- reduce cycle time