Operations and Value Chain (PDF)

UNIT 2 Operations and Value Chain Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [email protected]  Sourcing and Supply Management Department of Commerce, New Management Block,...

UNIT 2 Operations and Value Chain Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [email protected]  Sourcing and Supply Management Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [email protected]  Supplier Management ▪ The globalization of production, the opening of international markets for goods and services, the increased pressure for cost management, and issues surrounding resource availability have all contributed to moving the emphasis in businesses from price-driven, tactical buying to strategic supply management. ▪ The most significant factor that has influenced this change is the development of complex global supplier networks. ▪ Interdependence among the members of these networks brings risks and challenges that need to be managed. Supply management is the system Departmentbest suited of Commerce, to do Block, New Management it. MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supplier Management ▪ An excellent supply base is a major asset to any firm—but it doesn't just happen. ▪ Decisions must be made about which suppliers to use, when to use a supplier or to do something internally (make versus buy), where the best location in the world is for sourcing those suppliers, and then how to manage them. ▪ The four key topics are Supplier selection , Make-versus-buy and outsourcing decisions, Global sourcing and Supplier relationship management (SRM) Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supplier Selection ▪ The first step in supplier management is selecting the right suppliers. Suppliers are critical to effective supply chain management. ▪ They are the members of the chain that provide all the resources necessary to create and move products to customers. The method a firm uses to identify, evaluate, qualify, select, and manage suppliers is critical. ▪ The flow chart provides a visual representation of a way by which suppliers are moved from the stage of identification to that of supplier approval through a rigorous process. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: Supplier Selection Firms absolutely must control the supplier selection process. If everybody in the organization is allowed to choose suppliers without regard to the buying firm's strategic needs, there's really no benefit in having a sourcing strategy. Supply management is not alone in the universe of organizational stakeholders. However, to maximize the value the supplier base contributes to the supply chain, this function must be at the center of that decision- making Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India,process. Ph. No: 0820 25342 Email: Supplier Selection Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: Supplier Selection Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Make-versus-Buy and Outsourcing Decisions ▪ The choice of whether to do something internally or have an outside firm do it is referred to as a make-versus-buy decision. ▪ The term outsourcing is frequently applied to any type of activity that was or could be performed internally but is done by an outside provider instead. ▪ In other words, any make-versus-buy decision that results in contracting with an outside provider is called outsourcing. ▪ Outsourcing can be done with domestic firms or with companies in other countries (offshore outsourcing). Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Make-versus-Buy and Outsourcing Decisions ▪ There are many reasons why a firm may want to go outside for the manufacture of products or for service providers, including the following: ▫ In-house expertise to do or create what is needed is lacking. ▫ Shifting the job to a supplier with better capabilities reduces company risk. ▫ A sole source is the only one capable of providing a product or service. ▫ Technology is unavailable in-house. ▫ Temporary requirements do not justify doing it inside. ▫ Customers have required the use of specific service providers. ▫ Total cost is improved because an outside provider is more efficient and effective. ▫ A company's core competencies do not include doing this activity. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: ▫ The lead time available is too short to staff or tool up to do it inside.  Global Sourcing ▪ As global sourcing has become more important, supply management's role has gotten more complex and challenging. If it's difficult to manage suppliers locally, it's even harder when the buying and supplying firms are thousands of miles apart. ▪ Sourcing typically refers to the process by which a firm identifies and selects sources of supply for the products and services it requires. The term sourcing embraces all the activities associated with the purchasing process. ▪ Global sourcing is the search for and selection of suppliers anywhere in the world. This type of supplier selection elevates the process to an even higher level of importance. ▪ The identification, evaluation, qualification, and selection of suppliers is challenging for domestic sourcing. Doing it globally is much more difficult, time-consuming, and Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Global Sourcing ▪ Supply management's responsibilities for sourcing outside the country are really no different than they are for finding domestic suppliers; however, there are additional considerations that must be addressed in areas such as category management, supplier relationship management (SRM), and total cost of ownership (TCO). ▪ The concept of TCO is defined as the "sum of all costs associated with acquisition, use, ownership, and disposal of any organizational purchase." The application of this technique is particularly valuable when a firm is making offshore sourcing and buying decisions. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Global Sourcing ▪ The primary reason for the shift from domestic to foreign sourcing has been cost reduction. ▪ This is why an up-front TCO analysis is important—to validate or invalidate the assumption of cost savings. ▪ Offshore buying does not always result in the expected cost savings. The geographic location, infrastructure, characteristics of the labor force, culture, and political or legal environment will all influence the comparative costs of sourcing around the world. ▪ Each must be factored into a TCO analysis. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [email protected]  Supplier Relationship Management ▪ It is a tool that facilitates but does not substitute for a well-structured and practiced method of managing supplier relationships. ▪ SRM includes guidance in how that relationship is to be managed and the processes by which this is accomplished. ▪ There are no universal ways to manage suppliers, and every situation will be different. ▪ What SRM does is set up a means of establishing mutual expectations, facilitating regular communication, and resolving issues. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supplier Relationship Management ▪ How a firm views suppliers makes a big difference in the way supplier relationships are handled. ▪ A strategic focus is long-term oriented and cost driven; a tactical focus is short-term oriented and price driven. ▪ The greatest benefits come from the strategic alliances set up with key or critical suppliers. These benefits include improved value to the supply chain through collaboration in the following ways: ▫ Cost management ▫ Product development ▫ Inventory management ▫ Transportation management ▫ Product and process innovation Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supplier Relationship Management ▪ The interdependencies and the supply chain linkages between buying firms and their supply chain network require a well-structured SRM process. ▪ SRM includes the methods and the tools that companies use to develop and maintain collaborative working relationships with suppliers. For example, the key performance indicators (KPIs) are measurements used to monitors supplier performance in critical areas. ▪ SRM software is the tool that aids in the assembly, analysis, and display of the data associated with these KPIs. ▪ Interpersonal communications are also a part of SRM. Members of senior-level management as well as buying personnel regularly interface with key suppliers' management who are Department of Commerce, responsible New Management for critical Block, MAHE, Manipal, 576parts or materials 104, Karnataka, and25342 India, Ph. No: 0820 support Email: of  Facilities Location Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [email protected]  Facility location ▪ Facility location is the process of determining geographic sites for a firm’s operations, which could include a manufacturing plant, a distribution center, and a customer service center. ▪ Location choices can be critically important for firms and have a profound impact on the strategic design of its supply chains. ▪ The expanding global economy gives firms greater access to suppliers around the world, many of whom can offer lower input costs or better quality services and products. ▪ The location of a business’s facilities has a significant impact on the company’s operating costs, the prices it charges for services and goods, and its ability to compete in the marketplace and penetrate new customer segments. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Facility location ▪ When manufacturing facilities are offshored, locating far from one’s suppliers can lead to higher transportation costs and coordination difficulties. ▪ The customer relationship process can also be affected by the firm’s location decisions. If the customer must be physically present at the process, it is unlikely that a location will be acceptable if the time or distance between the service provider and customer is great. ▪ If, on the other hand, customer contact is more passive and impersonal or if materials or information are processed rather than people, then location may be less of an issue. ▪ Internet can sometimes help overcome the disadvantages related to a company’s location. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Factors Affecting Location Decisions ▪ Managers of both service and manufacturing organizations must weigh many factors when assessing the desirability of particular locations, including their proximity to customers and suppliers, labor costs, and transportation costs. ▪ Managers can divide location factors into dominant and secondary factors. Dominant factors are derived from competitive priorities (cost, quality, time, and flexibility) and have a particularly strong impact on sales or costs. ▪ Secondary factors also are important, but management may Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Dominant Factors in Manufacturing ▪ Favorable Labor Climate: Labor climate is a function of wage rates, training requirements, attitudes toward work, worker productivity, and union strength. Having a favorable climate applies not only to the workforce already on site but also to the employees that a firm hopes will transfer to or will be attracted to the new site. ▪ Proximity to Markets: After determining where the demand for services and goods is greatest, management must select a location for the facility that will supply that demand. Often, locating operations offshore near the market is less expensive than manufacturing the product at home and shipping it. Locating near markets is particularly important when the final goods are bulky or heavy and outbound transportation rates are high. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Dominant Factors in Manufacturing ▪ Impact on Environment: As the focus on sustainability has increased, firms are looking to recognize the impact of the location decisions on the environment. Along with minimizing the carbon footprint of the new facility and its accompanying facilities in the supply chain, consideration must also be given to reducing overall energy costs. ▪ Quality of Life: Good schools, recreational facilities, cultural events, and an attractive lifestyle contribute to quality of life. This factor can make the difference in location decisions. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Dominant Factors in Manufacturing ▪ Proximity to Suppliers and Resources Firms dependent on inputs of bulky, perishable, or heavy raw materials emphasize proximity to their suppliers and resources. In such cases, inbound transportation costs become a dominant factor, encouraging such firms to locate facilities near suppliers. Another advantage of locating near suppliers is the ability to maintain lower inventories. ▪ Proximity to the Parent Company’s Facilities In many companies, plants supply parts to other facilities or rely on other facilities for management and staff support. These ties require frequent communication and coordination, which can become more difficult as distance increases. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Dominant Factors in Manufacturing ▪ Utilities, Taxes, and Real Estate Costs Other location decision factors include utility costs (telephone, energy, and water), local and state taxes, financing incentives offered by local or state governments, relocation costs, and land costs. ▪ Secondary Factors: Still other factors may need to be considered, including room for expansion, construction costs, accessibility to multiple modes of transportation, the cost of shuffling people and materials between plants, insurance costs, competition from other firms for the workforce, local ordinances (such as pollution or noise control regulations), community attitudes, and many others. For global operations, firms need a good local infrastructure and local employees who are educated and have good skills. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Dominant Factors in Services ▪ Proximity to Customers Location is a key factor in determining how conveniently customers can carry on business with a firm. The influence of location on revenues tends to be a dominant factor for many service providers. In addition, customer proximity by itself is not enough—the key is proximity to customers who will patronize the facility and seek its services. Being close to customers who match a firm’s target market and service offerings is thus important for profitability. ▪ Transportation Costs and Proximity to Markets For warehousing and distribution operations, transportation costs and proximity to markets are extremely important. With a warehouse nearby, many firms can hold inventory closer to the customer, thus reducing delivery time and promoting sales. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Dominant Factors in Services ▪ Location of Competitors One complication related to estimating the sales potential of different locations is the impact of competitors. Management must not only consider the current location of competitors but also try to anticipate their reaction to the firm’s new location. Avoiding areas where competitors are already well-established often pays off. However, in some industries, such as new-car sales showrooms and fast-food chains, locating near competitors is actually advantageous. The strategy is to create a critical mass, whereby several competing firms clustered in one location attract more customers than the total number who would shop at the same stores at scattered locations. Recognizing this effect, some firms use a follow-the-leader strategy when selecting new sites. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Dominant Factors in Services ▪ Site-Specific Factors Retailers also must consider the level of retail activity, residential density, traffic flow, and site visibility. Retail activity in the area is important because shoppers often decide on impulse to go shopping or to eat in a restaurant. Traffic flows and visibility are important because customers arrive in cars. Management considers possible traffic tie-ups, traffic volume and direction by time of day, traffic signals, intersections, and the position of traffic medians. Visibility involves distance from the street and the size of nearby buildings and signs. A high residential density increases nighttime and weekend business if the population in the area fits the firm’s competitive priorities and target market segment. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  A Systematic Location Selection Process Collect data on the alternatives Consider alternative regions; then from location consultants, state Identify the important location narrow the choices to alternative development agencies, planning factors and categorize them as communities and finally to specific departments, chambers of dominant or secondary. sites. commerce, land developers, banks, and onsite visits. To merge quantitative and Bring the qualitative factors Analyze the data collected, qualitative factors, assign each pertaining to each site into the beginning with the quantitative. factor a weight of relative evaluation. The qualitative factor, The quantitative factors that can importance and calculate a such as community attitudes, be measured in rupees, such as weighted score for each site using environmental factors, or quality of annual transportation costs or a preference matrix. The site with life. taxes. the highest weighted score is best. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supply Chain Management Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [email protected]  Supply Chain Management ▪ Supply Chain Management can be defined as the management of flow of products and services, which begins from the origin of products and ends at the product’s consumption. ▪ The main objective of SCM is to monitor and relate production, distribution, and shipment of products and services. This can be done by companies with a very good and tight hold over internal inventories, production, distribution, internal productions and sales. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supply Chain Management ▪ SCM basically merges the supply and demand management. It uses different strategies and approaches to view the entire chain and work efficiently at each and every step involved in the chain. ▪ Every unit that participates in the process must aim to minimize the costs and help the companies to improve their long term performance, while also creating value for its stakeholders and customers. This process can also minimize the rates by eradicating the unnecessary expenses, movements and handling. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: Supply Chain Management–Advantages 2. Customer 3. Better Risk 1. Higher 4. Improved Retention and Assessment and Efficiency Relationships Experience Management 5. Cost- 6. Qualitative 7. Reduces 8. Reduces Effectiveness Improvements Legal Liabilities Delays 9. Uninterrupted 10. Benefits of Cash Flow Technologies https://www.upgrad.com/blog/advantages-of-supply-chain-management/ Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supply Chain Management Process ▪ Supply chain management is a process used by companies to ensure that their supply chain is efficient and cost-effective. ▪ A supply chain is the collection of steps that a company takes to transform raw materials into a final product. The five basic components of supply chain management are : Plan – Source – Execute(Make) – Deliver – Return Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supply Chain Management Process Plan: ▫ The initial stage of the supply chain process is the planning stage. ▫ We need to develop a plan or strategy in order to address how the products and services will satisfy the demands and necessities of the customers. ▫ In this stage, the planning should mainly focus on designing a strategy that yields maximum profit. ▫ For managing all the resources required for designing products and providing services, a strategy has to be designed by the companies. Supply chain management mainly focuses on planning and developing a set of metrics. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supply Chain Management Process Develop (Source): ▫ In this stage, we mainly concentrate on building a strong relationship with suppliers of the raw materials required for production. ▫ This involves not only identifying dependable suppliers but also determining different planning methods for shipping, delivery, and payment of the product. ▫ Companies need to select suppliers to deliver the items and services they require to develop their product. So in this stage, the supply chain managers need to construct a set of pricing, delivery and payment processes with suppliers and also create the metrics for controlling and improving the relationships. ▫ Finally, the supply chain managers can combine all these processes for handling their goods and services inventory. This handling comprises receiving and examining shipments, transferring them to the manufacturing facilities Department and authorizing of Commerce, supplier New Management Block, payments. MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supply Chain Management Process Execute: ▫ The third step in the supply chain management process is the manufacturing or making of products that were demanded by the customer. ▫ In this stage, the products are designed, produced, tested, packaged, and synchronized for delivery. ▫ Here, the task of the supply chain manager is to schedule all the activities required for manufacturing, testing, packaging and preparation for delivery. ▫ This stage is considered as the most metric-intensive unit of the supply chain, where firms can gauge the quality levels, production output and worker productivity. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supply Chain Management Process Deliver: ▫ The fourth stage is the delivery stage. Here the products are delivered to the customer at the destined location by the supplier. ▫ This stage is basically the logistics phase, where customer orders are accepted and delivery of the goods is planned. ▫ The delivery stage is often referred as logistics, where firms collaborate for the receipt of orders from customers, establish a network of warehouses, pick carriers to deliver products to customers and set up an invoicing system to receive payments. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  Supply Chain Management Process Return: ▫ The last and final stage of supply chain management is referred as the return. In the stage, defective or damaged goods are returned to the supplier by the customer. ▫ Here, the companies need to deal with customer queries and respond to their complaints etc. This stage often tends to be a problematic section of the supply chain for many companies. ▫ The planners of supply chain need to discover a responsive and flexible network for accepting damaged, defective and extra products back from their customers and facilitating the return process for customers who have issues with delivered products. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  SCM – Process Flow Material Flow: ▪ Material flow includes a smooth flow of an item from the producer to the consumer.This is possible through various warehouses among distributors, dealers and retailers. ▪ The main challenge we face is in ensuring that the material flows as inventory quickly without any stoppage through different points in the chain. ▪ The quicker it moves, the better it is for the enterprise, as it minimizes the cash cycle. The item can also flow from the consumer to the producer for any kind of repairs, or exchange for an end of life material. ▪ Finally, completed goods flow from customers to their consumers through different agencies. A process known as 3PL is in place in this scenario. There is also an internal flow within the customer company. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:  SCM – Process Flow Information Flow: ▪ Information/data flow comprises the request for quotation, purchase order, monthly schedules, engineering change requests, quality complaints and reports on supplier performance from customer side to the supplier. ▪ From the producer’s side to the consumer’s side, the information flow consists of the presentation of the company, offer, confirmation of purchase order, reports on action taken on deviation, dispatch details, report on inventory, invoices, etc. ▪ For a successful supply chain, regular interaction is necessary between the producer and the consumer. In many instances, we can see that other partners like distributors, dealers, retailers, logistic service providers participate in the information network. ▪ In addition to this, several departments at the producer and consumer side are also a part of the information loop. Here we need to note that the internal information flow with Department of Commerce, the customer New Management for Block, MAHE, in-house Manipal, manufacture 576 104, Karnataka, India, Ph. No:is different. 0820 25342 Email:  SCM – Process Flow Money Flow: ▪ On the basis of the invoice raised by the producer, the clients examine the order for correctness. If the claims are correct, money flows from the clients to the respective producer. ▪ Flow of money is also observed from the producer side to the clients in the form of debit notes. ▪ In short, to achieve an efficient and effective supply chain, it is essential to manage all three flows properly with minimal efforts. It is a difficult task for a supply chain manager to identify which information is critical for decision- making. ▪ Therefore, he or she would prefer to have the visibility of all flows on the click of a button. Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: Important Topics: Supplier Selection Make-versus-Buy and Outsourcing Decisions Facilities Location Supply Chain Management Process SCM – Process Flow Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [email protected]