Importance of Supply Chain Management

* lower purchasing cost

* lowering inventory cost
* better product quality
* higher levels of customer service
* increased sales

Elements of Supply Chain Management

* Purchasing
* Operations
* Distribution
* Integration Performance

Integration (Horizontal / Vertical)

- Backward Vertical Integration
- Forward Vertical Integration

General Chart
- Raw Materials Suppliers / Manufacturings (Second Tier Supplier)
- Intermediate Component Manufacturing (First Tier Supplier)
- End Consumers

Purchasing
- act of obtaining merchandise, capital equipment, raw materials and services
- Scope: Merchant (wholesalers, retailers who primarily purchase for resale purposes
- Industrial (purchase materials primarily for conversion process)

Outsourcing
- buying materials or components from suppliers instead of making them in house

Financial Significance of Supply

- Profit Leverage Effect
- Return on Assets Effect
- Inventory Turnover Effect

Reasons for Make

- Protect Proprietary Technology
- No competent supplier
- Better quality control
- Use existing idle capacity
- Control lead time, transportation, warehousing cost
- Lower cost

Considerations in Choosing a Supplier

- Product and process technologies
- Willingness to share technologies and information
- Quality
- Cost
- Reliability
- Order System and cycle time
- Capacity
- Communication Capability
- Location
- Services

Single Supplier
- To establish a good relationship
- Less quality variability
- Lower cost
- Transportation economies
- Proprietary product or process purchases
- Volume too small to split

Multiple Supplier
- Need Capacity
- Spread risk of supply interruption

ABC - (aka) Selective Inventory Control

CPFR - Collaborative, Planning, Forecasting, Replenishment
EDI - Electronic Data Information
JIT - Just In Time
MRP I / II - Material Requisition / Purchase Requisition / Traveling Requisition
EOQ - Economic Order Quantity