Innovation & Entrepreneurship. Week 10

Transcription

1 Innovation & Entrepreneurship Week 10

2 Supply Chain Management 17-2

3 Supply Chain Management A key determinant of a company s ability to compete Today, competition is not company vs. company but supply chain vs. supply chain Globalization has made supply chains longer and more complex Global purchasing increases risk 17-3

4 Supply Chain Risks st Qtr 2nd Qtr 3rd Qtr 4th Qtr East West North Chapter 17 Supply Chain Management 17-3

5 Supply Chain Management Companies spend nearly $20 trillion on goods and services each year Shaving 2% from a company s CGS can increase net income by as much as 25% Aberdeen Group survey: 82% of companies had experienced a supply disruption or outage within the last two years Requires a sound purchasing plan 17-5

6 Components of a Purchasing Plan Right Quality Right Vendor Right Quantity The Purchasing Plan Right Time Right Price Chapter 17 Supply Chain Management 17-5

7 The Purchasing Plan Quality Kaizen Total Quality Management Deming s 14 Points Six Sigma Quantity Economic Order Quantity Analysis (EOQ) Economic Order Quantity with Usage 17-7

8 The Purchasing Plan (Continued) Price Purchase Discounts Time Reorder Point Analysis Vendor Sources of Supply Vendor Rating Scale 17-8

9 Quality Quality Higher quality is less expensive to produce than lower quality. W. Edwards Deming The endless pursuit of quality produces lower costs, higher productivity, greater market share, and more satisfied customers Kaizen, continuous improvement, is the most commonly used quality improvement strategy 17-9

10 Quality Quality Total Quality Management (TQM) is a philosophy that strives for getting everything a company does for a customer right the first time TQM involves a lifelong process of continuous improvement; a successful TQM process requires a company to change everything it does 17-10

11 Implementing TQM Success requires following 11 principles: 1. Use benchmarking to discover the best practices that will produce quality results 2. Shift from a management-driven culture to a participative, team-based one 3. Modify the reward system to encourage teamwork and innovation 17-11

12 Implementing TQM Success requires following 11 principles: 4. Train workers constantly to give them the tools they need to produce quality and to upgrade the company s knowledge base 5. Train employees to measure quality with the tools of statistical process control (SPC) 6. Use Pareto s Law to focus TQM efforts 7. Share information with everyone in the organization 17-12

13 Implementing TQM Success requires following 11 principles: 8. Focus quality improvements on astonishing the customer 9. Don t rely on inspection to produce quality products and services 10. Avoid using TQM to place blame on those who make mistakes 11. Strive for continuous improvement in processes as well as in products and services 17-13

14 Deming s 14 Points 1. Constantly strive to improve products and services 2. Adopt a total quality philosophy 3. Correct defects as they happen rather than rely on mass inspection of end products 4. Don t award business on price alone 17-14

15 Deming s 14 Points 5. Constantly improve the system of production and service 6. Institute training 7. Institute leadership 8. Drive out fear 17-15

16 Deming s 14 Points 9. Break down barriers among staff areas 10. Eliminate superficial slogans and goals 11. Eliminate standard quotas 17-16

17 Deming s 14 Points 12. Remove barriers to pride in workmanship 13. Institute vigorous education and retraining 14. Take demonstrated management action to achieve transformation 17-17

18 Six Sigma Like TQM, Six Sigma uses data-driven statistical tools to improve quality Threshold: Just 3.4 defects per 1 million opportunities Built on the Quality DMAIC Process 17-18

19 Principle Define Measure Analyze Improve Control Identify the problem. Define the requirements. Process Improvement Technique Set the goal for improvement. Validate the process problem by mapping the process and gathering data about it. Refine the problem statement and the goal. Measure current performance by examining the relevant process inputs, steps, and output to establish a baseline. Develop a list of potential root causes. Identify the vital few. Use data analysis tools to validate the cause and effect connections between root causes and the quality problem. Develop potential solutions to remove root causes by making changes to the process. Test potential solutions and develop a plan for implementing those that are successful. Measure the results of the improved process. Establish standard measures for the new process. Establish standard procedures for the new process. Review performance periodically and make adjustments as needed. Source: Adapted from Andrew Spanyi and Marvin Wurtzel, Six Sigma for the Rest of Us, Quality Digest, July 2003,

20 Four Tenets of Six Sigma 1. Delight customers with quality and speed 2. Constantly improve the process 3. Use teamwork to improve the process 4. Make changes to the process based on facts, not guesses 17-20

21 Economic Order Quantity seeks to minimize total inventory costs Three major inventory costs to consider: Cost of units = D x C Holding (Carrying) costs = Q/2 x H Setup (Ordering) costs = D/Q x S 17-21

22 EOQ and Carrying Costs If Q is... Q/2, Average Inventory Q/2 x H, Carrying Costs 500 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10, ,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 $ ,250 1,875 2,500 3,125 3,750 4,375 5,000 5,625 6,250 Chapter 17 Supply Chain Management 17-21

23 EOQ and Ordering Costs If Q is... D/Q, # Orders per Year D/Q x S, Ordering Cost 500 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10, $7,200 3,600 1,800 1, Chapter 17 Supply Chain Management 17-22

24 Solving for EOQ where D = Annual demand for product S = Setup (ordering) cost for a single run (order) H = Holding (carrying) cost per unit per year Chapter 17 Supply Chain Management 17-23

25 EOQ and Total Costs If Q is... D x C Q/2 x H D/Q x S Total Costs 500 1,000 2,000 2,400 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 $620, , , , , , , , , , , ,000 $ ,250 1,500 1,875 2,500 3,125 3,750 4,375 5,000 5,625 6,250 $7,200 3,600 1,800 1,500 1, $627, , , , , , , , , , , ,610 Chapter 17 Supply Chain Management 17-24

26 Calculating Total Cost Total Cost = Cost of Units + Carrying Cost + Ordering Cost Total Cost Chapter 17 Supply Chain Management 17-25

27 EOQ and Total Costs Chapter 17 Supply Chain Management 17-26

28 EOQ with Usage where D = Annual demand for product S = Setup (ordering) cost for a single run (order) H = Holding (carrying) cost per unit per year U = Usage rate P = Production rate Chapter 17 Supply Chain Management 17-27

29 Price Discounts: Trade discounts established on a graduated scale and depend on a company s position in the channel of distribution 17-29

30 Trade Discount Structure Manufacturer sells for $80. Customer buys at $175. Wholesaler buys at $80; sells at $100. Retailer buys at $100; sells at $

31 Price Discounts: Trade discounts - established on a graduated scale and depend on a company s position in the channel of distribution Quantity discounts - offer price breaks on largevolume purchases Cash discounts - offered as incentives to pay early. (e.g., 2/10, net 30 ) 17-31

32 The Cost of Foregoing a Cash Discount $1,000 invoice 2/10, net 30 Amount $980 $20 $1,000 Day days R = I P x T = $20 $980 x 20/360 = % Chapter 17 Supply Chain Management 17-31

33 Time When to Order Lead time time gap between placing an order with a vendor and actually receiving the goods Safety stock a cushion of extra merchandise built into inventory in case demand is greater than anticipated 17-33

34 Simple Reorder Point Model Reorder Point = (L x U) + S where L = Lead time for an order (days) U = Usage rate for the item (units per day) S = Safety stock (units) 17-34

35 Simple Reorder Point Model Chapter 17 Supply Chain Management 17-34

36 Reorder Point Model (assuming normally distributed demand) Reorder Point = D L + (SLF x SD L ) where D L = Average demand during lead time for an order (units) SLF = Service level factor (the appropriate Z score) SD L = Standard deviation during lead time (units) 17-36

37 Reorder Point without Safety Stock

38 Reorder Point with Safety Stock Chapter 17 Supply Chain Management 17-37

39 The Shift from No Safety Stock to Safety Stock Chapter 17 Supply Chain Management 17-38

40 Vendor Selection: Supply Chain Management Goals of Supply Chain Management Reduce inventory Get products to market faster Increase quality Improve customer satisfaction Payoff can be big A successful SCM system yields an average savings of 15% Inventory levels decline 17-40

41 Vendor Selection: Managing the Supply Chain Web-based SCM e-procurement Share production plans, shipment schedules, inventory levels, sales forecasts, and actual sales real-time with vendors Supply chain analytics applied to SCM produce greater efficiency, less scrap, better quality, and lower production costs 17-41

42 A Supply Chain Should Be: Agile fast, flexible, and responsive to changes in demand Adaptable changes as the company s needs change and accommodates the company s growth Aligned all of the companies that make up the supply chain work together as a team 17-42

43 Vendor Certification 1. Determine important criteria in selecting a vendor 2. Assign weights to each criterion to reflect its relative importance 3. Develop a grading scale for each criterion 4. Compute a weighted score for each vendor: Weighted Score = Weight x Grade 5. Choose the vendor with the highest weighted score 17-43

44 Selecting the Right Vendors Factors to consider: Number of suppliers Reliability Proximity Speed Services Collaboration Price 17-44

45 Legal Issues in Purchasing The concept of title, the right to ownership of goods, has been replaced by: Identification - goods must be in existence and identifiable from all other similar goods Risk of loss - determines which party incurs the financial risk if the goods are damaged, destroyed, or lost before they are transferred 17-45

46 Risk of Loss Agreement Risk of loss shifts according to the parties contract F.O.B. Seller (shipment contract) Risk of loss shifts to buyer as soon as the seller delivers the goods into the care of a carrier F.O.B. Buyer (destination contract) Risk of loss shifts to buyer when the seller delivers the goods to a designated destination 17-46

47 Legal Issues in Purchasing The concept of title, the right to ownership of goods, has been replaced by: Identification - goods must be in existence and identifiable from all other similar goods Risk of loss - determines which party incurs the financial risk if the goods are damaged, destroyed, or lost before they are transferred Insurable interest - gives the right to either party to a sales contract to obtain insurance to protect against lost, damaged, or destroyed merchandise as long as he has a sufficient interest in them 17-47

48 Managing Inventory 18-48

49 Managing Inventory Excess inventory masks a host of other problems that a company may have Inventory carrying costs are high $357 billion annually in inventory carrying costs Taxes Depreciation Insurance Obsolescence 18-49

50 Managing Inventory Involves Developing an accurate sales forecast 2. Developing a plan to make inventory available when and where customers want it 3. Building relationships with quality suppliers 4. Setting realistic inventory turnover objectives 18-50

51 Managing Inventory Involves Computing the cost of carrying inventory 6. Using the most timely and accurate information system the business can afford to provide everyone with vital inventory information 7. Teaching employees how inventory control systems work so they can help manage inventory on a daily basis 18-51

52 Pareto s Law Business owners must recognize the importance of Pareto s Law ( the 80/20 Rule ): About 80% of a firm s sales are generated by about 20% of the items in its inventory The goal of inventory control is to focus the majority of the effort on that 20% of the inventory 18-52

53 Inventory Control Systems Perpetual inventory systems Point-of-sale (POS) systems Accurate and current Provide reorder alerts Generate inventory reports 18-53

54 Inventory Control Systems Visual inventory systems Partial inventory systems ABC method 18-54

55 ABC Method The ABC technique focuses inventory control efforts on the small percentage of items that account for the majority of a company s sales Categorizes inventory items into three classes A, B, and C with the goal of establishing different levels of control over each class 18-55

56 ABC Method Dollar usage volume = cost per unit x annual quantity used A items - items accounting for a large dollar usage volume (Approximately the top 15% of items) B items - items accounting for a moderate dollar usage volume (Approximately the next 35% of items) C items - items accounting for a low dollar usage volume (Approximately the remaining 50% of items) 18-56

57 ABC Inventory Control Chapter 18 Managing Inventory 18-10

58 ABC Inventory Control A items - Strict control; Perpetual inventory control systems B items - Moderate control; Periodic control systems using EOQ and reorder point analysis C items - Minimal control; Simple, inexpensive control systems such as the two-bin or tag systems. Many businesses carry large levels of safety stock of C items where carrying costs are low 18-58

59 Two Bin and Tag Systems Chapter 18 Managing Inventory 18-12

60 Physical Inventory Count Periodic count Cycle counting 18-60

61 Radio Frequency Identification (RFID) Radio tags attached to individual items or to shipments that transmit data to a company s inventory control system Tiny microchip stores a unique electronic product code and a tiny antenna Provides highly accurate, real-time information constantly and allow owners to locate and track an item at any point in the supply chain 18-61

62 Just-In-Time Techniques JIT attempts to reduce the investment required in inventory because it drains a company s cash and hides a multitude of problems managers need to address Goal: To achieve a smooth flow of materials and inventory through the business 18-62

63 Just-In-Time Techniques Rather than build up costly stockpiles of inventory, JIT seeks to get items where they are needed just in time Heart of JIT philosophy is eliminating waste in a business whatever form it may take Seven wastes 18-63

64 Seven wastes that JIT tries to eliminate Chapter 18 Managing Inventory 18-17

65 Benefits of JIT 1. Lower investment in inventory 2. Reduced inventory carrying and handling costs 3. Reduced costs resulting from obsolete inventory 4. Smaller investment in inventory storage space and production 5. Reduced manufacturing costs as a result of improved coordination among departments 18-65

66 When JIT Works Best Reliable deliveries of parts and supplies Short distances between customers and vendors Consistent quality of vendors products Stable and predictable demand 18-66

67 JIT II JIT II techniques focus on creating a closer, more harmonious relationship with a company s suppliers so that both benefit from increased efficiency JIT II is empowerment of the supplier within the customer s organization Lance Dixon In a retail environment, JIT II principles are called efficient consumer response (ECR), which enable retailers to replenish their inventories constantly and on an as-needed basis 18-67

68 Protecting Inventory from Theft Businesses lose an estimated $92 million per day to criminals Small businesses are more susceptible to crime than large companies The biggest criminal threat to small businesses is employee theft 18-68

69 Employee Theft The greatest criminal threat to small businesses comes from inside Dishonest employees steal 6.6 times more merchandise than do shoplifters Average time required to catch an employee who is stealing: 18 months How discovered? Employee tip! 18-69

70 Employee Theft Is more common in small companies, where control and security measures are less stringent Is more pervasive than most owners think 30% of workers steal from their employers at some point in their careers 18-70

71 Reasons for Employee Theft The trusted employee Disgruntled employees Organizational atmosphere Physical breakdowns Improper cash control 18-71

72 Factors Encouraging Employee Theft The need or desire to steal A rationalization for the act The opportunity to steal The perception that there is a low probability of being caught 18-72

73 Preventing Employee Theft Screen employees carefully Create an environment of honesty Establish a system of internal controls Create proper checks and balances Keep records up-to-date Use technology to reduce theft Watch for signs of theft Set up a hot line Demonstrate zero tolerance for theft 18-73

74 Causes of Inventory Shrinkage st Qtr 2nd Qtr 3rd Qtr 4th Qtr East West North Source: 2010 National Retail Security Survey, National Retail Federation. Chapter 18 Managing Inventory 18-27

75 Shoplifting The most frequent business crime One out of 11 adults in the U.S. has shoplifted Retailers lose $11.7 billion per year to shoplifters Shoplifting losses add approximately 3 to 4 percent to the average price tag Education, Inc. Publishing as 18-75

76 Types of Shoplifters Juveniles Impulse shoplifters Alcoholics, vagrants, and drug addicts Kleptomaniacs Professionals Education, Inc. Publishing as 18-76

77 Deterring Shoplifters Resources are best spent on prevention Train employees to spot shoplifters Create a store layout that discourages shoplifting Use mechanical devices such as cameras and electronic tags to make shoplifters jobs more difficult Education, Inc. Publishing as 18-77

78 Apprehending Shoplifters Catching shoplifters is difficult On average, caught just once every 48 times they steal Turned over to the police just 50% of the time Result: The chance that a shoplifter will actually go before a judge is just 1 in 100 Education, Inc. Publishing as 18-78

79 Making a Case To make shoplifting charges stick, a business owner must: 1. See the person take or conceal the merchandise 2. Identify the merchandise as belonging to the store 3. Testify that it was taken with the intent to steal 4. Prove that the merchandise was not paid for Education, Inc. Publishing as 18-79

80 Preventing Shoplifting Principle 1: Sharpen the shoplifter's awareness that he is being watched Principle 2: Remove opportunity by minimizing the shoplifter's unattended access to merchandise Principle 3: If principles 1 and 2 fail, prosecute the shoplifter Education, Inc. Publishing as 18-80

81 Q & A