Practical Application of Supply Chain Management Principles

223 Pages·2008·2.454 MB·223\223

by  Schoenfeldt, Thomas I.

A Practical
Application
of Supply Chain
Management
Principles
Thomas I. Schoenfeldt
ASQ Quality Press
Milwaukee, Wisconsin
American Society for Quality, Quality Press, Milwaukee 53203
© 2008 by ASQ
All rights reserved. Published 2008
Printed in the United States of America
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Library of Congress Cataloging-in-Publication Data
Schoenfeldt, Thomas I., 1946–
A practical application of supply chain management principles / Thomas I.
Schoenfeldt.
p. cm.
Includes bibliographical references and index.
ISBN: 978-0-87389-736-5 (alk. paper)
1. Business logistics. I. Title.
HD38.5.S35 2008
658.7—dc22 2008001858
ISBN: 978-0-87389-736-5
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Introduction
I
n years past, customers were able to drive the prices and deliveries of
their materials. This was possible in a domestic economy. With global-
ization increasing more and more each day, customers must begin to
build relationships with their suppliers and practice effective supply chain
management to maintain the supply of essential materials.
With the signing of the NAFTA agreement in January 1, 1994, the
United States saw its industry base change. Many companies created opera-
tions in Mexico because it was cheaper and more profitable to operate there.
Today we are seeing another business shift. This time it is from Mexico and
the United States to China and India. As these shifts occur, the countries’
economies are changing as well. Countries that are securing new businesses
are getting stronger while those that are losing businesses become weaker.
These changes prompt significant questions: “If a company had been
managing the supply chain, would the business be moving?” “If a company
works to develop healthy suppliers, will the operations remain nearby?”
These are very tough questions that seem to have been ignored by many
U.S. companies over the years, when the focus was on price alone.
Can the trend to keep moving operations offshore be reversed? I believe
that it can, but it will require a change in the way many U.S. companies are
currently doing business. As we look at the subject of making the needed
quantum leap by managing the supply chain, we will see an opportunity
to develop and maintain efficient and competitive businesses within the
United States.
This book is designed to share the principles of supply chain manage-
ment. It is written based on the practical experiences of the author, relat-
ing them to industry principles that are discussed in the various chapters.
This book can be used as a textbook for business education or as a reference
book for businesses that recognize the need to change the way that their
supply chain processes are managed.
xvii
xviii Introduction
Chapter 1 evaluates business developments over the years to demon-
strate how the trends have gone almost full circle. Many companies have
not learned from their experiences. We present examples of how businesses
were driven a few years ago compared to how they are driven today.
In Chapter 2 we will define the supply chain and the companies
involved, and show several examples. In addition, we will discuss the devel-
opment and effective use of process mapping. A complete supply chain
and process map of a specific organization will be presented in order to
introduce the supply chain concept. This will help identify who the players
might be for your organization.
Chapter 3 helps develop the supply chain management strategy within
an organization. A supply chain maturity model has been created that can
be used to determine where different organizations are in the process. In
this chapter, forecasting and other areas dealing with the customer are dis-
cussed. This will help you begin to think about your organization and what
changes might be made. An evaluation will be presented to help a company
assess themselves as a customer. Would you want to be your own customer?
This evaluation will help visualize what a good customer looks like for your
particular company.
Chapter 4 discusses the decision of whether to make or buy. This is the
first step in supply chain management.
In Chapter 5 there is a supplier selection process to help identify the
best supplier for the organization in its present situation. This detailed
method works well regardless of volumes and prices by considering many
variables that companies encounter when dealing with members of the sup-
ply chain.
Having selected a supplier, Chapter 6 introduces a procedure for their
effective implementation. This is the beginning stage of the supplier certi-
fication process.
Chapter 7 describes international situations and how to effectively build
international relationships. Culture is a very important aspect of interna-
tional relationships that must be considered in supplier relationships. The
issues of globalization and international relationships will be discussed, as
well as the impact that different cultures and companies can have on supply
chain management.
In Chapter 8, we begin to consider relationship building. Initially, we
will look at relationships from many perspectives. It is important to deter-
mine who should be involved, how teams should be arranged, and the scope
of the work that the teams can do.
In Chapter 9 supplier quality system surveys are discussed, with exam-
ples. Supplier visits are addressed, and we will explain both how to run a
visit and the results that might be expected from the supplier.
Introduction xix
Chapter 10 discusses scorecards and measures of suppliers. The con-
cept of the seven-part total perfect order is presented and how this can help
both your organization and your supplier to improve.
Chapter 11 focuses on customer satisfaction. This incorporates a dis-
cussion of where different quality standards fit into supply chain manage-
ment. Currently, there is a disconnect in this area in many organizations
because quality subsists as a discrete department that is weakly related to
other areas of the organization. Customer satisfaction is one area that is
called out in the quality standards.
Chapter 12 describes some quality tools and explains how they can be
applied to supply chain management. The details of how to develop these
tools can be found in other texts; we concentrate on their applications.
Chapter 13 discusses two of the hot topics in supply chin management
today: inventory and logistics. These areas can involve significant invest-
ment and so they need to be managed as part of the supply chain.
Chapter 14 covers information systems and some applications that can
help in supply chain management. This is an overview of software pack-
ages that does not promote specific vendors. The primary focus here is how
information technology can help manage the supply chain.
In a postscript (Chapter 15), taking the supply chain management to
the consumer level is discussed with some personal examples. It is essen-
tial to remember that each of us are both customer and supplier. In either
circumstance we want to be treated well and so we should return the same
behavior.
As you read this book, think about the concepts presented in terms of
how they might be implemented in your organization to make it better and
improve the supply chain management process. I trust that this will be a
learning journey for you as you read and apply what is in this book.
Thomas Schoenfeldt
Preface
A
fter years of teaching this type of material and reviewing many dif-
ferent books, I was unable to locate one book that covered the topic
in the manner that I was thinking. As a result you now have the
consummation of my efforts from many years of work.
The principles discussed in this book have been proven to work and
create value-added results in many different industries. As these concepts
were being screened and developed so that they work effectively, there was
a learning curve involved and I had much to learn. As you read and study
this book, I trust that some of the content will also be challenging to you,
but that you will be able to apply some of these principles in your profession
and make the world a better place as a result.
The principles that are described in this book are the ones that I have
been using in my consulting business for more than 10 years. This is not
an all-encompassing consolidation of all the possible tools and principles.
There are other authors that have taken the specific concept approach and
have done a very good job. This book is designed to give you a good appli-
cable understanding of the topic of supply chain management.
As you read this book your mind will be challenged to try new
ideas and even refine some of the concepts described. Enjoy the book and
use the new knowledge that you have obtained.
xiii
Table of Contents
List of Figures and Tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii
Chapter 1 The Way Things Were (Are) . . . . . . . . . . . . . . . . . . . 1
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Chapter 2 Understanding Your Supply Chain . . . . . . . . . . . . . 9
Process Mapping. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Acquisition Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Possession Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Application Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Inspection Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Internal/External Failure Costs . . . . . . . . . . . . . . . . . . . . . . . . . 28
Things That Are Beyond Our Control in the Supply Chain. . . . 31
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Chapter 3 Developing a Supply Chain Management
Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Where Does Supply Chain Management Fit into the
Mission and Vision of an Organization?. . . . . . . . . . . . . . . . 35
Supply Chain Management Maturity Model . . . . . . . . . . . . . . . 35
How Are Needs Forecasted? . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
How Much and What Types of Risks Can Be Accepted? . . . . . 43
How Will Competitive Advantage Be Developed? . . . . . . . . . . 44
What Kind of a Customer Are You? . . . . . . . . . . . . . . . . . . . . . 47
Integrating Processes Using Aggregate Planning . . . . . . . . . . . 49
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
vii
viii Table of Contents
Chapter 4 Make or Buy: The First Step in Supply
Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Capacity Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Make Decision Drivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Buy Decision Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Chapter 5 Supplier Identification and Evaluation . . . . . . . . . . 61
Step 1: Upper Management Support. . . . . . . . . . . . . . . . . . . . . . 61
Step 2: Product Group Selection . . . . . . . . . . . . . . . . . . . . . . . . 64
Step 3: Team Member Selection. . . . . . . . . . . . . . . . . . . . . . . . . 66
Step 4: Current and Possible Suppliers List. . . . . . . . . . . . . . . . 68
Step 5: First Cut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Step 6: Necessary Attributes List. . . . . . . . . . . . . . . . . . . . . . . . 70
Step 7: Major Question Preparation. . . . . . . . . . . . . . . . . . . . . . 72
Step 8: Supplier Package Preparation. . . . . . . . . . . . . . . . . . . . . 73
Step 9: Information Provided to Suppliers. . . . . . . . . . . . . . . . . 74
Step 10: Rank and Weight Attribute Questions . . . . . . . . . . . . . 75
Step 11: Attribute Grouping . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Step 12: Do Your Homework . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Step 13: Interviews. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Step 14: Evaluation of Interviews. . . . . . . . . . . . . . . . . . . . . . . . 82
Step 15: Preferred Supplier Selection. . . . . . . . . . . . . . . . . . . . . 84
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Chapter 6 Selection of a Preferred Supplier . . . . . . . . . . . . . . . 87
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Management of Preferred Supplier. . . . . . . . . . . . . . . . . . . . . . . 88
Transferring Work to Preferred Supplier . . . . . . . . . . . . . . . . . . 89
Tolling Arrangements and Cost Effects. . . . . . . . . . . . . . . . . . . 90
Building a Positive Relationship. . . . . . . . . . . . . . . . . . . . . . . . . 91
Building Awareness of the Relationship. . . . . . . . . . . . . . . . . . . 92
The Purchasing Department. . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Driving Supplier Product Improvement. . . . . . . . . . . . . . . . . . . 94
Managing the Supplier Relationship . . . . . . . . . . . . . . . . . . . . . 95
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Chapter 7 International Considerations . . . . . . . . . . . . . . . . . . 99
Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Criticism and Shame. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Interpersonal Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Table of Contents ix
Appearance and Buying Habits . . . . . . . . . . . . . . . . . . . . . . . . . 103
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Supplier Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Monetary or Other Considerations. . . . . . . . . . . . . . . . . . . . . . . 107
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Chapter 8 Building Relationships. . . . . . . . . . . . . . . . . . . . . . . . 111
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Building a Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Measurement of Success. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Questions for Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Overcoming Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
The Ideal Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Two Real Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Chapter 9 Supplier Quality System Surveys, Visits, and
Continuous Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Supplier Quality System Surveys. . . . . . . . . . . . . . . . . . . . . . . . 121
Supplier Visits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Continuous Improvement Methods . . . . . . . . . . . . . . . . . . . . . . 131
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Chapter 10 Supplier Scorecards and Measures. . . . . . . . . . . . . 135
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Chapter 11 Customer Satisfaction . . . . . . . . . . . . . . . . . . . . . . . 143
Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Question Development and Survey Implementation . . . . . . . . . 147
Customer Needs Identification. . . . . . . . . . . . . . . . . . . . . . . . . . 151
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Chapter 12 How to Apply Basic Quality Tools to
Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Scatter Diagrams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Histogram. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Tally Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Pareto Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Cause-and-Effect Diagram. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
Control Charts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
Why–Why Diagrams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Brainstorming. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Process Maps (Flowcharts). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
5W2H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
x Table of Contents
Affinity Diagram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Chapter 13 Materials Management . . . . . . . . . . . . . . . . . . . . . . 169
Inventory Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Logistics Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Chapter 14 Information Technology Applications . . . . . . . . . . 179
MRP Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
ERP Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
CRM Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
CPFR Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Chapter 15 Supplier Relationships at the Consumer Level . . . 187
Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Restaurant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Taxi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Airline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Automobile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Another Hotel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197