Lucille Jenkins, the CEO for the Durham International Manufacturing Company (DIMCO), believes that the company can significantly increase its operating profit by implementing supply chain management. DIMCO manufactures a variety of consumer electronic products, from hair dryers to humidifiers to massagers, for the world market.

Lucille believes that DIMCO has already integrated its internal processes and is ready to proceed with external integration. However, she is uncertain as to which direction to take. Should the company work on integrating the suppliers or the distributors first? Currently, DIMCO uses approximately 1350 different components and/or raw materials in manufacturing its product line. Those components and raw materials are purchased from approximately 375 different suppliers around the world. In terms of distribution, DIMCO currently sends its finished products to a central warehouse that supplies 10 regional distribution centers (RDC); 6 are domestic and 4 are located outside of the United States. Each RDC supplies an average of 12 local distributors that each supply an average of 35 retailers.

Question: Prepare a one page meno to Lucille pointing out your top two ideas DIMCO and the benefits in qualitative term that could be realize.( I have attach a file about terms if you want to use)

ARE 157 - Winter 2015 Notes #9 - Supply Chain Management - Chapters 11 and 12 Target costing: sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m I. Supply Chain Comments A. A few graphics - some terms used in the supply chain world - some are review 1. Value chain: Th II. Strategic Aspect of Supply Chain Management A. Supply Chain Management - the coordination of all supply chain activities (from raw materials to satisfied customers) involved in enhancing customer value 1. Objective: coordinate activities within the supply chain to maximize competitive advantage and benefits to the consumer B. Some benefits 1. Can reduce direct cost - cost of materials 2. Can reduce indirect cost - ordering, handling, storage, shrinkage costs 3. Can improve response time - customer satisfaction C. Alignment of business strategy with supply chain strategy - See Table 11.2 in text - these topics were covered in earlier parts of the text as well. 1. Low cost business strategy a. Supplier selection criterion: minimize supplier cost b. Supply chain inventory: minimize inventories c. Distribution network: inexpensive transportation, discount distributors and retailers d. Product Design: maximizing performance while minimizing cost 2. Differentiation strategy https://www.coursehero.com/file/12216853/Ch-9-Notes/ 1 ARE 157 - Winter 2015 Notes #9 - Supply Chain Management - Chapters 11 and 12 Th sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m a. Supplier selection criterion: product development skills, joint, rapid product development b. Supply chain inventory: minimize inventories to avoid obsolescence c. Distribution network: gather market research data, knowledgeable sales staff d. Product Design: modular design to aid differentiation 3. Response strategy a. Supplier selection criterion: capacity, speed, flexibility b. Supply chain inventory: use of buffer stock to ensure speedy supply c. Distribution network: fast, premium service d. Product Design: low setup time, rapid production D. Metrics for supply chain - an example of cost savings in supply chain management going the bottom line - this is an example of what analyst do - known as \"squeezing the cost out of the supply chain.\" Note: So we measure by relationship of cost of material to sales dollars III. Sourcing - How We Buy Things in the Supply Chain A. Textbook list: 1. Many suppliers - suppliers respond to demands and specifications of the buyer and compete with one another, the buyer goes with the lowest bidder a. Commodity-type products b. Supplier responsible for maintaining tech, expertise, forecasting abilities, cost, quality, etc. c. Long term partnering not the goal 2. Few suppliers - buyer forms long term relationships with few suppliers allowing suppliers better economies of scale and learning curves which result in lower transaction and production costs a. Used when more than just commodity are needed https://www.coursehero.com/file/12216853/Ch-9-Notes/ 2 ARE 157 - Winter 2015 Notes #9 - Supply Chain Management - Chapters 11 and 12 Th sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m b. Costly to change partners, risk of poor supplier performance 3. Vertical integration and joint ventures and Keiretsu - gaining ownership in suppliers a. Vertical Integration - developing the ability to produce goods or services previously purchased or actually buying a supplier or distributor i. Forward integration - taking control of distribution (ie. Apple stores) ii. Backward integration - firm purchases its suppliers or manufactures that component b. Joint ventures - collaborating with other firms to secure supply and/or reduce costs c. Keiretsu Networks - suppliers who become part of a company coalition i. Manufacturers are financial supporters of suppliers ii. Long term relationship where suppliers collaborate with firms as partners, providing technical expertise and quality production 4. Virtual companies - companies rely on variety of supplier relations to provide services on demand a. Usually short-term supply situations for a specific project but can be long term b. Results in specialized management, low capital investment, flexibility, speed, efficiency B. Contracts are important 1. Need to be enforceable 2. Need to specify quality and timing of quantity 3. Need to be specific on price and payment terms 4. Need to have dispute resolution procedures https://www.coursehero.com/file/12216853/Ch-9-Notes/ 3 ARE 157 - Winter 2015 Notes #9 - Supply Chain Management - Chapters 11 and 12 Th sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m C. Some particular considerations of sourcing - see page 439 1. Pull data - accurate sales data that initiate transactions to pull product through the supply chain a. data sharing 2. Open PO's and open contracts (purchase orders for goods, contracts for services) 3. Vendor-managed inventory - a system in which a supplier maintains material for the buyer, often delivering directly to the buyer's using department a. both ordering and delivering b. use of local supplier to maintain inventory for the manufacturer or retailer 4. \"Lights out\" ordering and shipping 5. Buying groups and purchasing cooperatives IV. Economic Measures - See Problem Set #4 and page 449 A. Percentage invested in inventory = (Total inventory investment/total inventory)*100 B. Inventory turnover = cost of goods sold / inventory investment 1. Inventory investment: average inventory 2. Cost of goods sold: the cost to produce the goods sold for a given period of time 3. How many times more we sell than we hold, want it to be high C. Weeks of supply= inventory investment / (annual cost of goods sold/52 weeks) 1. How many weeks of supply we have on hand on average V. Inventory in the Supply Chain - See Chapter 12 A. Types of inventory 1. Manufacturing inventory: a. Good on track - not in the text b. Consignment goods c. Raw materials - materials that are purchased but have yet to enter the manufacturing process d. Work-in-Process or \"WIP\" - products or components that are no longer raw materials but have yet to become finished products; undergone some change but not finished i. Reducing cycle time reduces this inventory ii. Cycle time: is the time it normally takes raw-materials to be converted to finished goods. e. Finished goods - an end item ready to be sold, but still an asset on the company's books f. Each has a safety stock 2. Maintenance/repairs/operating (MROs) - maintenance, repair, and operating materials https://www.coursehero.com/file/12216853/Ch-9-Notes/ 4 ARE 157 - Winter 2015 Notes #9 - Supply Chain Management - Chapters 11 and 12 VI. Supply Chain Management A. Comments 1. Supply Chain - the structure Example: Dairy Products Th sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m a. Customer interface with external distributors b. Internal functions i. Processes ii. Indirect procurement c. External supplier interface with multiple tiers - normally three tiers 2. Management - the operations of the supply chain - note the materials flow is to the customer and the information flow is to the suppliers. Both directions are part of the supply chain and best seen in an ERP later. 3. Purchasing process - comments (just know ideas for the final exam and terms found on the word list for which there are only a few) a. Traditional - when there are many suppliers i. Purchase request ii. Verification of prices and purchasing terms with vendor iii. Issue purchase order and copies (PO) usually in paper form Supplier - original Receiving - copy Accounting - accounts payable - copy Requesting department - copy iv. Receipt of goods v. Two-way match at receiving dock vi. Payment of invoice - three way match in accounting b. e-Purchasing - used when there are just a few suppliers i. Contractual relationship for e-purchasing ii. Purchase request Manual Automated - this is the usually type of request iii. Supplier authorization as to terms iv. Receipt of goods v. Payment of invoice with three-way match and tolerances VII. Supply Chain Management and OM Strategies A. From the text: 1. Competition is among supply chains 2. Cooperation is within the supply chain B. Associated risks: 1. Internal Risk a. Process risk - disruptions in any value adding or managerial processes b. Control risk - risk arising from controls (rules, systems, procedures) 2. Environment risk (sometime called external risk) - customs, tariffs, natural disater 3. Fragility risk - when something goes wrong can it be fixed? (Humpty Dumpty) https://www.coursehero.com/file/12216853/Ch-9-Notes/ 5 ARE 157 - Winter 2015 Notes #9 - Supply Chain Management - Chapters 11 and 12 A: annual dollar volume is high, may represent low percent of inventory but high percent of total dollar usage 2. B: medium annual dollar volume 3. C: low annual dollar volume but make up a large bulk of inventory 4. Idea is to establish inventory policies that focus resources on the few critical inventory parts (A) 5. Typical ABC distribution would be: 6. So the management focus would be the 20% in the \"Class A\" category a. Strive for better forecasting, physical control, and supplier reliability here D. Kanban system - Japanese for \"card\" that signals production should proceed on a :pull basis\" E. Economic order quantity (EOQ) - an inventory-control technique that minimizes the total ordering and holding costs 1. Tells us when to order product 2. Q* is the optimal order quantity, minimizes total costs F. Third-party logistics - from the idea of \"only do what you do well\" 1. Warehousing and bonded warehousing 2. Transportation 3. Transferring - usually at a port or airport and sometimes at a truck terminal 4. After-sales service - product return and repair Th 1. sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m VIII. Performance Measures for Inventory in the Supply Chain A. Supplier metrics examples: 1. Lead time for orders - the time between placement and receipt of the order 2. Per cent of orders with \"backorders\" 3. Per cent of rejected material 4. Number of shortages more than one day 5. Solved normally with contracts and performance payments IX. Managing Inventory (in the Supply Chain) - Selected Comments - From the text A. Dependent and independent demands - \"interaction effect from statistical modeling\" 1. Independent Demand - demand for an item is independent of the demand for another a. Demandrefrigerators f(Demandmen's suits) at Sears 2. Dependent Demand - demand for an item is dependent on the demand of another a. Demandmen's shirts = f(Demandmen's suits) 3. Normally: a. we find inventory dependencies in manufacturing b. we find inventory independence in the end-user market - consumers B. Cost associated with inventory - not the manufacturing cost 1. Ordering costs - cost of the ordering process (i.e. order processing, clerical support) 2. Holding cost -cost to keep or carry inventory in stock (i.e. storage, insurance, staffing) 3. Setup costs - cost to prepare a machine or process for production (i.e. cleaning, changing tools) 4. Obsolescence costs - cost of inventory goods going out of date 5. Shrinkage costs - the cost of losing product between point of manufacture to time of sale (i.e. theft) C. ABC analysis - a method for dividing on-hand inventory into three classifications based on annual dollar volume; a comparison of inventory items - the number of items, to the usage of the items. https://www.coursehero.com/file/12216853/Ch-9-Notes/ Powered by TCPDF (www.tcpdf.org) 6