Lecture-7(Chapter4)SupplyContracts王长琼Designing and Managing the Supply ChainWHUT,2017
Lecture -7 (Chapter 4) Supply Contracts 王长琼 1 Designing and Managing the Supply Chain, WHUT, 2017
4.1 IntroductionOutsourcingOEMs outsource complete manufacturing anddesign of their productsPurchasing* Procurement in OEMs becomes very important-- DELL: 74% of total production cost* OEMs have to get into contracts with supplierso Forbothstrategicandnon-strategiccomponentsPeter Kraljic's supply classificationbased on its profit impact and its supply risk2
4.1 Introduction Outsourcing OEMs outsource complete manufacturing and design of their products Purchasing Procurement in OEMs becomes very important - DELL: 74% of total production cost OEMs have to get into contracts with suppliers For both strategic and non-strategic components Peter Kraljic’s supply classification based on its profit impact and its supply risk. 2
HighVolume,Leverage ItemsStrategicItemsValue,LargeVolumePurchases.Unique Specifications orValue-Add·UnitCostImportant·SupplierTechnology Criticalimpacton·SubstitutesAvailable·FewSuppliersAvailableSC"value-·Difficultto SubstituteManyEquivalentSupplierAvailableadd"Non-Critical ItemsBottleneckItems.Commodities·Unique Requirements·Supplier'sTechnology,Knowledge,Assets·EasytoFindSubstituteProductsor Expertise Critical·Many Supplier Available· Scarce Sources of Supply or a Few·LimitedFinancial ImpactSuperior Suppliers·Difficult to SubstituteDifficulttoMonitorand/orMeasureLowPerformance·HiddenActionbySupplierPossibleHighLowSupplyRisk/Complexityproductavailability,numberofsuppliers,ease or cost of switchingsupplier or theavailabilityof substituteproducts or service
4.1 Introduction product availability, number of suppliers, ease or cost of switching supplier or the availability of substitute products or service Volume, Value, impact on SC “valueadd”, . 3
LeverageitemsHighStrategicitems-Exploitpurchasing-Formpartnershipspowerand-Acguirecapabilityminimizecost-Createnewin-house-Investinsupplierstocapabilityensuretimely-NewbusinessunitavailabilityBottleneckitemsNon-critical itemsEnsuresupply-Simplifyand-AcquirecapabilityautomateCreatecapability-Multiple suppliersInvestinsuppliers·Create a"warm base"LowLowHighSupplyRisk/ComplexityDifferent purchasingpolicies
Different purchasing policies 4
4.2 Supply contracts forstrategic componentsSupply Contract can include the following* Pricing and volume discounts.* Minimum and maximum purchase quantities* Delivery lead times* Product or material quality* Product return policies
4.2 Supply contracts for strategic components Supply Contract can include the following: Pricing and volume discounts. Minimum and maximum purchase quantities. Delivery lead times. Product or material quality. Product return policies. 5
4.2.1 22-Stage Sequential SupplyChain (no contract)*A buyer and a supplier.ManufacturerDCRetail DCManufacturer*Buyer's activities:* generating a forecast* determining how many units to order from the supplier*placing an ordertothe suppliersoasto optimize his ownprofit*PurchasebasedonforecastofcustomerdemandSupplier'sactivities:* reacting to theorderplaced bythebuyer* Make-To-Order (MTO) policy6
4.2.1 2-Stage Sequential Supply Chain (no contract) A buyer and a supplier. Buyer’s activities: generating a forecast determining how many units to order from the supplier placing an order to the supplier so as to optimize his own profit Purchase based on forecast of customer demand Supplier’s activities: reacting to the order placed by the buyer. Make-To-Order (MTO) policy 6
Swimsuit Example* 2 Stages:* a retailer who faces customer demand* a manufacturer who produces and sells swimsuits to theretailer.RetailerInformation:* Summer season sale price of a swimsuit is $125 per unit.* Wholesale price paid by retailer to manufacturer is $8o perunit.* Salvage value after the summer season is $20 per unitManufacturer information* Fixed production cost is $1o0.000* Variableproduction costis $35perunit
Swimsuit Example 2 Stages: a retailer who faces customer demand a manufacturer who produces and sells swimsuits to the retailer. Retailer Information: Summer season sale price of a swimsuit is $125 per unit. Wholesale price paid by retailer to manufacturer is $80 per unit. Salvage value after the summer season is $20 per unit Manufacturer information: Fixed production cost is $100,000 Variable production cost is $35 per unit 7
2StagessupplychainsystemnosupplycontractStoresFoxedcost=S100.000Variablecost=$35Wholeprice=$80price=$125S=$20D.CManufacturerRetailDCRetailer marginal profit is =$45 (=125-80)$Manufacturer marginalprofit=$45(=80-35)$4
8 price=$125 s=$20 Manufacturer D.C Retail DC Stores Foxed cost =$100,000 Variable cost =$35 Whole price =$80 2 Stages supply chain system no supply contract Retailer marginal profit is =$45 (=125-80)$ Manufacturer marginal profit = $45 (=80-35)$
What Is theOptimalOrderQuantity?Demand0.2830%Kieiord0.2225%0.1820%115%0.110.110.110%5%0%8000 10000 12000 14000 16000 18000Quantity
What Is the Optimal Order Quantity? 0.11 0.11 0.28 0.22 0.18 0.1 0% 5% 10% 15% 20% 25% 30% 8000 10000 12000 14000 16000 18000 概率 销量 需求假设 9 Quantity Demand Probability
WhatIstheOptimal OrderQuantity?* Retailer marginal profit is the same as the marginalprofit of the manufacturer, $45.* Retailer's marginal profit for selling a unit duringthe season, $45, is smaller than the marginal loss,$6O. associated with each unit sold at the end ofthe season to discount stores.*Optimal order quantitydepends on marginal profitand marginal loss but not on the fixed cost.Retailer optimal policy is to order 12,000 units foran average profit of $470,700. detail...10
What Is the Optimal Order Quantity? Retailer marginal profit is the same as the marginal profit of the manufacturer, $45. Retailer’s marginal profit for selling a unit during the season, $45, is smaller than the marginal loss, $60, associated with each unit sold at the end of the season to discount stores. Optimal order quantity depends on marginal profit and marginal loss but not on the fixed cost. Retailer optimal policy is to order 12,000 units for an average profit of $470,700. detail. 10