1 Supply Chain Management Professor Soheila Jorjani, Ph.D. June 22, 2002 Team: Barbara Sepich Amy Wheeler Tom Arant Shon Sloat Supply Chain Management

1

Supply Chain Management

Professor Soheila Jorjani, Ph.D.June 22, 2002

Team:

Barbara Sepich Amy Wheeler Tom Arant Shon Sloat

Supply Chain ManagementSupply Chain Management

..

2


Summary of Presentation

1. Definition: Supply Chain Management (SCM)

2. History, Performance measures

3. SCM example: Wal-Mart, Inc.

4. Wal-Mart SCM vendor: Upper Deck, Inc.

5. Role of Operations Management in SCM

6. Leading edge operations management issues

7. Role of managing inventory in the supply chain

8. Importance of Information Technology (ERP)

9. Summary

3


1. The sequence of business processes and information that provides a product or service from suppliers through the manufacturing and distribution to the ultimate consumer.

2. Planning, design, and control of the flow of information and materials along the supply chain in order to meet customer requirements in an efficient manner, now and in the future.

Supply Chain Management is.......

4


A typical Supply Chain

Final CustomerSupplierSupplier

SupplierSupplier

SupplierSupplier

SupplierSupplier

ManufacturerManufacturer

ManufacturerManufacturer

RetailerRetailer

RetailerRetailer

Information Flow

Distribution

Material Flow

ISSUES: Supply Chain Distribution channels

Demand Logistics Inventory

Transportation Planning Cost controls

5


History of SCM

• Textile and grocery industries (early 1980s)

• Advent of Efficient consumer response (ECR)

• Electronic data interchange (EDI)

• Point-of-sale (POS) systems

• Concept of continuous replenishment (CRP):

• General Mills

• Whirlpool

• Wal-Mart

• Georgia Pacific

• Comprehensive SCM: 1990s

6


Performance Parameters

Optimized supply chain management “harmonizes and synchronizes the performance process of the enterprise”, where performance is measured in terms of concurrent minimization and maximization objectives:

• reduced production time • increased efficiency

• reduced costs • higher quality products and services

than would otherwise be produced separately by any entity constituting the supply chain. The effectiveness of the enterprise supply chain is further measured by the organization’s ability to simultaneously manage its operations free of historical constraints:

• backlog • bottlenecks • waste

Fundamental Objectives

7


SCM Case: Wal-Mart

• World’s Largest Retailer, with $224 Billion Sales

• 4,400 Stores

• SCM has Long Been its Recognized Strength

• SCM Unmatched Competitive Advantage

• Pioneer of the CPFR (Collaborative Planning, Forecasting, and Replenishment)

• Supply-Chain Infrastructure: “Supplier-Link”

• Electronic Data Interchange Networks and Extranets

• Immediate Linkage: Buyers and its 10,000 Suppliers

8


Wal-Mart Supplier: Upper Deck

9


• Upper Deck Supplies Trading Cards & Memorabilia

• Hobby & Retail Channels

• Pricing Strategies Vary by Channel

• Wal-Mart Calls the Shots & Demands Lowest Possible Prices

Upper Deck & Wal-MartSupply Chain Experience

10


Upper Deck’s Return Policy

• Small Hobby Distributors – No Return Privileges

• Large Hobby Distributors – Returns Up to 4% of Purchases

• Retail Distributors (Except Wal-Mart) – Returns Up to 11% of Purchases

• Wal-Mart – Full Return Privileges

11


Payment Terms

• 2% 10 Net 30 for All Hobby Distributors

• Net 60 for Large Retailers

• Toys R Us

• Target

• Rite-Aid

• POS (Point of Sale) for Wal-Mart

12


“Point” of POS Payment Terms

• Wal-Mart Maintains Zero Inventory• Consignment Sales – Revenue Recognition Delayed

• Upper Deck Lost Control of Physical Inventory

• Reconciliation Nightmare

• Ownership Transferred to Wal-Mart at POS & Ownership Immediately Transferred to Customer

• Wal-Mart Paid Only for Products Sold

• Wal-Mart Assumed No Risk• Upper Deck was Forced to Write Off Pilferage

• Wal-Mart Returned Remaining Products Regardless of Condition

13


Upper Deck’s Solution

• Sell to Wal-Mart Through Distributors – Rather than Direct Sales

• Retail Distributors Now Assume Risk of Inventory Loss, Damage, and Excess Returns

• Upper Deck Recognizes Revenue at Time of Shipment

14


Wal-Mart Assumes No Risk

A SCM Story ....

15


Operations Management in SCM

• DECISION VARIABLES • Quantity of resource supplied • Quantity of Inventory required• Price of sale product• Process Technology: YES / NO

• Fixed Cost• Unit variable cost• Production time

• Objective Function • Maximal Inventory Turn• Minimal spoilage• Minimal lead time• Maximum profit

• Constraints• Resource Availability• Consumer Demand

A well-defined problem?

16


Operations Management in SCMExample

Aggregate Plan Decision Variables

Ht Lt Wt Ot It St Ct Pt

Period # Hired # Laid off # Workforce Overtime Inventory Stockout Subcontract Production Demand Price

0 0 0 80 0 1,000 0 01 0 15 65 0 1,983 0 0 2,583 1,600 402 0 0 65 0 1,567 0 0 2,583 3,000 403 0 0 65 0 950 0 0 2,583 3,200 404 0 0 65 0 0 267 0 2,583 3,800 405 0 0 65 0 117 0 0 2,583 2,200 406 0 0 65 0 500 0 0 2,583 2,200 40

Aggregate Plan CostsPeriod Hiring Lay off Regular time Over time Inventory Stockout Subcontract Material

1 0 7,708 41,333 0 3,967 0 0 25,8332 0 0 41,333 0 3,133 0 0 25,8333 0 0 41,333 0 1,900 0 0 25,8334 0 0 41,333 0 0 1,333 0 25,8335 0 0 41,333 0 233 0 0 25,8336 0 0 41,333 0 1,000 0 0 25,833

Total Cost = 422,275$

Total Revenue = 640,000$ Profit = 217,725$

Workforce Production Inventory Over time

0 0 0 6460 0 0 6460 0 0 6460 0 0 6460 0 0 6460 0 0 646

Co

nst

rain

ts

16

17


Operations Management in SCMExample

18


Operations Management in SCMA well-defined problem? NOT

• Immense # of Parameters• Dynamic rather than static problem• Highly synergistic interaction across many boundaries• Highly interdisciplinary

PM

4cast Qing

ModSim

19


• Linear Programming to determine optimal transportation and shipping logistics

• Forecasting to estimate highly dynamic consumer demand

• Project Management to maximize production and labor resource allocation efficiency

• Queuing to optimize delivery truck scheduling, loading and unloading, and labor deployment

• Simulation for SCM system sensitivity assessment


20


The RightProducts

In the RightQuantities

At the RightMoment

At MinimalCost

OBJECTIVES

Demand Compliance

Delivery Reliability

Delivery TimeLead Time

InventoryLevel

CONSTRAINTS

Characteristics • Forecasting uncertainty• Product Proliferation• Short Product Life Cycles• Risk and Uncertainty Abound

Multivariate “tweaking” across many layersWith many boundaries with multiple objectives


21


Operations Management in SCMSuboptimization? INSUFFICIENT

optimization

optimization

optimization

optimization

Retailer

Supplier

Distributor

Manufacturer

22


Retailer

Distributor

Manufacturer

Supplier

Operations Management in SCMGlobal Optimization across the …

Once the environment is• Organized• Streamlined• ConnectedReal SCM can begin

VIRTUAL FIRM

23


Managing Inventory in the supply chain

Inventory Management through supply chain management addresses two conflicting objectives:

• Maintenance of inventories large enough to support good customer service

• Maintenance of inventories small enough to limit the financial investment (risk)

Suppliers Procurement Manufacturing Factory Distribution Customer

Raw material

In process

Distribution Selling Point

End users

24

Supply Chain ManagementO

rder

Q

uan t

ity

Time

Retailer’s Orders

Ord

er

Qua

n tit

y

Time

Wholesaler’s Orders

Ord

er

Qua

n tit

y

Time

Manufacturer’s Orders

The magnification of variability in orders in the supply-chain.

A lot of retailers each with little variability in their orders….

…can lead to greater variability for a fewer number of wholesalers, and…

…can lead to even greater variability for a single manufacturer.

The “Bullwhip” Effect

25


Leading edge Operations Management issues in SCM

• Demand Based Management (DBM)• Seeks to fully synchronize marketing with SCM

• Agent-based Systems:• Rule-based entities, triggered by events• Run automatically• Objectives:

• Minimize Bullwhip effect. Increase efficiencies• Automate and increase speed of supply chain

Searches for optimization points

Searches for optimization points

26


Information Technology in SCM

ERP system can provide:

• Rapid optimization of the total supply chain

• Support ‘what-if’ functionality – to test the effect of possible events on the total supply chain

• Ability to adapt rapidly to unforeseen problems

• Flexible scheduling – allowing for more than the first-in-first-out (FIFO) approach adopted by most MRP systems

• Ability to provide accurate and flexible information about the supply chain characteristics

27


SCM Company example:SCM Company example:

28


SummarySummary

1. Definition: Supply Chain Management (SCM)

2. History, Performance Measures

3. SCM Example: Wal-Mart, Inc.

4. Wal-Mart SCM Vendor: Upper Deck, Inc.

5. Role of Operations Management in SCM

6. Leading Edge Operations Management Issues

7. Role of Managing Inventory in the Supply Chain

8. Importance of Information Technology (ERP)

9. Summary: strategic, tactical, operational levels

Documents

1 Supply Chain Management Professor Soheila Jorjani, Ph.D. June 22, 2002 Team: Barbara Sepich Amy Wheeler Tom Arant Shon Sloat Supply Chain Management