11-1

Supply Chain ManagementSupply Chain Management

Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.

Sometimes referred to as Sometimes referred to as value chainsvalue chains

11-2

Supply-Chain Management Supply-Chain Management DefinedDefined

Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together.

Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.

11-3

Supply Chain Management Supply Chain Management (SCM)(SCM)

Definition: Philosophy that describes how organizations should manage their various supply chains to achieve strategic advantage

11-4

Supply Chain Management Supply Chain Management (SCM)(SCM)

Objective: Synchronize requirements of the final customer with flow of materials and information along the supply chain to reach a balance between high customer satisfaction/service and cost.

11-5

The Supply ChainThe Supply Chain

ExternalSuppliers

ExternalSuppliers

ExternalSuppliers

InternalSuppliers

InternalSuppliers

Information

Supplier Network Manufacturing Unit

Distribution Center

RetailerTransformation Processes

Raw Material& Component Inventories

Work-in- ProcessInventories

Finished GoodsInventories

Customer Network

Distribution Center

Retailer

Retailer

U l t i m

a t eC

u s t o m e r s

11-6

Warehouses Factories Processing centers Distribution centers Retail outlets Offices

FacilitiesFacilities

11-7

Functions and ActivitiesFunctions and Activities

Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service

11-8

Typical Supply ChainsTypical Supply Chains

Purchasing Receiving Storage Operations Storage

Production Distribution

11-9

Typical Supply Chain for a Typical Supply Chain for a ManufacturerManufacturer

Supplier

Supplier

Supplier

Storage} Mfg. Storage Dist. Retailer Customer

Figure 11.1a

11-10

Supplier

Supplier

} Storage Service Customer

Typical Supply Chain for a Typical Supply Chain for a ServiceServiceFigure 11.1b

11-11

1.Improve operations

2.Increasing levels of outsourcing

3.Increasing transportation costs

4.Competitive pressures

5.Increasing globalization

6.Increasing importance of e-commerce

7.Complexity of supply chains

8.Manage inventories

Need for Supply Chain Need for Supply Chain ManagementManagement

11-12

Bullwhip EffectBullwhip EffectFigure 16.3

Final CustomerInitialSupplier

Demand

Inventory oscillations become progressivelylarger looking backward through the supply chain

11-13

Benefits of Supply Chain Benefits of Supply Chain ManagementManagement

Organization Benefit

Campbell Soup Doubled inventory turnover rate

Hewlett-Packard Cut supply costs 75%

Sport Obermeyer Doubled profits and increased sales 60%

National Bicycle Increased market share from 5% to 29%

Wal-Mart Largest and most profitable retailer in the world

11-14

Benefits of Supply Chain ManagementBenefits of Supply Chain Management

Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty Integrates separate organizations into a

cohesive operating system

11-15

Global Supply ChainsGlobal Supply Chains

Increasing more complex Language Culture Currency fluctuations Political Transportation costs Local capabilities Finance and economics Environmental

11-16

Elements of Supply Chain Elements of Supply Chain ManagementManagement

Deciding how to best move and store materialsLogistics

Determining location of facilitiesLocation

Monitoring supplier quality, delivery, and relationsSuppliers

Evaluating suppliers and supporting operationsPurchasing

Meeting demand while managing inventory costsInventory

Controlling quality, scheduling workProcessing

Incorporating customer wants, mfg., and timeDesign

Predicting quantity and timing of demandForecasting

Determining what customers wantCustomers

Typical IssuesElement

Table 11.1

11-17

Strategic or OperationalStrategic or Operational

Two types of decisions in supply chain management Strategic – design and policy Operational – day-today activities

Major decisions areas Location Production Inventory Distribution

11-18

Logistics Refers to the movement of materials and

information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain

LogisticsLogistics

11-19

LogisticsLogistics

• Movement within the facility

• Incoming and outgoing shipments

• Bar coding

• EDI

• Distribution

• JIT Deliveries

0

214800 232087768

11-20

Materials MovementMaterials MovementFigure 11.4

RE

CE

IVIN

G

Storage

Workcenter

Work centerWork center

Storage

Workcenter

Storage

Shipping

11-21

Distribution requirements planning (DRP) is a system for inventory management and distribution planning

Extends the concepts of MRPII

Distribution Requirements Distribution Requirements PlanningPlanning

11-22

Management uses DRP to plan and coordinate: Transportation Warehousing Workers Equipment Financial flows

Uses of DRPUses of DRP

11-23

E-Business: the use of electronic technology to facilitate business transactions

Applications include Internet buying and selling E-mail Order and shipment tracking Electronic data interchange

E-BusinessE-Business

11-24

Companies can: Have a global presence Improve competitiveness and quality Analyze customer interests Collect detailed information Shorten supply chain response times Realize substantial cost savings Create virtual companies Level the playing field for small companies

Advantages E-BusinessAdvantages E-Business

11-25

Customer expectations

Order quickly -> fast delivery

Order fulfillment

Order rate often exceeds ability to fulfill it

Inventory holding

Outsourcing loss of control

Internal holding costs

Disadvantages of E-BusinessDisadvantages of E-Business

11-26

Reverse LogisticsReverse Logistics

Reverse logistics – the backward flow of goods returned to the supply chain

Processing returned goods Sorting, examining/testing, restocking, repairing Reconditioning, recycling, disposing

Gatekeeping – screening goods to prevent incorrect acceptance of goods

Avoidance – finding ways to minimize the number of items that are returned

11-27

Effective Supply ChainEffective Supply Chain

Requires linking the market, distribution channels processes, and suppliers

Supply chain should enable members to: Share forecasts Determine the status of orders in real time Access inventory data of partners

11-28

Successful Supply ChainSuccessful Supply Chain

Trust among trading partners

Effective communications

Supply chain visibility

Event-management capability

The ability to detect and respond to unplanned events

Performance metrics

11-29

SCOR MetricsSCOR Metrics

Perspective Metrics

Reliability On-time deliveryOrder fulfillment lead timeFill rate (fraction of demand met from stock)Perfect order fulfillment

Flexibility Supply chain response timeUpside production flexibility

Expenses Supply chain management costsWarranty cost as a percent of revenueValue added per employee

Assets/utilization Total inventory days of supplyCash-to-cash cycle timeNet asset turns

Table 11.4

11-30

RFID TechnologyRFID Technology

Used to track goods in supply chain RFID tag attached to object Similar to bar codes but uses radio frequency

to transmit product information to receiver RFID eliminates need for manual counting

and bar code scanning

11-31

1.Develop strategic objectives and tactics

2.Integrate and coordinate activities in the internal supply chain

3.Coordinate activities with suppliers with customers

4.Coordinate planning and execution across the supply chain

5.Form strategic partnerships

Creating an Effective Supply Creating an Effective Supply ChainChain

11-32

Supply Chain Performance DriversSupply Chain Performance Drivers

1.Quality

2.Cost

3.Flexibility

4.Velocity

5.Customer service

11-33

VelocityVelocity

Inventory velocity

The rate at which inventory(material) goes through the supply chain

Information velocity

The rate at which information is communicated in a supply chain

11-34

Barriers to integration of organizations

Getting top management on board

Dealing with trade-offs

Small businesses

Variability and uncertainty

Long lead times

ChallengesChallenges

11-35

1.Lot-size-inventory Bullwhip effect

2. Inventory-transportation costs Cross-docking

3.Lead time-transportation costs

4.Product variety-inventory Delayed differentiation

5.Cost-customer service Disintermediation

Trade-offsTrade-offs

11-36

Trade-offsTrade-offs

Bullwhip effect

Inventories are progressively larger moving backward through the supply chain

Cross-docking

Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks

Avoids warehouse storage

11-37

Trade-offsTrade-offs

Delayed differentiation

Production of standard components and subassemblies, which are held until late in the process to add differentiating features

Disintermediation

Reducing one or more steps in a supply chain by cutting out one or more intermediaries

11-38

Supply Chain IssuesSupply Chain Issues

Quality controlProduction planning and control

Inventory policiesPurchasing policiesProduction policiesTransportation policiesQuality policies

Design of the supply chain, partnering

Operating IssuesTactical IssuesStrategic Issues

11-39

Supply Chain Benefits and Supply Chain Benefits and DrawbacksDrawbacks

Problem PotentialImprovement

Benefits PossibleDrawbacks

Large inventories

Smaller, more frequent deliveries

Reduced holding costs

Traffic congestionIncreased costs

Long lead times

Delayed differentiationDisintermediation

Quick response May not be feasibleMay need absorb functions

Large number of parts

Modular Fewer partsSimpler ordering

Less variety

CostQuality

Outsourcing Reduced cost, higher quality

Loss of control

Variability Shorter lead times, better forecasts

Able to match supply and demand

Less variety

Table 11.5