Chapter 1- Basic Concepts (1)

7/23/2019 Chapter 1- Basic Concepts (1)

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Supply Chain Management


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The way materialsflowthroughdifferent

organizationsfrom the raw materialsupplierto

the finished goodsconsumer.


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Flow of products and services from:

Raw materials manufacturers

Intermediate products manufacturers

End product manufacturersWholesalers and distributors and

Retailers

Connected by transportation and storageactivities

Integrated through information, planning, andintegration activities


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Supply

Chain forMilk

Products


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Supply Chain

A Supply Chain consists of all thepartiesinvolved,directly or indirectlyin fulfilling acustomer request for goods or services.

Each party is involved in variousfunctionsinvolved in receiving and fulfilling acustomers request


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2-8

New

Product

Development

Marketing

and

Sales

Operations Distribution Service

Finance, Accounting, Information Technology, Human Resources

e a ue a n: n agebeteen Supply Chain and

!ther "unctions


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Production:refers to the capacity of a supply chain

to make and store products.Key Production Decision Responsiveness VSEfficiency

Factories and Facilities with Excess Or Limited

capacities?Focuses on:

Customer & market demand

Resource Management

#Internal sourcing (what and which plants)

#Outsourcing to capable suppliers

Capacity Management


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Inventoryis spread throughout the supply chain and

includes everything from raw materialtowork in processtofinished goodsthat are held by themanufacturers,distributors, andretailersin a supply chain.

How Much Inventory and Where to Store It?

Reasons for holding inventory:

Cycle InventoryThis is the amount of inventory needed tosatisfy demand for the product in the period between

purchases of the product.


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Safety Inventorythat is held as a bufferagainst uncertainty.

Seasonal InventoryThis is inventory that isbuilt up in anticipation of predictable increases

in demand that occur at certain times of theyear

Analysis of fluctuations in demand

Identification of optimal storage locations insupport of customer demand

Identification of optimal storage locations in

support of customer demand


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Location:refers toStrategic placementofproduction plants,distributionandstockingfacilities

It is the geographical positioning /siting ofsupply chain facilities

Factors that relate to a given location including

the cost of facilities, the cost of labor, skillsavailable in the workforce, infrastructure

conditions, taxes and tariffs, and proximity to

suppliers and customers.


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Transportation:refers to movement ofeverythingfromraw material to finished goodsbetween differentfacilitiesin a supply chain

In transportation the trade-off between responsivenessand efficiency is manifested in the choice of transportmode.

Shipwhich is very cost efficient but also the slowestmode of transport

Railwhich is also very cost efficient but can be slow.

This mode is also restricted to use between locations

that are served by rail lines

Airplanesare a very fast mode of transport and are

very responsive.


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Pipelinescan be very efficient but are restricted tocommodities that are liquids or gases such as

water, oil, and natural gas

Trucks/Roadare a relatively quick and very flexible

mode of transport. Trucks can go almost anywhere.

Electronic Transportis the fastest mode of

transport and it is very flexible and cost efficient.

However, it can only be used for movement ofcertain types of products such as data, and

products composed of data such as music,

pictures, and text.


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Timely and accurate information holds the promiseof better coordination and better decision making.

Information is used for two purposes in any supplychain:

1.Coordinatingdaily activities related to thefunctioning of the other four supply chain drivers:

production; inventory; location; and transportation.

2.Forecasting and planning/Decision Makingto

anticipate and meet future demands.Obtaining, linking and leveraging informationacross the Supply Chain


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1.Producers

Raw materials, Intermediary Products, Finished

goods

2.Distributors:are companies that take

inventory in bulk from producers and deliver a

bundle of related product lines to customers

A distributor is typically an organization thattakes ownership of significant inventories of

products that they buy from producers and

sell to consumers


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A distributor can also be an organization that only

brokers a product between the producer and the

customer and never takes ownership of that

product

Distributors buffer the producers from fluctuations

in product demand by stocking inventory.

Perform Sales work and at times

Marketing/promotion / After Sales Services


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3.Wholesalers:stock a range of products fromseveral producers. The role of the wholesaler isto sell onto retailers. Wholesalers usuallyspecialize in particular products.

4.Franchises:are independent businesses thatoperate a branded product (usually a service) inexchange for a license fee and a share of sales.

5.Agents:sell the products and services ofproducers in return for a commission (apercentage of the sales revenues)


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6.Retailersoperate outlets that trade directly

with household customers. Retailers can be

classified in several ways:

Type of goods being sold( e.g. clothes, grocery,furniture)

Type of service (e.g. self-service, counter-service)

Size (e.g. corner shop; superstore)

Location (e.g. rural, city-centre, out-of-town)

Brand (e.g. nationwide retail brands; local one-

shop name)


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7.Customersorconsumersare any organization

that purchases and uses a product

A customer organization may purchase a product

in order to incorporate it into another product

that they in turn sell to other customers

A customer may be the final end user of aproduct who buys the product in order to

consume it.


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8.Service Providersare the organizations that

provide services to other participants which mayinclude:

Logistic Providers which provide transportationand warehousing services

Financial Service providers such as Banks,

collection agents, credit companies

Other service providers such as Marketing

Research companies, Advertising agencies,

engineers , legal consultants, HR consultants etc


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The design and management ofseamless,

value-added processacrossorganizational

boundaries to in order to minimize total system

cost and satisfy end customers


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Reliability

Responsiveness

Flexibility

Cost

Asset Management

ualit


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$ncreased Sales:# "aster to Market# $%pro&ed 'uality# Pricing "le(ibility

# $nno&ationLoer Total Cost:# )c*uisition Cost# Processing Cost# 'uality Cost# +onti%e Cost#

,isk Cost# Cycle Ti%e Cost# Con&ersion Cost# on-&alue )dded Cost# Supply Chain Cost# Post !nership Cost


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,eturn on$n&est%ents

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Total assets34///4///

Sales

54///4///

+i&ided by

Profit%argin

81

)sset turno&errate.025

Multiply

Cash6//4///

)ccountrecei&able6//4///

$n&entories5//4///

)ssets

Labor

7//4///

Materials246//4///

!&erhead

8//4///!peratingcostele%ents

5.54///9

64854///924.854///9./0619

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What if wedecreasematerials cost

by 5%?(or $115,000)

Sales54///4///

et inco%e3//4///

+i&ided by

"i(ed assets24;//4///

Current assets.4.//4///

Plus

!ther costs8//4///

Sales

54///4///

Cost of


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If the same profit increase were to be generatedby increasing sales, what sales increase wouldbe required?At the existing 8% profit margin, the followingcalculation provides the answer

Profit increase = new sales X .08

$115,000 = new sales X .08

new sales = $1,437,500

therefore..

($1,437,500 / $5,000,000) X 100 = 28.8%or a sales increase of 28.8% is required tomatch the profit increase generated by a 5%reduction in materials cost


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+ecision Phases of a SupplyChain

# Supply chain strategy or design# Supply chain planning

# Supply chain operation


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Push=Pull Vie of SupplyChains

Processes are divided into two categories,pull or push

Procurement,Manufacturing and

Replenishment cycles

Customer Order

Cycle

Customer

Order Arrives

PUSH PROCESSES

executed in anticipation

of a customer order

PU!! PROCESSES

executed in response to acustomer order


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Push=Pull Vie ofSupply Chain Processes

Supply chain processes fall into one of twocategories depending on the timing of theirexecution relative to customer demand

Pull: execution is initiated in response to acustomer order (reactive)

Push: execution is initiated in anticipation ofcustomer orders (speculative)

Push/pull boundary separates pushprocesses from pull processes


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Push=Pull Vie ofSupply Chain Processes

Useful in considering strategic decisionsrelating to supply chain design more global

view of how supply chain processes relate to

customer ordersCan combine the push/pull and cycle views

L.L. Bean (Figure 1.6)

Dell (Figures 1.7)

The relative proportion of push and pullprocesses can have an impact on supplychain performance


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>(a%ples of Supply Chains

Gateway

Zara

WW Grainger and McMaster-Carr: MRO suppliers*

Toyota

Amazon.com

How do these supply chains differ in terms of theirdesign? Where are the push/pull interfaces? How

does the location of these interfaces affect theirdesign?

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Chapter 1- Basic Concepts (1)