Chapter 10Extending the Organization Supply Chain Management
(SCM)10-*
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Learning OutcomesList and describe the components of a typical
supply chain
Describe the four factors driving supply chains
Summarize the best practices for implementing successful supply
chain management system
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Slide *SCM
Chain is a misleading word. Supply chain is a network.
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Slide *What Is a Supply Chain?Network of organizations and
facilitiesTransforms raw materials into products delivered to
customersWorks with companies and consumers up and down the
chainCustomers order from retailersRetailers order from
distributorsDistributors order from manufacturersManufacturers get
raw materials from suppliersTransportation companies, warehouses,
and inventories also involved
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Basics of Supply Chain
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Slide *Supply Chain RelationshipsFigure CE12-1
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Case: Nikes Supply Chain
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Slide *Sample Supply Chain: REICustomer is the only source of
revenue
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Supply Chain Management
Traditional SCM thinking involved I buy from my suppliers, I
sell to my customers.
Today, organizations gain value from having visibility
throughout their supply chain
Best Buy checks inventory levels at each of its 750 stores
across North America as often as every half-hour
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Slide *1. Share data and information to create visibility2.
Interact to match expectations3. Synchronize resources and
processes to perform as oneSupply chain managementMy
CompanyCustomersSuppliersOutsourcing Partner
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Basics of Supply ChainThe supply chain has three main links:
Materials flow from suppliers and their upstream suppliers at
all levelsTransformation of materials into semi-finished and
finished products through the organizations own production
processDistribution of products to customers and their downstream
customers at all levels
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5 SCM Components
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Plan This is the strategic portion of supply chain management. A
company must have a plan for managing all the resources that go
toward meeting customer demand for products or services. A big
piece of planning is developing a set of metrics to monitor the
supply chain so that it is efficient, costs less, and delivers high
quality and value to customers.Source Companies must carefully
choose reliable suppliers that will deliver goods and services
required for making products. Companies must also develop a set of
pricing, delivery, and payment processes with suppliers and create
metrics for monitoring and improving the relationships.Make This is
the step where companies manufacture their products or services.
This can include scheduling the activities necessary for
production, testing, packaging, and preparing for delivery. This is
by far the most metric-intensive portion of the supply chain,
measuring quality levels, production output, and worker
productivity.Deliver This step is commonly referred to as
logistics. Logistics is the set of processes that plans for and
controls the efficient and effective transportation and storage of
supplies from suppliers to customers. During this step, companies
must be able to receive orders from customers, fulfill the orders
via a network of warehouses, pick transportation companies to
deliver the products, and implement a billing and invoicing system
to facilitate payments.Return This is typically the most
problematic step in the supply chain. Companies must create a
network for receiving defective and excess products and support
customers who have problems with delivered products.
Basics of Supply Chain
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Information Technologys Role in the Supply ChainFactors Driving
SCM
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VisibilitySupply chain visibility the ability to view all areas
up and down the supply chain in real time
Bullwhip effect occurs when distorted product demand information
passes from one entity to the next throughout the supply chain-
More appears at the end of this presentation
Supply chain visibility allows organizations to eliminate the
bullwhip effect
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Consumer BehaviorCompanies can respond faster and more
effectively to consumer demands through supply chain enhances
Demand planning software generates demand forecasts using
statistical tools and forecasting techniques
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Competition
Supply chain planning (SCP) software uses advanced mathematical
algorithms to improve the flow and efficiency of the supply chain
while reducing inventory.
Supply chain execution (SCE) software automates the different
steps and stages of the supply chain
SCP and SCE both increase a companys ability to compete
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CompetitionSCP and SCE in the supply chain
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SpeedWhy is information speed critical in a supply chain?If the
information arrives three days late, chances are high that managers
have already made decisions based on current information that might
have been inaccurateInformation timeliness is criticalIT is an
enabler of information timelinessDigital dashboards
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Increased outsourcingLarge global supply networksIncreased
competitionConsumer drivenTodays Supply Chain RealityLack of
visibility reduces suppliers ability to handle variabilityErrors in
manual filling processes can cause stock-outsAll of these issues
can increase costs, lower customer service and reduce revenue
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Case Study: Dells SCMDell sells its computer systems directly to
end customers, bypassing distributors and retailers (resellers).
Dell's supply chain consists of only three stages the suppliers,
the manufacturer (Dell), and end users.
Dells direct contact with customers allows it to:
properly identify market segments, analyze the requirements and
profitability of each segment, and develop more accurate demand
forecasts.
Another Dells advantage is that it is able to get the customers
requirements regarding software to be loaded
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Supply Chain Management Success FactorsSCM industry best
practices include:Be sure suppliers are on board with the SCM
benefits Wean employees off traditional business practicesEnsure
the SCM system supports the organizational goalsBe future oriented-
scale to meet future demands
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SCM Success StoriesTop reasons why more and more executives are
turning to SCM to manage their extended enterprises
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SCM Success Stories
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The Bullwhip EffectThe bullwhip effect occurs when distorted
product demand information passes from one entity to the next
throughout the supply chain.
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The Bullwhip EffectThe bullwhip effect is the magnification of
demand fluctuations, not the magnification of demand. The bullwhip
effect is evident in a supply chain when demand increases and
decreases. The effect is that these increases and decreases are
exaggerated up the supply chain.
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Example: DiapersBabies use diapers at a very predictable rate,
and retail sales resemble this fact. Information is readily
available concerning the number of babies in all stages of diaper
wearing. It is observed that this product with uniform demand
created a wave of changes up the supply chain due to very minor
changes in demand.
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The Bullwhip EffectExample: Diaper order from retailer:
Retailer waits until the inventory falls below ceratin level and
then reorder + a few moreThe same process applied to distributors
and also to the manufacturerSmall change in demand is amplified at
each stage of SC and becomes quite large at the end of the chain
creating a ripple effect.
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The Bullwhip Effect
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The Bullwhip EffectIt can be seen that the Distributor orders to
the factory experience demand fluctuate far more drastically than
the retail demand.
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The Bullwhip Effect
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Some reasons for the effectOver-reacting to the backlog orders.
Little or no communication between supply chain partners. Delay
times between order processing, demand, and receipt of products.
Limitations on order size (i.e. retailers can order products in
cases of 10 from wholesaler; however, distributors receive orders
in cases of 1,000) Inaccurate demand forecasts.
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Solution to Bullwhip EffectImplement an effective SCM for
greater visibility across the supply chain
Eliminate effect by giving participants access to
consumer-demand information
Interorganizational information systems share data
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RFID tag & SCMRadio Frequency IdentificationTiny tags that
carry large amount of data trackingSupply Chain around the globe
are being revamped with RFID tags.Walmart (US) has been using this
for several years [cost 40 cents per tag]
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RFID IBM COMMERCIAL
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Demo
Bullwhip Fun Demo
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SCM Demos
Supply Chain Management For A Better World
Information Technology in Wal-Mart
Xbox supply chain (4 min)
Supply Chain Case Study ( 9 Min)
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SAP- SCM DemoSAP SCM Demo
RFID Supply Chain Simulation Movie
*CLASSROOM OPENERGREAT BUSINESS DECISIONS Michael Dell Decides
to Sell PCs Directly to Consumers and Built-to-OrderMichael Dell
decided that to be successful in the PC business and to gain a
significant competitive advantage he would bypass the dealer
channel through which personal computers were being sold. Dell
developed and deployed their own channel for manufacturing and
selling PCs. This personal channel eliminated the reseller markups
and large inventory expenses and allowed Dell to operate with lower
costs than anyone in the industry, which led to higher profit
margins.Michael Dell understood that consumers were getting smarter
and that customer service abilities were becoming more
sophisticated. Beginning with telephone sales, and then moving to
Internet sales, Dell bypassed retailers and targeted corporate
accounts. Dell understood that tailoring products to meet specific
requirements of large accounts could be accomplished not only more
cheaply, but also more effectively without an intermediary. Dell
boasts sales of $12.3 billion and is the worlds number one
direct-sales computer vendor. The companys Web site currently
generates over half of its orders. Everybody in the industry is
trying to imitate Dells strategy.*10.1 List and describe the
components of a typical supply chainThe components of a typical
supply chain include:Suppliers supplier, Supplier, Manufacturer,
Distributor, Retailer, Customer, Customers Customer10.2 Define the
relationship between decision making and supply chain managementSCM
enhances decision making. Collecting, analyzing, and distributing
transactional information to all relevant parties, SCM systems help
all the different entities in the supply chain work together more
effectively. SCM systems provide dynamic holistic views of
organizations. Users can drill down into detailed analyses of
supply chain activities in a process analogous to DSS. Without SCM
systems, organizations would be unable to make accurate and timely
decisions regarding their supply chain. 10.3 Describe the four
changes resulting from advances in IT that are driving supply
chainsAlthough people have been talking about the integrated supply
chain for a long time, it has only been recently that advances in
information technology have made it possible to bring the idea to
life and truly integrate the supply chain. Visibility, consumer
behavior, competition, and speed are a few of the changes resulting
from advances in information technology that are driving supply
chains10.4 Summarize the best practices for implementing a
successful supply chain management systemThe following are the SCM
industry best practices:Make the sale to suppliers - A large part
of any SCM system extends beyond the organization to the suppliers.
Since the organization has very little control over anything
external to itself, these pieces are typically the most
complicated. Be sure suppliers are on board with the benefits that
the SCM system will provide to ease SCM implementation
difficulties.Wean employees off traditional business practices - If
the organization cannot convince people that using the SCM software
is worthwhile, the employees will probably find a way around using
the software. Ensure the SCM system supports the organizational
goals - Be sure to select SCM software that supports organizational
goals and strategiesDeploy in Incremental phases and measure and
communicate success - Designing the deployment of the SCM system in
incremental phases is the most successful deployment method. The
BIG BANG approach implementing everything at once fails 90 percent
of the time.Be future oriented - An SCM system, like all systems,
must scale to meet future demands. *******This chapter takes a look
at extending an organization through SCM and discusses:The reasons
for SCMs explosive growthUsing SCM to enhance decision makingSCM
success factors
Traditional SCM thinking involved I buy from my suppliers, I
sell to my customers. Today, organizations are quickly realizing
the tremendous value they can gain from having visibility
throughout their supply chainKnowing immediately what is
transacting at the customer end of the supply chain, instead of
waiting days or weeks for this information to flow upstream, allows
the organization to react immediatelyBest Buy checks inventory
levels at each of its 750 stores across North America as often as
every half-hour
**Collecting, analyzing, and distributing transactional
information to all relevant parties, SCM systems help all the
different entities in the supply chain work together more
effectivelySCM has significantly improved companies forecasting
abilities over the last few yearsBusinesses today have access to
modeling and simulation tools, algorithms, and applications that
can combine information from multiple sources to build forecasts
for days, weeks, and months in advance
*Best Buy checks inventory levels at each of its 750 stores in
North America as often as every half-hour with its SCM system,
taking much of the guesswork out of inventory replenishmentSupply
chain management improves ways for companies to find the raw
components they need to make a product or service, manufacture that
product or service, and deliver it to customersPlan This is the
strategic portion of supply chain management. A company must have a
plan for managing all the resources that go toward meeting customer
demand for products or services. A big piece of planning is
developing a set of metrics to monitor the supply chain so that it
is efficient, costs less, and delivers high quality and value to
customers.Source Companies must carefully choose reliable suppliers
that will deliver goods and services required for making products.
Companies must also develop a set of pricing, delivery, and payment
processes with suppliers and create metrics for monitoring and
improving the relationships.Make This is the step where companies
manufacture their products or services. This can include scheduling
the activities necessary for production, testing, packaging, and
preparing for delivery. This is by far the most metric-intensive
portion of the supply chain, measuring quality levels, production
output, and worker productivity.Deliver This step is commonly
referred to as logistics. Logistics is the set of processes that
plans for and controls the efficient and effective transportation
and storage of supplies from suppliers to customers. During this
step, companies must be able to receive orders from customers,
fulfill the orders via a network of warehouses, pick transportation
companies to deliver the products, and implement a billing and
invoicing system to facilitate payments.Return This is typically
the most problematic step in the supply chain. Companies must
create a network for receiving defective and excess products and
support customers who have problems with delivered products.
**Information technology only recently have advances in IT made
it possible to bring the idea of a truly integrated supply chain to
lifeVisibility more visible models of different ways to do things
in the supply chain have emerged. High visibility in the supply
chain is changing industries, as Wal-Mart demonstratedConsumer
behavior companies must respond to demanding customers through
supply chain enhancementsCompetition increased competition makes
any organization that is ignoring its supply chain at risk of
becoming obsoleteSpeed as the pace of business increases through
electronic media, an organization's supply chain must respond
efficiently, accurately, and quickly*Visibility more visible models
of different ways to do things in the supply chain have emerged.
High visibility in the supply chain is changing industries, as
Wal-Mart demonstratedSupply chain visibility allows organizations
to eliminate the bullwhip effectTo explain the bullwhip effect to
your students discuss a product that demand does not change, such
as diapers. The need for diapers is constant, it does not increase
at Christmas or in the summer, diapers are in demand all year long.
The number of newborn babies determines diaper demand, and that
number is constant.Retailers order diapers from distributors when
their inventory level falls below a certain level, they might order
a few extra just to be safeDistributors order diapers from
manufacturers when their inventory level falls below a certain
level, they might order a few extra just to be safeManufacturers
order diapers from suppliers when their inventory level falls below
a certain level, they might order a few extra just to be
safeEventually the one or two extra boxes ordered from a few
retailers becomes several thousand boxes for the manufacturer. This
is the bullwhip effect, a small ripple at one end makes a large
wave at the other end of the whip.
*Once an organization understands customer demand and its effect
on the supply chain it can begin to estimate the impact that its
supply chain will have on its customers and ultimately the
organizations performance*SCP and SCE both increase a companys
ability to competeSCP depends entirely on information for its
accuracySCE can be as simple as electronically routing orders from
a manufacturer to a supplier**Why is information speed critical in
a supply chain?If the information arrives three dates late, chances
are high that managers have already made decisions based on current
information that might have been inaccurateInformation timeliness
is criticalIT is an enabler of information timeliness
CLASSROOM EXERCISEDesigning a Digital Dashboard for an SCM
SystemDigital dashboards offer an effective and efficient way to
view enterprisewide information at near real-time. According to
Nucleus Research, there is a direct correlation between use of
digital dashboards and a companys return on investment (ROI), hence
all executives should be using or pushing the development of
digital dashboards to monitor and analyze organizational
operations.Break your students into groups and ask them to develop
a digital dashboard for the CEO of a transportation company. Be
sure your students have addressed all of the following in their
digital dashboard:InventoryMaterialsDemand/SupplySalesSuppliers
supplierSupplierManufacturerDistributorRetailerCustomerCustomers
Customer***Studying industry best practices is an excellent way to
improve SCM implementation successA large part of any SCM system
extends beyond the organization to the suppliers. Since the
organization has very little control over anything external to
itself, these pieces are typically the most complicated to build,
develop, and implement. Be sure suppliers are on board with the
benefits that the SCM system will provide to ease SCM
implementation difficultiesIf the organization cannot convince
people that using the SCM software is worthwhile, the employees
will probably find a way to continue performing their job without
using the softwareBe sure to select SCM software that supports
organizational goals and strategiesDesigning the deployment of the
SCM system in incremental phases is the most successful deployment
method. The BIG BANG approach implementing everything all at once
fails 90 percent of the timeAn SCM system, like all systems, must
scale to meet future demands**CLASSROOM EXERCISEDriving SCMBreak
your students into groups and ask them to research each of the
above companies and how they are using SCM to drive their business
operationsHave your students present their findings to the
class**********
