Operations ManagementOperations ManagementContemporary Concepts and CasesContemporary Concepts and Cases

Chapter TenChapter TenSupply Chain ManagementSupply Chain Management

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Chapter Ten OutlineChapter Ten Outline

Supply Chain & Supply Chain ManagementSupply Chain & Supply Chain Management

Purchasing and LogisticsPurchasing and Logistics

Measuring Supply Chain PerformanceMeasuring Supply Chain Performance

Supply Chain Dynamics—the Bullwhip EffectSupply Chain Dynamics—the Bullwhip Effect

Improving Supply Chain PerformanceImproving Supply Chain Performance

Supply Chain Structural ImprovementsSupply Chain Structural Improvements

Supply Chain Infrastructural ImprovementsSupply Chain Infrastructural Improvements

Technology and Supply Chain ManagementTechnology and Supply Chain Management

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Supply ChainSupply Chain

The set of entities and relationships that The set of entities and relationships that cumulatively define materials and information cumulatively define materials and information flows both flows both downstreamdownstream toward the customer and toward the customer and upstreamupstream toward the very first supplier. toward the very first supplier.

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Supply Chain ManagementSupply Chain Management

““The design and management of seamless, The design and management of seamless, value-added processes across organizational value-added processes across organizational boundaries to meet the real needs of the end boundaries to meet the real needs of the end customer.”customer.”

--Institute for Supply Management--Institute for Supply Management

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A Typical Supply ChainA Typical Supply Chain

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Suppliers’Supplier

Supplier

Plan

Customer Customer’sCustomer

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver

Internal or External Internal or External

Your Company

Source

SCOR ModelSCOR Model

Return Return ReturnReturn Return Return Return Return

Building Block Approach

SCOR = Supply Chain Operations Reference-model

SCOR is founded on five distinct SCOR is founded on five distinct management processesmanagement processes

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Purchasing and LogisticsPurchasing and Logistics

The purchasing function: sources inputs into The purchasing function: sources inputs into the transformation process of the firm from the transformation process of the firm from other for-profit and nonprofit organizationsother for-profit and nonprofit organizations– Global sourcingGlobal sourcing

The logistics function: typically responsible The logistics function: typically responsible for the actual movement and storage of goods for the actual movement and storage of goods across organizations in a supply chainacross organizations in a supply chain– Reverse logisticsReverse logistics

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Measuring Supply Chain Measuring Supply Chain Performance (1)Performance (1)

DeliveryDelivery– On time delivery of entire ordersOn time delivery of entire orders– Fill rateFill rate– Lead timeLead time

QualityQuality– Product or service performanceProduct or service performance– Conformance to specificationsConformance to specifications– Customer satisfactionCustomer satisfaction

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Measuring Supply Chain Measuring Supply Chain Performance (2)Performance (2)

FlexibilityFlexibility– Time to change volume of output by a fixed amountTime to change volume of output by a fixed amount– Time it takes to change the mix of products or Time it takes to change the mix of products or

services deliveredservices delivered

TimeTime– Total throughput timeTotal throughput time– Cash to cash cycleCash to cash cycle

Days in inventory + days in accts receivable - days in Days in inventory + days in accts receivable - days in accounts payableaccounts payable

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Measuring Supply Chain Measuring Supply Chain Performance (3)Performance (3)

CostCost– Materials and componentsMaterials and components– Fabrication and assemblyFabrication and assembly– LogisticsLogistics

WIP among supply chain membersWIP among supply chain members

Finished goods to the customerFinished goods to the customer

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System Dynamics in Supply ChainsSystem Dynamics in Supply Chains

Supply chain is a highly interactive system. Supply chain is a highly interactive system. Decisions in each part of the chain affect the Decisions in each part of the chain affect the other parts.other parts.There is an There is an accelerator (bullwhip) effectaccelerator (bullwhip) effectEven with perfect information, replenishment Even with perfect information, replenishment lead times lead to an accelerator effect.lead times lead to an accelerator effect.The best way to improve a supply chain is to The best way to improve a supply chain is to reduce the total replenishment time and to feed reduce the total replenishment time and to feed back actual demand information to all levels.back actual demand information to all levels.

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Improving Supply Chain Improving Supply Chain PerformancePerformance

Basic Ways to Improve Supply Chain Structure:Basic Ways to Improve Supply Chain Structure:– Change structureChange structure

Capacity, Facilities, Process technology, Vertical Capacity, Facilities, Process technology, Vertical integrationintegration

– Change infrastructureChange infrastructurePeople, Information systems, Organization, Production People, Information systems, Organization, Production and inventory control, Quality control systemsand inventory control, Quality control systems

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Supply Chain Structural Supply Chain Structural ImprovementsImprovements

Forward and Backward integrationForward and Backward integration

Major process simplificationMajor process simplification

Changing the configuration of factories, Changing the configuration of factories, warehouses, or retail locationswarehouses, or retail locations

Major product redesignMajor product redesign

Working with third-party logistics providersWorking with third-party logistics providers

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Supply Chain Infrastructure Supply Chain Infrastructure ImprovementsImprovements

Cross-functional teamsCross-functional teams

Partnerships with suppliers and customersPartnerships with suppliers and customers

Set-up time reduction to reduce lot sizesSet-up time reduction to reduce lot sizes

Integrated information systemsIntegrated information systems

Cross-docking—keeps goods out of Cross-docking—keeps goods out of warehouseswarehouses

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Technology and SCMTechnology and SCMGrowth of e-commerceGrowth of e-commerce– B2B (business-to-business)B2B (business-to-business)– B2C (business-to-consumer)B2C (business-to-consumer)

Fundamental processes in supply chains:Fundamental processes in supply chains:– Order placementOrder placement

Information before order is enteredInformation before order is entered

Actual order entryActual order entry

– Order fulfillmentOrder fulfillmentDirect link to internal operations & suppliersDirect link to internal operations & suppliers

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Processes for e-Procurement (Figure 10.6)Processes for e-Procurement (Figure 10.6)

Requirement Selection Requisition Approval

REQUEST

Requisition Source Negotiate Contract

BUY

ConfirmProcessOrder

Ship Invoice

SUPPLY

Receive Deliver Match Pay

PAYMENT

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Types of e-procurementTypes of e-procurement

On-line catalogs listing products, prices, etc.On-line catalogs listing products, prices, etc.

Third-part auctions—reverse auctionsThird-part auctions—reverse auctions

Private exchanges to connect suppliersPrivate exchanges to connect suppliers

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Problems with e-procurementProblems with e-procurement

Too much focus on technology; not enough on Too much focus on technology; not enough on systemssystems

Insufficient concern about joint value Insufficient concern about joint value propositions so that both partners benefitpropositions so that both partners benefit

Fragmented efforts within and across Fragmented efforts within and across companiescompanies

Record accuracy and data issuesRecord accuracy and data issues

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SummarySummarySupply Chain & Supply Chain ManagementSupply Chain & Supply Chain Management

Purchasing and LogisticsPurchasing and Logistics

Measuring Supply Chain PerformanceMeasuring Supply Chain Performance

Supply Chain Dynamics—the Bullwhip EffectSupply Chain Dynamics—the Bullwhip Effect

Improving Supply Chain PerformanceImproving Supply Chain Performance

Supply Chain Structural ImprovementsSupply Chain Structural Improvements

Supply Chain Infrastructural ImprovementsSupply Chain Infrastructural Improvements

Technology and Supply Chain ManagementTechnology and Supply Chain Management

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End of Chapter Ten