Supply Chain ManagementAnd E-Business

INTRODUCTION Materials - any commodities used directly or

indirectly in producing a product or service. Raw materials, component parts, assemblies,

finished goods, and supplies Supply chain - the way materials flow

through different organizations from the raw material supplier to the finished goods consumer.

SUPPLY CHAINFOR STEEL IN AN AUTOMOBILE DOOR

MININGMININGCOMPANYCOMPANY

Mines iron oreMines iron ore

STEELSTEELMILLMILL

Forms steel ingotForms steel ingot

STEELSTEELCOMPANYCOMPANY

Forms sheet metalForms sheet metal

IronIronoreore

SteelSteelingotsingots

AUTOMOTIVEAUTOMOTIVESUPPLIERSUPPLIER

Makes doorMakes door

AUTOMOBILEAUTOMOBILEMANUFACTURERMANUFACTURER

Makes automobileMakes automobile

CARCARDEALERSHIPDEALERSHIP

Does preparationDoes preparation

CarCardoordoor

CarCar

FINALFINALCONSUMERCONSUMER

Drives automobileDrives automobile

PreparedPreparedcarcar

SheetSheetmetalmetal

SUPPLY CHAIN MANAGEMENT Refers to all the management functions

related to the flow of materials from the company’s direct suppliers to its direct customers.

Includes purchasing, traffic, production control, inventory control, warehousing, and shipping.

Two alternative names: Materials management Logistics management

SUPPLY CHAIN MANAGEMENTIN A MANUFACTURING PLANT

ReceivingReceivingandand

InspectionInspection

RawRawMaterials,Materials,Parts, andParts, andIn-processIn-process

Ware-Ware-HousingHousing

ProductionProduction

FinishedFinishedGoodsGoodsWare-Ware-

housinghousing

Inspection,Inspection,Packaging,Packaging,

AndAndShippingShippingSu

pplie

rs

Cus

tom

ers

Materials Management

PurchasingPurchasing ProductionProductionControlControl

Warehousing andWarehousing andInventory ControlInventory Control

ShippingShippingand Trafficand Traffic

Physical materials flowPhysical materials flowInformation flowInformation flow

PURCHASINGFactors increasing the importance of purchasing

today: Tremendous impact of material costs on profit (60-

70% of each sales dollar is paid to material suppliers)

Popularity of just-in-time manufacturing (supply deliveries must be exact in timing, quantity, and quality)

Increasing global competition (growing competition for scarce resources, and a geographically “stretched-out” supply chain)

MISSION OF PURCHASING Develop purchasing plans for each major

product or service that are consistent with operations strategies: Low production costs Fast and on-time deliveries High quality products and services Flexibility

PURCHASING MANAGEMENT Maintain data base of available, qualified

suppliers Select suppliers to supply each material Negotiate contracts with suppliers Act as interface between company and

suppliers Provide training to suppliers on latest

technologies

ADVANTAGES OF CENTRALIZED PURCHASING Buying in large quantities - better prices More clout with suppliers - greater supply

continuity Larger purchasing department - buyer

specialization Combining small orders - less order cost

duplication Combining shipments - lower transportation

costs Better overall control

PURCHASING PROCESSMaterial RequisitionMaterial Requisition

Request for QuotationsRequest for Quotations

Select Best SupplierSelect Best Supplier

Purchase OrderPurchase Order

Receive and Inspect GoodsReceive and Inspect Goods

From purchasing, From purchasing, to potential suppliersto potential suppliers

From any department,From any department,to purchasingto purchasing

Based on quality, price, Based on quality, price, lead time, dependabilitylead time, dependability

From purchasing, From purchasing, to selected supplierto selected supplier

From supplier, to receiving,From supplier, to receiving,quality control, warehousequality control, warehouse

BUYERS’ DUTIES Know the market for their commodities Understand the laws.... tax, contract, patent..

… Process purchase requisitions and quotation

requests Make supplier selections Negotiate prices and conditions of sale Place and follow-up on purchase orders Maintain ethical behavior

MAKE-OR-BUY ANALYSISConsiderations in make-or-buy decisions: Lower cost - purchasing or production? Better quality - supplier or in-house? More-reliable deliveries - supplier or in-

house? What degree of vertical integration is

desirable? Should distinctive competencies be

outsourced?

LOGISTICS Logistics usually refers to management of:

the movement of materials within the factory the shipment of incoming materials from

suppliers the shipment of outgoing products to customers

MOVEMENT OF MATERIALS WITHIN FACTORIES

Incoming Incoming VehiclesVehicles

ReceivingReceivingDockDock

QualityQualityControlControl WarehouseWarehouse

Work Work CenterCenter

Other Work Other Work CentersCenters PackagingPackaging FinishedFinished

GoodsGoods

ShippingShipping ShippingShippingDockDock

OutgoingOutgoingVehiclesVehicles

The typical locations from/to which material is moved:The typical locations from/to which material is moved:

SHIPMENTS TO AND FROM FACTORIES Traffic

Traffic departments routinely examine shipping schedules and select: shipping methods time tables ways of expediting deliveries

Traffic management is a specialized field requiring technical training in Department of Transportation (DOT) and Interstate Commerce Commission (ICC) regulations and rates.

SHIPMENTS TO AND FROM FACTORIES Distribution

Distribution, or physical distribution, is the shipment of finished goods through the distribution system to customers.

A distribution system is the network of shipping and receiving points starting with the factory and ending with the customers.

SHIPMENTS TO AND FROM FACTORIES Distribution Requirements Planning

DRP is the planning for the replenishment of regional warehouse inventories.

DRP uses MRP-type logic to translate regional warehouse requirements into central distribution-center requirements, which are then translated into gross requirements in the MPS at the factory.

SHIPMENTS TO AND FROM FACTORIES Distribution Requirements Planning

Scheduled receipts are previously-placed orders that are expected to arrive in a given week

Planned receipt of shipments are orders planned, but not yet placed, for the future

Projected ending inventory is computed as: Previous week’s projected ending inventory + Planned receipt of shipments in current week + Scheduled receipt of shipments in current week -- Forecasted demand in current week

Shipments To and From FactoriesShipments To and From Factories

Distribution Resource PlanningDistribution Resource Planning Distribution resource planningDistribution resource planning extends DRP so extends DRP so

that the key resources of warehouse space, that the key resources of warehouse space, workers, cash, and vehicles are provided in the workers, cash, and vehicles are provided in the correct quantities at the correct times.correct quantities at the correct times.

ANALYZING SHIPPING DECISIONS The “Transportation Problem”

Problem involves shipping a product from several sources (ex. factories) with limited supply to several destinations (ex. warehouses) with demand to be satisfied

Per-unit cost of shipping from each source to each destination is specified

Optimal solution minimizes total shipping cost and specifies the quantity of product to be shipped from each source to each destination

INNOVATIONS IN LOGISTICS New developments affecting logistics

include: All-freight airports Inter-modal shipping In-transit rates Consolidated shipments Air-freight and trucking deregulation Advanced logistics software

WAREHOUSING Warehousing is the management of materials

while they are in storage. Warehousing activities include:

Storing Dispersing Ordering Accounting

WAREHOUSING Record keeping within warehousing requires

a stock record for each item that is carried in inventories.

The individual item is called a stock-keeping unit (SKU).

Stock records are running accounts that show: On-hand balance Receipts and expected receipts Disbursements, promises, and allocations

INVENTORY ACCOUNTING In the past, inventory accounting was based on:

periodic inventory accounting systems -- periodic (end-of-day) updating of inventory records

physical inventory counts -- periodic (end-of-year) physical counting of all SKUs at one time

Today, more and more firms are using: perpetual inventory accounting systems -- real-time

updating of records as transactions occur cycle counting -- ongoing (daily or weekly) physical

counting of different SKUs

MEASURING THE PERFORMANCE MATERIALS MANAGERS Level and value of in-house inventories Percentage of orders delivered on time Number of stockouts Annual cost of materials Annual cost of transportation Annual cost of warehouse Number of customer complaints Other factors