Supply Chain Management
McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright © 2005 by The McGraw-Hill Companies, Inc. All rights
reserved.
CHAPTER 11
Supply 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
Functions and Activities
Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service
Typical Supply Chain for a Manufacturer
Supplier
Supplier
Supplier
Storage} Mfg. Storage Dist. Retailer Customer
1. Improve operations2. Increasing levels of outsourcing3. Increasing transportation costs4. Competitive pressures5. Increasing globalization6. Increasing importance of e-
commerce7. Complexity of supply chains8. Manage inventories
Need for Supply Chain Management
Bullwhip Effect
Tier 2Suppliers
Tier 1Suppliers
Producer Distributor Retailer FinalFinalCustomerCustomer
Amount ofAmount ofinventoryinventory=
Benefits of Supply Chain Management
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
Benefits of Supply Chain Management
Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty
Elements of Supply Chain Management
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
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
Logistics
Logistics
• Movement within the facility
• Incoming and outgoing shipments
• Bar coding
• EDI
• Distribution
• JIT Deliveries
0
214800 232087768
Materials MovementR
EC
EIV
ING
Storage
Workcenter
Work centerWork center
Storage
Workcenter
Storage
Shipping
Distribution requirements planning (DRP) is a system for inventory management and distribution planning
Extends the concepts of MRPII
Distribution Requirements Planning
Management uses DRP to plan and coordinate: Transportation Warehousing Workers Equipment Financial flows
Uses of DRP
Electronic Data Interchange
EDI – the direct transmission of inter-organizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos.
Increased productivity Reduction of paperwork Lead time and inventory reduction Facilitation of just-in-time systems Electronic transfer of funds Improved control of operations Reduction in clerical labor Increased accuracy
Electronic Data Interchange
Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry Reflects companies’ efforts to
achieve quick response using EDI and bar codes
Efficient Consumer Response
E-Commerce: 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-Commerce
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-Commerce
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-Commerce
Successful 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
SCOR 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
CPFR Collaborative Planning, Forecasting,
and Replenishment
Focuses on information sharing among trading partners
Forecasts can be frozen and then converted into a shipping plan
Eliminates typical order processing
CPFR Process
Step 1 – Front-end agreement
Step 2 – Joint business plan
Steps 3-5 – Sales forecast
Steps 6-8 – Order forecast collaboration
Step 9 – Order generation/delivery execution
CPFR Results Nabisco and Wegmans
50% increase in category sales
Wal-mart and Sara Lee 14% reduction in store-level inventory
32% increase in sales
Kimberly-Clark and Kmart Increased category sales that
exceeded market growth
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 Chain
Velocity
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
Barriers to integration of organizations
Getting top management on board
Dealing with trade-offs
Small businesses
Variability and uncertainty
Long lead times
Challenges
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-offs
Trade-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
Trade-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
Supply Chain Issues
Quality controlProduction planning and control
Inventory policiesPurchasing policiesProduction policiesTransportation policiesQuality policies
Design of the supply chain, partnering
Operating IssuesTactical IssuesStrategic Issues
Supply Chain Benefits and Drawbacks
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
Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.
Purchasing
Develop and implement purchasing plans for products and services that support operations strategies
Goal of Purchasing
Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies
Duties of Purchasing
Purchasing Interfaces
Purchasing
Legal
AccountingOperations
Dataprocessing
Design
ReceivingSuppliers
Purchasing Cycle
1. Requisition received
2. Supplier selected
3. Order is placed
4. Monitor orders
5. Receive orders
PurchasingPurchasing
LegalLegal
AccountingAccountingOperationsOperations
DataDataprocess-process-inging
DesignDesign
ReceivingReceiving
SuppliersSuppliers
Value analysis Examination of the function of
purchased parts and materials in an effort to reduce cost and/or improve performance
Value Analysis vs. Outsourcing
Centralized purchasing Purchasing is handled by one
special department
Decentralized purchasing Individual departments or
separate locations handle their own purchasing requirements
Centralized vs Decentralized Purchasing
Choosing suppliers
Evaluating sources of supply
Supplier audits
Supplier certification
Supplier relationships
Supplier partnerships
Suppliers
Product or service changes Reputation and financial
stability Lead times and on-time
delivery Other accounts
Factors in Choosing a Supplier (cont’d)
Evaluating Sources of Supply
Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service
Vendor analysis - evaluating the sources of supply in terms of Price Quality Services Location Inventory policy Flexibility
Evaluating Sources of Supply
Ideas from suppliers could lead to improved competitiveness
1. Reduce cost of making the purchase2. Reduce transportation costs3. Reduce production costs4. Improve product quality5. Improve product design6. Reduce time to market7. Improve customer satisfaction8. Reduce inventory costs9. Introduce new products or services
Supplier Partnerships
Critical Issues Strategic importance
Cost Quality Agility Customer service Competitive advantage
Technology management Benefits Risks