11
Supply Chain
Management and
Logistics
McGraw-Hill/Irwin
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Agenda

Supply Chain Management (SCM)

Supply Chain Logistics
11-2
Supply Chain Management
Supply chain management: An integrated
philosophy to manage the multidirectional flow
of materials and information through an entire
channel, from the first raw material supplier to
the ultimate user of the finished product.
11-3
Objectives of SCM

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Optimizing coordination in operations and
requirements
Minimizing duplication and non-valueadding activities
Reducing costs while maintaining superior
quality and customer service
Reducing inventory
Reducing cycle times
11-4
New Key Terms in SCM

Value Proposition: a clear concise set of factual
statements describing the real value (benefits)
customers can expect to receive from a firm’s
products and services. A good value
proposition quantitatively differentiates the
firm’s offerings from those of competitors, (e.g.,
40-50% material savings).

Value Chain: an analysis process that
disaggregates the channel system into each
channel member’s activities and specifically
considers how each activity creates value for
the channel’s ultimate customers.
11-5
New Key Terms in SCM

Value Added: traditionally referred to how much
margin a particular product could earn for a firm.
High value added products were preferred over
low value added products. Recently the phrase is
also used to refer to how much value a channel
member brings to a particular product’s supply
chain.
11-6
Supply Chain Logistics

Traditionally the management of material
flow inbound, through, and outbound from
a particular firm. The sum of the channel
members supply chain logistics are
coordinated on a channel wide scale by
Supply Chain Management.
11-7
Logistics Management

Logistics involves more than physical distribution. In the
science of logistics, the flow of materials is efficiently
managed inbound-through and outbound of an
organization.

Two primary product flows:
• Materials management (physical supply): Flows that
provide raw materials, components, and supplies to
the production process.
• Physical distribution management: Flows that deliver
the completed product to customers and channel
intermediaries.
11-8
The Materials Management
Concept

Usually one manager responsible for
planning, organizing, motivating, and
controlling all the activities principally
concerned with the flow of materials into
an organization.

View material flow as a system.
11-9
The Materials Management
Concept

Approaches to Materials Management
• Traditional Approach
• Just-in-Time (JIT) Approach
• Integrated Supply Strategies

Reasons for Adopting the Materials
Management Concept
• Improved communication and coordination
between departments
 Can balance conflicting interests
 Faster, smoother material flow
 Lower inventory and logistics costs
11-10
Just-In-Time Systems

JIT = Just-In-Time

Adopted and implemented by many original
equipment manufacturers (OEMs) and
suppliers of component parts and materials.

An operational philosophy thought to epitomize
the relationship marketing model.

Uses a “pull” approach; much more than
material arriving just in time.
11-11
JIT Features
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Zero defects—Strict quality control
Frequent, reliable delivery of quantities as needed
Close location
Advanced telecommunications, EDI.
Single sourcing—Customer-supplier
partnerships/alliances
Value analysis
Early supplier involvement
Evergreen contracts
Customer access to financial and process
information
11-12
Integrated JIT versus
U.S. Manufacturing (pre-1985)
JIT System
Pre-1985 U.S. Mfg.
What it is
An integrated
philosophy of
operating a
business
The way it has
always been done
Raw material and
in-process inventory
A liability to be
eliminated
Protection against
problems, necessary
to maximize
machine utilization
Order size
Immediate needs
only
Based on EOQ and
efficient long
production runs.
11-13
Integrated JIT vs.
U.S. Manufacturing (pre-1985)
JIT System
Pre-1985 U.S. Mfg.
Production setup time
Fast at insignificant
cost; flexible
manufacturing
(Ex: stamping die
change =5 minutes)
Low-priority concern
(Ex: same die change
=5 hours)
Suppliers
Part of the teamsingle source
Adversary-multiple
source
Delivery
Must arrive within
small time window,
go right to the line,
packaged for
assembly efficiency
Arrives on due date
plus or minus,
packaged for
warehouse storage
11-14
Integrated JIT vs.
U.S. Manufacturing (pre-1985)
JIT System
Pre-1985 U.S. Mfg.
Purchasing
Involve supplier in
design; long-term
contracts at fixed
prices
Design in secret,
competitive bidding;
contract for current
requirement; recognize
need for price increases
Efficiency
improvements
Workers see as
strengthening
company
Workers see as threat
Production control and
scheduling
Demand “pull”—
Kanban to minimize
in-process inventory
Forecast “push”—
maximize machine
utilization
11-15
MRP Systems
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MRP = Materials Requirement Planning

MRP systems: Large computer systems used to plan
and schedule operations using a “push” approach.

Starting from the order due dates and forecast, MRP
considers every required raw material, operating
supply, and component part, their order of use, and
what equipment they will occupy.

Backs into a schedule of what will have to be done
when, including what will have to be ordered when
and received when.
11-16
Physical Distribution (outbound material flow)

Physical distribution: The process of planning, implementing, and
controlling efficient, effective flow and storage of goods, services,
and related information from point of origin to point of consumption
for the purpose of conforming to customer's requirements.

Why is it important to learn about physical distribution?

Physical distribution cost can represent 20% or more of the
selling price of a product.

It is an integrated part of the entire company system—problems in
other areas impact distribution and vice versa.

From customer’s perspective, the supplier’s physical distribution
function gets the right products to them, at the right place, at the
right time. These are basic customer rights (along with right price
and right condition).
11-17
Materials
management
Supplier
Physical distribution
management
Manufacturer
Customer
Logistics Management
11-18
Supply chain management
(a series of connected logistics flows)
Logistics management
Materials management
Incoming transportation
Receiving
Purchasing
Incoming warehousing
Inventory control
Physical distribution
Traffic management
Shipping
Customer service
Finished goods
11-19
Functions of Traffic Management
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Mode and carrier selection
Routing
Claims processing
Operation of private (company-owned)
transportation
11-20
Many of the imported goods you purchase
were shipped in 20-foot or 40-foot
steel containers
11-21
Large cranes loaded the containers on a ship.
(Image courtesy of the Port of Charleston)
11-22
Larger container ships can hold
4,000 to 6,000 containers.
(Image courtesy of Maersk Sealand)
11-23
After unloading from the ship, the containers can
be loaded onto a flatbed rail car for additional
intermodal shipping.
(Image courtesy of CSX
Corp.)
11-24
Alternatively, a container can be attached to
a set of wheels for motor transport
(as an 18-wheeler trailer).
11-25
Intermodal container motor carrier
(Image courtesy of Maersk Sealand)
11-26
Rail freight carrier
Barge/river freight carrier
(Image courtesy of CSX Corp.)
11-27
Air freight carrier
Pipeline
Container stack train
Jumbo jet air freight
11-28
Major Advantages by Transportation Mode

Motor
• Speed of
delivery
• Diversity of
equipment
• Flexibility
• Frequency of
movement
• Transfer of
goods to other
carriers
• Convenient to
both shipper
and receiver

Rail
• Mass movement of
goods
• Low unit cost of
movement
• Dependability
• Long-haul moving
• Wide coverage to major
markets and suppliers
• Many auxiliary services
(i.e., switching)
• Transfer of goods to
other carriers
• Specialized equipment

Water
• Very low unit
cost of
movement
• Movement of
low-unit-value
commodities
• Long-haul
movement
• Mass
movement of
bulk
commodities
(continued) 11-29
Major Advantages by Transportation Mode

Pipeline
•Lowest unit cost
of movement
•Mass
movement
of liquid or gas
products
•Long-haul
moving
•Large capacity
•Most
dependable
mode

Air
•Frequent service to
major markets
•Large capability
•Overnight service
•Most rapid speed
of any carrier

Intermodal
•Cost savings
•Lower loss and
damage claims
due to
containerization
•Service extended
to more shippers
and receivers
•Reduced
handling and
storage costs
11-30
Controllable Elements in a Logistics System
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Customer service
Logistics communications
Warehousing
Packaging
Production planning
Order processing
Transportation
Inventory control
Materials Handling
Plant and warehouse location
11-31
Major Categories of Service Complaints
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Traffic and transportation
• Damaged merchandise
• Carrier did not meet
standard transit time
• Merchandise delivered
prior to date promised
• Carrier failed to follow
customer routing
• Carrier did not comply
with specific instructions
• Errors present on bill of lading
• Condition or type of transport
equipment not satisfactory

Warehousing and packaging
• Merchandise delivered late
• Problem with containers in
packaging plants
• Special promotion merchandise
not specified in delivery
• Errors in warehouse release
forms
• Incorrect types and quantities of
merchandise shipped
• Papers not mailed promptly to
headquarters
• Field warehouse delivered
damaged merchandise
11-32
Major Categories of Service Complaints
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Inventory control
• Stockouts
• Contaminated
products received
• Product
identification errors
• Poor merchandise
shipped
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Sales order service
• Delayed shipments
• Invoice, sales coding,
or brokerage errors
• Special instructions
ignored
• No notification of
late shipments
11-33
11-4
11-34