Supply Chain
N etwork of
Suppliers warehouses, operations, warehouses, distribution centers, retail outlets, and customers.

Overview
Replenishment order
Replenishment order
Replenishment order
Replenishment order
Customer order
Supplier Factory Wholesaler Distributor Retailer
Shipping
Delay
Manufacturer
Inventory
Production
Delay
Wholesaler
Inventory
Shipping
Delay
Distributor
Inventory
Shipping
Delay
Retailer
Inventory
Customer
Item Withdrawn
Different companies do not have identical supply chains.

Closer Vendor Relationship
•Price is now a secondary issue; frequent small deliveries of high quality goods, also flexibility and quick response.
•Cooperation between buyer and supplier is an integral part of Supply Chain
Management.
•Narrow down the number of suppliers to a few, develop a long term relationship.
•Do not make suppliers against each others, develop a friendly environment.
•Burden of ensuring quality shifts to the supplier. The ultimate goal of the buyer is to certify a vendor as a producer of high quality goods.
•Integration is easier when supplier is dedicated to only few buyers.
•Tier approach to suppliers

Purchasing
Production Distribution
Purchasing
Receiving Storage Operations Storage
Purchasing is responsible for obtaining the materials, parts, and supplies needed to produce a product or provide a service.
The importance of purchasing is more than just cost of material purchased, but also quality and timing.

Purchasing Interfaces
Suppliers
Operations
Legal
Accounting
Purchasing
Data processing
Design
Receiving

Purchasing Interfaces
Purchasing is the connecting link between the organization and its suppliers.
Operating units are the main sources of request for purchase. Close relationship between purchasing and operating units is required to achieve proposed quality, quantity, and timing.
Changes in specifications, quantities and lead times should be immediately communicated between operating units and purchasing.
Legal
Assistance of the legal department is required in bid specifications and contract negotiations
Operations
Accounting
Purchasing
Data processing Accounting is responsible for A/P, must be notified when material are received.
Suppliers
Receiving
Design

Purchasing Interfaces
Design and engineering prepare material specifications and should have close communication with purchasing. Purchasing could also inform design and engineering about new products and material improvements.
Design and purchasing work together to see whether changes in design or specification can reduce the cost of purchased material.
Receiving checks incoming shipment for their quantity, quality and timing. Information is sent from receiving to both purchasing and A/P.
Legal
Suppliers work closely with purchasing to learn what material will be purchased and with what specifications, quality, and timing.
Operations
Purchasing
Accounting
Data processing
Suppliers
Receiving
Design

Purchasing Cycle
• Requisition received
• Supplier selected
• Order is placed
• Monitor orders
• Receive orders

Value Analysis vs Outsourcing
• Value analysis
– Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance
• Outsourcing
– Buying goods or services from outside sources rather than making or providing them in-house

Outsourcing
• Cost to make vs. cost to buy
• Stability of demand
• Quality from suppliers
• Maintaining close control
• Idle capacity available

Determining Prices
• Fixed or predetermined prices
– for standards items that are bought frequently
• Competitive bidding
– for large orders of standard parts, e.g. government purchases of standard goods or services
• Negotiating
– for one or few customized purchases where specifications are vague

Centralized Purchasing
• Centralized purchasing; Purchasing is handled by one special department.
– may be able to quantity discount due to higher volumes
– may be able to obtain better service and attention
– few items in high volume are purchased by specialists

Decentralize Purchasing
• Decentralized purchasing; Individual departments or locations handle their own purchasing requirements
– better understanding of local needs
– quick response
– saving in transportation costs
• Some companies have a combination

Logistics
• Movement material to-within-from facility
• Material includes row material, components, finished goods, supplies, etc.
• Logistics indeed is physical flow of material in supply chain

Material Movement
Work center
Work center
Storage
Work center Work center
Storage
Storage
Shipping

Shipping Alternatives
Determine which shipping alternative, 1 day or 3 days is preferred. Holding cost is 1000 per year, shipping cost is 40 $ for 1 day delivery, and for 3 days delivery is a) 35 $ b) 30 $
Holding cost for two days is (1000/365)2 = 5.48
If 1 day delivery is 35, then 35-30 = 5 extra cost, while saving is 5.48. We prefer 1 day delivery

Shipping Alternatives
If 1 day delivery is 40, then 40-30 = 10 extra cost, while saving is 5.48. We prefer 3 days delivery

Purchasing and SCM Facilitators
• Bar Codes
• Electronic Data Interchange

Bar Coding
Bar coding or universal product codes (UPC); patterns of black lines and white spaces that can be read by scanning devices, containing a variety of information.
Bar codes are used for recording prices and quantities, printing sales receipts, and updating inventory records.
Enable companies to keep track of items in warehouses, throughout the production and en route to customers 0
214800 232087768

Electronic Data Interchange (EDI)
• EDI is the intra-organization transmission of transactions. Transactions such as purchase orders, shipping notices, debit or credit memos are transmitted from computer to computer between organizations.
• EDI also serves as Kanban between down stream
(customers) and upstream (suppliers) of manufacturing and service systems.
• EDI allows manufacturers to have better understanding of their customer behavior and preferences.

Electronic Data Interchange (EDI)
• Wal-Mart has a satellite network for electronic data interchange that allows vendors to directly access point-of-sale data in real time. Enabling them to improve their forecasting and inventory management. The system is also used for issuing purchase order and receiving orders from vendors.

Distribution Requirement Planning
• A system for inventory management and distribution planning.
• It connects demand points with a network of multiechelon warehouses and factories in order to satisfy the demand and replenish the warehouses

Class
PPTs and Lecture Notes
Book
The whole chapter supports the PPTs
Solved Problems
Problem 1 on page 711