14-1
Supply Chain Management
Supply Chain Management
14-2
Supply Chain Management
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 value chains
14-3
Supply Chain Management

Facilities
Warehouses
 Factories
 Processing centers
 Distribution centers
 Retail outlets
 Offices
14-4
Supply Chain Management
Functions and Activities

Forecasting
 Purchasing
 Inventory management
 Information management
 Quality assurance
 Scheduling
 Production and delivery
 Customer service
14-5
Supply Chain Management
Typical Supply Chains
Production
Distribution
Purchasing Receiving Storage Operations Storage
14-6
Supply Chain Management
Typical Supply Chain for a Manufacturer
Figure 14.1a
Supplier
Supplier
Supplier
}
Storage
Mfg.
Storage
Dist.
Retailer
Customer
14-7
Supply Chain Management
Typical Supply Chain for a Service
Figure 14.1b
Supplier
Supplier
}
Storage
Service
Customer
14-8
Supply Chain Management
Need for Supply Chain Management
1.
2.
3.
4.
5.
6.
7.
8.
Improve operations
Increasing levels of outsourcing
Increasing transportation costs
Competitive pressures
Increasing globalization
Increasing importance of e-commerce
Complexity of supply chains
Manage inventories
14-9
Supply Chain Management
Bullwhip Effect
Figure 14.3
Amount of
= inventory
Tier 2
Suppliers
Tier 1
Suppliers
Producer
Distributor
Retailer
Final
Customer
14-10 Supply Chain Management
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
14-11 Supply Chain Management
Benefits of Supply Chain Management

Lower inventories
 Higher productivity
 Greater agility
 Shorter lead times
 Higher profits
 Greater customer loyalty
14-12 Supply Chain Management
Elements of Supply Chain Management
Table 14.1
Element
Typical Issues
Customers
Determining what customers want
Forecasting
Predicting quantity and timing of demand
Design
Incorporating customer wants, mfg., and time
Processing
Controlling quality, scheduling work
Inventory
Meeting demand while managing inventory costs
Purchasing
Evaluating suppliers and supporting operations
Suppliers
Monitoring supplier quality, delivery, and relations
Location
Determining location of facilities
Logistics
Deciding how to best move and store materials
14-13 Supply Chain Management

Logistics
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
14-14 Supply Chain Management
Logistics
• Movement within the facility
• Incoming and outgoing shipments
• Bar coding
• EDI
• Distribution
• JIT Deliveries
0
214800 232087768
14-15 Supply Chain Management
Materials Movement
Figure 14.4
Work center
Work center
Work
center
Storage
Work
center
Storage
RECEIVING
Storage
Shipping
14-16 Supply Chain Management
Distribution Requirements Planning

Distribution requirements planning (DRP) is
a system for inventory management and
distribution planning

Extends the concepts of MRPII
14-17 Supply Chain Management

Uses of DRP
Management uses DRP to plan and
coordinate:

Transportation
 Warehousing
 Workers
 Equipment
 Financial flows
14-18 Supply Chain Management
Electronic Data Interchange

EDI – the direct transmission of
interorganizational transactions, computer-tocomputer, including purchase orders,
shipping notices, and debit or credit memos.
14-19 Supply Chain Management
Electronic Data Interchange

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
14-20 Supply Chain Management
Efficient Consumer Response

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
14-21 Supply Chain Management
E-Commerce

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
14-22 Supply Chain Management
Advantages 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
14-23 Supply Chain Management
Disadvantages of E-Commerce

Customer expectations


Order fulfillment


Order quickly -> fast delivery
Order rate often exceeds ability to fulfill it
Inventory holding

Outsourcing loss of control

Internal holding costs
14-24 Supply Chain Management
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
14-25 Supply Chain Management
SCOR Metrics
Table 14.4
Perspective
Metrics
Reliability
On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillment
Flexibility
Supply chain response time
Upside production flexibility
Expenses
Supply chain management costs
Warranty cost as a percent of revenue
Value added per employee
Assets/utilization
Total inventory days of supply
Cash-to-cash cycle time
Net asset turns
14-26 Supply Chain Management
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
14-27 Supply Chain Management
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
14-28 Supply Chain Management

Nabisco and Wegmans



CPFR Results
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
14-29 Supply Chain Management
Creating an Effective Supply Chain
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
14-30 Supply Chain Management
Supply Chain Performance Drivers
1.
Quality
2.
Cost
3.
Flexibility
4.
Velocity
5.
Customer service
14-31 Supply Chain Management

Inventory velocity


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
14-32 Supply Chain Management
Challenges

Barriers to integration of organizations

Getting top management on board

Dealing with trade-offs

Small businesses

Variability and uncertainty

Long lead times
14-33 Supply Chain Management
1.
Lot-size-inventory

2.
Trade-offs
Bullwhip effect
Inventory-transportation costs

Cross-docking
3.
Lead time-transportation costs
4.
Product variety-inventory

5.
Delayed differentiation
Cost-customer service

Disintermediation
14-34 Supply Chain Management

Bullwhip effect


Trade-offs
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
14-35 Supply Chain Management

Delayed differentiation


Trade-offs
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
14-36 Supply Chain Management
Supply Chain Issues
Strategic
Issues
Design of the
supply chain,
partnering
Tactical Issues
Inventory policies
Purchasing policies
Production policies
Transportation
policies
Quality policies
Operating Issues
Quality control
Production planning and
control
14-37 Supply Chain Management
Supply Chain Benefits and Drawbacks
Table 14.5
Problem
Potential
Improvement
Benefits
Possible
Drawbacks
Large
inventories
Smaller, more frequent
deliveries
Reduced holding
costs
Traffic congestion
Increased costs
Long lead
times
Delayed differentiation
Disintermediation
Quick response
May not be feasible
May need absorb
functions
Large number
of parts
Modular
Fewer parts
Simpler ordering
Less variety
Cost
Quality
Outsourcing
Reduced cost,
higher quality
Loss of control
Variability
Shorter lead times,
better forecasts
Able to match
supply and demand
Less variety
14-38 Supply Chain Management

Purchasing
Purchasing is responsible for obtaining the
materials, parts, and supplies and services
needed to produce a product or provide a
service.
14-39 Supply Chain Management
Goal of Purchasing

Develop and implement purchasing plans for
products and services that support operations
strategies
14-40 Supply Chain Management
Duties of Purchasing

Identifying sources of supply

Negotiating contracts

Maintaining a database of suppliers

Obtaining goods and services

Managing supplies
14-41 Supply Chain Management
Purchasing Interfaces
Figure 14.5
Legal
Operations
Accounting
Purchasing
Data
processing
Design
Receiving
Suppliers
14-42 Supply Chain Management
Purchasing Cycle
Legal
1.
Requisition received
Operations
2.
Supplier selected
3.
Order is placed
4.
Monitor orders
5.
Receive orders
Accounting
Purchasing
Design
Receiving
Suppliers
Data
processing
14-43 Supply Chain Management
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
14-44 Supply Chain Management
Centralized vs Decentralized Purchasing

Centralized purchasing


Purchasing is handled by one special
department
Decentralized purchasing

Individual departments or separate locations
handle their own purchasing requirements
14-45 Supply Chain Management
Suppliers

Choosing suppliers

Evaluating sources of supply

Supplier audits

Supplier certification

Supplier relationships

Supplier partnerships
14-46 Supply Chain Management
Factors in Choosing a Supplier

Quality and quality assurance
 Flexibility
 Location
 Price
14-47 Supply Chain Management
Factors in Choosing a Supplier (cont’d)

Product or service changes
 Reputation and financial stability
 Lead times and on-time delivery
 Other accounts
14-48 Supply Chain Management
Evaluating Sources of Supply

Vendor analysis: Evaluating the sources of
supply in terms of price, quality, reputation,
and service
14-49 Supply Chain Management
Evaluating Sources of Supply

Vendor analysis - evaluating the sources of
supply in terms of

Price
 Quality
 Services
 Location
 Inventory policy
 Flexibility
14-50 Supply Chain Management
Supplier as a Partner
Table 14.9
Aspect
Adversary
Partner
Number of suppliers
Many
One or a few
Length of relationship
May be brief
Long-term
Low price
Major consideration
Moderately important
Reliability
May not be high
High
Openness
Low
High
Quality
May be unreliable;
buyer inspects
At the source; vendor
certified
Volume of business
May be low
High
Flexibility
Relatively low
Relatively high
Location
Widely dispersed
Nearness is important
14-51 Supply Chain Management
Supplier Partnerships

Ideas from suppliers could lead to improved
competitiveness
1. Reduce
cost of making the purchase
2. Reduce transportation costs
3. Reduce production costs
4. Improve product quality
5. Improve product design
6. Reduce time to market
7. Improve customer satisfaction
8. Reduce inventory costs
9. Introduce new products or services
14-52 Supply Chain Management

Critical Issues
Strategic importance

Cost
 Quality
 Agility
 Customer service
 Competitive advantage

Technology management

Benefits
 Risks
14-53 Supply Chain Management

Critical Issues
Purchasing function

Increased outsourcing
 Increased conversion to lean production
 Just-in-time deliveries
 Globalization