16-1
Supply Chain Management
Operations Management
William J. Stevenson
8th edition
16-2
Supply Chain Management
CHAPTER
16
Supply Chain Management
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. Stevenson
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
16-3
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
16-4
Supply Chain Management
Functions and Activities

Forecasting
 Purchasing
 Inventory management
 Information management
 Quality assurance
 Scheduling
 Production and delivery
 Customer service
16-5
Supply Chain Management
Typical Supply Chains
Production
Purchasing
Distribution
Receiving Storage Operations Storage
16-6
Supply Chain Management
Typical Supply Chain for a Manufacturer
Figure 16.1a
Supplier
Supplier
Supplier
}
Storage
Mfg.
Storage
Dist.
Retailer
Customer
16-7
Supply Chain Management
Typical Supply Chain for a Service
Figure 16.1b
Supplier
Supplier
}
Storage
Service
Customer
16-8
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
16-9
Supply Chain Management
Bullwhip Effect
Figure 16.3
Amount of
= inventory
Tier 2
Suppliers
Tier 1
Suppliers
Producer
Distributor
Retailer
Final
Customer
16-10 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
16-11 Supply Chain Management
Benefits of Supply Chain Management

Lower inventories
 Higher productivity
 Greater agility
 Shorter lead times
 Higher profits
 Greater customer loyalty
16-12 Supply Chain Management
Elements of Supply Chain Management
Table 16.1
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
16-13 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
16-14 Supply Chain Management
Logistics
• Movement within the facility
• Incoming and outgoing shipments
• Bar coding
• EDI
• Distribution
• JIT Deliveries
0
214800 232087768
16-15 Supply Chain Management
Materials Movement
Figure 16.4
Work center
Work center
Work
center
Storage
Work
center
Storage
RECEIVING
Storage
Shipping
16-16 Supply Chain Management
Distribution Requirements Planning

Distribution requirements planning (DRP) is
a system for inventory management and
distribution planning

Extends the concepts of MRPII
16-17 Supply Chain Management

Uses of DRP
Management uses DRP to plan and
coordinate:

Transportation
 Warehousing
 Workers
 Equipment
 Financial flows
16-18 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.
16-19 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
16-20 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
16-21 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
16-22 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
16-23 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
16-24 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
16-25 Supply Chain Management
SCOR Metrics
Table 16.4
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
16-26 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
16-27 Supply Chain Management
Supply Chain Performance Drivers
1.
Quality
2.
Cost
3.
Flexibility
4.
Velocity
5.
Customer service
16-28 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
16-29 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
16-30 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
16-31 Supply Chain Management
Supply Chain Benefits and Drawbacks
Table 16.5
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