Supply Chain
• Supply chain:
– The sequence of organizations — their facilities,
functions, and activities — that are involved in
producing and delivering a product or service
• Logistics:
– The part of a supply chain involved with the
forward and reverse flow of goods, services,
cash, and information
Learning Objective 15.1
© McGraw-Hill Education.
15-1
Facilities
• The sequence of the supply chain begins
with basic suppliers and extends all the way
to the final customer
– Warehouses
– Factories
– Retail outlets
– Offices
– Processing centers
– Distribution centers
Learning Objective 15.1
© McGraw-Hill Education.
15-2
Functions and Activities
• Supply chain functions and activities
– Forecasting
– Purchasing
– Customer service
– Inventory management
– Information management
– Quality assurance
– Scheduling
– Production and delivery
Learning Objective 15.1
© McGraw-Hill Education.
15-3
SCM Managers
• SCM managers
– People at various levels of the organization who
are responsible for managing supply and
demand both within and across business
organizations
– Involved with planning and coordinating
activities
 Sourcing and procurement of materials and
services
 Transformation activities
 Logistics
Learning Objective 15.2
© McGraw-Hill Education.
15-4
Key Aspects of SCM
• The goal of SCM is to match supply to demand
as effectively and efficiently as possible
• Key issues:
1. Managing procurement
2. Managing suppliers
3. Managing customer relationships
4. Identify problems and respond to them
Learning Objective 15.2
© McGraw-Hill Education.
15-5
Flow Management
• Three types of flow management
– Product and service flow
 Involves movement of goods and services from
suppliers to customers as well as handling
customer service needs and product returns
– Information flow
 Involves sharing forecasts and sales data,
transmitting orders, tracking shipments, and
updating order status
– Financial flow
 involves credit terms, payments, and
consignment and title ownership arrangements
Learning Objective 15.2
© McGraw-Hill Education.
15-6
Benefits & Risks of Outsourcing
(1 of 2)
• Benefits:
– Lower prices may result from lower labor costs
– Frees up capital to address other needs
– Some risks can be shifted to the supplier
– easier to expand outside of the home country
• Risks
– Loss of jobs
– Loss of control
– Lower productivity
– Loss of business knowledge
Learning Objective 15.4
© McGraw-Hill Education.
15-7
Supply Chain Risks
• Supply chain risks
– Supply chain disruption
 Natural disasters
 Supplier problems
– Quality issues
 Another form of disruption that may disrupt
supplies and lead to product recalls, liability
claims, and negative publicity
– Loss of control of sensitive information
 If suppliers divulge sensitive information to
competitors, it can weaken a firm’s competitive
position
Learning Objective 15.5
© McGraw-Hill Education.
15-8
Risk Management
• Risk management
– Involves identifying risks, assessing their likelihood
of occurring and their potential impact and then
developing strategies for addressing those risks
 Strategies for addressing risk include:
o Risk avoidance
o Risk reduction
o Risk sharing
– Key elements of successful risk management
include:
 Know your suppliers
 Provide supply chain visibility
 Develop event-response capability
Learning Objective 15.5
© McGraw-Hill Education.
15-9
Global Supply Chains
• Global supply chains
– Product design often uses inputs from around the world
– Some manufacturing and service activities are
outsourced to countries where labor and/or materials
costs are lower
– Products are sold globally
• Complexities
–
–
–
–
–
Language and cultural differences
Currency fluctuations
Political instability
Increasing transportation costs and lead times
Increased need for trust amongst supply chain partners
Learning Objective 15.6
© McGraw-Hill Education.
15-10
SCM Ethical Issues (1 of 2)
• Examples:
– Bribing government or company officials to
secure permits or favorable status
– “Exporting smokestacks” to developing countries
– Claiming a “green” supply chain when the level
of “green” is only minimal
– Ignoring health, safety, and environmental
standards
– Violating basic worker rights
– Mislabeling the country of origin
– Selling products abroad that are banned at
home
Learning Objective 15.7
© McGraw-Hill Education.
15-11
Management Responsibility: Tactical
and Operational (1 of 2)
Tactical
•
•
•
•
•
•
Forecasting
Sourcing
Operations planning
Managing inventory
Transportation planning
Collaborating
Learning Objective 15.9
© McGraw-Hill Education.
15-12
Management Responsibility: Tactical
and Operational (2 of 2)
Operational
•
•
•
•
•
•
•
•
Scheduling
Receiving
Transforming
Order fulfilling
Managing inventory
Shipping
Information sharing
Controlling
Learning Objective 15.9
© McGraw-Hill Education.
15-13
Procurement
• The purchasing department is responsible for
obtaining the materials, parts, and supplies
and services needed to produce a product or
provide a service.
• The goal of procurement
– Develop and implement purchasing plans for
products and services that support operations
strategies
Learning Objective 15.10
© McGraw-Hill Education.
15-14
The Purchasing Cycle
• The main steps:
1. Purchasing receives the requisition
2. Purchasing selects a supplier
3. Purchasing places the order with a vendor
4. Monitoring orders
5. Receiving orders
Learning Objective 15.10
© McGraw-Hill Education.
15-15
Supplier Relationship Management
• Type of relationship is often governed by
the duration of the trading relationship
– Short-term
 Oftentimes involves competitive bidding
 Minimal interaction
– Medium-term
 Often involves an ongoing relationship
– Long-term
 Often involves greater cooperation that evolves
into a partnership
Learning Objective 15.11
© McGraw-Hill Education.
15-16
Tracking Goods: RFID
• Radio frequency identification (RFID)
– A technology that uses radio waves to identify
objects, such as goods in supply chains
 Similar to barcodes but
o Are able to convey much more information
o Do not require line-of-sight for reading
o Do not need to be read one at a time
– Has the ability to:




Increase supply chain visibility
Improve inventory management
Improve quality control
Enhance relationships with suppliers and customers
Learning Objective 15.12
© McGraw-Hill Education.
15-17
Managing Returns
• Reverse logistics
– The process of transporting returned items
• Products are returned to companies or third
party handlers for a variety of reasons and in a
variety of conditions
– Elements of return management
 Gatekeeping
o Screening returned goods to prevent incorrect
acceptance of goods
 Avoidance
o Finding ways to minimize the number of items that
are returned
Learning Objective 15.13
© McGraw-Hill Education.
15-18