Supply Chain Management
Managing the
between all of the parties directly and indirectly
involved in the procurement of a product or raw
material.
Players
in a
Supply
Chain
1. Materials flow from suppliers and their “upstream” suppliers at
all levels down to you
2. Transformation of materials into semi-finished and finished
products through the organization’s own production process
3. Distribution of products to customers and their “downstream”
customers at all levels
4. A
, from the
order being made until its delivery to the customer
Basic Supply Chain
Management
Components
• Plan for
that go
toward meeting
customer demand for products and services.
• S
• T
products
• Logistics: the
• Plan for the
to deliver goods and services needed.
into semi-finished and finished
ITs role in
supply
chain
• Visibility and
the
• Modeling, simulation and various forecasting tools to combine
information from various sources to figure out what is needed (or
might be needed) when.
• E
faster at a lower cost
– Communication and
successful supply chain
allows everyone to react
for a
• Key Element:
quickly flowing from one entity
or stage to another one (both upstream and downstream)
Focus of Organizational Supply Chain Strategies
• Efficiency: focus on
– Getting the
(optimize resources)
– Looks at throughput, speed, availability
• Throughput: the volume that can be sent through the system
• Effectiveness: focus on
– Setting the right goals and objectives and making sure they
get accomplished.
• Looks at
through increases
• Do
, conversion rates, sell-
and/or Do
– How much of each do you do?
– Sometimes, you have to trade one for the other.
SUPPLY CHAIN DRIVERS
• Organizations use these four drivers to support
either a supply chain strategy focusing on efficiency
or a supply chain strategy focusing on effectiveness
Facilities
• Efficiency (saves money at expense of other things)
– Economies of scale when facilities centralized. Saves
money but further from customers and longer to deliver
– Save money by building a facility that is only big enough
to handle production requirements
– A single product focus lets me do a really good job
producing just one thing.
• Effectiveness (tends to increase costs)
– Goods can get to customers faster with more facilities
– Building in lots of extra capacity provides flexibility
– A multi-product focus may allow me to perform the
same operation on many different things.
Inventory
• Efficiency (saves money at expense of other things)
– Saves money by not holding much inventory or using as much
space. Incoming shipments must be received more frequently.
– A company can save money by not maintaining as much safety
stock, but runs the risk of disappointing customers if inventory
runs out during a busy season (such as Christmas)
– Single storage location
• Effectiveness (tends to increase costs)
– Spend money to hold larger amounts of inventory so as to
immediately be able to respond to customer needs.
– A company spends money by maintaining higher amounts of
safety stock so as to not run out during busy times (Christmas),
but not enough demand may lead to price cuts and losses.
– Multiple storage locations (close to customers)
• Decide whether to risk the expense of carrying too much
inventory (effective) or run the risk of losing sales (efficient)
Transportation
• Primary transportation methods
– Truck, rail, ship, air, pipeline, electronic
• Speed of delivery and price of delivery are difference drivers
• Efficiency (saves money at expense of other things)
– A company can save money by shipping goods inexpensively, but this
takes longer for the customer to receive the goods.
– Inexpensive shipping = Efficiency
• Effectiveness (tends to increase costs)
– To ensure speedy delivery, a more expensive delivery method is
selected.
– More expensive shipping = Effective
– A company that uses Federal Express to ship goods is focusing on safe
and timely delivery and not on the cost of delivery.
• Regardless of which transportation method is selected, having a
global inventory management system is vital (ability to track and locate all
components and materials in both the upstream and downstream portions of the supply
chain)
Information
• An organization must decide how and what information it wants to
share with its supply chain partners
• Efficiency (saves money at expense of other things)
– Freely sharing lots of information increases the speed and decreases the
cost of supply chain processing.
– Pull strategy: partners are responsible for retrieving/pulling information
when they need/want it (and they bear the cost of getting info)
– Must trust partners when letting them access your systems. Partners
control when info is pulled
• Effectiveness (tends to increase costs)
– Share only selected information with certain individuals, which will
decrease the speed and increase the costs of supply chain processing
– Push strategy: you send info to partners when YOU want to (partners
may have to wait to get what they need and you bear the cost of
sending/pushing info to them
– Using a push strategy, your organization controls what is shared and
when it is shared.
Wal-Mart’s strong
information flows allow it to
operate its business in a
just-in-time fashion
(JIT inventory)
Global Inventory Management Systems
• Let you locate and track items moving through
your supply chain.
– Lets you know
Radio Frequency Identification (RFID)
Uses a
in a tag or label to
back and forth between
an object and a receiving device.
http://www.youtube.com/watch?v=oAvQcYcvyaw
http://www.youtube.com/watch?v=eob532iEpqk
http://www.youtube.com/watch?v=4Zj7txoDxbE
Radio Frequency Identification (RFID)
– Can be used to
inventory,
inventory
and
product
.
– Pay at toll road plazas.
– Purchase products without standing in line (just walk
past a scanner with the product).
– Pr
– Manufacturing
–B
tracking and
– KSU uses RFID in the parking garage to track customers
and customer types (
customers,
to areas,
, including length of stay)
– US passports now have RFID chips
containing information about the passport holder.
RFID
RFID
Architecture
Information Technology and Supply
Chain Management
• Advances in information technology have made it
possible to bring to life the idea of a truly integrated
the supply chain.
– The key is to have as close to
throughout the entire supply chain as possible.
• I can see
and you can see
– Real-time flow of accurate information with minimal time
lags (communication is key)
• An organization needs to select its SC strategy and then
IT can be used to implement and enhance that strategy.
• RFID is one of the technologies used in supply chain
management.