Supply Chain
Management
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Introduction to Supply Chains
and
Supply Chain Management
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Supply Chain (Definition of)
 The sequence of organizations- their facilities, functions,
processes and activities- that are involved in producing
and delivering a product or service
Sometimes referred to as value chain
Components of Supply (Value) Chains
• Supply Component: Starts at the beginning of the SC
and ends with the internal operations of the organization.
• Demand Component: Starts at the point where the
organization’s output is delivered to its immediate
customer and ends with the final customer in the chain.
Demand chain is the sales and distributon portion of the
value chain
The length of each component depends on where a
particular organization is in the chain
The Supply Chain
Suppliers
Producers
Distributors
Customers
Materials,
parts, subassemblies,
and
services
Finished
goods, end
products
and services
Package
and delivery
Total
satisfaction
with quality,
price,
delivery, and
service
Inventory
Products
and
Services
Inventory
Upstream SC members
Products
and
Services
Products
and
Services
Inventory
Downstream SC members
The Supply Chain
Information
Suppliers
Producers
Distributors
Customers
Materials,
parts, subassemblies,
and
services
Finished
goods, end
products
and services
Package
and delivery
Total
satisfaction
with quality,
price,
delivery, and
service
Inventory
Products
and
Services
Inventory
Products
and
Services
Inventory
Products
and
Services
The Supply Chain
Information
Suppliers
Producers
Distributors
Customers
Materials,
parts, subassemblies,
and
services
Finished
goods, end
products
and services
Package
and delivery
Total
satisfaction
with quality,
price,
delivery, and
service
Inventory
Products
and
Services
Products
and
Services
Inventory
Inventory
Cash
Products
and
Services
The Supply-Chain
VISA
®
Material Flow Credit Flow
Supplier
Manufacturer
Supplier
Schedules
Order
Flow
Retailer
Consumer
Wholesaler
Retailer
Cash
Flow
Flow Management
Three types of flow
– 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
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Typical Supply Chain for a
Manufacturer
Supplier
Supplier
Supplier
}
Storage
Mfg.
Storage
Dist.
Retailer
Customer
Typical Supply Chain for a Service
Supplier
Supplier
}
Storage
Service
Customer
Supply Chain Management (Definition of)
(1 of 2)
 A total system approach to managing the entire flow of
information, materials, and services from raw-material
suppliers through factories and warehouses to the end
user (planning, organizing, directing and controlling flows
of materials)
 Managing all activities associated with the flow and
transformation of goods and services
from raw materials to the end user, the
customer, as well as the associated
information flows
Supply Chain Management(Definition of)
(2 of 2)
 The strategic coordination of business functions within
a business organization and throughout its supply chain
for the purpose of integrating supply and demand
management
 The process of planning, implementing and controlling
supply chain operations.
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Goals of Supply Chain Management
(1 of 2)
 Synchronization of activities required to achieve
maximum competitive benefits
 Coordination, cooperation, and communication and
timing among SC members
 Ensuring rapid flow of information among members
Goals of Supply Chain Management
(2 of 2)
 Linking the market, distribution channels, processes and
suppliers so that market demand is met as efficiently as
possible across the chain
 Matching supply and demand at each stage of the chain
as effectively and efficiently as possible
Ultimate goal: Achieving customer satisfaction and
maximizing supply chain profits
Facilities Involved in SCM
The sequence of the supply chain begins with basic
suppliers and extends all the way to the final customer
 Warehouses
 Factories
 Processing centers
 Distribution centers
 Retail outlets
 Offices
Elements of Supply Chain
Management
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
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Supply Chain Management Issues
(1 of 3)
 Determining what customers want
 Predicting (forecasting) quantity and timing of demand
 Incorporating customer wants to product design
 Determining appropriate levels of outsourcing
 Managing procurement (purchasing)
 Managing and evaluating suppliers (monitoring supplier
quality, delivery and relations)
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Supply Chain Management Issues
(2 of 3)
Determining the location of facilities
Managing customer relationships
Information management
 Managing supporting operations
Managing risk
Managing flows
 Quality assurance and control
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Supply Chain Management Issues
(3 of 3)
Production planning, scheduling and control
Inventory management (meeting demand while managing
inventory costs)
Logistics
 Deciding how best to move and store materials (distribution
and delivery)
Cstomer service
 Identifying problems and responding to them
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Strategic &Operational
Decisions in Supply Chains
Three types of decisions in supply chain management
– Strategic – design and policy
– Tactical
– Operational – day-today activities
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
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Strategic Responsibilities
 Supply chain strategy alignment
 Network configuration
 Information technology
 Products and services
 Capacity planning
 Strategic partnerships
 Distribution strategy
 Uncertainty and risk reduction
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Tactical Responsibilities
Forecasting
Sourcing
Operations planning
Inventory policies
Quality policies
Transportation planning
Collaborating
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Operational Responsibilities
Scheduling
Receiving
Transforming
Order fulfilling
Managing inventory
Shipping
Information sharing
Controlling
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Typical Supply Chain Activities
Production
Purchasing
Distribution
Receiving Storage Operations Storage
Processes involved in SCM
•Acquiring customer orders
•Procuring materials and components from suppliers (sourcing and
procurement)
•Producing or manufacturing products (transformation activities)
•Filling customer orders
•Logistics (the part of the SC involved with the forward and reverse flow of
goods, services, cash and information)
Trends in SCM
•
•
•
•
•
Reevaluation of outsourcing
Risk management
Inventory management
Lean supply chains
Sustainability
As a result of these trends, organizations are likely to give serious
thought to reconfiguring their supply chains to
• reduce risks,
• improve flow,
• increase profits and
• increase customer satisfaction
Supply-Chain Costs as a Percent of Sales
Industry
•
•
•
•
•
•
•
All industry
Automobile
Food
Lumber
Paper
Petroleum
Transportation
Percent of Sales
•
•
•
•
•
•
•
52%
67%
60%
61%
55%
79%
62%
Factors That Contribute to the Increased
Need for Effective Supply Chain
Management
need to improve operations
increased levels of outsourcing
increasing transportation costs
competitive pressures
increasing globalization
increasing importance of e-commerce
increasing complexity of supply chains
increasing pressure to decrease inventories
Benefits of Supply Chain Management
Lower inventories
Lower costs
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty
Integration of seperate organizations into a cohesive
operating system
Actual Benefits Gained by 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
Requirements of a Successful Supply Chain
It begins with strategic sourcing
Analyzing the procurement process to lower costs by reducing waste
and non-value-added activities, increasing profits, reducing risks and
improving supplier performance
Trust among trading partners
Effective cooperation and communications
Supply chain should enable members to 1) share forecasts, 2) determine
the status of orders in real time, 3) access inventory data of partners
Supply chain visibility
Inventory velocity
Event-management capability
The ability to detect and respond to unplanned events
Measuring SC Performance: Performance metrics
Creating an Effective Supply Chain
An Effective Supply Chain requires linking the market,
distribution channels processes, and suppliers
1. Develop strategic objectives and tactics
2. Integrate and coordinate activities in the internal supply
chain
3. Coordinate activities with suppliers and with distributors
4. Coordinate planning and execution across the supply
chain
5. Form strategic partnerships
SC Performance Measures
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Supply Chain Performance Drivers
1. Quality
2. Cost
3. Flexibility
4. Velocity (inventory velocity, information velocity)
5. Customer service
Supply Chain Performance Measures
1. Financial
•
Return on assets
•
Cost
•
Cash flow
•
Profits
2. Suppliers
•
Quality
•
On-time deliveriy
•
Cooperation
•
flexibility
3. Operations
•
Productivity
•
Quality
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Supply Chain Performance Measures
4. Inventory
•
Avarage value
•
Turnover
•
Weeks of supply
5. Order fulfillment
•
Order accuracy
•
Time to fill orders
•
Percentage of incompete orders shipped
•
Percentage of orders delivered on time
6. Customers.
•
Costomer satisfaction
•
Percentage of customer complaints
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Measuring SC Performance: Inventory
Turnover
•
One of the most commonly used measures is “Inventory
Turnover”
Cost of goods sold
Inventory turnover 
Average aggregate inventory value
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Measuring SC Performance:
SCOR Metrics
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
Inventory Management
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Supply Chain Uncertainty
 Forecasting, lead times, batch ordering, price
fluctuations, and inflated orders contribute to
variability
 Inventory is a form of insurance
 Distorted information is one of the main causes of
uncertainty
Inventory Management within A SC
Inventory issues in SCM
– Inventory location
• Centralized inventories
• Decentralized inventories
– Inventory velocity
• The speed at which goods move through a supply chain
– The effect of demand variability on inventories
The bullwhip effect
• Inventory oscillations that become increasingly larger
looking backward through the supply chain
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
The Bullwhip Effect
• Variations in demand cause inventories to fluctuate and get
out of control
• Results in higher costs and lower customer satisfaction
– Inventory fluctuation can be magnified by
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Periodic ordering
Dverreactions to stockouts
Quality problems
Labor problems
Unusual weather cnoditions
Delays in shipments of goods
Communication delays
Incomplete communications
Lack of coordination of activities among organizations
Forecast inaccuracies
Order batching
Product mix changes
Sales incentives and promotions
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Liberal product return policies
Bullwhip Effect
Demand
Initial
Supplier
Final Customer
Demand variations begin at the customer end of the chain and become
increasingly large as they radiate backwards through the chain
(nventory oscillations become progressively larger moving backward
through the supply chain)
Inventories in a SC: Bullwhip Effect
The magnification of variability in orders in the supply-chain
Retailer’s Orders
Time
A lot of retailers
each with little
variability in their
orders….
Wholesaler’s
Orders
Manufacturer’s
Orders
Time
…can lead to greater
variability for a fewer
number of
wholesalers, and…
Time
…can lead to even
greater variability for
a single
manufacturer.
Inventories in a SC: Bullwhip Effect
Amount of
= inventory
Tier 2
Suppliers
Tier 1
Suppliers
Producer
Distributor
Retailer
Final
Customer
Mitigating the Bullwhip Effect
• Good supply chain management can overcome the
bullwhip effect
– Strategic buffering
• Holding inventory at a distribution center rather than at retail
outlets
– Replenishment based on need
• Vendor-managed inventory
– Vendors monitor goods and replenish retail inventories
when supplies are low
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Vendor-Managed Inventories
The use of a local supplier to maintain inventory for
the manufacturer
 Stocking information is accessed using EDI
 A first step towards supply chain collaboration
 Increased speed, reduced errors, and improved
service
Supply Chains
and
Information Technology
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Role of Information in the Supply Chain
(1 of 2)
 Centralized coordination of information flows
 Integration of transportation, distribution, ordering, and
production
 Direct access to domestic and global transportation and
distribution channels
 Locating and tracking the movement of every item in the
supply chain
Role of Information in the Supply Chain
(2 of 2)
 Data interchange
 Data acquisition at the point of origin and point of sale
 Intercompany and intracompany information access
 Instantaneous updating of inventory levels
 Increasing the rate at which information is communicated
in a SC.
Some IT Applications for SCM (1 of 3)
Electronic Business (replacement of physical processes with
electronic ones)
Electronic Data Interchange (a computer-to-computer exchange
of business documentsincluding purchase orders, shipping
notices, and debit or credit memos) in a standard format)
Bar Coding (computer readable codes attached to items flowing
through the SC). Generates point-of-sale data which is useful for
determining sales trends, ordering, production scheduling, and
delivery plans
1234
5678
Some IT Applications for SCM (2 of 3)
RFID (Radio Frequency Identification) Technology
 A technology that uses radio waves to identify objects,
such as goods in supply chains)
Similar to bar codes but
uses radio frequency to transmit product information to
receiver
Are able to convey much more information
Do not require line-of-sight for reading
Do not need to be read one at a time
Used to track goods in supply chain
RFID tags attached to objects
RFID eliminates need for manual counting and bar code
scanning
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Some IT Applications for SCM (3 of 3)
Internet (provides instant access to organizations,
individuals and information sources; fundamentaly
changes the way organizations do business; add speed
and accessibility to the SC)
Intranets (internet-like networks that operate within a
single organization)
Extranets (intranets that can be connected to the global
internet & that include a company’s suppliers and
customers; they allow limited access)
The Wal-Mart Supply
Chain
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Wall-Mart Case

Wal-Mart has a satellite network for electronic data
interchange that allows vendors to directly access pointof-sale data in real time, enabling them to improve their
forecasting and inventory management.

Wal-Mart also uses the system for issuing purchase
orders and receiving invoices from its vendors.
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Benefits of 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
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
The Internet
 Instant global access to organizations,
individuals, and information sources
 Fundamentally changes the way organizations
do business
 Removed geographic
barriers
 Adds speed and accessibility
to the supply chain
Build-to-Order Cars over the
Internet
Linking the Supply Chain with SAP
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Electronic Business
• E-Business: the use of electronic technology to
facilitate business transactions Involves the interaction
of different business organizations as well as the
interaction of individuals with business organizations.
Replacement of physical processes with electronic ones
• Applications include:
– Internet buying and selling
– E-mail
– Order and shipment tracking
– Electronic data interchange
Essential Features of E-Business
 The Web site (front-end design)
 Order fulfillment (back end)
Order processsing
Billing
İnventory management
Warehousing
Packing
Shiping
Delivery
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Advantages of E-Business (1 of 2)
Global presence and increased visibility
Global access to markets and customers
Improved competitiveness, quality and service
Greater choices and more and easy access to
information for customers
Collection and analysis of detailed customer data,
interests and preferences
Shortened supply chain response times
Advantages of E-Business (2 of 2)
Shortened transaction times for ordering and
delivery
Cost savings and price reductions
Virtual companies with lower prices
Leveling the playing field for small companies
Reducing or eliminating intermediaries
(disintermetiation)
Improved service
E-Business Order Fulfillment Problems
• Efficient web sites do not necessarily mean the rest of the
supply chain will be as efficient
Customer expectations
– Order quickly  Quick delivery
• Demand variability creates order fulfillment problems
• Sometimes Internet demand exceeds an organization’s ability
to fulfill orders
• Inventory
– Outsourcing order fulfillment
• Loss of control
– Build large warehouses
• Internal holding costs
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
IT Issues
 Increased benefits and sophistication come with
increased costs
 Efficient web sites do not necessarily mean the rest
of the supply chain will be as efficient
 Security problems are very real
 Partnership and trust are important elements that
may be new to business relationships
Procurement
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Procurement
Development and implementation of purchasing
plans for products and services that support
operations strategies
E-Procurement
 Business-to-business commerce conducted on the
Internet
 Benefits include lower transaction costs, lower
prices, reduce clerical labor costs, and faster
ordering and delivery times
 Currently used more for indirect goods
 E-Marketplaces service industry-specific
companies and suppliers
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Purchasing
• Purchasing is responsible for obtaining the
materials, parts, and supplies and services
needed to produce a product or provide a
service.
• Purchasing cycle: Series of steps that begin
with a request for purchase and end with
notification of shipment received in satisfactory
condition.
Importance of Purchasing
Purchasing is important because:
- it is a major cost center
- affect quality of final product
- aids strategy of low cost, response and
differentiation
Goals of Purchasing
• Develop and implement purchasing plans for
products and services that support operations
strategies.
• Develop, evaluate, and determine the best
supplier, price, and delivery for the products and
services that can be best obtained externally
Duties of Purchasing
• Identifying sources of supply
• Negotiating contracts
• Maintaining a database of suppliers
• Obtaining goods and services
• Managing supplies
Purchasing Interfaces
Legal
Operations
Accounting
Purchasing
Data
processing
Design
Receiving
Suppliers
Purchasing Cycle
Legal
1. Requisition received
Operations
Accounting
2. Supplier selected
3. Order is placed
Purchasing
Data
processing
4. Orders are monitored
5. Orders are received
Design
Receiving
Suppliers
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
Centralized Supply at Honda
America
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Supplier Management
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Suppliers
 Purchased materials account for about half of
manufacturing costs
 Materials, parts, and service must be delivered on time, of
high quality, and low cost
 Suppliers should be integrated into their customers’
supply chains
 Partnerships should be established
 On-demand delivery (JIT) is a frequent requirement
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Supplier Related Issues
• Sourcing (choosing suppliers)
– Vendor analysis (evaluating sources of supply)
– Supplier audits
– Supplier certification
• Supplier relationship management
• Supplier partnerships
– CPFR
– Strategic partnering
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Sourcing
 Sourcing is the selection of suppliers
 Relationship between customers and suppliers focuses
on collaboration and cooperation
 Outsourcing has become a long-term strategic decision
 Organizations focus on core competencies
 Single-sourcing is
increasingly a part
of supplier relations
Vendor Analysis
Evaluating the sources of supply in terms of:
• Price
• Quality and quality pratices
• Flexibility
• Location
• Past experience
• Product or service changes
• Reputation and financial stability
• Lead times and on-time delivery
• Inventory policy
• Services (such as technical support and training) provided
The above criteria can be classified as 1) those related to the organization,
2) those related to the product, and 3) those related to the service provided
Supplier Audits and Certification
• Supplier audit
– A means of keeping current on suppliers’ production (or
service) capabilities, quality and delivery problems and
resolutions, and performance on other criteria
• Supplier certification
– Involves a detailed examination of a supplier’s policies
and capabilities
– The process verifies the supplier meets or exceeds the
requirements of a buyer
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
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
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Contrasting Supplier Relationships
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
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
Collaborative Planning,
Forecasting, and Replenishment
A system
based on the notion that there should be
information
sharing among supply chain trading partners
in planning, forecasting and inventory replenishment
cooperation
among supply chain trading partners in
planning
coordination
Requires
sharing)
of activities
partners to agree on common goals (goal
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
CPFR Process
• Internet-based exchange of data and information
• Significant decrease in inventory levels and more
efficient logistics
• Companies focus on core competencies
• Eliminates typical order processig
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
CPFR Results
• Nabisco and Wegmans
– 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
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Strategic Partnering
Two or more business organizations that have
complementary products or services join so that each
may realize a strategic benefit
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Order Fulfillment
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Order Fulfillment
Order fulfillment
– The process involved in responding to customer
orders
– Often a function of the degree of customization
required
• Common approaches
–
–
–
–
Engineer-to-order (ETO)
Make-to-order (MTO)
Assemble-to-order (ATO)
Make-to-stock (MTS)
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Figure 7.5 Order Fulfillment
at Amazon.com
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Distribution System Design
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Distribution System
Encompasses all of the distribution channels,
processes and functions, including warehousing and
transportation, that a product passes through on its
way to the final customer.
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Logistics
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Logistics
•
•
•
•
Refers to the movement of materials, services, cash and
information in a supply chain.
Includes:
movement within a facility,
incoming and outgoing shipments of goods and materials
(traffic management)
decisions on shipping methods and time
information flow throughout the supply chain (RFID to track
goods)
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Logistics Management
- Includes and Integrates all materials functions
 Purchasing
 Inventory management
 Production control
 Management of inbound outbound
transportation, material handling
 Warehousing and stores
 Order fulfillment and distribution
 Incoming quality control
Objective: Efficient, low cost operations
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Materials Movement Within a Facility
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Incoming and Outgoing Shipments
Traffic management
– Overseeing the shipment of incoming and
outgoing goods
• Handles schedules and decisions on shipping method
and times, taking into account:
–
–
–
–
Costs of shipping alternatives
Government regulations
Needs of the organization
Shipping delays or disruptions
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Distribution
 The actual movement of products and materials
between locations
 Handling of materials and products at receiving docks,
storing products, packaging, and shipping
 Often called logistics
 Driving force today
is speed
 Particularly important
for Internet dot-coms
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Transportation
 The movement of products and materials from one
location to another as it makes its way to the end-use
customer
 Important element, often overlooked
 Common methods are railroads, trucking, water, air,
intermodal, package carriers, and pipelines
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Evaluating Shipping Alternatives
Considerations include:
• Shipping costs
• Availabilitiy
• Materials being shipped
• Coordination of shipments with other SC activities
• Flexibility
• Speed
• Environmental considerations
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Distribution Centers
and Warehousing
 Trend is for more frequent orders in smaller
quantities
 Flow-through facilities and automated material
handling
 Final assembly and product configuration may be
done at the DC
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Warehouse Management Systems
 Highly automated systems
 Controls item putaway, picking, packing, and shipping
 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
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
A WMS
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Third-Party Logistics
The term used to describe the outsourcing of logistics
management.
Includes warehousing and distribution
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Reverse Logistics
Reverse logistics – the backward flow of goods returned to the supply
chain (the process of transporting returned items)
Products are returned to companies or third party handlers for a variety
of reasons (Defective products,recalled products,obsolete products,
unsold products, parts replaced in the field, items for recycling, waste)
and in a variety of conditions
Processing returned goods
• Sorting, examining/testing, restocking, repairing
• Reconditioning, recycling, disposing
Elements of return management
• Gatekeeping – screening returned goods to prevent incorrect
acceptance of goods
• Avoidance – finding ways to minimize the number of items that are
returned
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Global Supply Chain Management
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
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
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Complexities of Global Supply Chains
 National and regional differences
 Language and cultural differences
 Currency fluctuations
 Political instability
 Quality issues
 Customs, business practices,
 Nonhomogeneoity of foreign markets
 Financial and economic considerations
 Governmental, environmental and regulatory considerations.
 Increased transportation costs and lead time
 Increased need for trust amongst supply chain partners
 Local capabilities
 Inadequate transportation and communication infrastructures
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Infrastructure Obstacles to Global
Trade
 Some emerging markets lack suitable distribution
systems, i.e. roads, rail systems
 Existing roads and
ports may be inadequate
 Market instability,
political instability
 Vertical integration is a common solution
Global Supply-Chain Issues
Supply chains in a global environment must be:
– Flexible enough to react to sudden changes in parts
availability, distribution, or shipping channels, import duties, and
currency rates
– Able to use the latest computer and transmission
technologies to schedule and manage the shipment of parts in
and finished products out
– Staffed with local specialists to handle duties, trade, freight,
customs and political issues
Challanges within a Supply Chain
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Challenges to Optimizing SCs
Barriers to integration of organizations
Getting top management on board
Small businesses
Variability and uncertainty
Long lead times
Dealing with trade-offs
Trade-offs in SCM
1. Lot-size-inventory (bullwhip)
2. Inventory-transportation costs
– Cross-docking
3. Lead time-transportation costs
4. Product variety-inventory
– Delayed differentiation
5. Cost-customer service
– Disintermediation
Trade-Offs
• Lot-size-inventory trade-off
– Large lot sizes yield benefits in terms of quantity discounts and lower
annual setup costs, but it increases the amount of safety stock (and
inventory carrying costs) carried by suppliers
• Inventory-transportation costs
– Suppliers prefer to ship full truckloads instead of partial loads to
spread shipping costs over as many units as possible. This leads to
greater holding costs for customers
– Cross-docking
• A technique whereby goods arriving at a warehouse from a supplier are unloaded from
the suppliers truck and loaded onto outbound truck, thereby avoiding warehouse storage
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Trade-Offs
• Lead time-transportation costs
– Suppliers like to ship in full loads, but waiting for sufficient orders
and/or production to achieve a full load may increase lead time
• Product variety-inventory
– Greater product variety usually means smaller lot sizes and higher
setup costs, as well as higher transportation and inventory
management costs
– Delayed differentiation (a technique to increase SC efficiency)
• Production of standard components and subassemblies which are held until late in the
process to add differentiating features
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Trade-Offs
• Cost-customer service
– Producing and shipping in large lots reduces costs, but increases
lead time
– Disintermediation (a technique to increase SC efficiency)
• Reducing one or more steps in a supply chain by cutting out one or
more intermediaries
– Drop Shipping
• Shipping directly from the supplier to the end consumer, rather
than from the seller, saving both time and reshipping costs
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Techniques to Increase SC Efficiency
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Techniques to Increase SC Efficiency
• Delayed differentiation
Postponing the tasks of differentiating a product for a specific customer until
the latest possible point in the supply-chain network. Production of
standard components and subassemblies, which are held until late in the
process to add differentiating features
– Channel assembly (sending distributors the individual components and
modules rather than finished goods)
• Disintermediation
– Reducing one or more steps in a supply chain by cutting out one or more
intermediaries
+ Cross Docking
+ Drop Shipping
Other Techniques to Increase SC Efficiency
• Outsourcing
• Blanket orders (a long-term purchase commitment to a supplier
for items that are to be delivered against short-term releases to
ship
 Drop Shipping and Special Packaging – supplier will ship to end
consumer rather than to seller
• Vendor managed inventory systems The use of a local supplier
to maintain inventory for the manufacturer.
• Electronic ordering and funds transfer (paperless ordering,
payment by wire)
• Internet purchasing (e-procurement)
Potential Solutions to SC Problems
Problem
Potential
Improvement
Benefits
Possible
Drawbacks
Large
inventories
Smaller, more frequent Reduced holding
deliveries
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
Critical Issues in SCM
• Increased strategic importance
• Emphasis on cost, quality,agility and customer
service
• Technology management
• Increased conversion to lean production
• Just-in-time deliveries
• Few suppliers and vendor integration
• Increased outsourcing
• Globalization
Supply-Chain Performance
Compared
Administrative costs as
percent of purchases
Lead time (weeks)
Benchmark
Typical Firms
Firms
3.3%
0.8%
15
8
Time spent in placing order
42 minutes
15 minutes
Percentage of late deliveries
33%
2%
Percentage of rejected material
1.5%
.0001%
400
4
Number of shortages per year
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.