Adeyl Khan, Faculty, BBA, NSU
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.
Production
Purchasing
Receiving
Distribution
Storage Operations
Storage
Typical Supply Chains
Sometimes referred to as value chains
Adeyl Khan, Faculty, BBA, NSU
11-2
Facilities
Functions and Activities
•
•
•
•
•
•
Warehouses
Factories
Processing centers
Distribution centers
Retail outlets
Offices
Adeyl Khan, Faculty, BBA, NSU
•
•
•
•
•
•
•
•
Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Production and delivery
Customer service
11-3
 Typical Supply Chain for a Manufacturer
Supplier
Supplier
}
Storage
Mfg.
Storage
Dist.
Retailer
Customer
Supplier
 Typical Supply Chain for a Service
Supplier
Supplier
Adeyl Khan, Faculty, BBA, NSU
}
Storage
Service
Customer
11-4
Need for Supply Chain Management
 Improve operations
 Increasing levels of outsourcing
 Increasing transportation costs
 Competitive pressures
 Increasing globalization
 Increasing importance of e-commerce
 Complexity of supply chains
 Manage inventories
Adeyl Khan, Faculty, BBA, NSU
11-5
Bullwhip Effect
Demand
Initial
Supplier
Final Customer
Inventory oscillations become progressively
larger looking backward through the supply chain
Adeyl Khan, Faculty, BBA, NSU
11-6
Benefits of Supply Chain Management
 Lower inventories
 Higher productivity
 Greater agility
 Shorter lead times
 Higher profits
 Greater customer loyalty
 Integrates separate organizations into a cohesive
operating system
Adeyl Khan, Faculty, BBA, NSU
11-7
Benefits from SCM
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
Adeyl Khan, Faculty, BBA, NSU
11-8
Global Supply Chains
 Increasing more complex
 Language
 Culture
 Currency fluctuations
 Political
 Transportation costs
 Local capabilities
 Finance and economics
 Environmental
Adeyl Khan, Faculty, BBA, NSU
11-9
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
Adeyl Khan, Faculty, BBA, NSU
11-10
Strategic or Operational
 Two types of decisions in supply chain management
 Strategic – design and policy
 Operational – day-today activities
 Major decisions areas
 Location
 Production
 Inventory
 Distribution
Adeyl Khan, Faculty, BBA, NSU
11-11
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
Movement within the facility
Incoming and outgoing shipments
Bar coding
EDI
Distribution
0
JIT Deliveries
214800 232087768
Adeyl Khan, Faculty, BBA, NSU
11-12
Materials Movement
Work center
Work center
Work
center
Storage
Work
center
Storage
RECEIVING
Storage
Adeyl Khan, Faculty, BBA, NSU
Shipping
11-13
Distribution Requirements Planning
 Distribution requirements
planning (DRP) is a system
for inventory management
and distribution planning
 Extends the concepts of
MRPII
 Used to plan and
coordinate various
operations
Adeyl Khan, Faculty, BBA, NSU
Uses of DRP
• Transportation
• Warehousing
• Workers
• Equipment
• Financial flows
11-14
E-Business
 E-Business: the use of electronic technology to
facilitate business transactions
 Applications include
 Internet buying and selling
 E-mail
 Order and shipment tracking
 Electronic data interchange
Adeyl Khan, Faculty, BBA, NSU
11-15
Advantages E-Business
Advantages
• 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
Adeyl Khan, Faculty, BBA, NSU
Disadvantages
• Customer expectations
• Order quickly -> fast
delivery
• Order fulfillment
• Order rate often exceeds
ability to fulfill it
• Inventory holding
• Outsourcing loss of
control
• Internal holding costs
11-16
Reverse Logistics
 Reverse logistics – the backward flow of goods
returned to the supply chain
 Processing returned goods
 Sorting, examining/testing, restocking, repairing
 Reconditioning, recycling, disposing
 Gatekeeping – screening goods to prevent incorrect
acceptance of goods
 Avoidance – finding ways to minimize the number
of items that are returned
Adeyl Khan, Faculty, BBA, NSU
11-17
 Effective Supply Chain
Requires linking the
market, distribution
channels processes, and
suppliers
 Supply chain should enable
members to:
 Share forecasts
 Determine the status of
orders in real time
 Access inventory data of
partners
Adeyl Khan, Faculty, BBA, NSU
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
11-18
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
Adeyl Khan, Faculty, BBA, NSU
Total inventory days of supply
Cash-to-cash cycle time
Net asset turns
11-19
Attribute
Performance Attribute Definition
Level 1 Metric
Supply Chain
Reliability
Delivery Performance
The performance of the supply chain in
delivering: the correct product, to the
Fill Rates
correct place and customer, at the correct
time, in the correct condition and packaging,
Perfect Order Fulfillment
and with the correct quantity and
documentation
Supply Chain
Responsiveness
The velocity at which a supply chain provides
products to the customer.
Order Fulfillment Lead
Times
Supply Chain
Flexibility
The agility of a supply chain in responding to
marketplace changes to gain or maintain
competitive advantage.
Supply Chain Response
Time
Production Flexibility
Cost of Goods Sold
Supply Chain Costs
The costs associated with operating the supply
chain.
Total Supply Chain
Management Costs
Value-Added Productivity
Warranty / Returns
Processing Costs
Supply Chain Asset
Management
Efficiency
The effectiveness of an organization in managing
assets to support demand satisfaction. This
includes the management of all assets: fixed and
working capital.
Adeyl Khan, Faculty, BBA, NSU
Cash-to-Cash Cycle Time
Inventory Days of Supply
Asset Turn
11-20
RFID Technology
 Used to track goods in supply chain
 RFID tag attached to object
 Similar to bar codes but uses radio frequency to
transmit product information to receiver
 RFID eliminates need for manual counting and
bar code scanning
Adeyl Khan, Faculty, BBA, NSU
11-21
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
CPFR Process
•
•
•
•
•
•
•
•
Adeyl Khan, Faculty, BBA, NSU
1. Develop Front End Agreement
2. Create the Joint Business Plan
3. Create the Sales Forecast
4. Identify Exceptions for Sales
Forecast
5. Resolve/Collaborate on
Exception Items
6. Create Order Forecast 7.
Identify Exceptions for Order
Forecast
8. Resolve/Collaborate on
Exception Items
9. Order Generation
11-22
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
Adeyl Khan, Faculty, BBA, NSU
11-23
Creating an Effective Supply Chain
 Develop strategic objectives and tactics
 Integrate and coordinate activities in the internal
supply chain
 Coordinate activities with suppliers with customers
 Coordinate planning and execution across the
supply chain
SC Performance Drivers
 Form strategic partnerships
Inventory 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
Adeyl Khan, Faculty, BBA, NSU
•
•
•
•
•
Quality
Cost
Flexibility
Velocity
Customer service
11-24
Supply chain optimization
Challenges
•
•
•
•
•
•
Barriers to integration of organizations
Getting top management on board
Dealing with trade-offs
Small businesses
Variability and uncertainty
Long lead times
Adeyl Khan, Faculty, BBA, NSU
11-25
Trade-offs
 Bullwhip effect
 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
Adeyl Khan, Faculty, BBA, NSU
 Delayed differentiation
 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
11-26
Supply Chain Issues
Strategic
Issues
Design of the
supply chain,
partnering
Adeyl Khan, Faculty, BBA, NSU
Tactical Issues
Inventory policies
Purchasing policies
Production policies
Transportation
policies
Quality policies
Operating Issues
Quality control
Production planning
and control
11-27
Supply Chain Situational Comparison
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
Adeyl Khan, Faculty, BBA, NSU
11-28
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.
Adeyl Khan, Faculty, BBA, NSU
Goal of Purchasing
• Develop and implement
purchasing plans for
products and services that
support operations strategies
Duties of Purchasing
• Identifying sources of supply
• Negotiating contracts
• Maintaining a database of
suppliers
• Obtaining goods and services
• Managing supplies
11-29
Purchasing Interfaces
Legal
Operations
Accounting
Purchasing
Data
processing
Design
Receiving
Suppliers
11-30
Adeyl Khan, Faculty, BBA, NSU
Legal
Purchasing Cycle
•
•
•
•
•
Requisition received
Supplier selected
Order is placed
Monitor orders
Receive orders
Operations
Accounting
Purchasing
Data
processing
Design
Receiving
Suppliers
Adeyl Khan, Faculty, BBA, NSU
11-31
 Centralized purchasing
 Purchasing is handled by one special department
 Decentralized purchasing
 Individual departments or separate locations handle
their own purchasing requirements
 Value analysis
 Examination of the function of purchased parts and
materials in an effort to reduce cost and/or improve
performance
Adeyl Khan, Faculty, BBA, NSU
11-32
Supplier selection
 Choosing suppliers
Factors in Choosing a Supplier
 Evaluating sources of
•
•
•
•
•
•
•
•
supply
 Supplier audits
 Supplier certification
 Supplier relationships
 Supplier partnerships
Quality and quality assurance
Flexibility
Location
Price
Product or service changes
Reputation and financial stability
Lead times and on-time delivery
Other accounts
Evaluating Sources of Supply
• Vendor analysis: Evaluating the sources of
supply in terms of
• Price
• Quality
• Services
• Location
• Inventory policy
• Flexibility
Adeyl Khan, Faculty, BBA, NSU
11-33
Supplier as a Partner
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
Adeyl Khan, Faculty, BBA, NSU
11-34
Supplier Partnerships- Ideas could
improve competitiveness
 Reduce cost of making the purchase
 Reduce transportation costs
 Reduce production costs
 Improve product quality
 Improve product design
 Reduce time to market
 Improve customer satisfaction
 Reduce inventory costs
 Introduce new products or services
Adeyl Khan, Faculty, BBA, NSU
11-35
Critical Issues
Strategic importance
•
•
•
•
•
Cost
Quality
Agility
Customer service
Competitive advantage
Technology management
• Benefits
• Risks
Adeyl Khan, Faculty, BBA, NSU
Purchasing function
• Increased outsourcing
• Increased conversion to
lean production
• Just-in-time deliveries
• Globalization
11-36
Adeyl Khan, Faculty, BBA, NSU
37
Learning Objectives
 Explain what a supply chain is.
 Explain the need to manage a supply chain and the
potential benefits of doing so.
 Explain the increasing importance of outsourcing.
 State the objective of supply chain management.
 List the elements of supply chain management.
 Identify the strategic, tactical, and operations issues
in supply chain management.
 Describe the bullwhip effect and the reasons why it
occurs.
Adeyl Khan, Faculty, BBA, NSU
11-38
Learning Objectives
 Explain the value of strategic partnering.
 Discuss the critical importance of information
exchange across a supply chain.
 Outline the key steps, and potential challenges, in
creating an effective supply chain.
 Explain the importance of the purchasing function
in business organizations.
 Describe the responsibilities of purchasing.
 Explain the term value analysis.
 Identify several guidelines for ethical behavior in
purchasing.
Adeyl Khan, Faculty, BBA, NSU
11-39