MBA 8452 Systems and Operations Management
Supply Chain
Management
Introduction to Operations Management/
Operations Strategy
Process Analysis
and Design
Project
Management
Process
Analysis
Planning for Production
Process Control
and Improvement
Capacity Management
Quality
Management
Aggregate Planning
Job Design
Just in Time
Manufacturing
Layout/
Assembly Line Balancing
Services
Statistical
Process Control
Scheduling
Inventory Control
Supply Chain
Management
Waiting Line Analysis
2
Objective: Supply Chain Management

Explain the Purchasing Process


Define Supply Chain Management


Supplier Relationships
Bullwhip Effect
Discuss Outsourcing Decisions
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The Purchasing Process

Initiate a requisition


proactive vs reactive purchasing
Identify the source of materials

internal vs external (outsourcing)l


new buy vs rebuy



cost, strategic nature, available sources
new contract, old contract
negotiation process
Place, track and receive the order

EDI, Bar Codes, EFT payment
4
Origins of Purchasing and Supply
Management

Types of Purchasing in Business




resale
consumption
conversion
Purchasing’s Role in Business



department v/s function
purchased materials as elements required for productive work
purchasing as the manager for outside manufacturing
5
Transition to Supply Management

Two shifts in focus

Value-adding benefits






Quality
Technology
Supply
Time
Costs
Strategic focus

Evolution of purchasing function
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Four Stages of Purchasing and Supply Management Development
Stage 4
Strategic
Supply
Management
Stage 3
Proactive
Stage 2
Mechanical
Stage 1
Reactive
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Purchasing/Supply Management
Function

The strategic role of purchasing/supply
management in the firm


high level of responsibility and
accountability
Professionalism in the field- Institute for
Supply Management
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What Is
Supply Chain Management?

Supply Chain


A network of interrelated facilities and
activities that create and deliver products and
services to end customers
Supply Chain Management (SCM)

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 customer
9
Supply Chain Illustration
Suppliers
Manufactures
Warehouses &
Customers
Distribution Centers
10
The Supply Chain Flows
Information Capacity, promotion plans, delivery schedules
Material Raw materials, Intermediate products, finished goods
Finance Credits, consignment, payment terms, invoice
Suppliers
Manufacturers
Distributors
Retailers
Customers
Returns, repairs, servicing, recycling, disposal
Payments, consignment
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Information Distortion in Supply Chain
The Bullwhip Effect
Customer’s Demand
to Retailers
Retailer’s Orders
to Wholesalers
Time
Wholesaler’s Orders
to Manufacturers
Time
Manufacturer’s Orders
to Suppliers
Time
Time
Bullwhip Effect: The increasing variability in demand
orders from downstream customers to upstream
suppliers
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The Bullwhip Effect
Causes


Uncertainty at every stage of supply
chain
Lack of information sharing and
coordination among supply chain
members
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The Bullwhip Effect
Consequences

Inefficiency and/or irresponsiveness in
the supply chain operations

Excessive inventory

Poor demand forecasts

Insufficient or excessive capacities

Poor customer services
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Improve Supply Chain Performance

Information and knowledge Sharing

Coordination and Integration

Right Supply Chain Choice

Product/Process Postponement
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Information Sharing



Critical to supply chain success
The key to reduce/eliminate the
bullwhip effect
The enabler for supply chain integration
and coordination
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Information Sharing
What Information to Share?
Information
Category
Product
Customer
Supplier
Production process
Transportation
Inventory
Sales and marketing
Supply chain process
& Performance
Examples
Product specifications, price/cost, product sales history
Customer forecasts, customer sales history
Product line, lead times, sales terms and conditions
Capacities, production plan
Carriers, lead times, cost
Inventory levels, carrying costs, inventory locations
Point-of-sale information, promotional plans
Process description, performance measures, cost,
quality, delivery, time, customer satisfaction, etc.
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Coordination and Integration

Trust

Communication

Shared performance measures

Risk and reward sharing
Example: Vendor Managed Inventory (VMI)
18
Supply Chain
Performance Measures
Costs
Total supply chain costs
Customer satisfication
/Service Quality
Perfect order filfillment, Customer
satisfaction, Product quality
Time
ddddddddddddddddd
Order fulfillment lead time, Supply chain
response time, Source/make cycle time
Profitability/Assets
Useage
kadddddddddddddddd
k kk
Return on total supply chain assets, Net
operating profit after tax, Cash-to-cash
cycle time, Inventory turnover/Days of
supply, Capacility utilization
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Inventory Related Measures of
Supply Chain Performance

Inventory Turnover
Cost of goods sold
Inventory Turnover =
Average aggregate inventory value

Weeks of Supply
Weeks of Supply =
Average aggregate inventory value
Cost of goods sold
20
Choosing the Right Supply Chain
Know Your Products

Functional vs. Innovative Products
Product life cycle
Functional
(Predictable Demand)
More than 2 years
Innovative
(Unpredictable Demand)
3 months to 1 year
Contribution margin
5% to 20%
20% to 60%
Product variety
Low (10 to 20 variants
per category)
10%
high (often millions of
variants per category)
40% to 100%
Average margin of error
in the forecast at the time
production is committed
Average stockout rate
1% to 2%
Average forced end-ofseason markdown as
percentage of full price
Lead time required for
made-to-order products
10% to 40%
0%
10% to 25%
6 months to 1 year
1 day to 2 weeks
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Physically Efficient or
Market-Responsive Supply Chain?
Primary purpose
Manufacturing focus
Physically Efficient
Process
Supply predictable demand
efficiently at the lowest
possible cost
Maintain high average
utilization rate
Inventory strategy
Generate high turns and
minimize inventory
throughout the chain
Lead-time focus
Shorten lead time as long as
it doesn’t increase cost
Approach to choosing
Select primarily for cost and
suppliers
quality
Product-design strategy Maximize performance and
minimize cost
Market-Responsive Process
Respond quickly to
unpredictable demand in order
to minimize stockouts, forced
markdowns, and obsolete
inventory.
Deploy excess buffer capacity
Deploy significant buffer stocks
of parts or finished goods
Invest aggressively in ways to
reduce lead time
Select primarily for speed,
flexibility, and quality.
Use modular design in order to
postpone product differentiation
for as long as possible.
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Matching Supply Chains
with Products
Functional
Products
Efficient
Supply-Chain
Responsive
Supply-Chain
Match
Mismatch
Innovative
Products
Mismatch
Match
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