CHAPTER 6
Supply Chain Management
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
6-2
What is Supply Chain
Management?
Supply Chain management deals with the
control of materials, information, and
financial flows in a network consisting of
suppliers, manufacturers, distributors, and
customers (Stanford Supply Chain Forum
Website).
Another definition (from
Fortune magazine article in
1994):
Call it distribution or logistics or supply chain
management... In industry after industry . . .
executives have plucked this once dismal
discipline off the loading dock and placed it
near the top of the corporate agenda. Hardpressed to knock out competitors on quality
or price, companies are trying to gain an
edge through their ability to deliver the
right stuff in the right amount of time.”
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Why so much interest in
Supply Chain Management
recently?
As manufacturing becomes more efficient (or is
outsourced), companies look for ways to reduce costs
Several significant success stories. Efficient SCM
gives Walmart, HP, others, an important edge
Considers the broad, integrated, view of materials
management from purchasing through distribution
The huge growth of interest in the web has spawned
web-based models for supply chains: from “dot com”
retailers to B 2 B business models. (I2 technologies
and Agile Software are two successful providers).
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Analytical Methods to Support
SCM implementation
The transportation problem and more
general network formulations for describing
flow of goods in a complex system
Inventory management and demand
forecasting models such as those discussed
in this course
Analytical methods for determining
delivery routes for product distribution.
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Designing For Supply Chain Efficiency 1: Postponement in Supply Chains
Several companies have been able to cut costs
and improve service by postponing the final
configuration of the product until the latest
possible point in the supply chain. Examples:
Bennetton producing “grey stock”
Hewlett Packard printer configuration
Postponement of final programming of
semiconductor devices
Assemble to order rather than assemble to stock
(Dell Computer)
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Designing for Supply Chain Efficiency 2:
Design for Logistics
Many firms now consider SCM issues in
the design phase of product development.
(This has been referred to DFL or Design
for Logistics). One example is IKEA whose
furniture comes in simple to assemble kits
that allows them to store the furniture in the
same warehouse-like locations where they
are displayed and sold.
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Efficient Design of the Supplier Base
Part of streamlining the supply chain is
reducing the number and variety of
suppliers. The Japanese have been very
successful in this arena. Another example:
In the mid 1980’s Xerox trimmed its
number of suppliers from 5,000 to 400.
Overseas suppliers were chosen based on
cost, and local suppliers were chosen based
on delivery speed.
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Dell Designs the Ultimate Supply
Chain
Dell Computer has been one of the most successful
PC retailers. Why? To solve the problem of
inventory becoming obsolete, Dell’s solution:
Don’t keep any inventory! - All PC’s are made to
order and parts shipped directly from
manufacturers when possible. Compare to the
experience of Compaq Corporation. (initial success
selling through low cost retail warehouses, but did
not garner web-based sales).
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Information Transfer in Supply
Chains: Vendor Managed
Inventory
Barilla SpA. Italian pasta producer.
Pioneered the use of VMI (Vendor
Managed Inventory). They obtained sales
data directly from distributors and decide
on delivery sizes based on that information
(as opposed to allowing distributors to
independently decide on order sizes).
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Information Transfer in Supply
Chains: The Bullwhip Effect
First noticed by P&G executives examining the
order patterns for Pampers disposable diapers.
They noticed that order variation increased
dramatically as one moved from retailers to
distributors to the factory. (See next slide.) The
causes are not completely understood but have to
do with batching of orders and building in safety
stock at each level. Problem: increases the
difficulty of planning at the factory level.
The effect is illustrated by the Beer Game.
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Example of the Bullwhip Effect in Supply Chains
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The Explosive Growth of E-tailing.
E-tailing: Direct to customer sales on the
web. Perhaps best known e-tailer is
Amazon.com, originally a web-based
discount book seller. Today, sells wide
range of products. The so called “dot com”
stocks fueled large gains in the NASDAQ in
1999 to be followed by a major decline
since April, 2000. Today, many traditional
“bricks and mortar” retailers also offer sales
over the web, often at lower prices.
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B2B Supply Chain Management
B2B (business to business) supply chain
management:. While not as visible and “sexy” as Etailing, it appears that B2B supply chain
management is the true growth industry. A search
on Yahoo yielded over 80 matches for supply chain
software providers. Some of the major players in
this market segment include:
Agile Software based in Silicon Valley.
 i2 Technologies based in Dallas.
 Ariba based in Silicon Valley
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Other Technologies
EDI: Electronic Data Interchange.
Transmisson of documents electronically in
a predetermined format from company to
company. (Not web based.) The formats are
complex and expensive. It appears to be on
the decline as web-based systems grow.
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Global Concerns in SCM
Moving manufacturing offshore to save
direct costs complicates and adds expense
to supply chain operations, due to:
increased inventory in the pipeline
Infrastructure problems
Political problems
Dealing with fluctuating exchange rates
Obtaining skilled labor
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Trends in Supply Chain Management
Outsourcing of the logistics function
(example: Saturn outsourced their logistics
to Ryder Trucks. Outsourcing of
manufacturing is a major trend these days).
Moving towards more web based
transactions systems
Improving the information flows along the
entire chain.