Supply Chain Management
• The Supply Chain encompasses all activities
associated with the flow and transformation of
goods from the raw materials stage, through to the
end user, as well as the associated information
flows.
• SCM is the integration of these activities through
improved supply chain relationships, to achieve a
sustainable competitive advantage.
• In the global supply chain management
manufacturing and distribution facilities are
scattered around the world.
Linear Supply Chain
• Downstream flow (flow of physical goods):
supplier, manufacturer, wholesaler, retailer.
• Upstream flow (flow of demand information):
retailer, wholesaler, manufacturer, supplier
(purchasing managers are responsible for ensuring
that the right suppliers are selected, they are
meeting performance expectations, appropriate
contractual mechanisms are employed, and a good
relationship is maintained).
laptop:
P. Cereal
A Cereal Manufacturer’s Supply
Chain
Grain
Cereal
P.Cereal
P. Cereal
P. Cereal
g.store
farmer
processing
packaging
distributor
Paperboard
Corrugated
manufacturer
Labels
Wood
Lumber Co
Label manufacturer
customer
Inventory Management Across
the Supply Chain
• “Perfect orders” are demanded
• The reduction of delivery times both in the
marketplace and through the supply chain
(Hewlett-Packard, Toyota, Xerox are called “timebased competitors”)
• Customers award their business to time-based
competitors because they can reduce their
inventory levels while saving time and money.
Supply Chain Relationships
• Develop a better understanding of suppliers’ processes,
suppliers’ quality and their delivery performance.
• Establish communication links with customers and
suppliers and utilize those links on a regular basis.
• Introduce an objective performance measurement system.
• Improve trust between buyers and suppliers by improving
communication, joint problem solving projects, training
seminars on sharing corporate philosophies (eliminate nonvalue added processes)
Challenges Facing SCM
• Implementation of an integrated supply
chain is very difficult.
• Very often information systems differ and
supply chain members are reluctant to share
information.
• Delays in shipments due to customs,
adverse weather patterns, poor
communication and human error.
Three Main Aspects of SCM
• SCM as a cross-functional entity
• SCM as a strategic user of inventory and other
production resources (balancing demand &
capacity)
• SCM as the integrator and coordinator of
production and logistics activities. This approach
is the essence of the SCM and it helps to achieve
operational efficiency with regard to cost, lead
times, and customer service.
The Bullwhip Effect in SCM
• Orders to the upstream member in a supply
chain exhibit greater variance than actual
orders at the point of retail sale (demand
distortion)
• The variance of orders increases as one
moves upstream (variance propagation)
Four Causes of the Bullwhip
Effect
• Demand forecast updating
• Order batching
• Price fluctuations (P&G and Motorola
programs to stabilize prices and smooth
demand patterns)
• Rationing within the supply chain
(Motorola rationing scheme)
Examples
• A supply chain for processed cereal begins with
grain, sugar cane, and other ingredients growing
on farms. In 1995 it took 104 days (over 3.5
months) for a typical box of cereal to make its way
from the manufacturer to the grocer’s shelf.
• In the apparel industry it takes 58.5 weeks for a
typical dress to get to the customer (only 15 weeks
are in-process inventory ).
Examples (continued)
• The Limited and Benetton use tighter
supply chains and faster replenishment of
products to eliminate unnecessary
inventory, stockouts, and markdowns.
• The Hewlett-Packard (HP) Deskjet printer
was able to reduce its inventories within the
Vancouver factory from 3.5 months to .9
months.
Avoiding the Bullwhip Effect
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•
•
•
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Access to market demand information (use Pos data)
Information sharing across supply chain links (use EDI)
Vendor Managed Inventory (VMI)
Lead time reduction and JIT supply
Reduction of processing costs (use CAO)
Use third party logistics
Reduce frequency and magnitude of special deals and consumer
promotions
• Use Continuous Replenishment Program (CRP)
• Use better product allocation policies
• Apply penalties on order cancellations
Interorganizational Information
Systems (IOIS)
• IOIS are systems based on information
technologies that cross organizational
boundaries.
• The foundation of the IOIS is the ability to
share information within the supply chain.
• IOIS is an integrated data-processing/datacommunication system utilized by two or
more separate organizations.
Advantages of an IOIS
• Cost reductions
• Productivity improvements
• Product/market strategy
Software Applications Pertinent
to SCM
• Base Rate, Carrier Select, and Match Pay
developed by Distribution Sciences, Inc.
(compute freight costs, compares
transportation mode rates, analyzes cost and
savings effectiveness of carriers)
• Supply Chain Planning by Ross Systems,
Inc. (end-to-end enterprise resource
planning)
Other Technologies in SCM
• Bar coding/scanning (Wal-Mart, FedEx)
• Data warehouses (a data warehouse is a
consolidated database maintained separately
from an organization’s production system
databases: for example, tracking sales and
coupon mailings)
• DSS (Decision Support Systems)
Specific Technologies for an
Effective DSS
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•
•
•
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SQL interface
Expert system rules
Scheduling algorithms
Linear programming algorithms
Blocked scheduling
Graphical user interface (GUI): custom windows, dialog
boxes, pull down menu, etc.
• Demand management
• User definable database (object oriented approach)
International Considerations
• Greater geographic distances and time differences
• Added forecasting difficulties and inaccuracies
• Multiple national operations locations (exchange rates and
other macroeconomic uncertainties)
• Infrastructural inadequacies ( worker skills, supply
availability and supplier quality, lack of local process
equipment and technologies, inadequacies in transportation
and telecommunication infrastructure)
• Explosive dimensions of product variety in global markets
(computer products build with different supply modules,
e.g. local voltage, keyboards, manuals, etc.)
Vertical Integration (VI) and
Local Suppliers (LS)
• Country environment (market size and
growth, labor cost, labor skill, local
managerial capacity, political risk,import
controls, cultural compatibility)
• Competitive situation (industry
concentration, relative competitive strength)
• Company characteristics ( see pages 228
and 229 in the textbook)
Additional Costs Associated with
Global SCM
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•
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Manufacturing costs
Movement costs
Incentive costs and subsidies – taxes & subsidies
Intangible costs – quality costs, product adaptation
or performance cost & coordination
• Overhead costs – total current landed costs
• Sensitivity to long-term costs – productivity and
wage changes, exchange rate changes, product
design, core competence.