Supply Chain Management
Chapter 10 pages 137-146
Business Plug-In B8 pages 332-345
Business Plug-In B21 pages 535-538 (RFID)
Managing the flows of information between all of the
parties directly and indirectly involved in the
procurement of a product or raw material.
Focus of Organizational Supply Chain
Strategies
• Efficiency: focus on performance
– Getting the most from each resource (optimize resources)
– Looks at throughput, speed, availability
• Throughput: the volume that can be sent through the system
• Effectiveness: focus on doing what is right
– Setting the right goals and objectives and making sure they
get accomplished.
• Looks at customer satisfaction, conversion rates, sell-through
increases
• Do things right and/or Do the right things
– How much of each do you do?
– Sometimes, you have to trade one for the other.
SUPPLY CHAIN DRIVERS
• Organizations use these four drivers to support
either a supply chain strategy focusing on efficiency
or a supply chain strategy focusing on effectiveness
Facilities
• Efficiency (saves money at expense of other things)
– Economies of scale when facilities centralized. Saves
money but further from customers and longer to deliver
– Save money by building a facility that is only big enough
to handle production requirements
– A single product focus lets me do a really good job
producing just one thing.
• Effectiveness (tends to increase costs)
– Goods can get to customers faster with more facilities
– Building in lots of extra capacity provides flexibility
– A multi-product focus may allow me to perform the
same operation on many different things.
Inventory
• Efficiency (saves money at expense of other things)
– Saves money by not holding much inventory or using as much
space. Incoming shipments must be received more frequently.
– A company can save money by not maintaining as much safety
stock, but runs the risk of disappointing customers if inventory
runs out during a busy season (such as Christmas)
– Single storage location
• Effectiveness (tends to increase costs)
– Spend money to hold larger amounts of inventory so as to
immediately be able to respond to customer needs.
– A company spends money by maintaining higher amounts of
safety stock so as to not run out during busy times (Christmas),
but not enough demand may lead to price cuts and losses.
– Multiple storage locations (close to customers)
• Decide whether to risk the expense of carrying too much
inventory (effective) or run the risk of losing sales (efficient)
Transportation
• Primary transportation methods
– Truck, rail, ship, air, pipeline, electronic
• Speed of delivery and price of delivery are difference drivers
• Efficiency (saves money at expense of other things)
– A company can save money by shipping goods inexpensively, but this
takes longer for the customer to receive the goods.
– Inexpensive shipping = Efficiency
• Effectiveness (tends to increase costs)
– To ensure speedy delivery, a more expensive delivery method is
selected.
– More expensive shipping = Effective
– A company that uses Federal Express to ship goods is focusing on safe
and timely delivery and not on the cost of delivery.
• Regardless of which transportation method is selected, having a
global inventory management system is vital (ability to track and locate all
components and materials in both the upstream and downstream portions of the supply
chain)
Information
• An organization must decide how and what information it wants to
share with its supply chain partners
• Efficiency (saves money at expense of other things)
– Freely sharing lots of information increases the speed and decreases the
cost of supply chain processing.
– Pull strategy: partners are responsible for retrieving/pulling information
when they need/want it (and they bear the cost of getting info)
– Must trust partners when letting them access your systems. Partners
control when info is pulled
• Effectiveness (tends to increase costs)
– Share only selected information with certain individuals, which will
decrease the speed and increase the costs of supply chain processing
– Push strategy: you send info to partners when YOU want to (partners
may have to wait to get what they need and you bear the cost of
sending/pushing info to them
– Using a push strategy, your organization controls what is shared and
when it is shared.
Wal-Mart’s strong
information flows allow it to
operate its business in a
just-in-time fashion
(JIT inventory)