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Supply Chain Management Introduction

Supply Chain Management:

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. Sometimes referred to as value chains


Warehouses Factories Processing centers Distribution centers Retail outlets Offices Facilities

Functions and Activities:

Functions and Activities Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service

Typical Supply Chains:

Typical Supply Chains Purchasing Receiving Storage Operations Storage Production Distribution

Typical Supply Chain for a Manufacturer:

Typical Supply Chain for a Manufacturer Supplier Supplier Supplier Storage } Mfg. Storage Dist. Retailer Customer Figure 14.1a

Typical Supply Chain for a Service:

Supplier Supplier } Storage Service Customer Typical Supply Chain for a Service Figure 14.1b

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 Need for Supply Chain Management

Bullwhip Effect:

Bullwhip Effect Tier 2 Suppliers Tier 1 Suppliers Producer Distributor Retailer Final Customer Amount of inventory = Figure 14.3

Benefits of Supply Chain Management:

Benefits of Supply Chain Management 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

Benefits of Supply Chain Management:

Benefits of Supply Chain Management Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty

Elements of Supply Chain Management:

Elements of Supply Chain Management Deciding how to best move and store materials Logistics Determining location of facilities Location Monitoring supplier quality, delivery, and relations Suppliers Evaluating suppliers and supporting operations Purchasing Meeting demand while managing inventory costs Inventory Controlling quality, scheduling work Processing Incorporating customer wants, mfg., and time Design Predicting quantity and timing of demand Forecasting Determining what customers want Customers Typical Issues Element Table 14.1


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 Logistics


Logistics Movement within the facility Incoming and outgoing shipments Bar coding EDI Distribution JIT Deliveries 0 214800 232087768

Materials Movement:

Materials Movement Figure 14.4 RECEIVING Storage Work center Work center Work center Storage Work center Storage Shipping

Distribution Requirements Planning:

Distribution requirements planning (DRP) is a system for inventory management and distribution planning Extends the concepts of MRPII Distribution Requirements Planning

Uses of DRP:

Management uses DRP to plan and coordinate: Transportation Warehousing Workers Equipment Financial flows Uses of DRP

Electronic Data Interchange:

Electronic Data Interchange EDI – the direct transmission of interorganizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos.

Electronic Data Interchange:

Increased productivity Reduction of paperwork Lead time and inventory reduction Facilitation of just-in-time systems Electronic transfer of funds Improved control of operations Reduction in clerical labor Increased accuracy Electronic Data Interchange

Efficient Consumer Response:

Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry Reflects companies’ efforts to achieve quick response using EDI and bar codes Efficient Consumer Response


E-Commerce : the use of electronic technology to facilitate business transactions Applications include Internet buying and selling E-mail Order and shipment tracking Electronic data interchange E-Commerce

Advantages E-Commerce:

Companies can: 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 Advantages E-Commerce

Disadvantages of E-Commerce:

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 Disadvantages of E-Commerce

Successful Supply Chain:

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

SCOR Metrics:

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 Total inventory days of supply Cash-to-cash cycle time Net asset turns Table 14.4


CPFR C ollaborative P lanning, F orecasting, and R eplenishment Focuses on information sharing among trading partners Forecasts can be frozen and then converted into a shipping plan Eliminates typical order processing

CPFR Process:

CPFR Process Step 1 – Front-end agreement Step 2 – Joint business plan Steps 3-5 – Sales forecast Steps 6-8 – Order forecast collaboration Step 9 – Order generation/delivery execution

CPFR Results:

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

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 Form strategic partnerships Creating an Effective Supply Chain

Supply Chain Performance Drivers:

Supply Chain Performance Drivers Quality Cost Flexibility Velocity Customer service


Velocity 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


Barriers to integration of organizations Getting top management on board Dealing with trade-offs Small businesses Variability and uncertainty Long lead times Challenges


Lot-size-inventory Bullwhip effect Inventory-transportation costs Cross-docking Lead time-transportation costs Product variety-inventory Delayed differentiation Cost-customer service Disintermediation Trade-offs


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


Trade-offs 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

Supply Chain Issues:

Supply Chain Issues Quality control Production planning and control Inventory policies Purchasing policies Production policies Transportation policies Quality policies Design of the supply chain, partnering Operating Issues Tactical Issues Strategic Issues

Supply Chain Benefits and Drawbacks:

Supply Chain Benefits and Drawbacks 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 Table 14.5


Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service. Purchasing

Goal of Purchasing:

Develop and implement purchasing plans for products and services that support operations strategies Goal of Purchasing

Duties of Purchasing:

Identifying sources of supply Negotiating contracts Maintaining a database of suppliers Obtaining goods and services Managing supplies Duties of Purchasing

Purchasing Interfaces:

Purchasing Interfaces Purchasing Legal Accounting Operations Data processing Design Receiving Suppliers Figure 14.5

Purchasing Cycle:

Purchasing Cycle Requisition received Supplier selected Order is placed Monitor orders Receive orders Purchasing Legal Accounting Operations Data process- ing Design Receiving Suppliers

Value Analysis vs. Outsourcing:

Value analysis Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance Value Analysis vs. Outsourcing

Centralized vs Decentralized Purchasing:

Centralized purchasing Purchasing is handled by one special department Decentralized purchasing Individual departments or separate locations handle their own purchasing requirements Centralized vs Decentralized Purchasing


Choosing suppliers Evaluating sources of supply Supplier audits Supplier certification Supplier relationships Supplier partnerships Suppliers

Factors in Choosing a Supplier:

Quality and quality assurance Flexibility Location Price Factors in Choosing a Supplier

Factors in Choosing a Supplier (cont’d):

Product or service changes Reputation and financial stability Lead times and on-time delivery Other accounts Factors in Choosing a Supplier (cont’d)

Evaluating Sources of Supply:

Evaluating Sources of Supply Vendor analysis : Evaluating the sources of supply in terms of price, quality, reputation, and service

Evaluating Sources of Supply:

Vendor analysis - evaluating the sources of supply in terms of Price Quality Services Location Inventory policy Flexibility Evaluating Sources of Supply

Supplier as a Partner:

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 Table 14.9

Supplier Partnerships:

Ideas from suppliers could lead to improved 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 Supplier Partnerships

Critical Issues:

Critical Issues Strategic importance Cost Quality Agility Customer service Competitive advantage Technology management Benefits Risks

Critical Issues:

Critical Issues Purchasing function Increased outsourcing Increased conversion to lean production Just-in-time deliveries Globalization