Supply Chain

Management
Learning Objectives
Learning Objectives
Explain what a supply chain is.
Explain the need to manage a supply chain and
the potential benefits of doing so.
Explain the increasing importance of outsourcing.
State the objective of supply chain management.
List the elements of supply chain management.
Identify the strategic, tactical, and operations
issues in supply chain management.
Describe the bullwhip effect and the reasons why
it occurs.
Learning Objectives
Learning Objectives
Explain the value of strategic partnering.
Discuss the critical importance of information
exchange across a supply chain.
Outline the key steps, and potential challenges, in
creating an effective supply chain.
Explain the importance of the purchasing function
in business organizations.
Describe the responsibilities of purchasing.
Explain the term value analysis.
Identify several guidelines for ethical behavior in
purchasing.
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 Sometimes referred to value chains value chains
Warehouses
Factories
Processing centers
Distribution centers
Retail outlets
Offices
Facilities
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
Supplier
Supplier
Supplier
Storage
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Mfg. Storage Dist. Retailer Customer
Manufacturer
1.Improve operations
2.Increasing levels of outsourcing
3.Increasing of transportation costs
4.Competitive pressures
5.Increasing globalization
6.Increasing importance of e-commerce
7.Complexity of supply chains
8.Manage inventories
Need for Supply Chain
Need for Supply Chain
Management
Management
Benefits of Supply Chain Management
Benefits of Supply Chain Management
Lower inventories/increase inventory turnover
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty
Integrates separate organizations into a
cohesive operating system
Global Supply Chains
Global Supply Chains
Increasing more complex
Language
Culture
Currency fluctuations
Political
Transportation costs
Local capabilities
Finance and economics
Environmental
Strategic / Operational
Strategic / Operational
Two types of decisions in supply chain
management
Strategic design and policy
Operational day-today activities
Major decisions areas
Location
Production
Inventory
Distribution
Elements of Supply Chain
Elements of Supply Chain
Management
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
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
Logistics
Logistics
Movement within the facility
Incoming and outgoing shipments
Bar coding
RFID
EDI
Distribution
JIT Deliveries
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214800 232087768
Materials Movement
Materials Movement
R
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C
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I
V
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Storage
Work
center
Work center
Work center
Storage
Work
center
Storage
Shipping
Distribution requirements planning
(DRP) is a system for inventory
management and distribution planning
Extends the concepts of MRPII
Distribution Requirements
Distribution Requirements
Planning
Planning
Management uses DRP to plan and
coordinate:
Transportation
Warehousing
Workers
Equipment
Financial flows
Uses of DRP
Uses of DRP
E-Business: the use of electronic
technology to facilitate business
transactions
Applications include
Internet buying and selling
E-mail
Order and shipment tracking
Electronic data interchange (EDI)
E-Business
E-Business
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-Business
Advantages E-Business
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-Business
Disadvantages of E-Business
Reverse Logistics
Reverse Logistics
Reverse logistics the backward flow of
goods returned to the supply chain
Processing returned goods
Sorting, examining/testing, restocking, repairing
Reconditioning, recycling, disposing
Gatekeeping screening goods to prevent
incorrect acceptance of goods
Avoidance finding ways to minimize the
number of items that are returned
Effective Supply Chain
Effective Supply Chain
Requires linking the market, distribution
channels, processes, and suppliers
Supply chain should enable members to:
Share forecasts
Determine the status of orders in real time
Access inventory data of partners
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
Total inventory days of supply
Cash-to-cash cycle time
Net asset turns
Assets/utilization
Supply chain management costs
Warranty cost as a percent of revenue
Value added per employee
Expenses
Supply chain response time
Upside production flexibility
Flexibility
On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillment
Reliability
Metrics Perspective
RFID Technology
RFID Technology
Used to track goods in supply chain
RFID tag attached to object
Similar to bar codes but uses radio frequency
to transmit product information to receiver
RFID eliminates need for manual counting
and bar code scanning
CPFR
CPFR
Collaborative Planning, Forecasting, and
Replenishment
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
Supply Chain Performance Drivers
Supply Chain Performance Drivers
1.Quality
2.Cost
3.Flexibility
4.Velocity
5.Customer service
Velocity
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
Challenges
1. Lot size-inventory
Bullwhip effect
2. Inventory-transportation costs
Cross-docking
3. Lead time-transportation costs
4. Product variety-inventory
Delayed differentiation
5. Cost-customer service
Disintermediation
Trade-offs
Trade-offs
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 suppliers
truck and loaded onto outbound trucks
Avoids warehouse storage
Bullwhip Effect
Bullwhip Effect
Final Customer
Initial
Supplier
Demand
Inventory oscillations become progressively
larger looking backward through the supply chain
Trade-offs
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 Benefits and
Supply Chain Benefits and
Drawbacks
Drawbacks
Less variety Able to match
supply and
demand
Shorter lead times,
better forecasts
Variability
Loss of control Reduced cost,
higher quality
Outsourcing Cost
Quality
Less variety Fewer parts
Simpler ordering
Modular Large number of
parts
May not be feasible
May need absorb
functions
Quick response Delayed
differentiation
Disintermediation
Long lead times
Traffic congestion
Increased costs
Reduced holding
costs
Smaller, more
frequent deliveries
Large
inventories
Possible
Drawbacks
Benefits Potential
Improvement
Problem
Reduce inventory
Reduce inventory
Inventory level Inventory level
Process
downtime
Scrap
Setup
time
Late deliveries
Quality
problems
Inventory Inventory
level level
Reduce inventory
Reduce inventory
Scrap
Setup
time
Late deliveries
Quality
problems
Process
downtime
Inventory Inventory
level level
Reduce inventory
Reduce inventory
Scrap
Setup
time
Late deliveries
Quality
problems
Process
downtime
Reduce Lot Sizes
Reduce Lot Sizes
200 200
100 100
I
n
v
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n
t
o
r
y
I
n
v
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t
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Time Time
Q Q
2 2
When average order size When average order size = 100 = 100
average inventory is average inventory is 50 50
Q Q
1 1
When average order size When average order size = 200 = 200
average inventory is average inventory is 100 100
Purchasing is responsible for obtaining the
materials, parts, and supplies and services
needed to produce a product or provide a
service.
Purchasing cycle: Series of steps that begin
with a request for purchase and end with
notification of shipment received in
satisfactory condition.
Goal: Develop and implement purchasing
plans for products and services that support
operations strategies
Purchasing
Purchasing
Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies
Duties of Purchasing
Duties of Purchasing
Purchasing Interfaces
Purchasing Interfaces
Purchasing
Legal
Accounting
Operations
Data
processing
Design
Receiving
Suppliers
Purchasing Cycle
Purchasing Cycle
1.Requisition received
2.Supplier selected
3.Order is placed
4.Monitor orders
5.Receive orders
Value analysis
Examination of the function of purchased
parts and materials in an effort to reduce
cost and/or improve performance
Centralized purchasing
Purchasing is handled by one special
department
Decentralized purchasing
Individual departments or separate
locations handle their own purchasing
requirements
Centralized vs Decentralized
Centralized vs Decentralized
Purchasing
Purchasing
Choosing suppliers
Evaluating sources of supply
Supplier audits
Supplier certification
Supplier relationships
Supplier partnerships
Suppliers Management
Suppliers Management
Quality and quality assurance
Flexibility
Location
Price
Product or service changes
Reputation and financial stability
Lead times and on-time delivery
Other accounts
Factors in Choosing a Supplier
Factors in Choosing a Supplier
Vendor analysis - evaluating the
sources of supply in terms of
Price
Quality
Services
Location
Inventory policy
Flexibility
Evaluating Sources of Supply
Evaluating Sources of Supply
Supplier as a Partner
Supplier as a Partner
Nearness is important Widely dispersed Location
Relatively high Relatively low Flexibility
High May be low Volume of business
At the source; vendor
certified
May be unreliable;
buyer inspects
Quality
High Low Openness
High May not be high Reliability
Moderately important Major consideration Low price
Long-term May be brief Length of relationship
One or a few Many Number of suppliers
Partner Supplier Aspect
Ideas from suppliers could lead to
improved competitiveness;
1.Reduce cost of making the purchase
2.Reduce transportation costs
3.Reduce production costs
4.Improve product quality
5.Improve product design
6.Reduce time to market
7.Improve customer satisfaction
8.Reduce inventory costs
9.Introduce new products or services
Supplier Partnerships
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