1. Supply Chain Management
Chapter 10
Supply Chain Management
Operations Management - 5th Edition
Roberta Russell & Bernard W. Taylor, III

2. Lecture Outline Supply Chain Management (SCM) basics SCM objectives
SCM decision phases
Distribution and Transportation
Recent trends in SCM

3. What is a Supply Chain?
All facilities, functions, activities, associated with flow and transformation of goods and services from raw materials to customer, as well as the associated information flows
An integrated group of processes to “source,” “make,” and “deliver” products
All parties involved, directly or indirectly, in the fulfillment of a customer request

4. “Supply Networks” Most supply chains have multiple suppliers
A better term would be Supply Networks

5. Supply Chain Illustration

6. Supply Chain for Denim Jeans

7. Supply Chain for Denim Jeans (cont.)

8. Supply Chain Processes

9. Supply Chain for Service Providers
More difficult than manufacturing
Does not necessarily focus on the flow of physical goods
Focuses on human resources and support services
More compact and less extended

10. Supply Chain Management (SCM)
Managing flow of information through supply chain in order to attain the level of synchronization that will make it more responsive to customer needs while lowering costs
Keys to effective SCM
information
communication
cooperation
trust

11. Objectives of SCM Maximize value Increase firm’s profitability
Increase revenue
Responsiveness, flexibility
Reduce costs
For making product, transportation, receiving orders, and customer service

12. Value vs. Supply Chain Value chain Supply chain
every step from raw materials to the eventual end user
ultimate goal is delivery of maximum value to the end user
Supply chain
activities that get raw materials and subassemblies into manufacturing operation
Terms are often used interchangeably

13. The Value Chain: Linking SC and Business Strategy
New
Product
Development
Marketing
and
Sales
Operations
Distribution
Service
Finance, Accounting, Information Technology, Human Resources
Business Strategy
New Product
Strategy
Supply Chain Strategy

14. SCM Decision Phases Supply chain strategy or design
Supply chain planning
Supply chain operations

15. Strategy and Design
How should the SC be structured over several years?
What should be the locations and capacities of production and warehousing?
How should we take into account uncertainty in future market conditions?

16. How is Strategic Fit Achieved?
Step 1: Understanding the customer and demand uncertainty
Step 2: Understanding the supply chain
Step 3: Implementing policies to match strategic business model with the supply chain

17. Step 1: Understanding Customer and Demand Uncertainty
Identify the needs of the customer segment(s) being served
Demand uncertainty: how much product is demanded by each customer segment?
SC uncertainty: what can go wrong within the SC?
Late deliveries, inflated orders, long variable lead times, incomplete shipments, bad quality shipments
One “solution” to this problem is to hold extra inventory.
Is this a good idea?

18. Bullwhip Effect
Occurs when slight demand variability is magnified as information moves back upstream

19. Step 2: Understanding the SC
There is a cost to achieving responsiveness
High
Low
Responsiveness
Cost

20. Step 3: Achieving Strategic Fit
Ensure SC is consistent with target customers’ needs
Implied uncertainty spectrum
Responsive supply chain
Efficient supply chain
Certain demand
Uncertain demand
Responsiveness spectrum
Zone of Strategic Fit

21. Obstacles to Achieving Strategic Fit
Increasing variety of products
Decreasing product life cycles
Increasingly demanding customers
Fragmentation of SC ownership
Globalization
Difficulty executing new strategies

22. Supply Chain Planning Intermediate range planning (quarter to a year)
Similar to aggregate planning (Chap 13)
Start with forecast, consider options for supply, timing of marketing promotions

23. Supply Chain Operations
Daily to weekly planning
Goal is handle incoming order in best possible manner
Allocate inventory or production to particular orders, decide shipment mode, set delivery schedule, place replenishment orders

24. Supply Chain Integration
Getting the various supply chain members to collaborate and work together
IT has been an integral part

25. Suppliers and Outsourcing
selection of suppliers
Outsourcing
purchase of goods and services from an outside supplier
Core competencies
what a company does best
Single sourcing
a company purchases goods and services from only a few (or one) suppliers

26. Distribution
Encompasses all channels, processes, and functions, including warehousing and transportation, that a product passes on its way to final customer
Often called logistics
Logistics
transportation and distribution of goods and services
Driving force today is speed
Particularly important for Internet dot-coms

27. Amazon.com

28. Distribution Centers (DCs)
DCs are some of the largest business facilities in the United States
Trend is for more frequent orders in smaller quantities
Flow-through facilities and automated material handling
Postponement
final assembly and product configuration may be done at the DC

29. Transportation Rail Trucking
low-value, high-density, bulk products, raw materials, intermodal containers
not as economical for small loads, slower, less flexible than trucking
Trucking
main mode of freight transport in U.S.
small loads, point-to-point service, flexible
More reliable, less damage than rails; more expensive than rails for long distance

30. Transportation (cont.)
Air
most expensive and fastest, mode of freight transport
lightweight, small packages <500 lbs
high-value, perishable and critical goods
less theft
Package Delivery
small packages
fast and reliable
increased with e-Business
primary shipping mode for Internet companies

31. Transportation (cont.)
Water
low-cost shipping mode
primary means of international shipping
U.S. waterways
slowest shipping mode
Intermodal
combines several modes of shipping-truck, water and rail
key component is containers
Pipeline
transport oil and products in liquid form
high capital cost, economical use
long life and low operating cost

32. SCM Software Enterprise Resource Planning (ERP)
software that integrates components of a company by sharing and organizing information and data
SAP was first ERP software
mySAP.com
web enabled modules that allow collaboration between companies along the supply chain

33. Recent Trends in SCM RFID Globalization Supply chain security
Network optimization
Transportation issues

34. RFID Capabilities

35. RFID Capabilities (cont.)

36. Global Supply Chain
To compete globally requires an effective supply chain
Information technology is an “enabler” of global trade
Nations form trading groups
No tariffs or duties

37. Obstacles to Global Chain Transactions
Increased documentation for invoices, cargo insurance, letters of credit, ocean bills of lading or air waybills, and inspections
Ever changing regulations that vary from country to country that govern the import and export of goods
Trade groups, tariffs, duties, and landing costs
Limited shipping modes
Differences in communication technology and availability

38. Obstacles to Global Chain Transactions (cont.)
Different business practices as well as language barriers
Government codes and reporting requirements that vary from country to country
Numerous players, including forwarding agents, custom house brokers, financial institutions, insurance providers, multiple transportation carriers, and government agencies
Since 9/11, numerous security regulations and requirements

39. Effects of 9/11 on Global Chains
Increase security measures
added time to supply chain schedules
Increased supply chain costs
24 hours rules for “risk screening”
extended documentation
extend time by 3-4 days
Inventory levels have increased 5%
Other costs include:
new people, technologies, equipment, surveillance, communication, and security systems, and training necessary for screening at airports and seaports around the world