1. CHAPTER 6 Supply Chain Management McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. What is Supply Chain Management? uSupply Chain management deals with the control of materials, information, and financial flows in a network consisting of suppliers, manufacturers, distributors, and customers (Stanford Supply Chain Forum Website). 6-2

3. Another definition (from Fortune magazine article in 1994): Call it distribution or logistics or supply chain management... In industry after industry... executives have plucked this once dismal discipline off the loading dock and placed it near the top of the corporate agenda. Hard- pressed to knock out competitors on quality or price, companies are trying to gain an edge through their ability to deliver the right stuff in the right amount of time.” 6-3

4. Why so much interest in Supply Chain Management recently? uAs manufacturing becomes more efficient (or is outsourced), companies look for ways to reduce costs uSeveral significant success stories. Efficient SCM gives Walmart, HP, others, an important edge uConsiders the broad, integrated, view of materials management from purchasing through distribution uThe huge growth of interest in the web has spawned web-based models for supply chains: from “dot com” retailers to B 2 B business models. (I2 technologies and Agile Software are two successful providers). 6-4

5. Analytical Methods to Support SCM implementation uThe transportation problem and more general network formulations for describing flow of goods in a complex system uInventory management and demand forecasting models such as those discussed in this course uAnalytical methods for determining delivery routes for product distribution. 6-5

6. Designing For Supply Chain Efficiency 1: - Postponement in Supply Chains uSeveral companies have been able to cut costs and improve service by postponing the final configuration of the product until the latest possible point in the supply chain. Examples: uBennetton producing “grey stock” uHewlett Packard printer configuration uPostponement of final programming of semiconductor devices uAssemble to order rather than assemble to stock (Dell Computer) 6-6

7. Designing for Supply Chain Efficiency 2: Design for Logistics uMany firms now consider SCM issues in the design phase of product development. (This has been referred to DFL or Design for Logistics). One example is IKEA whose furniture comes in simple to assemble kits that allows them to store the furniture in the same warehouse-like locations where they are displayed and sold. 6-7

8. Efficient Design of the Supplier Base uPart of streamlining the supply chain is reducing the number and variety of suppliers. The Japanese have been very successful in this arena. Another example: In the mid 1980’s Xerox trimmed its number of suppliers from 5,000 to 400. Overseas suppliers were chosen based on cost, and local suppliers were chosen based on delivery speed. 6-8

9. Dell Designs the Ultimate Supply Chain Dell Computer has been one of the most successful PC retailers. Why? To solve the problem of inventory becoming obsolete, Dell’s solution: Don’t keep any inventory! - All PC’s are made to order and parts shipped directly from manufacturers when possible. Compare to the experience of Compaq Corporation. (initial success selling through low cost retail warehouses, but did not garner web-based sales). 6-9

10. Information Transfer in Supply Chains: Vendor Managed Inventory uBarilla SpA. Italian pasta producer. Pioneered the use of VMI (Vendor Managed Inventory). They obtained sales data directly from distributors and decide on delivery sizes based on that information (as opposed to allowing distributors to independently decide on order sizes). 6-10

11. Information Transfer in Supply Chains: The Bullwhip Effect uFirst noticed by P&G executives examining the order patterns for Pampers disposable diapers. They noticed that order variation increased dramatically as one moved from retailers to distributors to the factory. (See next slide.) The causes are not completely understood but have to do with batching of orders and building in safety stock at each level. Problem: increases the difficulty of planning at the factory level. uThe effect is illustrated by the Beer Game. 6-11

12. Example of the Bullwhip Effect in Supply Chains 6-12

13. The Explosive Growth of E-tailing. uE-tailing: Direct to customer sales on the web. Perhaps best known e-tailer is Amazon.com, originally a web-based discount book seller. Today, sells wide range of products. The so called “dot com” stocks fueled large gains in the NASDAQ in 1999 to be followed by a major decline since April, 2000. Today, many traditional “bricks and mortar” retailers also offer sales over the web, often at lower prices. 6-13

14. B2B Supply Chain Management uB2B (business to business) supply chain management:. While not as visible and “sexy” as E- tailing, it appears that B2B supply chain management is the true growth industry. A search on Yahoo yielded over 80 matches for supply chain software providers. Some of the major players in this market segment include: uAgile Software based in Silicon Valley. u i2 Technologies based in Dallas. u Ariba based in Silicon Valley 6-14

15. Other Technologies uEDI: Electronic Data Interchange. Transmisson of documents electronically in a predetermined format from company to company. (Not web based.) The formats are complex and expensive. It appears to be on the decline as web-based systems grow. 6-15

16. Global Concerns in SCM uMoving manufacturing offshore to save direct costs complicates and adds expense to supply chain operations, due to: uincreased inventory in the pipeline uInfrastructure problems uPolitical problems uDealing with fluctuating exchange rates uObtaining skilled labor 6-16

17. Trends in Supply Chain Management Trends in Supply Chain Management uOutsourcing of the logistics function (example: Saturn outsourced their logistics to Ryder Trucks. Outsourcing of manufacturing is a major trend these days). uMoving towards more web based transactions systems uImproving the information flows along the entire chain. 6-17