Supply Chain Management CHAPTER 10 Supply Chain Management

CHAPTER OUTLINE 10.1 Supply Chains 10.2 Supply Chain Management 10.3 Information Technology Support for Supply Chain Management

LEARNING OBJECTIVES Define the term supply chain, and discuss the three components of a supply chain. Define supply chain management, and understand its goals. Identify various problems that can occur along supply chains. Explain how information technology supports supply chain management.

Chapter Opening Case Film camera Digital camera Clicking on the logo at the top right takes you to the Walt Disney Studios home page. Movies sent over fiber optic cables Movies sent with encrypted disks

10.1 Supply Chains

Generic Supply Chain Supply chain: refers to the flow of materials, information, money, and services from raw material suppliers, through factories and warehouses, to the end consumers. Upstream component of a supply chain: sourcing or procurement takes place. Internal component of a supply chain: packaging, assembly, or manufacturing takes place. Downstream component of a supply chain: distribution takes place.

Supply Chain (recall Figure 2.2) Another look at a supply chain (from Figure 2.2).

The Flows of the Supply Chain Material flows Information flows Material flows are the physical products, raw materials, supplies and so forth that flow along the chain. Information flows are all data related to demand, shipments, orders, returns and schedules as well as changes in any of these data. Financial flows are all transfers of money, payments and credit-related data. A supply chain involves a product life cycle approach, from “dirt to dust”. Financial flows

10.2 Supply Chain Management Supply chain management (SCM) Interorganizational information system (IOS) Supply chain management (SCM) is the function of planning, organizing and optimizing the supply chain’s activities. Interorganizational information system (IOS) involves information flows among two or more organizations.

See IT’s About Business 10.1. Clicking on the Inditex logo above will take you to the company’s home page.

Push Model Mass production Forecast Salesperson Happy customer

Pull Model Dell factory Dell customer order Dell customer

Problems Along the Supply Chain Poor customer service Poor quality product High inventory costs Loss of revenues New technologies

The Bullwhip Effect Order Quantity Order Quantity Order Quantity Order Figure 10.2 Time Time Time Time Customer Sales Retail Orders To Wholesaler Wholesaler Orders to Manufacturer Manufacturer Orders to Supplier

Solutions to Supply Chain Problems Using inventories Just-in-time inventory Information sharing Vendor-managed inventory Just-in-time inventory: a system in which a supplier delivers the precise number of parts to be assembled into a finished product at precisely the right time. Vendor-managed inventory: an inventory strategy where the supplier monitors a vendor’s inventory for a product or group of products and replenishes products when needed.

10.3 Information Technology Support for Supply Chain Management Electronic data interchange (EDI) Extranets Electronic data interchange (EDI) is a communication standard that enables business partners to exchange routine documents, such as purchase orders, electronically. Extranets link business partners to one another over the Internet by providing access to certain areas of each other’s corporate intranets.

EDI Benefits Minimize data entry errors Length of messages are shorter Messages are secured Reduces cycle time Increases productivity Enhances customer service Minimizes paper usage and storage

EDI Limitations Significant initial investment to implement Ongoing operating costs are high due to the use of expensive, private VANs Traditional EDI system is inflexible Long startup period Multiple EDI standards exist

Comparing Purchase Order Fulfillment Without EDI See Figure 10.3.

Comparing Purchase Order Fulfillment With EDI

Extranets The main goal of extranets is to foster collaboration between business partners. An extranet is open to selected B2B suppliers, customers and other business partners.

The Structure of an Extranet See Figure 10.4.

Types of Extranets A company and its dealers, customers or suppliers An industry’s extranet Joint ventures and other business partnerships A company and its dealers, customers or suppliers – centers around one company. An industry’s extranet – major players in an industry team up to create an extranet. Joint ventures and other business partnerships – partners in a joint venture use extranet as a vehicle for communications and collaboration.

Chapter Closing Case Clicking on the Anheuser-Busch logo at the top right will take you to the company’s Web page.