1. Supply Chain Management
Chapter 7
Supply Chain Management
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.

2. Supply Chain
All activities associated with the flow and transformation of goods and services from raw materials to the end user, the customer
A sequence of business activities from suppliers through customers that provide the products, services, and information to achieve customer satisfaction

3. Associated Web Links

4. The Supply Chain

5. The Supply Chain Figure 7.1 Customers Suppliers Producers Distributors
Products and Services
Customers
Total satisfaction with quality, price, delivery, and service
Distributors
Package and delivery
Inventory
Producers
Finished goods, end products and services
Suppliers
Materials, parts, sub-assemblies, and services
Figure 7.1

6. The Supply Chain Information Figure 7.1 Customers Suppliers Producers
Products and Services
Customers
Total satisfaction with quality, price, delivery, and service
Distributors
Package and delivery
Inventory
Producers
Finished goods, end products and services
Suppliers
Materials, parts, sub-assemblies, and services
Figure 7.1

7. The Supply Chain Information Cash Figure 7.1 Customers Suppliers
Products and Services
Customers
Total satisfaction with quality, price, delivery, and service
Distributors
Package and delivery
Inventory
Producers
Finished goods, end products and services
Suppliers
Materials, parts, sub-assemblies, and services
Figure 7.1

8. Supply Chain Management
Synchronization of activities required to achieve maximum competitive benefits
Coordination, cooperation, and communication
Rapid flow of information
Vertical integration

9. Supply Chain Uncertainty
Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability
Inventory is a form of insurance
Distorted information is one of the main causes of uncertainty

10. Information in the Supply Chain
Centralized coordination of information flows
Integration of ordering, production, transportation, and distribution
Direct access to domestic and global transportation and distribution channels
Locating and tracking the movement of every item in the supply chain

11. Information in the Supply Chain
Consolidation of purchasing from all suppliers
Intercompany and intracompany information access
Data interchange
Data acquisition at the point of origin and point of sale
Instantaneous updating of inventory levels

12. Electronic Business
Replacement of physical processes with electronic ones
Cost and price reductions
Reduction or elimination of intermediaries
Shortening transaction times for ordering and delivery
Wider presence and increased visibility

13. Electronic Business Greater choices and more information for customers
Improved service
Collection and analysis of customer data and preferences
Virtual companies with lower prices
Leveling the playing field for smaller companies
Gain global access to markets & customers

14. Table 7.1 Supply Chain Evolution at Nabisco

15. Electronic Data Interchange
Computer-to-computer exchange of business documents in a standard format
Quick access, better customer service, less paperwork, better communication, increased productivity, improved tracing and expediting, improves billing and cost efficiency

16. Bar Codes
Computer readable codes attached to items flowing through the supply chain
Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans

17. The Internet
Instant global access to organizations, individuals, and information sources
Fundamentally changes the way organizations do business
Removed geographic barriers
Adds speed and accessibility to the supply chain

18. Figure 7.2 Build-to-Order Cars over the Internet

19. The E-Automotive Supply Chain

20. The E-Automotive Supply Chain
SUPPLY CHAIN PROCESS AUTOMOTIVE PAST E-AUTOMOTIVE
Customer sales
Push—sell from inventory
Pull—Build-to-order
Production
Goal of even and stable production
Focus on customer demand, respond with supply chain flexibility
Distribution
Mass approach
Fast, reliable, and customized to get cars to specific customer location
Customer relationships
Dealer-owned
Shared by dealers and manufacturers
Managing uncertainty
Large car inventory at dealers
Small inventories with shared information and strategically placed parts inventories
Procurement
Batch-oriented; dealers order based on allocations
Orders made in real time based on available-to-promise information
Product design
Complex products don’t match customer needs
Simplified products based on better information about what customers want
Table 7.2

21. Intranets and Extranets
Intranets are internet-like networks that operate within a single organization
Extranets are intranets that can be connected to the global internet
Difference is in who has access to the system

22. IT Issues
Increased benefits and sophistication come with increased costs
Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient
Security problems are very real
Partnership and trust are important elements that may be new to business relationships

23. Suppliers
Purchased materials account for about half of manufacturing costs
Materials, parts, and service must be delivered on time, of high quality, and low cost
Suppliers should be integrated into their customers’ supply chains
Partnerships should be established
On-demand delivery (JIT) is a frequent requirement

24. Sourcing
Relationship between customers and suppliers focuses on collaboration and cooperation
Outsourcing has become a long-term strategic decision
Organizations focus on core competencies
Single-sourcing is increasingly a part of supplier relations

25. E-Procurement Business-to-business commerce conducted on the Internet
Benefits include lower transaction costs, lower prices, reduce clerical labor costs, and faster ordering and delivery times
Currently used more for indirect goods
E-Marketplaces service industry-specific companies and suppliers

26. Figure 7.3 The Wal-Mart Supply Chain

27. Figure 7.4 Centralized Supply at Honda America

28. Distribution
The actual movement of products and materials between locations
Handling of materials and products at receiving docks, storing products, packaging, and shipping
Often called logistics
Driving force today is speed
Particularly important for Internet dot-coms

29. Figure 7.5 Order Fulfillment at Amazon.com

30. Distribution Centers and Warehousing
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
Final assembly and product configuration may be done at the DC

31. Warehouse Management Systems
Highly automated systems
Controls item putaway, picking, packing, and shipping
Transportation management, order management, yard management, labor management, warehouse optimization

32. Figure 7.6 A WMS

33. Vendor-Managed Inventory
Manufacturers generate orders, not distributors
Stocking information is accessed using EDI
A first step towards supply chain collaboration
Increased speed, reduced errors, and improved service

34. Collaborative Distribution and Outsourcing
Collaborative planning, forecasting, and replenishment (CPFR)
Internet-based exchange of data and information
Significant decrease in inventory levels and more efficient logistics
Companies focus on core competencies

35. Transportation Important element, often overlooked
Common methods are railroads, trucking, water, air, intermodal, package carriers, and pipelines

36. Railroads 150,000 miles in US Low cost, high-volume
Improving flexibility
intermodal service
double stacking

37. Trucking Most used mode in US Flexible, small loads
Consolidation, Internet load match sites
Part of TQM supplier-customer relationship
Single sourcing reduces number of trucking firms serving a company

38. Air Rapidly growing segment of transportation industry
Lightweight, small items
Quick, reliable, expensive
Major airlines and US Postal Service, UPS, FedEx, DHL

39. Package Carriers FedEx, UPS, US Postal Service, DHL
Significant growth driven by e-businesses
Use several modes of transportation
Expensive
Fast and reliable
Innovative use of technologies

40. Intermodal Combination of several modes of transportation
Most common are truck/rail/truck and truck/water/rail/truck
Enabled by the use of containers

41. Water One of oldest means of transport Low-cost, high-volume, slow
Bulky, heavy and/or large items
Standardized shipping containers improve service
The most common form of international shipping

42. Pipelines Primarily for oil & refined oil products
Slurry lines carry coal or kaolin
High capital investment
Low operating costs
Can cross difficult terrain

43. Internet Transportation Exchanges
Bring together shippers and carriers
Initial contact, negotiations, auctions
Typically only one form of transportation, intermodal exchanges have been difficult to develop

44. The Transportation Method
Ship items at lowest cost
Sources have fixed supplies
Destinations have fixed demand

45. Transportation Problem

46. Transportation Problem
GRAIN ELEVATOR SUPPLY
1. Kansas City 150
2. Omaha 175
Des Moines 275
600 tons
MILL DEMAND
A. Chicago 200
B. St. Louis 100
Cincinnati 300
Example 7.1

47. Transportation Problem
GRAIN ELEVATOR SUPPLY
1. Kansas City 150
2. Omaha 175
Des Moines 275
600 tons
MILL DEMAND
A. Chicago 200
B. St. Louis 100
Cincinnati 300
MILL
GRAIN Chicago St. Louis Cincinnati
ELEVATOR A B C
Kansas City $6 $8 $10
Omaha
Des Moines
Example 7.1

48. The Transportation Tableau

49. The Transportation TableauTO
FROM Chicago St. Louis Cincinnati SUPPLY
Kansas City
Omaha
Des Moines
DEMAND
Example 7.1

50. The Transportation TableauTO
FROM Chicago St. Louis Cincinnati SUPPLY
Kansas City
Omaha
Des Moines
DEMAND
Demand (tons)
Supply (tons)
Des Moines (275)
Omaha (175)
Kansas City (150)
Chicago (200)
Cincinnati (300)
St. Louis (100) 7 4 11 6 8 5 12 10
Figure 7.7

51. Solving Transportation Problems
Manual methods
Stepping-stone
Modified distribution (MODI)
Computer solution
Excel
POM/QM for Windows

52. Solution for Grain Shipment

53. Solution for Grain ShipmentTO
GRAIN
FROM Chicago St. Louis Cincinnati SUPPLY SHIPPED
Kansas City
Omaha
Des Moines
DEMAND
GRAIN
SHIPPED
COST $4525
Based on Exhibit 7.3

54. Figure 7.8 Linking the Supply Chain with SAP

55. Global Supply Chain Free trade & global opportunities
Nations form trading groups
No tariffs or duties
Freely transport goods across borders

56. Global Supply Chain Problems
National and regional differences
Customs, business practices, and regulations
Foreign markets are not homogeneous
Quality can be a major issue

57. Duties and Tariffs Proliferation of trade agreements
Group members charge uniform tariffs
Member nations have a competitive advantage within the group

58. Duties and Tariffs

59. Duties and Tariffs Figure 7.9 APEC NAFTA TAFTA FTAA ASEAN CALM ATPA
ANZCERTA
FTAA
NAFTA
CALM
ATPA
MERCOSUR
TAFTA
Figure 7.9

60. Landed Cost and Internet-Based ITL Systems
Knowing landed cost is critical in international trade
Common components are transportation charges, tariffs, duties, and taxes
ITL systems convert language and currency between trading partners

61. Infrastructure Obstacles to Global Trade
Some emerging markets lack suitable distribution systems, i.e. roads, rail systems
Existing roads and ports may be inadequate
Market instability, political instability
Vertical integration is a common solution