1. Supply Chain Management- Chapter 11
There are no problem solving assignments from Chapter 11

2. 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.
Note that the concept behind value chains is that each organization in the sequence is a system (with input-process-output-feedback) that adds value as a product or service moves up the chain. It is as if, for example, suppliers, manufacturers, distributors, and the retail outlets are a single organization. Hence, it could be argued that in some industries that companies don’t compete, but it is their supply chains that compete. This gives some big challenges to Accounting and Finance, which would have difficulty measuring a companies performance if that company is part of one or more supply chains. Also, remember the old adage, “A chain is as strong as its weakest link.”
Sometimes referred to as value chains

3. Facilities Warehouses Factories Processing centers
Distribution centers
Retail outlets
Offices
All or some combination of the above can be a member of the supply chain.

4. Functions and Activities
Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Production and delivery
Customer service
Every member organization (e.g., company) in the supply chain must be together on most of these items. That can be hard to do given that the member organizations have different CEO’s.

5. Typical Supply Chains Purchasing Receiving Storage Operations
Production
Distribution

6. Typical Supply Chain for a Manufacturer
Supplier
Storage }
Mfg.
Dist.
Retailer
Customer
This chain illustrates the problem of getting the various business organizations in the chain together. Note that they have different CEO’s. Hence, the field of “Supplier Relationships Management” was created to address this problem. As a side note, this is a problem in Sociology, which is the study of relationships among organizations. In business, this part of Sociology is called “Organizational Theory.”

7. Typical Supply Chain for a Service
Supplier }
Storage
Service
Customer
Note that value added passes up a chain for services. In building the Cal Poly Pomona parking garage, it starts with the architect’s service of providing plans to the civil engineer, to the civil engineer’s service of providing plans to the contractor, who builds the garage, and in turn provides the service to you of giving you a place to park your car on campus.

8. Need for Supply Chain Management
Improve operations
Increasing levels of outsourcing
Increasing transportation costs
Competitive pressures
Increasing globalization
Increasing importance of e-commerce
Complexity of supply chains
Manage inventories
For industries with volatile industries
Item 9 is especially important for industries with difficulty in obtaining good forecasts, such as the semiconductor industry.

9. Bullwhip Effect Demand Initial Supplier Final Customer
We are not going to discuss the bullwhip effect in class or give you any tests on it. However, it is a technical problem that has to be addressed by designers of supply chains.
Inventory oscillations become progressively larger looking backward through the supply chain

10. Benefits of Supply Chain Management
Lower inventories
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty
Integrates separate organizations into a cohesive operating system
The last item is critical given the problem of the different CEO’s of the member organizations in the supply chain. Recall the previous slide that mentioned the new field of “supplier relationships management.”

11. Benefits of Supply Chain Management
Organization
Benefit
Campbell Soup
Doubled inventory turnover rate
Hewlett-Packard
Cut supply costs 75%
Sport Obermeyer
Doubled profits and increased sales 60%
National Bicycle
Increased market share from 5% to 29%
Wal-Mart
Largest and most profitable retailer in the world
Much of the Wal-Mart success story is about supply chain management. During class, we will discuss why Wal-Mart is the poster boy (or leading example) of supply chain management.

12. Global Supply Chains Increasing more complex Language Culture
Currency fluctuations
Political
Transportation costs
Local capabilities
Finance and economics
Environmental
So think of the Boeing 787 that is being designed for future sale to the airlines. It will be assembled in one plant, but the parts and subassemblies will come from all over the world.

13. Elements of Supply Chain 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
The above slide provides a good outline on where the key decisions must be made for a successful supply chain.

14. Strategic or Operational
Two types of decisions in supply chain management
Strategic – design and policy (mostly long term decisions)
Operational – day-today activities (short term decisions)
Major decisions areas
Location of members
Production processes
Inventory flow and management
Distribution system
Again, think about a big item such as the Boeing Who is the best supplier for the engines, the wings, the hydraulics system, etc., and how will these items get to the assembly plant, and from there, to the customers (i.e., the airlines). Some of the best suppliers may be in Europe and Asia, for items to be assembled in a Boeing plant in the United States.

15. Logistics
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
Note that logistics is a field in itself, and relates to the Alameda Corridor which includes the rail line along nearby Valley Boulevard, which helps to link Los Angeles-Long Beach Harbor complex to the rest of the United States.

16. Distribution Requirements Planning
Distribution requirements planning (DRP) is a system for inventory management and distribution planning
We are not going to cover this topic, but you should be aware of it as a job interview question.

17. E-Business
E-Business: the use of electronic technology to facilitate business transactions
Applications include
Internet buying and selling
Order and shipment tracking
Electronic data interchange
E-Business is tied to the success of the internet and the vast amount of information that it can handle (i.e., the expanding “bandwidth” of the internet). It relates to the “dot.com” era of the 1990’s which continues today as a part of the “New Economy,” which is evolving from the “information age.”

18. Advantages 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

19. Disadvantages of 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

20. 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
In order to compete, many retailers in electronics, for example, must have a customer oriented return policy to assure that customers will buy “high tech” goods, and to assure that they can compete with their competitors who have generous return policies (i.e., no hassle return policies with little or no restocking fees) .

21. Effective/Successful 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
One again, this lead to supplier relationships management, which is becoming a separate course of study at some universities. Cal Poly offers a course in this area.

22. Effective/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
Same comment as in the previous slide. Note that all this is possible with low cost hardware and software, and the bandwidth of the internet. Supply chain management is part of the New Economy, and is a big source of well paying entry level positions for new graduates.

23. SCOR* Metrics Perspective Metrics Reliability On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillment
Flexibility
Supply chain response time
Upside production flexibility
Expenses
Supply chain management costs
Warranty cost as a percent of revenue
Value added per employee
Assets/utilization
Total inventory days of supply
Cash-to-cash cycle time
Net asset turns
These are measurable items that can be shared with members of the chain. They provide the feedback loop of the overall supply chain system.
*Refers to “Supply Chain Operations Reference,” which attempts to standardize measurements of supply chain performance.

24. 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
In the near future, Cal Poly will have an RFID lab which will be open to several courses in the business program.

25. 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
This is another offshoot of supply chain management and supplier relationships management. All are new fields of business that reflect the New Economy that is evolving from the internet.

26. CPFR Results Nabisco and Wegmans Wal-mart and Sara Lee
50% increase in category sales
Wal-mart and Sara Lee
14% reduction in store-level inventory
32% increase in sales
Kimberly-Clark and Kmart
Increased category sales that exceeded market growth
Given the success of the above big companies using CPFR, it now appears most companies will require some form of CPFR to assure that they can compete in the New Economy.

27. Creating an Effective Supply Chain
Develop strategic objectives and tactics
Integrate and coordinate activities in the internal supply chain
Coordinate activities with suppliers with customers
Coordinate planning and execution across the supply chain
Form strategic partnerships

28. Supply Chain Performance Drivers
Quality
Cost
Flexibility
Velocity (see next slide)
Customer service
All of the above can reflect competition. Note the impact of velocity on a store such as Wal-Mart. They need fast turnover because they have a “low (profit) margin-high volume” operation. They saw the impact of supply chain management on velocity and inventory turnover before other retailers did, and that led to the position that Wal-Mart holds today as a leading retailer. If you had an economics course, do you recall “elastic demand” concepts? That’s been Wal-Mart’s game.

29. Velocity Inventory velocity Information 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

30. NOTE
The following slides simply outline the purchasing function which is common to most organizations. You will not be tested on this material, but it could be helpful in reference to job interviews. Hence, you should review these slides.

31. Purchasing
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.

32. Goal of Purchasing
Develop and implement purchasing plans for products and services that support operations strategies

33. Duties of Purchasing Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies

34. Purchasing Interfaces
Legal
Accounting
Operations
Data
processing
Design
Receiving
Suppliers

35. Purchasing Cycle Requisition received Supplier selected
Legal
Accounting
Operations
Data
process-
ing
Design
Receiving
Suppliers
Requisition received
Supplier selected
Order is placed
Monitor orders
Receive orders

36. Value Analysis vs. Outsourcing
Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance

37. Centralized vs Decentralized Purchasing
Purchasing is handled by one special department
Decentralized purchasing
Individual departments or separate locations handle their own purchasing requirements

38. Suppliers Choosing suppliers Evaluating sources of supply
Supplier audits
Supplier certification
Supplier relationships
Supplier partnerships

39. Factors in Choosing a Supplier
Quality and quality assurance
Flexibility
Location
Price

40. Factors in Choosing a Supplier (cont’d)
Product or service changes
Reputation and financial stability
Lead times and on-time delivery
Other accounts

41. Evaluating Sources of Supply
Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service

42. Evaluating Sources of Supply
Vendor analysis - evaluating the sources of supply in terms of
Price
Quality
Services
Location
Inventory policy
Flexibility

43. Supplier as a Partner Aspect Adversary Partner Number of suppliers
Many
One or a few
Length of relationship
May be brief
Long-term
Low price
Major consideration
Moderately important
Reliability
May not be high
High
Openness
Low
Quality
May be unreliable; buyer inspects
At the source; vendor certified
Volume of business
May be low
Flexibility
Relatively low
Relatively high
Location
Widely dispersed
Nearness is important

44. Supplier Partnerships
Ideas from suppliers could lead to improved competitiveness
Reduce cost of making the purchase
Reduce transportation costs
Reduce production costs
Improve product quality
Improve product design
Reduce time to market
Improve customer satisfaction
Reduce inventory costs
Introduce new products or services

45. Critical Issues Strategic importance Technology management Cost
Quality
Agility
Customer service
Competitive advantage
Technology management
Benefits
Risks

46. Critical Issues Purchasing function Increased outsourcing
Increased conversion to lean production
Just-in-time deliveries
Globalization