1. 16-1Supply Chain Management William J. Stevenson Operations Management 8 th edition

2. 16-2Supply Chain Management CHAPTER 16 Supply Chain Management McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

3. 16-3Supply Chain Management  Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service. Sometimes referred to as value chains

4. 16-4Supply Chain Management Functions and Activities  Forecasting  Purchasing  Inventory management  Information management  Quality assurance  Scheduling  Production and delivery  Customer service

5. 16-5Supply Chain Management Typical Supply Chains Typical Supply Chains Purchasing ReceivingStorageOperationsStorage ProductionDistribution

6. 16-6Supply Chain Management Typical Supply Chain for a Manufacturer Typical Supply Chain for a Manufacturer Supplier Storage } Mfg.StorageDist.RetailerCustomer Figure 16.1a

7. 16-7Supply Chain Management Supplier } StorageService Customer Typical Supply Chain for a Service Typical Supply Chain for a Service Figure 16.1b

8. 16-8Supply Chain Management 1. Improve operations 2. Increasing levels of outsourcing 3. Increasing transportation costs 4. Competitive pressures 5. Increasing globalization 6. Increasing importance of e-commerce 7. Complexity of supply chains 8. Manage inventories Need for Supply Chain Management

9. 16-9Supply Chain Management Bullwhip Effect Tier 2 Suppliers Tier 1 Suppliers ProducerDistributorRetailer Final Customer Amount of inventory = Figure 16.3

10. 16-10Supply Chain Management Benefits of Supply Chain Management OrganizationBenefit Campbell SoupDoubled inventory turnover rate Hewlett-PackardCut supply costs 75% Sport ObermeyerDoubled profits and increased sales 60% National BicycleIncreased market share from 5% to 29% Wal-MartLargest and most profitable retailer in the world

11. 16-11Supply Chain Management Benefits of Supply Chain Management  Lower inventories  Higher productivity  Greater agility  Shorter lead times  Higher profits  Greater customer loyalty

12. 16-12Supply Chain Management Elements of Supply Chain Management Deciding how to best move and store materialsLogistics Determining location of facilitiesLocation Monitoring supplier quality, delivery, and relations Suppliers Evaluating suppliers and supporting operationsPurchasing Meeting demand while managing inventory costsInventory Controlling quality, scheduling workProcessing Incorporating customer wants, mfg., and timeDesign Predicting quantity and timing of demandForecasting Determining what customers wantCustomers Typical IssuesElement Table 16.1

13. 16-13Supply Chain Management  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 Logistics

14. 16-14Supply Chain Management Logistics Movement within the facility Incoming and outgoing shipments Bar coding EDI Distribution JIT Deliveries 0 214800 232087768

15. 16-15Supply Chain Management Materials Movement Figure 16.4 RECEIVING Storage Work center Work center Storage Work center Storage Shipping

16. 16-16Supply Chain Management  Distribution requirements planning (DRP) is a system for inventory management and distribution planning  Extends the concepts of MRPII Distribution Requirements Planning

17. 16-17Supply Chain Management  Management uses DRP to plan and coordinate:  Transportation  Warehousing  Workers  Equipment  Financial flows Uses of DRP

18. 16-18Supply Chain Management Electronic Data Interchange  EDI – the direct transmission of interorganizational transactions, computer-to- computer, including purchase orders, shipping notices, and debit or credit memos.

19. 16-19Supply Chain Management  Increased productivity  Reduction of paperwork  Lead time and inventory reduction  Facilitation of just-in-time systems  Electronic transfer of funds  Improved control of operations  Reduction in clerical labor  Increased accuracy Electronic Data Interchange

20. 16-20Supply Chain Management  Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry  Reflects companies’ efforts to achieve quick response using EDI and bar codes Efficient Consumer Response

21. 16-21Supply Chain Management  E-Commerce: the use of electronic technology to facilitate business transactions  Applications include  Internet buying and selling  E-mail  Order and shipment tracking  Electronic data interchange E-Commerce

22. 16-22Supply Chain Management  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 Advantages E-Commerce

23. 16-23Supply Chain Management  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 Disadvantages of E-Commerce

24. 16-24Supply Chain Management 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

25. 16-25Supply Chain Management SCOR Metrics PerspectiveMetrics ReliabilityOn-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment FlexibilitySupply chain response time Upside production flexibility ExpensesSupply chain management costs Warranty cost as a percent of revenue Value added per employee Assets/utilizationTotal inventory days of supply Cash-to-cash cycle time Net asset turns Table 16.4

26. 16-26Supply Chain Management 1. Develop strategic objectives and tactics 2. Integrate and coordinate activities in the internal supply chain 3. Coordinate activities with suppliers with customers 4. Coordinate planning and execution across the supply chain 5. Form strategic partnerships Creating an Effective Supply Chain

27. 16-27Supply Chain Management Supply Chain Performance Drivers 1. Quality 2. Cost 3. Flexibility 4. Velocity 5. Customer service

28. 16-28Supply Chain Management Velocity  Inventory 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

29. 16-29Supply Chain Management  Barriers to integration of organizations  Getting top management on board  Dealing with trade-offs  Small businesses  Variability and uncertainty  Long lead times Challenges

30. 16-30Supply Chain Management 1. Lot-size-inventory  Bullwhip effect 2. Inventory-transportation costs  Cross-docking 3. Lead time-transportation costs 4. Product variety-inventory  Delayed differentiation 5. Cost-customer service  Disintermediation Trade-offs

31. 16-31Supply Chain Management Supply Chain Benefits and Drawbacks ProblemPotential Improvement BenefitsPossible Drawbacks Large inventories Smaller, more frequent deliveries Reduced holding costs Traffic congestion Increased costs Long lead times Delayed differentiation Disintermediation Quick responseMay not be feasible May need absorb functions Large number of parts ModularFewer parts Simpler ordering Less variety Cost Quality OutsourcingReduced cost, higher quality Loss of control VariabilityShorter lead times, better forecasts Able to match supply and demand Less variety Table 16.5