1. Supply-Chain Management
Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.
SCM, is a strategic weapon that seeks to synchronize a firm’s functions and those of its suppliers to match the flow of materials, services, and information with customer demand
This presentation covers the material in Chapter 11 - Supply-Chain Management. The graphic is based on Figure 11.3.

2. Supply Chain Supplier of materials Supplier of services Tier 1 Tier 3
Legend
Customer
Distribution center
Manufacturer
Supply Chain

3. Supply Chain Management
Involves coordination of key processes such as order placement, order fulfillment, purchasing, and supported by marketing, finance, engineering, operations and logistics
The basic purpose: manage the flow of materials. This flow determines inventory levels.

4. SCM Overview
Inventory – is a stock of materials used to satisfy customer demand or support the production of goods and services
The three categories of inventories are raw materials (RM), work-in-process (WIP), and finished goods (FG).
Manufacturers spend 60% of sales on purchased materials and services, and service providers spend as much as 40%. The management of materials flows is therefore important from a cost perspective alone.

5. How to gain control of the SC
Backward integration – firm controls upstream toward the sources of raw materials and parts. Can ensure its priority with the supplier and lead efforts to improve efficiency and productivity in managing flow of materials.
What is difficult with backward integration?
Write agreements with first-tier suppliers that hold them accountable for the performance of their suppliers (2nd and 3rd tier)

6. Developing Integrated SC
Purchasing
Determining suppliers
Negotiating contracts
Make or buy
Quality levels
Production
Quantity levels
Scheduling
Distribution
Finished goods inventories
Storage/ transportation

7. Materials management department
Integrated Supply Chain
Suppliers
Purchasing
Production
Distribution
Customers
Phase 1:
Independent supply-chain entities
Suppliers
Customers
Internal supply chain
Materials management department
Production
Purchasing
Distribution
Phase 2:
Internal integration
In Phase 3 suppliers and customers are brought into the system.
Integrated supply chain
Customers
Suppliers
Internal supply chain
Phase 3:
Supply-chain integration

8. Conflicting Objectives in the Supply Chain
1. Purchasing
Stable volume requirements
Flexible delivery time
Little variation in mix
Large quantities
2. Manufacturing
Long run production
High quality
High productivity
Low production cost
3. Warehousing
Low inventory
Reduced transportation costs
Quick replenishment capability
4. Customers
Short order lead time
High in stock
Enormous variety of products
Low prices

9. Managing the Customer Interface
Order-Placement Process Involves the activities required to register the need for a product or service and to confirm the acceptance of the order.
It is advantageous to make this process simple and fast
The Internet has enabled firms to reengineer their order-placement process to benefit both the customer and the firm. Advantages include
Cost reduction
Revenue flow increase
Global access
Pricing flexibility

10. Managing the Customer Interface
Order-Fulfillment Process. Involves the activities required to deliver a product or service to a customer. Key elements include:
Information sharing
Facilitated by the Internet and ERP systems
Finished goods inventory placement
Forward placement
Vendor-managed inventories (VMI
Continuous replenishment
Backward placement
Postponement is used by assemble-to-order and mass customization firms. Customization is delayed until the last possible moment
Channel assembly

11. Managing the Supplier Interface
E-purchasing
Electronic Data Interchange (EDI)
Enables the transmission of routine business documents with standard formats from computer to computer, in one-to-one connections
Documents include invoices, purchase orders, and payments
Catalog hubs
Connect firms with to, potentially, hundreds of suppliers through the Internet
Does not require one-to-one connections as does EDI
Exchanges
Electronic marketplaces where buying and selling firms come together to do business
Often used for spot purchases and commodities or “near-commodities”
Auctions
An extension of the exchange
Firms place competitive bids to buy something.
Like exchanges, auctions are often used for spot purchases, commodities, and near-commodities

12. Managing the Supplier Interface
Supplier selection and certification
Supplier selection—three criteria often used are price, quality, and delivery.
Supplier certification—typically involves visits by cross-functional teams to do an in-depth evaluation of the supplier’s processes.
Supplier relations
Competitive orientation—a zero sum game. The purpose is to drive costs down to the minimum level. Power in the supply chain relates to the purchasing clout a firm has.
Cooperative orientation—a partnership between buyers and sellers. This orientation implies long-term commitments, joint work on quality and buyer support of infrastructure. Typically, fewer suppliers are needed in this arrangement.

13. Managing the Supplier Interface
Outsourcing
Degree of sourcing control.
The degree of sourcing control is inversely related to the flexibility to change the supply chain when needed.
Centralized versus localized buying
Centralized—increases purchasing clout
Localized—often reduces lead times and enables closer coordination with local production schedules
Value analysis
Value analysis is an intensive examination of the materials, processes, information systems, and material flows in the production of a good or service.
Benefits include reduced costs, better profits, increased customer satisfaction, and often improved employee morale.
Value analysis can improve the internal supply chain, but its greatest potential lies in applying it to the external supply chain

14. Measures of Supply-Chain Performance
Inventory measures
Average aggregate inventory value—the total value of all items held in inventory for a firm. The value is expressed at cost (as opposed to price) to avoid the differences that occur in prices over time. This measure is used in two other important measures.
Weeks of supply—average aggregate inventory value divided by weekly sales (at cost). From an inventory cost perspective, the lower the weeks of supply, the better.
Inventory turns—annual sales (at cost) divided by the average aggregate inventory value. The greater the turns, the lower the average inventory levels.

15. Inventory Measures Average inventory = $2 million
Cost of goods sold = $10 million
52 business weeks per year
Weeks of supply = = 10.4 weeks
$2 million
($10 million)/(52 weeks)

16. Inventory Measures Average inventory = $2 million
Cost of goods sold = $10 million
52 business weeks per year
Weeks of supply = = 10.4 weeks
$2 million
($10 million)/(52 weeks)
Inventory turns = = 5 turns/year
$10 million
$2 million

17. Inventory Measures
This slide shows Figure 11.7, the Solver output from OM Explorer.

18. Inventory Measures
Process measures, measuring costs, time, and quality as related to
Order placement
Order fulfillment
Purchasing

19. Inventory Measures Links to financial measures
Current assets (return on assets)
Working capital
Contribution margin
Cash-to-cash (cash flow)

20. Supply-Chain Process Measures
Purchasing
Percent of suppliers’ deliveries on time
Suppliers’ lead times
Percent defects in purchased materials and services
Cost of purchased materials and services
Order Fulfillment
Percent of incomplete orders shipped
Percent of orders shipped on time
Time to fulfill the order
Percent of returned items or botched services
Cost to produce the item or service
Customer satisfaction with the order-fulfillment process
Order Placement
Percent orders taken accurately
Time to complete the order-placement process
Customer satisfaction with the order-placement process
This side presents the process measures for Purchasing.

21. Environments Best Suited for Efficient and Responsive Supply Chains
Factor Efficient Supply Chains Responsive Supply Chains
Demand Predictable; low Unpredictable; high
forecast errors forecast errors
Competitive Low cost; consistent Development speed; fast
priorities quality; on-time delivery times;
delivery customization; volume
flexibility; high-
performance design
quality
New-product Infrequent Frequent
introduction
Contribution Low High
margins
Product variety Low High
This slide shows the characteristics of responsive organizations for the basic factors.

22. Design Features for Efficient and Responsive Supply Chains
Factor Efficient Supply Chains Responsive Supply Chains
Operations Make-to-stock or Assemble-to-order, make-
strategy standardized services; to-order, or customized
emphasize high services; emphasize
volume, standardized product or service
products, or services variety
Capacity Low High
cushion
Inventory Low; enable high As needed to enable fast
investment inventory turns delivery time
Lead time Shorten, but do not Shorten aggressively
increase costs
Supplier Emphasize low prices; Emphasize fast delivery
selection consistent quality; on- time; customization;
time delivery volume flexibility; high-
performance design quality
This slide presents design elements for responsive organizations.

23. Supply-Chain Dynamics
Customer
Firm A
Firm B
Firm C
Time
(b)
Figure 11.8
Materials requirements
Firm C
Firm A
(a)

24. The Future is NOT what it used to be….
A new e-Business model
Reduce cost
Increase Profit
Increase service level
Increase flexibility

25. Collaborative Planning, Forecasting and Replenishment (CPFR)
A business process for value chain partners – especially retail
to coordinate plans in order to better match supply and demand

26. Collaborative Planning, Forecasting and Replenishment (CPFR)
1. Front-End Agreement
2. Joint Business Plan
Collaborative Forecasting
3. Create Sales Forecast
4. Identify exceptions
5. Resolve exceptions
6. Create Order Forecast
Collaborative
Replenishment
7. Identify exceptions
8. Resolve exceptions
9. Generate Order