1. Supply Chain Management
CHAPTER 11
Supply Chain Management
Operations Management, Eighth Edition, by William J. Stevenson
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

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.
Sometimes referred to as value chains

3. Facilities Warehouses Factories Processing centers
Distribution centers
Retail outlets
Offices

4. Functions and Activities
Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Production and delivery
Customer service

5. Typical Supply Chains Purchasing Receiving Storage Operations
Production
Distribution

6. Typical Supply Chain for a Manufacturer
Supplier
Storage }
Mfg.
Dist.
Retailer
Customer

7. Typical Supply Chain for a Service
Supplier }
Storage
Service
Customer

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

9. Bullwhip Effect = Amount of inventory Tier 2 Suppliers Tier 1
Producer
Distributor
Retailer
Final Customer

10. 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

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

12. 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

13. 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

14. Logistics Movement within the facility Incoming and outgoing shipments
Bar coding
EDI
Distribution
JIT Deliveries

15. Materials Movement
RECEIVING
Storage
Work
center
Work center
Shipping

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

17. Uses of DRP Management uses DRP to plan and coordinate: Transportation
Warehousing
Workers
Equipment
Financial flows

18. Electronic Data Interchange
EDI – the direct transmission of inter-organizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos.

19. Electronic Data Interchange
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

20. Efficient Consumer Response
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

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

22. Advantages E-Commerce
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

23. Disadvantages of E-Commerce
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

24. 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. 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

26. 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

27. CPFR Process Step 1 – Front-end agreement Step 2 – Joint business plan
Steps 3-5 – Sales forecast
Steps 6-8 – Order forecast collaboration
Step 9 – Order generation/delivery execution

28. 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

29. 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

30. Supply Chain Performance Drivers
Quality
Cost
Flexibility
Velocity
Customer service

31. 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

32. Challenges Barriers to integration of organizations
Getting top management on board
Dealing with trade-offs
Small businesses
Variability and uncertainty
Long lead times

33. Trade-offs Lot-size-inventory Inventory-transportation costs
Bullwhip effect
Inventory-transportation costs
Cross-docking
Lead time-transportation costs
Product variety-inventory
Delayed differentiation
Cost-customer service
Disintermediation

34. Trade-offs Bullwhip effect Cross-docking
Inventories are progressively larger moving backward through the supply chain
Cross-docking
Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks
Avoids warehouse storage

35. Trade-offs Delayed differentiation Disintermediation
Production of standard components and subassemblies, which are held until late in the process to add differentiating features
Disintermediation
Reducing one or more steps in a supply chain by cutting out one or more intermediaries

36. Supply Chain Issues Operating Issues Tactical Issues Strategic Issues
Quality control
Production planning and control
Inventory policies
Purchasing policies
Production policies
Transportation policies
Quality policies
Design of the supply chain, partnering
Operating Issues
Tactical Issues
Strategic Issues

37. Supply Chain Benefits and Drawbacks
Problem
Potential
Improvement
Benefits
Possible
Drawbacks
Large inventories
Smaller, more frequent deliveries
Reduced holding costs
Traffic congestion
Increased costs
Long lead times
Delayed differentiation
Disintermediation
Quick response
May not be feasible
May need absorb functions
Large number of parts
Modular
Fewer parts
Simpler ordering
Less variety
Cost
Quality
Outsourcing
Reduced cost, higher quality
Loss of control
Variability
Shorter lead times, better forecasts
Able to match supply and demand

38. Purchasing
Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.

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

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

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

42. 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

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

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

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

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

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

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

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

50. 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

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

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