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Supply Chain Management

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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

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