1. Operations Management
William J. Stevenson
8th edition

2. Supply Chain Management
CHAPTER 16
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

3. 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

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
Figure 16.1a
Supplier
Storage }
Mfg.
Dist.
Retailer
Customer

7. Typical Supply Chain for a Service
Figure 16.1b
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 Figure 16.3 = Amount of inventory Tier 2 Suppliers
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
Table 16.1
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 Figure 16.4 Work center Work center Storage
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 interorganizational 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 Table 16.4 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. 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

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

28. 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

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

30. 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

31. Supply Chain Benefits and Drawbacks
Table 16.5
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