Supply Chain Management

1. Supply Chain Management Chapter 10 Operations Management - 5th Edition Roberta Russell & Bernard W. Taylor, III

2. What is a Supply Chain? All facilities, functions, activities, associated with flow and transformation of goods and services from raw materials to customer, as well as the associated information flows An integrated group of processes to “source,” “make,” and “deliver” products All parties involved, directly or indirectly, in the fulfillment of a customer request

3. “Supply Networks” • Most supply chains have multiple suppliers • A better term would be Supply Networks

4. Supply Chain Illustration

5. Supply Chain for Denim Jeans

6. Supply Chain for Denim Jeans (cont.)

7. Supply Chain Processes

8. Supply Chain for Service Providers • More difficult than manufacturing • Does not necessarily focus on the flow of physical goods • Focuses on human resources and support services • More compact and less extended

9. Supply Chain Management (SCM) • Managing flow of information through supply chain in order to attain the level of synchronization that will make it more responsive to customer needs while lowering costs • Keys to effective SCM • information • communication • cooperation • trust

10. Objectives of SCM • Maximize value • Increase firm’s profitability • Increase revenue • Responsiveness, flexibility • Reduce costs • For making product, transportation, receiving orders, and customer service

11. Value vs. Supply Chain • Value chain • every step from raw materials to the eventual end user • ultimate goal is delivery of maximum value to the end user • Supply chain • activities that get raw materials and subassemblies into manufacturing operation • Terms are often used interchangeably

12. SCM Decision Phases • Supply chain strategy or design • Supply chain planning • Supply chain operations

13. Strategy and Design • How should the SC be structured over several years? • What should be the locations and capacities of production and warehousing? • How should we take into account uncertainty in future market conditions?

14. How is Strategic Fit Achieved? • Step 1: Understanding the customer and demand uncertainty • Step 2: Understanding the supply chain • Step 3: Implementing policies to match strategic business model with the supply chain

15. Step 1: Understanding Customer and Demand Uncertainty • Identify the needs of the customer segment(s) being served • Demand uncertainty: how much product is demanded by each customer segment? • SC uncertainty: what can go wrong within the SC? • Late deliveries, inflated orders, long variable lead times, incomplete shipments, bad quality shipments • One “solution” to this problem is to hold extra inventory. • Is this a good idea?

16. Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream

17. Responsiveness High Low Cost High Low Step 2: Understanding the SC • There is a cost to achieving responsiveness

18. Responsive supply chain Zone of Strategic Fit Responsiveness spectrum Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand Step 3: Achieving Strategic Fit • Ensure SC is consistent with target customers’ needs

19. Supply Chain Planning • Intermediate range planning (quarter to a year) • Similar to aggregate planning (Chap 13) • Start with forecast, consider options for supply, timing of marketing promotions

20. Supply Chain Operations • Daily to weekly planning • Goal is handle incoming order in best possible manner • Allocate inventory or production to particular orders, decide shipment mode, set delivery schedule, place replenishment orders

21. Supply Chain Integration • Getting the various supply chain members to collaborate and work together • IT has been an integral part

22. Process View of a SC • Two main views • Cycle View • Clearly defines processes involved and the owners of each process • Push/Pull View

23. Cycle View Customer Arrival Customer Order Entry Cust Order Fulfillment Cust Order Receiving Customer Customer Order Cycle Retailer Retail Order Trigger Retail Order Entry Retail Order Fulfillment Retail Order Receiving Replenishment Cycle Distributor Order Arrival from warehouse/distributor Production Scheduling Manufacturing & Shipping Receiving at warehouse/distributor Manufacturing Cycle Manufacturer Order from manufacturer Production or raw materials Shipping Procurement Cycle Supplier

24. Push/Pull View • Categorizes processes based on whether: • They are initiated in response to a customer order (PULL) • They are initiated in anticipation of a customer order (PUSH) • Examples?

25. Macro Processes • All SCM processes can be classified into 3 macro processes • Customer Relationship Management (CRM) – Customer/Firm • Market, sell, call center, order management • Internal Supply Chain Management (ISCM) – Firm • Strategic planning, demand planning, supply planning, fulfillment, field service • Supplier Relationship Management (SRM) – Firm/Supplier • Sourcing, negotiation, buy, design collaboration, supply collaboration

26. Suppliers and Outsourcing • Sourcing • selection of suppliers • Outsourcing • purchase of goods and services from an outside supplier • Core competencies • what a company does best • Single sourcing • a company purchases goods and services from only a few (or one) suppliers

27. Distribution • Encompasses all channels, processes, and functions, including warehousing and transportation, that a product passes on its way to final customer • Often called logistics • Logistics • transportation and distribution of goods and services • Driving force today is speed • Particularly important for Internet dot-coms

28. Amazon.com

29. Distribution Centers (DCs) • DCs are some of the largest business facilities in the United States • Trend is for more frequent orders in smaller quantities • Flow-through facilities and automated material handling • Postponement • final assembly and product configuration may be done at the DC

30. Transportation • Rail • low-value, high-density, bulk products, raw materials, intermodal containers • not as economical for small loads, slower, less flexible than trucking • Trucking • main mode of freight transport in U.S. • small loads, point-to-point service, flexible • More reliable, less damage than rails; more expensive than rails for long distance

31. Transportation (cont.) • Air • most expensive and fastest, mode of freight transport • lightweight, small packages <500 lbs • high-value, perishable and critical goods • less theft • Package Delivery • small packages • fast and reliable • increased with e-Business • primary shipping mode for Internet companies

32. Transportation (cont.) • Water • low-cost shipping mode • primary means of international shipping • U.S. waterways • slowest shipping mode • Intermodal • combines several modes of shipping-truck, water and rail • key component is containers • Pipeline • transport oil and products in liquid form • high capital cost, economical use • long life and low operating cost

33. SCM Software • Enterprise Resource Planning (ERP) • software that integrates components of a company by sharing and organizing information and data • SAP was first ERP software • mySAP.com • web enabled modules that allow collaboration between companies along the supply chain

34. Recent Trends in SCM • RFID • Globalization • Supply chain security • Network optimization • Transportation issues

35. RFID Capabilities

36. RFID Capabilities (cont.)

37. RFID in (Future?) Wal-Mart

38. Global Supply Chain To compete globally requires an effective supply chain Information technology is an “enabler” of global trade Nations form trading groups No tariffs or duties

39. Obstacles to Global Chain Transactions • Increased documentation for invoices, cargo insurance, letters of credit, ocean bills of lading or air waybills, and inspections • Ever changing regulations that vary from country to country that govern the import and export of goods • Trade groups, tariffs, duties, and landing costs • Limited shipping modes • Differences in communication technology and availability

40. Obstacles to Global Chain Transactions (cont.) • Different business practices as well as language barriers • Government codes and reporting requirements that vary from country to country • Numerous players, including forwarding agents, custom house brokers, financial institutions, insurance providers, multiple transportation carriers, and government agencies • Since 9/11, numerous security regulations and requirements

41. Effects of 9/11 on Global Chains • Increase security measures • added time to supply chain schedules • Increased supply chain costs • 24 hours rules for “risk screening” • extended documentation • extend time by 3-4 days • Inventory levels have increased 5% • Other costs include: • new people, technologies, equipment, surveillance, communication, and security systems, and training necessary for screening at airports and seaports around the world