Syllabus

1. Syllabus • Class 1 (Jan 5): chap 1; chap 2, case study • Class 2: (Jan 12) No Class • Class 3: (Jan 19) Chap 6, Chap 8 • Class 4: (Jan 26) chap 10, chap 11, Chap 17(Take home exam) • Class 5: (Feb 2) Chap 5, Chap 7 • Class 6: (Feb 9) Chap 9, Chap 12, 14 • Class 7: (Feb 16) Chap 15, Reverse Logistics – need “The Forklifts Have Nothing To Do!” Available in the Lewis and Clark Bookstore • Class 8: (Feb 23) Cabela’s Tour • Class 9: (Mar 2) Chap 13; Chap 16, Chap 4 (take home exam) • Other requirements: • →visit Harley-Davidson Plant in Kansas City to see operations management in practice and write a 3-5 page paper comparing the class slides and readings to the Harley operations • → Home Work

2. Supply Chain Management

3. Supply Chain Management • First appearance – Financial Times • Importance - → Inventory ~ 14% of GDP → GDP ~ $12 trillion → Warehousing/Trans ~ 9% of GDP → Rule of Thumb - $12 increase in sales to = $1 savings in Supply Chain • 1982 Peter Drucker – last frontier • Supply Chain problems can cause ≤ 11% drop in stock price • Customer perception of company

4. SCOR Reference: www.supply-chain.org

5. Supply Chain • All activities associated with the flow and transformation of goods and services from raw materials to the end user, the customer • A sequence of business activities from suppliers through customers that provide the products, services, and information to achieve customer satisfaction

6. Supply Chain “The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash.” APICS Dictionary, 10th ed.

7. Supply Chain Management • Synchronization of activities required to achieve maximum competitive benefits • Coordination, cooperation, and communication • Rapid flow of information • Vertical integration

8. Supply Chain Uncertainty • Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability • Inventory is a form of insurance • Distorted information is one of the main causes of uncertainty Bullwhip effect

9. Information in the Supply Chain • Centralized coordination of information flows • Integration of transportation, distribution, ordering, and production • Direct access to domestic and global transportation and distribution channels • Locating and tracking the movement of every item in the supply chain - RFID

10. Information in the Supply Chain • Consolidation of purchasing from all suppliers • Intercompany and intracompany information access • Electronic Data Interchange • Data acquisition at the point of origin and point of sale • Instantaneous updating of inventory levels • Visibility

11. Electronic Business In Theory: • Replacement of physical processes with electronic ones • Cost and price reductions • Reduction or elimination of intermediaries • Shortening transaction times for ordering and delivery • Wider presence and increased visibility

12. Electronic Business • Greater choices and more information for customers • Improved service • Collection and analysis of customer data and preferences • Virtual companies with lower prices • Leveling the playing field for smaller companies • Gain global access to markets & customers

13. Electronic Data Interchange • Computer-to-computer exchange of business documents in a standard format • Quick access, better customer service, less paperwork, better communication, increased productivity, improved tracing and expediting, improves billing and cost efficiency

14. 1234 5678 Bar Codes • Computer readable codes attached to items flowing through the supply chain • Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans

15. IT Issues • Increased benefits and sophistication come with increased costs • Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient • Security problems are very real – camera phones, cell phones, thumb drives • Collaboration and trust are important elements that may be new to business relationships

16. Suppliers • Purchased materials account for about half of manufacturing costs • Materials, parts, and service must be delivered on time, of high quality, and low cost • Suppliers should be integrated into their customers’ supply chains • Partnerships should be established • On-demand delivery (JIT) is a frequent requirement - what is JIT and does it work?

17. Sourcing • Relationship between customers and suppliers focuses on collaboration and cooperation • Outsourcing has become a long-term strategic decision • Organizations focus on core competencies • Single-sourcing is increasingly a part of supplier relations How does single source differ from sole source?

18. Distribution • The actual movement of products and materials between locations • Handling of materials and products at receiving docks, storing products, packaging, and shipping • Often called logistics • Driving force today is speed • Particularly important for Internet dot-coms

19. Distribution Centers and Warehousing • 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 • Final assembly and product configuration (postponement) may be done at the DC

20. Warehouse Management Systems • Highly automated systems • A good system will control item slotting, pick lists, packing, and shipping • Most newer systems include transportation management (load management/configuration), order management, yard management, labor management, warehouse optimization

21. Vendor-Managed Inventory • Not a new concept – same process used by bread deliveries to stores for decades • Reduces need for warehousing • Increased speed, reduced errors, and improved service • Onus is on the supplier to keep the shelves full or assembly lines running • variation of JIT • Proctor&Gamble - Wal-Mart • DLA – moving from a manager of supplies to a manager of suppliers • Direct Vendor Deliveries – loss of visibility

22. Collaborative Distribution and Outsourcing • Collaborative planning, forecasting, and replenishment (CPFR) started by Nabisco • Allows suppliers to know what is really needed and when • Electronic-based exchange of data and information • Significant decrease in inventory levels and more efficient logistics - maybe not! • Companies work together for benefit of all of the supply chain

23. Transportation • Common methods are railroads, trucking, water, air, intermodal, package carriers, and pipelines

24. Railroads • 150,000 miles in US • Low cost, high-volume • Improving flexibility • intermodal service • double stacking Complaints: slow, inflexible, large loads Advantages: large/bulky loads, intermodal

25. Wal-Mart Stores, Inc. Carrier of the Year – 5 years in a row Target Only rail carrier to receive the Vice President’s Award American Honda Motor Company Premier Partner – 4 consecutive years Toyota’s North American Partsand Logistics Division (NAPLD) Rail Carrier of the Year – 3 consecutive years KIA Carrier of the Year Federal Express Only rail carrier to receive outstanding supplier award - 2 years in a row Schneider Carrier of the Year – 3 consecutive years Award-Winning Service Recognition United Parcel Service 99.5% failure free, damage free and on-time rating from United Parcel Service every year since 1995

26. Trucking • Most used mode in US -75% of total freight (not total weight) • Flexible, small loads • Consolidation, Internet load match sites • Single sourcing reduces number of trucking firms serving a company • Truck load (TL) vs. Less Than Truck Load (LTL)

27. Air • Rapidly growing segment of transportation industry • Lightweight, small items • Quick, reliable, expensive (relatively expensive depending on costs of not getting item there) • Major airlines and US Postal Service, UPS, FedEx, DHL

28. Package Carriers • FedEx, UPS, US Postal Service, DHL • Significant growth driven by e-businesses and the move to smaller shipments and consumer desire to have it NOW • Use several modes of transportation • Expensive - relative!! • Fast and reliable - relative!! • Innovative use of technologies in some cases • Online tracking – some better than others

29. Intermodal • Combination of several modes of transportation • Most common are truck/rail/truck and truck/water/rail/truck • Enabled by the use of containers – the development of the 20 and 40 foot containers significantly changed the face of shipping • ~2% of all US cargo via intermodal

30. Water • One of oldest means of transport • Low-cost, high-volume, slow (relative) • Security - sheer volume - millions of containers annually • Bulky, heavy and/or large items • Standardized shipping containers improve service • The most common form of international shipping

31. Pipelines • Primarily for oil & refined oil products • Slurry lines carry coal or kaolin • High initial capital investment • Low operating costs • Can cross difficult terrain

32. Global Supply Chain • Free trade & global opportunities • Nations form trading groups • No tariffs or duties • Freely transport goods across borders • Security!!

33. Global Supply Chain Problems • National and regional differences • Customs, business practices, and regulations • Foreign markets are not homogeneous • Quality can be a major issue

34. Security • ~ 10+ million containers annually • Customs-Trade Partnership Against Terrorism (C-TPAT) • Port Security – SAFE Ports Act; Scanning of all Containers • Cost - $2 billion closing of major port • 66% of all goods into US comes through 20 major ports • 44% through LA/Long Beach • Cost of attack on major port estimated at $20 Billion

39. Chapter 11 Forecasting

40. Forecasting Survey • How far into the future do you typically project when trying to forecast the health of your industry?  less than 4 months 3%  4-6 months 12%  7-12 months 28%  > 12 months 57% Fortune Council survey, Nov 2005

41. Indices to forecast health of industry • Consumer price index 51% • Consumer Confidence index 44% • Durable goods orders 20% • Gross Domestic Product 35% • Manufacturing and trade inventories and sales 27% • Price of oil/barrel 34% • Strength of US $ 46% • Unemployment rate 53% • Interest rates/fed funds 59% Fortune Council survey, Nov 2005

42. Forecasting Importance • Improving customer demand forecasting and sharing the information downstream will allow more efficient scheduling and inventory management • Boeing, 1997: $2.6 billion write down due to “raw material shortages, internal and supplier parts shortages” Wall Street Journal, Oct 23, 1987

43. Forecasting Importance • “Second Quarter sales at US Surgical Corporation decline 25%, resulting in a $22 mil loss…attributed to larger than anticipated inventories on shelves of hospitals.” US Surgical Quarterly, Jul 1993 • “IBM sells out new Aetna PC; shortage may cost millions in potential revenue.” Wall Street Journal, Oct 7, 1994

44. Principles of Forecasting • Forecasts are usually wrong • every forecast should include an estimate of error • Forecasts are more accurate for families or groups • Forecasts are more accurate for nearer periods.

45. Important Factors to Improve Forecasting • Record Data in the same terms as needed in the forecast – production data for production forecasts; time periods • Record circumstances related to the data • Record the demand separately for different customer groups

46. Forecast Techniques • Extrinsic Techniques – projections based on indicators that relate to products – examples • Intrinsic – historical data used to forecast (most common)

47. Forecasting • Forecasting errors can increase the total cost of ownership for a product - inventory carrying costs - obsolete inventory - lack of sufficient inventory - quality of products due to accepting marginal products to prevent stockout

48. Forecasting • Essential for smooth operations of business organizations • Estimates of the occurrence, timing, or magnitude of uncertain future events • Costs of forecasting: excess labor; excess materials; expediting costs; lost revenues

49. Forecasting • Predicting future events • Usually demand behavior over a time frame • Qualitative methods • Based on subjective methods • Quantitative methods • Based on mathematical formulas

50. Impact of Just-in-Timeon Forecasting • Just in time as a inventory method • Just in time as a Continuous process improvement program • Just in time - one on the shelf • Usage factors • Single order vs. Case order