Chapter 7-Supply Chain

1. Chapter 7-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

2. Information Distributors Producers Suppliers Customers Finished goods, end products and services Package and delivery Materials, parts, sub-assemblies, and services Total satisfaction with quality, price, delivery, and service Products and Services Products and Services Products and Services Inventory Inventory Inventory Cash The Supply Chain Figure 7.1

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

4. 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

5. 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

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

7. Electronic Business • 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

8. 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

9. Table 7.1Supply Chain Evolution at Nabisco

10. 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

11. 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

12. The Internet • Instant global access to organizations, individuals, and information sources • Fundamentally changes the way organizations do business • Removed geographic barriers • Adds speed and accessibility to the supply chain

13. Figure 7.2 Build-to-Order Cars over the Internet

14. The E-Automotive Supply Chain SUPPLY CHAIN PROCESS AUTOMOTIVE PAST E-AUTOMOTIVE Table 7.2

15. Intranets and Extranets • Intranets are internet-like networks that operate within a single organization • Extranets are intranets that can be connected to the global internet • Difference is in who has access to the system

16. 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 • Partnership and trust are important elements that may be new to business relationships

17. 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

18. 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

19. E-Procurement • Business-to-business commerce conducted on the Internet • Benefits include lower transaction costs, lower prices, reduce clerical labor costs, and faster ordering and delivery times • Currently used more for indirect goods • E-Marketplaces service industry-specific companies and suppliers

20. Figure 7.3 The Wal-Mart Supply Chain

21. Figure 7.4 Centralized Supply at Honda America

22. 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

23. Figure 7.5 Order Fulfillment at Amazon.com

24. 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 may be done at the DC

25. Warehouse Management Systems • Highly automated systems • Controls item putaway, picking, packing, and shipping • Transportation management, order management, yard management, labor management, warehouse optimization

26. Figure 7.6 A WMS

27. Vendor-Managed Inventory • Manufacturers generate orders, not distributors • Stocking information is accessed using EDI • A first step towards supply chain collaboration • Increased speed, reduced errors, and improved service

28. Collaborative Distribution and Outsourcing • Collaborative planning, forecasting, and replenishment (CPFR) • Internet-based exchange of data and information • Significant decrease in inventory levels and more efficient logistics • Companies focus on core competencies

29. Transportation • Important element, often overlooked • Common methods are railroads, trucking, water, air, intermodal, package carriers, and pipelines

30. Railroads • 150,000 miles in US • Low cost, high-volume • Improving flexibility • intermodal service • double stacking

31. Trucking • Most used mode in US • Flexible, small loads • Consolidation, Internet load match sites • Part of TQM supplier-customer relationship • Single sourcing reduces number of trucking firms serving a company

32. Air • Rapidly growing segment of transportation industry • Lightweight, small items • Quick, reliable, expensive • Major airlines and US Postal Service, UPS, FedEx, DHL

33. Package Carriers • FedEx, UPS, US Postal Service, DHL • Significant growth driven by e-businesses • Use several modes of transportation • Expensive • Fast and reliable • Innovative use of technologies

34. Intermodal • Combination of several modes of transportation • Most common are truck/rail/truck and truck/water/rail/truck • Enabled by the use of containers

35. Water • One of oldest means of transport • Low-cost, high-volume, slow • Bulky, heavy and/or large items • Standardized shipping containers improve service • The most common form of international shipping

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

37. Internet Transportation Exchanges • Bring together shippers and carriers • Initial contact, negotiations, auctions • Typically only one form of transportation, intermodal exchanges have been difficult to develop

38. The Transportation Method • Ship items at lowest cost • Sources have fixed supplies • Destinations have fixed demand

39. GRAIN ELEVATOR SUPPLY 1. Kansas City 150 2. Omaha 175 Des Moines 275 600 tons MILL DEMAND A. Chicago 200 B. St. Louis 100 Cincinnati 300 600 tons MILL GRAIN Chicago St. Louis Cincinnati ELEVATOR A B C Kansas City $6 $8 $10 Omaha 7 11 11 Des Moines 4 5 12 Transportation Problem Example 7.1

40. TO FROM Chicago St. Louis Cincinnati SUPPLY Kansas City 6 8 10 150 Omaha 7 11 11 175 Des Moines 4 5 12 275 DEMAND 200 100 300 600 Supply (tons) Demand (tons) 4 Des Moines (275) Chicago (200) 7 12 Omaha (175) Cincinnati (300) 5 11 6 10 Kansas City (150) St. Louis (100) 8 The Transportation Tableau Figure 7.7

41. Solving Transportation Problems • Manual methods • Stepping-stone • Modified distribution (MODI) • Computer solution • Excel • POM/QM for Windows

42. TO GRAIN FROM Chicago St. Louis Cincinnati SUPPLY SHIPPED Kansas City 25 0 125 150 150 Omaha 0 0 175 175 175 Des Moines 175 100 0 275 275 DEMAND 200 100 300 600 GRAIN 200 100 300 SHIPPED COST $4525 Solution for Grain Shipment Based on Exhibit 7.3

43. Figure 7.8 Linking the Supply Chain with SAP

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

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

46. Duties and Tariffs • Proliferation of trade agreements • Group members charge uniform tariffs • Member nations have a competitive advantage within the group

47. APEC NAFTA TAFTA FTAA ASEAN CALM ATPA MERCOSUR ANZCERTA Duties and Tariffs Figure 7.9

48. Landed Cost and Internet-Based ITL Systems • Knowing landed cost is critical in international trade • Common components are transportation charges, tariffs, duties, and taxes • ITL systems convert language and currency between trading partners

49. Infrastructure Obstacles to Global Trade • Some emerging markets lack suitable distribution systems, i.e. roads, rail systems • Existing roads and ports may be inadequate • Market instability, political instability • Vertical integration is a common solution