Supply Chain Management

1. Supply Chain Management To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.

2. IntroductiontoSupplyChains and SupplyChainManagement

3. Supply Chain (Definition of) • The sequence of organizations- their facilities, functions, processes and activities- that are involved in producing and delivering a product or service Sometimes referred to as value chain

4. Components of Supply (Value) Chains • Supply Component: Starts at the beginning of the SC and ends with the internal operations of the organization. • Demand Component: Starts at the point where the organization’s output is delivered to its immediate customer and ends with the final customer in the chain. Demand chain is the sales and distributon portion of the value chain The length of each component depends on where a particular organization is in the chain

5. 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 The Supply Chain Downstream SC members Upstream SC members

6. 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 The Supply Chain

7. 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

8. The Supply-Chain VISA ® CreditFlow Material Flow Supplier Manufacturer Retailer Consumer Supplier Wholesaler Retailer Order Cash Schedules Flow Flow

9. Flow Management • Three types of flow • Product and service flow • Involves movement of goods and services from suppliers to customers as well as handling customer service needs and product returns • Information flow • Involves sharing forecasts and sales data, transmitting orders, tracking shipments, and updating order status • Financial flow • Involves credit terms, payments, and consignment and title ownership arrangements

10. Supplier } Supplier Storage Mfg. Storage Dist. Retailer Customer Supplier Typical Supply Chain for a Manufacturer

11. Supplier } Storage Service Customer Supplier Typical Supply Chain for a Service

12. Supply Chain Management (Definition of) (1 of 2) • A total systemapproachtomanagingtheentireflow of information, materials, andservicesfromraw-materialsuppliersthroughfactoriesandwarehousestotheenduser (planning, organizing, directingandcontrollingflows of materials) • Managing all activities associated withthe flow and transformation of goods and servicesfromrawmaterialstotheenduser, thecustomer, as well as theassociatedinformationflows

13. Supply Chain Management(Definition of) (2 of 2) • Thestrategiccoordination of businessfunctionswithin a businessorganizationandthroughoutitssupplychainforthepurpose of integratingsupplyanddemandmanagement • Theprocess of planning, implementingandcontrollingsupplychainoperations.

14. Goals of Supply Chain Management (1 of 2) • Synchronization of activities required to achieve maximum competitive benefits • Coordination, cooperation, and communication and timing among SC members • Ensuring rapid flow of information among members

15. Goals of Supply Chain Management(2 of 2) • Linking the market, distribution channels, processes and suppliers so that market demand is met as efficiently as possible across the chain • Matching supply and demand at each stage of the chain as effectively and efficiently as possible Ultimate goal: Achieving customer satisfaction and maximizing supply chain profits

16. FacilitiesInvolved in SCM • The sequence of the supply chain begins with basic suppliers and extends all the way to the final customer • Warehouses • Factories • Processing centers • Distribution centers • Retail outlets • Offices

17. Element Typical Issues Customers Determining what customers want Forecasting Predicting quantity and timing of demand Design Incorporating customer wants, mfg., and time Processing Controlling quality, scheduling work Inventory Meeting demand while managing inventory costs Purchasing Evaluating suppliers and supporting operations Suppliers Monitoring supplier quality, delivery, and relations Location Determining location of facilities Logistics Deciding how to best move and store materials Elements of Supply Chain Management

18. Supply Chain ManagementIssues (1 of 3) • Determining what customers want • Predicting (forecasting) quantity and timing of demand • Incorporating customer wants to product design • Determining appropriate levels of outsourcing • Managing procurement (purchasing) • Managing and evaluating suppliers (monitoring supplier quality, delivery and relations)

19. Supply Chain ManagementIssues(2 of 3) • Determining the location of facilities • Managing customer relationships • Information management • Managing supporting operations • Managing risk • Managing flows • Quality assurance and control

20. Supply Chain ManagementIssues(3 of 3) • Production planning, scheduling and control • Inventory management (meeting demand while managing inventory costs) • Logistics • Deciding how best to move and store materials (distribution and delivery) • Cstomer service • Identifying problems and responding to them

21. Strategic &Operational Decisions in SupplyChains • Three types of decisions in supply chain management • Strategic– design and policy • Tactical • Operational –day-today activities

22. Strategic Issues Tactical Issues Operating Issues Design of the supply chain, partnering Inventory policies Purchasing policies Production policies Transportation policies Quality policies Quality control Production planning and control Supply Chain Issues

23. Strategic Responsibilities Supply chain strategy alignment Network configuration Information technology Products and services Capacity planning Strategic partnerships Distribution strategy Uncertainty and risk reduction

24. TacticalResponsibilities • Forecasting • Sourcing • Operations planning • Inventory policies • Quality policies • Transportation planning • Collaborating

25. OperationalResponsibilities • Scheduling • Receiving • Transforming • Order fulfilling • Managing inventory • Shipping • Information sharing • Controlling

26. Typical Supply Chain Activities Production Distribution Purchasing Receiving Storage Operations Storage • Processes involved in SCM • Acquiring customer orders • Procuring materials and components from suppliers (sourcing and procurement) • Producing or manufacturing products (transformation activities) • Filling customer orders • Logistics (the part of the SC involved with the forward and reverse flow of goods, services, cash and information)

27. Trends in SCM • Reevaluation of outsourcing • Risk management • Inventory management • Lean supply chains • Sustainability • As a result of thesetrends, organizationsarelikelytogiveseriousthoughttoreconfiguringtheirsupplychainsto • reducerisks, • improveflow, • increaseprofitsand • increasecustomersatisfaction

28. Supply-Chain Costs as a Percent of Sales Industry Percent of Sales • All industry • Automobile • Food • Lumber • Paper • Petroleum • Transportation • 52% • 67% • 60% • 61% • 55% • 79% • 62%

29. FactorsThatContributetotheIncreasedNeedforEffectiveSupplyChainManagementFactorsThatContributetotheIncreasedNeedforEffectiveSupplyChainManagement • need to improve operations • increased levels of outsourcing • increasing transportation costs • competitive pressures • increasing globalization • increasing importance of e-commerce • increasing complexity of supply chains • increasing pressure to decrease inventories

30. Benefits of Supply Chain Management • Lower inventories • Lower costs • Higher productivity • Greater agility • Shorter lead times • Higher profits • Greater customer loyalty • Integration of seperate organizations into a cohesive operating system

31. ActualBenefitsGainedby Supply Chain Management

32. Requirements of a Successful Supply Chain • It begins with strategic sourcing • Analyzing the procurement process to lower costs by reducing waste and non-value-added activities, increasing profits, reducing risks and improving supplier performance • Trust among trading partners • Effective cooperation and communications • Supply chain should enable members to 1) share forecasts, 2) determine the status of orders in real time, 3) access inventory data of partners • Supply chain visibility • Inventory velocity • Event-management capability • The ability to detect and respond to unplanned events • Measuring SC Performance: Performance metrics

33. Creating an Effective Supply Chain An Effective Supply Chain requires linking the market, distribution channels processes, and suppliers Develop strategic objectives and tactics Integrate and coordinate activities in the internal supply chain Coordinate activities with suppliers and with distributors Coordinate planning and execution across the supply chain Form strategic partnerships

34. SC PerformanceMeasures

35. Supply Chain Performance Drivers Quality Cost Flexibility Velocity (inventory velocity, information velocity) Customer service

36. Supply Chain Performance Measures • Financial • Return on assets • Cost • Cash flow • Profits • Suppliers • Quality • On-time deliveriy • Cooperation • flexibility • Operations • Productivity • Quality

37. Supply Chain PerformanceMeasures • 4. Inventory • Avarage value • Turnover • Weeks of supply • 5. Order fulfillment • Order accuracy • Time to fill orders • Percentage of incompete orders shipped • Percentage of orders delivered on time • 6. Customers. • Costomer satisfaction • Percentage of customer complaints

38. Measuring SC Performance: InventoryTurnover • One of the most commonly used measures is “Inventory Turnover”

39. Measuring SC Performance: SCOR Metrics

40. InventoryManagement

41. 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

42. Inventory Managementwithin A SC • Inventory issues in SCM • Inventory location • Centralized inventories • Decentralized inventories • Inventory velocity • The speed at which goods move through a supply chain • The effect of demand variability on inventories • The bullwhip effect • Inventory oscillations that become increasingly larger looking backward through the supply chain

43. The Bullwhip Effect • Variations in demand cause inventories to fluctuate and get out of control • Results in higher costs and lower customer satisfaction • Inventory fluctuation can be magnified by • Periodic ordering • Dverreactions to stockouts • Quality problems • Labor problems • Unusual weather cnoditions • Delays in shipments of goods • Communication delays • Incomplete communications • Lack of coordination of activities among organizations • Forecast inaccuracies • Order batching • Product mix changes • Sales incentives and promotions • Liberal product return policies

44. Bullwhip Effect Demand InitialSupplier Final Customer Demand variations begin at the customer end of the chain and become increasingly large as they radiate backwards through the chain (nventory oscillations become progressively larger moving backward through the supply chain)

45. Inventories in a SC: Bullwhip Effect The magnification of variability in orders in the supply-chain Wholesaler’s Orders Manufacturer’s Orders Retailer’s Orders Order Quantity Order Quantity Order Quantity Time Time Time A lot of retailers each with little variability in their orders…. …can lead to greater variability for a fewer number of wholesalers, and… …can lead to even greater variability for a single manufacturer.

46. Amount of inventory = Inventories in a SC: Bullwhip Effect Tier 2 Suppliers Tier 1 Suppliers Producer Distributor Retailer FinalCustomer

47. Mitigating the Bullwhip Effect • Good supply chain management can overcome the bullwhip effect • Strategic buffering • Holding inventory at a distribution center rather than at retail outlets • Replenishment based on need • Vendor-managed inventory • Vendors monitor goods and replenish retail inventories when supplies are low

48. Vendor-Managed Inventories • The use of a local supplier to maintain inventory for the manufacturer • Stocking information is accessed using EDI • A first step towards supply chain collaboration • Increased speed, reduced errors, and improved service

49. SupplyChains and InformationTechnology

50. Role of Information in the Supply Chain(1 of 2) • 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