INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

1. INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

2. Flows in a Supply Chain Information Product Customer Funds Supply Chain

3. What is Knowledge? A collection of data is not information. A collection of information is not knowledge. A collection of knowledge is not wisdom. A collection of wisdom is not truth.

4. In the first half of the twentieth century industry replaced agriculture, in the second half of the twentieth century –“service” has replaced “manufacturing” -and right now, the knowledge industry is beginning to replace the others. −−George Kotzmetzk

5. Chapter Outline Introduction What is Supply Chain Management? Why is Supply Chain Management important? The origins of Supply Chain Management Important Elements of Supply Chain Management: - Purchasing - Operations - Distribution - Integration Strategies for Supply Chain Management Future Trends in Supply Chain Management The Beer Game

6. What is a Supply Chain? A supply chain consists of the flow of products and services from/to: --Raw materials manufacturers SEE FIGURE 1.1 --Intermediate products manufacturers --End product manufacturers --Wholesalers and distributors --Retailers and, --End customers Connected by agents, transportation and storage activities, and Integrated through sharing of information, planning, and processing activities\ Examples???

7. Customers, demand centers sinks Sources: plants vendors ports Field Warehouses: stocking points Regional Warehouses: stocking points Supply Inventory & warehousing costs Production/ purchase costs Transportation costs Transportation costs Inventory & warehousing costs

8. Figure 1.1 A Generic Supply Chain Product & service flow End customers End product manufacturer Wholesalers, Intermediate Retailers Raw material distributors component mfgs . suppliers Information and planning

9. Production Distribution Purchasing Receiving Storage Operations Storage Typical Supply Chains

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. What is Supply Chain Management? Here are two definitions: The design and management of seamless, value-added process across organizational boundaries to meet the real needs of the end customer -- Institute for Supply Management Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer -- The Supply Chain Council

13. What Is the Goal of Supply Chain Management?. Supply chain management is concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed: In the right quantities To the right locations At the right time In order to Minimize total system cost Satisfy customer service requirements

14. Importance of Supply Chain Management Firms have discovered value-enhancing and long term benefits Who benefits most? Firms with: - Large inventories - Large number of suppliers - Complex products - Customers with large purchasing budgets Benefits - Lower purchasing/inventory costs, higher quality/customer service

15. Importance of Supply Chain Mgt. –Cont. Firms practicing Supply Chain Management: 1. Start with key suppliers 2. Move on to other suppliers, customers, and shippers 3. Integrate second tier suppliers and customers (second tier refers to the customer’s customers and the supplier’s suppliers)

16. Importance of Supply Chain Mgt. –Cont. Cost savings and better coordination of resources are reasons to employ Supply Chain Management -- Bullwhip Effect- the magnification of safety stocks and costs based on separate forecasts and uncoordinated planning and sharing of information along the supply chain (Ex. 1.1) Reducing the bullwhip effect occurs through: -- Process integration- Interdependent activities can lead to improved quality, reduced cycle time, better production methods, better forecasts, less safety stock, etc.

17. Important Elements of SCM Purchasing-Supplier alliances, supplier management, strategic sourcing Operations- Demand management, MRP, ERP, JIT, TQM Distribution- Transportation management, customer relationship management, network design, service response logistics Integration- Coordination/Integration activities, global integration problems, performance measurement

18. Important Elements of SCM-Cont. Purchasing: Long term relationships Supplier management-improved performance through- -- Supplier evaluation(determining supplier capabilities and performance) -- Supplier certification(third party or internal certification to assure product quality and service compliance) Strategic partnerships-successful and trusting, long-term relationships with top-performing suppliers

19. Important Elements of Supply Chain Management-Cont. Operations: -- Demand management-match demand to available capacity -- Linking buyers & suppliers viaMRPandERPsystems -- UseJITto improve the“pull” of materials to reduce inventory levels -- EmployTQMto improve quality compliance among buyers and suppliers

20. Important Elements of Supply Chain Management-Cont. Distribution: -- Transportation management-tradeoff decisions between cost & timing of delivery/customer service via trucks, rail, water & air -- Customer relationship management-strategies to ensure deliveries, resolve complaints, improve communications, & determine service requirements -- Network design-creatingdistribution networksbased on tradeoff decisions between cost & sophistication of distribution system

21. Important Elements of Supply Chain Management-Cont. Integration: -- Supply Chain Integration-when supply chain participants work for common goals. Requiresintrafirmfunctional integration. Based on efforts to change attitudes & adversarial relationships -- Global Supply Chains-advantages that accrue from sourcing from larger global market e.g., lower cost & higher quality suppliers. May involveoperating exposure,which is risk found in foreign settings -- Supply Chain Performance Measurement-Crucial for firms to know if procedures are working

22. Strategies for SCM All of the advanced strategies, techniques, and approaches for Supply Chain Management focus on: Global Optimization Managing Uncertainty

23. Optimization What is it? Why is it important? What tools and approaches help?

24. Tools and Strategies for Optimization Decision Support Systems Inventory Control Network Design Design for Logistics Cross Docking

25. Global Optimization What is it? Why is it different/better than local optimization? What are conflicting supply chain objectives? What tools and approaches help with global optimization?

26. Sequential Optimization Procurement Planning Manufacturing Planning Distribution Planning Demand Planning Global Optimization Supply Contracts/Collaboration/Information Systems and DSS Procurement Planning Manufacturing Planning Distribution Planning Demand Planning Sequential Optimization vs. Global Optimization Source: Duncan McFarlane

27. Why is Global Optimization Hard? The supply chain is complex Different facilities have conflicting objectives The supply chain is a dynamic system The power structure changes The system varies over time

28. Uncertainty What is variation? What is randomness? What tools and approaches help us to deal with these issues?

29. Can’t Forecasting Help? Forecasting is always wrong The longer the forecast horizon the worse the forecast End item forecasts are even more wrong

30. Why Is Uncertainty Hard to Deal With? Matching supply and demand is difficult. Forecasting doesn’t solve the problem. Inventory and back-order levels typically fluctuate widely across the supply chain. Demand is not the only source of uncertainty: Lead times Yields Transportation times Natural Disasters Component Availability

31. Manufacturer Forecast of Sales Retailer Warehouse to Shop Actual Consumer Demand Retailer Orders Production Plan Supply Chain Variability Volumes Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

32. Consumer Demand Production Plan What Management Gets... Volumes Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

33. Production Plan Consumer Demand What Management Wants… Volumes Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

34. Dealing with Uncertainty • Pull Systems • Risk Pooling • Centralization • Postponement • Strategic Alliances • Collaborative Forecasting

35. Supply Chain:the Magnitude • In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of gross domestic product). • Transportation 58% • Inventory 38% • Management 4% • Third party logistics services grew in 1998 by 15% to nearly $40 billion

36. Supply Chain:the Magnitude It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies. A typical box of cereal spends more than three months getting from factory to supermarket. A typical new car spends 15 days traveling from the factory to the dealership, although actual travel time is 5 days.

37. Supply Chain: The Magnitude Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them. Boeing aircraft, one of America's leading capital goods producers, was forced to announce write downs of $2.6 billion in October 1997, due to “Raw material shortages, internal and supplier parts shortages…”.

38. Supply Chain: The Potential Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months.“According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”. (Journal of business strategy, Oct./Nov. 1997)

39. Supply Chain:the Potential In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer. Dell Computer has outperformed the competition in terms of shareholder value growth over the eight years period, 1988-1996, by over 3,000% (see Anderson and Lee, 1999) using Direct business model Build-to-order strategy.

40. What’s New? Global competition Shorter product life cycle New, low-cost distribution channels More powerful well-informed customers Internet and E-Business strategies

41. H&B Wood Bats Process ERP5 Overview—Supply System at Hillerich & Bradsby

42. Technology/Logistics LO2 American President Line