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What is Supply-Chain Management?

What is Supply-Chain Management?. Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together.

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What is Supply-Chain Management?

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  1. What is Supply-Chain Management? • Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together. • Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.

  2. Retailer’s Orders Wholesaler’s Orders Manufacturer’s Orders Order Quantity Order Quantity Order Quantity Time Time Time Bullwhip Effect The magnification of variability in orders in the supply-chain.

  3. Matching Supply-Chains with Products Innovative Products Functional Products Efficient Supply-Chain Match Mismatch Responsive Supply-Chain Mismatch Match

  4. What is Outsourcing? Outsourcing is defined as the act of moving a firm’s internal activities and decision responsibility to outside providers.

  5. Reasons to Outsource- Categories • Organizationally-driven • Improvement-driven • Financially-driven • Revenue-driven • Cost-driven • Employee-driven

  6. Reasons to Outsource • Quality/reliability/consistency • Best Practices/effectiveness/economies of scale • Business restructuring • Access to technology/new ideas • Greater management control through better record keeping and reporting • Customer service improvement • Fixed price/cost savings potential • Clear accountability • Improved ability to focus on company’s core business strategies • Access to superior training/resources • Elimination of recruiting, hiring, and retaining motivated employees for non-core functions • Career path for non-core employees

  7. Outsourcing Issues • Managing multiple suppliers vs. staff • Impact of change/support to employees during transition • Coordination of internal vs. external activities (must be seamless!) • Determination of appropriate performance measurements • Resources/funding available for the change • Perceived loss of management control • Payment for outsourced resources • Financial health of supplier • Competitive climate • Confidential information • Quality improved?

  8. Outsourcing Issues (cont’d) • Matching right project with right supplier • Don’t outsource a bad process • Don’t buy on price alone • Can’t outsource accountability • Don’t start with an answer and try to find the problem • Excellent communications needed • Misconceptions (e.g., always less expensive; all tasks can be outsourced) • Training needs • Need mutual respect for supplier to help you achieve your goals! • Need to retain expertise if it doesn’t work (experts walk away!) • Harder to go back once outsourced (insourcing)

  9. Single Supplier Strategy • Should there be more than one supplier for a specific commodity? • What if the commodity is key to the core business? • What are the trade-offs?

  10. Single Supplier Strategy- Advantages • Time saved dealing with many suppliers • Larger batch sizes possible (more stable process) • Fewer changeovers; less idle time • Captive assembly lines possible; easy to schedule priorities • Supplier can demand higher quality from its suppliers due to larger quantities • More time for corrective action • Reduction in price due to quantity given to single supplier • Reduction in incoming quality rejections (e.g., 2% to 0.3%) • Reduction in variability

  11. Single Supplier Strategy- Advantages (cont’d) • Easier to share responsibilities for quality; more commitment; better communications • Greater moral responsibility for quality from supplier (as opposed to arrogance) • More volume available if industry shortages of materials • Simpler and faster training • Improved document and sample control (less specs, more up-to-date, etc.) • Minimized identification issues when field failures • One stop corrective actions • Reduced cost of quality (e.g., less travel, telephone costs, executive time, etc.) • More time to communicate with customers • Priority access to supplier’s R&D breakthroughs

  12. Single Supplier Strategy- Limitations • Fewer brainstorming opportunities and competitive benchmarking opportunities (but can offset with industry research, benchmarking, FMEA analysis, leveraging best ideas of single supplier, etc.) • Dependence on one supplier to get it right (but can use SPC for early warnings of process deviations) • Emergency breakdown at single supplier facility (can be offset with contingency planning, dormant supplier preparedness, and long-term ordering) • Potential loss of diversity of suppliers  

  13. Mass Customization • Mass customizationis a term used to describe the ability of a company to deliver highly customized products and services to different customers. • The key to mass customization is effectively postponing the tasks of differentiating a product for a specific customer until the latest possible point in the supply-chain network. • Also key are independent modules, flexibility, responsiveness and cost-effectiveness

  14. Material Requirements Planning • Dependent demand drives Materials requirements planning (MRP) • MRP is the logic for determining the number of dependent demand items needed. • MRP provides time scheduling information specifying when each of the dependent demand items should be ordered or produced.

  15. Introductory Example - Dependent Demand Lead Times A 1 day B 2 days C 1 day D 3 days E 4 days F 1 day Product Structure Tree for Assembly A Demand Day 10 50 A Day 8 20 B (Spares) Day 6 15 D (Spares) Create a schedule to satisfy demand.

  16. LT = 1 day Irwin/McGraw-Hill

  17. LT = 2 Spares A B(4) C(2) D(2) E(1) D(3) F(2)

  18. Part D: Day 6 40 + 15 spares

  19. Aggregate Plan (Product Groups) MPS (Specific End Items) Master Production Schedule (MPS) • Time-phased plan specifying how many and when the firm plans to build each end item

  20. Master Production Schedule:Time Fences • Frozen • Moderately Firm • Flexible

  21. Moderately Firm Frozen Flexible Capacity Forecast and available capacity Firm Customer Orders 8 15 26 Weeks Master Production Schedule:Time Fences

  22. Material Requirements Planning :Bill of Materials (BOM) File • A complete product description • Materials • Parts/Components • Production sequence/“Recipe”

  23. Manufacturing Resource Planning (MRP II) • Integrated software system to plan and monitor all resources of a manufacturing firm: • Manufacturing • Marketing • Finance • Purchasing • Engineering

  24. No Realistic? Feedback Feedback Yes Execute: Capacity Plans Material Plans Is there enough capacity for the planned order schedule? Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning Closed Loop MRP

  25. Forecasts Aggregate Firm orders of demand product from known from random plan customers customers Master Engineering production Inventory design schedule transactions changes (MPS) Bill of Material Inventory material planning record file (MRP) file Reports

  26. DVD Model DVD Model A B C(1) D(2) E(2) C(2) F(2) G(2) F(2) F(2) G(2) I(2) H(1) I(2) I(2) H(1) Problem 18: (Corrected BOM)

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