Supply Chain Management

1. 11 Supply Chain Management

2. Learning Objectives • Explain what a supply chain is. • Explain the need to manage a supply chain and the potential benefits of doing so. • Explain the increasing importance of outsourcing. • State the objective of supply chain management. • List the elements of supply chain management. • Identify the strategic, tactical, and operations issues in supply chain management. • Describe the bullwhip effect and the reasons why it occurs.

3. Learning Objectives • Explain the value of strategic partnering. • Discuss the critical importance of information exchange across a supply chain. • Outline the key steps, and potential challenges, in creating an effective supply chain. • Explain the importance of the purchasing function in business organizations. • Describe the responsibilities of purchasing. • Explain the term value analysis. • Identify several guidelines for ethical behavior in purchasing.

4. Supply Chain Management • Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service. Sometimes referred to as value chains

5. Facilities • Warehouses • Factories • Processing centers • Distribution centers • Retail outlets • Offices

6. Functions and Activities • Forecasting • Purchasing • Inventory management • Information management • Quality assurance • Scheduling • Production and delivery • Customer service

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

8. Typical Supply Chain for a Manufacturer Supplier } Supplier Storage Mfg. Storage Dist. Retailer Customer Supplier Figure 11.1a

9. Typical Supply Chain for a Service Supplier } Storage Service Customer Supplier Figure 11.1b

10. Need for Supply Chain Management • Improve operations • Increasing levels of outsourcing • Increasing transportation costs • Competitive pressures • Increasing globalization • Increasing importance of e-commerce • Complexity of supply chains • Manage inventories

11. Bullwhip Effect Figure 16.3 Demand InitialSupplier Final Customer Inventory oscillations become progressivelylarger looking backward through the supply chain

12. Benefits of Supply Chain Management

13. Benefits of Supply Chain Management • Lower inventories • Higher productivity • Greater agility • Shorter lead times • Higher profits • Greater customer loyalty • Integrates separate organizations into a cohesive operating system

14. Global Supply Chains • Increasing more complex • Language • Culture • Currency fluctuations • Political • Transportation costs • Local capabilities • Finance and economics • Environmental

15. Elements of Supply Chain Management 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 Table 11.1

16. Strategic or Operational • Two types of decisions in supply chain management • Strategic – design and policy • Operational – day-today activities • Major decisions areas • Location • Production • Inventory • Distribution

17. Logistics • Logistics • Refers to the movement of materials and information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain

18. Logistics 0 214800 232087768 • Movement within the facility • Incoming and outgoing shipments • Bar coding • EDI • Distribution • JIT Deliveries

19. Materials Movement Work center Work center Work center Storage Work center Storage Storage RECEIVING Shipping Figure 11.4

20. Distribution Requirements Planning • Distribution requirements planning (DRP) is a system for inventory management and distribution planning • Extends the concepts of MRPII

21. Uses of DRP • Management uses DRP to plan and coordinate: • Transportation • Warehousing • Workers • Equipment • Financial flows

22. E-Business • E-Business: the use of electronic technology to facilitate business transactions • Applications include • Internet buying and selling • E-mail • Order and shipment tracking • Electronic data interchange

23. Advantages E-Business • Companies can: • Have a global presence • Improve competitiveness and quality • Analyze customer interests • Collect detailed information • Shorten supply chain response times • Realize substantial cost savings • Create virtual companies • Level the playing field for small companies

24. Disadvantages of E-Business • Customer expectations • Order quickly -> fast delivery • Order fulfillment • Order rate often exceeds ability to fulfill it • Inventory holding • Outsourcing loss of control • Internal holding costs

25. Reverse Logistics • Reverse logistics – the backward flow of goods returned to the supply chain • Processing returned goods • Sorting, examining/testing, restocking, repairing • Reconditioning, recycling, disposing • Gatekeeping – screening goods to prevent incorrect acceptance of goods • Avoidance – finding ways to minimize the number of items that are returned

26. Effective Supply Chain • Requires linking the market, distribution channels processes, and suppliers • Supply chain should enable members to: • Share forecasts • Determine the status of orders in real time • Access inventory data of partners

27. Successful Supply Chain • Trust among trading partners • Effective communications • Supply chain visibility • Event-management capability • The ability to detect and respond to unplanned events • Performance metrics

28. SCOR Metrics Table 11.4

29. RFID Technology • Used to track goods in supply chain • RFID tag attached to object • Similar to bar codes but uses radio frequency to transmit product information to receiver • RFID eliminates need for manual counting and bar code scanning

30. CPFR • Collaborative Planning, Forecasting, and Replenishment • Focuses on information sharing among trading partners • Forecasts can be frozen and then converted into a shipping plan • Eliminates typical order processing

31. CPFR Process Step 1 – Front-end agreement Step 2 – Joint business plan Steps 3-5 – Sales forecast Steps 6-8 – Order forecast collaboration Step 9 – Order generation/delivery execution

32. CPFR Results • Nabisco and Wegmans • 50% increase in category sales • Wal-mart and Sara Lee • 14% reduction in store-level inventory • 32% increase in sales • Kimberly-Clark and Kmart • Increased category sales that exceeded market growth

33. Creating an Effective Supply Chain • Develop strategic objectives and tactics • Integrate and coordinate activities in the internal supply chain • Coordinate activities with suppliers with customers • Coordinate planning and execution across the supply chain • Form strategic partnerships

34. Supply Chain Performance Drivers • Quality • Cost • Flexibility • Velocity • Customer service

35. Velocity • Inventory velocity • The rate at which inventory(material) goes through the supply chain • Information velocity • The rate at which information is communicated in a supply chain

36. Challenges • Barriers to integration of organizations • Getting top management on board • Dealing with trade-offs • Small businesses • Variability and uncertainty • Long lead times

37. Trade-offs • Lot-size-inventory • Bullwhip effect • Inventory-transportation costs • Cross-docking • Lead time-transportation costs • Product variety-inventory • Delayed differentiation • Cost-customer service • Disintermediation

38. Trade-offs • Bullwhip effect • Inventories are progressively larger moving backward through the supply chain • Cross-docking • Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks • Avoids warehouse storage

39. Trade-offs • Delayed differentiation • Production of standard components and subassemblies, which are held until late in the process to add differentiating features • Disintermediation • Reducing one or more steps in a supply chain by cutting out one or more intermediaries

40. Supply Chain Issues 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

41. Supply Chain Benefits and Drawbacks Table 11.5

42. Purchasing • Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service. • Purchasing cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition.

43. Goal of Purchasing • Develop and implement purchasing plans for products and services that support operations strategies

44. Duties of Purchasing • Identifying sources of supply • Negotiating contracts • Maintaining a database of suppliers • Obtaining goods and services • Managing supplies

45. Purchasing Interfaces Legal Operations Accounting Data processing Purchasing Design Receiving Suppliers Figure 11.5

46. Purchasing Cycle Legal Operations Accounting Data process- ing Purchasing Design Receiving Suppliers • Requisition received • Supplier selected • Order is placed • Monitor orders • Receive orders

47. Value Analysis vs. Outsourcing • Value analysis • Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance

48. Centralized vs Decentralized Purchasing • Centralized purchasing • Purchasing is handled by one special department • Decentralized purchasing • Individual departments or separate locations handle their own purchasing requirements

49. Suppliers • Choosing suppliers • Evaluating sources of supply • Supplier audits • Supplier certification • Supplier relationships • Supplier partnerships

50. Factors in Choosing a Supplier • Quality and quality assurance • Flexibility • Location • Price