Transcript Document
11 Supply Chain Management
Copyright © 2014 by McGraw-Hill Education (Asia). All rights reserved.
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.
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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.
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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 chain
Supply Chain Management: Strategic coordination of the supply chain for purpose of integrating supply and demand management
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Facilities
Warehouses Factories Processing centers Distribution centers Retail outlets Offices
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Functions and Activities
Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service
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Typical Supply Chains
Production Distribution Purchasing Receiving Storage Operations Storage 11-7
Typical Supply Chain for a Manufacturer
Figure 11.1a
Supplier Supplier
}
Storage Supplier Mfg.
Storage Dist.
Retailer Customer 11-8
Typical Supply Chain for a Service
Figure 11.1b
Supplier
}
Supplier Storage Service Customer 11-9
Need for Supply Chain Management
1. Improve operations 2. Increasing levels of outsourcing 3. Increasing transportation costs 4. Competitive pressures 5. Increasing globalization 6. Increasing importance of e-business 7. Complexity of supply chains 8. Manage inventories
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Figure 11.3
Bullwhip Effect
Demand Initial Supplier Final Customer Inventory oscillations become progressively larger looking backward through the supply chain
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Global Supply Chains
Increasingly more complex Language Culture Currency fluctuations Political Transportation costs Local capabilities Finance and economics Government Regulatory issues Environmental issues
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Benefits of Effective Supply Chain Management
Organization
Campbell Soup
Benefit
Doubled inventory turnover rate Hewlett-Packard Samsung Wal-Mart Cut supply costs 75% Reduce inventory buffer from 21 to 15 days Largest and most profitable retailer in the world
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
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Elements of Supply Chain Management
Table 11.1
Element
Customers Forecasting Design Processing Inventory Purchasing Suppliers Location Logistics
Typical Issues
Determining what customers want Predicting quantity and timing of demand Incorporating customer wants, manufacturing, and time Controlling quality, scheduling work Meeting demand while managing inventory costs Evaluating suppliers and supporting operations Monitoring supplier quality, delivery, and relations Determining location of facilities Deciding how to best move and store materials
Strategic or Operational
Two types of decisions in supply chain management Strategic: design and policy Operational: day-to-day activities Major decisions areas Location Production Inventory Distribution
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Logistics
Logistics Refers to movement of materials, services, cash and information in a supply chain Movement within the facility Incoming and outgoing shipments Distribution Requirements Planning (DRP) Third Party Logistics (3PLs) Reverse Logistics
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Movement within a Facility
Figure 11.4
Work center Work center Work center Storage Work center Storage Storage Shipping 11-18
Distribution Requirements Planning
Distribution requirements planning
(DRP) is a system for inventory management and distribution planning Extends the concepts of MRPII
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Uses of DRP
Management uses DRP to plan and coordinate: Transportation Warehousing Workers Equipment Financial flows
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Reverse Logistics
Reverse logistics
: the backward flow of goods returned to the supply chain from their final destination 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
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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
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Advantages of 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
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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
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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
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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
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Figure 11.5
SCOR Model
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SCOR Metrics
Figure 11.5
Perspective
Reliability Flexibility
Metrics
On-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment Supply chain response time Upside production flexibility Expenses Assets/utilization Supply chain management costs Warranty cost as a percent of revenue Value added per employee Total inventory days of supply Cash-to-cash cycle time Net asset turns
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
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CPFR
C ollaborative P lanning, F orecasting, and R eplenishment Focuses on information sharing among trading partners Forecasts can be frozen and then converted into a shipping plan Eliminates typical order processing
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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
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Creating an Effective Supply Chain
1. Develop strategic objectives and tactics 2. Integrate and coordinate activities in the internal supply chain 3. Coordinate activities with suppliers and customers 4. Coordinate planning and execution across the supply chain 5. Form strategic partnerships
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Supply Chain Performance Drivers
1. Quality 2. Cost 3. Flexibility 4. Velocity 5. Customer service
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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
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Challenges
Barriers to integration of organizations Getting top management on board Dealing with trade-offs Small businesses Variability and uncertainty Response time
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Trade-Offs
1. Lot-size-inventory Bullwhip effect 2. Inventory-transportation costs Cross-docking 3. Lead time-transportation costs 4. Product variety-inventory Delayed differentiation 5. Cost-customer service Disintermediation
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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
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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
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Supply Chain Issues
Strategic Issues
Design of the supply chain, partnering
Tactical Issues Operating Issues
Inventory policies Purchasing policies Production policies Transportation policies Quality policies Quality control Production planning and control
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Supply Chain Benefits and Drawbacks
Table 11.4
Problem
Large inventories
Potential Improvement
Smaller, more frequent deliveries
Benefits
Reduced holding costs
Possible Drawbacks
Traffic congestion Increased costs Long lead times Large number of parts Cost Quality Delayed differentiation Disintermediation Modular Outsourcing Quick response Fewer parts Simpler ordering Reduced cost, higher quality May not be feasible May need to absorb functions Less variety Loss of control Variability Shorter lead times, better forecasts Able to match supply and demand Less variety
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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 begins with a request for purchase and ends with notification of shipment received in satisfactory condition.
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Goal of Purchasing
Develop and implement purchasing plans for products and services that support operations strategies
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Duties/Roles of Purchasing
Identifying sources of supply Negotiating contracts Maintaining a database of suppliers Obtaining goods and services Managing supplies
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Figure 11.6
Purchasing Interfaces
Legal Operations Accounting Purchasing Data processing Design Receiving Suppliers 11-44
Purchasing Cycle
1. Requisition received 2. Supplier selected
Operations
3. Order is placed 4. Monitor orders 5. Receive orders
Legal Purchasing Accounting Data process ing Design Receiving Suppliers 11-45
Centralized vs. Decentralized Purchasing
Centralized purchasing Purchasing is handled by one department Decentralized purchasing Individual departments or separate locations handle their own purchasing requirements
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Ethics In Purchasing
Buyers hold great power Sellers often eager to sell Principles: Loyalty to employer Justice to those being dealt with Faith in purchasing profession
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Supplier Management
Choosing suppliers Supplier audits Supplier certification Supplier relationships Supplier partnerships
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Factors in Choosing a Supplier
Quality and quality assurance Flexibility Location Price
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Factors in Choosing a Supplier
Product or service changes Reputation and financial stability Lead times and on-time delivery Other accounts
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Evaluating Sources of Supply
Vendor analysis
: Evaluating the sources of supply in terms of price, quality, reputation, and service
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Suppliers: Adversary vs. Partner
Table 11.7
Aspect Number of suppliers Length of relationship Low price Reliability Openness Quality Volume of business Flexibility Location Adversary Many May be brief Major consideration May not be high Low May be unreliable; buyer inspects May be low Relatively low Widely dispersed Partner One or a few Long-term Moderately important High High At the source; vendor certified High Relatively high Nearness is important
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Supplier Partnerships
Ideas from suppliers could lead to improved competitiveness 1. Reduce cost of making the purchase 2. Reduce transportation costs 3. Reduce production costs 4. Improve product quality 5. Improve product design 6. Reduce time to market 7. Improve customer satisfaction 8. Reduce inventory costs 9. Introduce new products or services
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Operations Strategy: Critical Issues
Strategic importance Cost Quality Agility Customer service Competitive advantage Technology management Benefits Risks
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Operations Strategy: Critical Issues
Purchasing function Increased outsourcing Increased conversion to lean production Just-in-time deliveries Globalization
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