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

0 214800 232087768 11-17

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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