Transcript Document
Supply Chain
Management
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.
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.
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 value chains
Facilities
Warehouses
Factories
Processing centers
Distribution centers
Retail outlets
Offices
Functions and Activities
Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Production and delivery
Customer service
Typical Supply Chains
Production
Distribution
Purchasing Receiving Storage Operations Storage
Manufacturer
Supplier
Supplier
Supplier
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Storage
Mfg.
Storage
Dist.
Retailer
Customer
Need for Supply Chain
Management
1.Improve operations
2.Increasing levels of outsourcing
3.Increasing of transportation costs
4.Competitive pressures
5.Increasing globalization
6.Increasing importance of e-commerce
7.Complexity of supply chains
8.Manage inventories
Benefits of Supply Chain Management
Lower inventories/increase inventory turnover
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty
Integrates separate organizations into a
cohesive operating system
Global Supply Chains
Increasing more complex
Language
Culture
Currency fluctuations
Political
Transportation costs
Local capabilities
Finance and economics
Environmental
Strategic / Operational
Two types of decisions in supply chain
management
Strategic – design and policy
Operational – day-today activities
Major decisions areas
Location
Production
Inventory
Distribution
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
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
Logistics
• Movement within the facility
• Incoming and outgoing shipments
• Bar coding
• RFID
• EDI
• Distribution
• JIT Deliveries
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Materials Movement
Work center
Work center
Work
center
Storage
Work
center
Storage
RECEIVING
Storage
Shipping
Distribution Requirements
Planning
Distribution requirements planning
(DRP) is a system for inventory
management and distribution planning
Extends the concepts of MRPII
Uses of DRP
Management uses DRP to plan and
coordinate:
Transportation
Warehousing
Workers
Equipment
Financial flows
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 (EDI)
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
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
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
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
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
SCOR Metrics
Perspective
Metrics
Reliability
On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillment
Flexibility
Supply chain response time
Upside production flexibility
Expenses
Supply chain management costs
Warranty cost as a percent of revenue
Value added per employee
Assets/utilization
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
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
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
Supply Chain Performance Drivers
1.Quality
2.Cost
3.Flexibility
4.Velocity
5.Customer service
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
Challenges
Barriers to integration of organizations
Getting top management on board
Dealing with trade-offs
Small businesses
Variability and uncertainty
Long lead times
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
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
Bullwhip Effect
Demand
Initial
Supplier
Final Customer
Inventory oscillations become progressively
larger looking backward through the supply chain
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
Supply Chain Benefits and
Drawbacks
Problem
Potential
Improvement
Benefits
Possible
Drawbacks
Large
inventories
Smaller, more
frequent deliveries
Reduced holding
costs
Traffic congestion
Increased costs
Long lead times
Delayed
differentiation
Disintermediation
Quick response
May not be feasible
May need absorb
functions
Large number of Modular
parts
Fewer parts
Simpler ordering
Less variety
Cost
Quality
Outsourcing
Reduced cost,
higher quality
Loss of control
Variability
Shorter lead times,
better forecasts
Able to match
supply and
demand
Less variety
Reduce inventory
Inventory level
Process
downtime
Scrap
Setup
time
Quality
problems
Late deliveries
Reduce inventory
Inventory
level
Process
downtime
Scrap
Setup
time
Quality
problems
Late deliveries
Reduce inventory
Inventory
level
Process
downtime
Scrap
Setup
time
Quality
problems
Late deliveries
Reduce Lot Sizes
Inventory
200 –
Q1 When average order size = 200
average inventory is 100
Q2 When average order size = 100
average inventory is 50
100 –
Time
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.
Goal: Develop and implement purchasing
plans for products and services that support
operations strategies
Duties of Purchasing
Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies
Purchasing Interfaces
Legal
Operations
Accounting
Purchasing
Data
processing
Design
Receiving
Suppliers
Purchasing Cycle
1.Requisition received
2.Supplier selected
3.Order is placed
4.Monitor orders
5.Receive orders
Value analysis
Examination of the function of purchased
parts and materials in an effort to reduce
cost and/or improve performance
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
Suppliers Management
Choosing suppliers
Evaluating sources of supply
Supplier audits
Supplier certification
Supplier relationships
Supplier partnerships
Factors in Choosing a Supplier
Quality and quality assurance
Flexibility
Location
Price
Product or service changes
Reputation and financial stability
Lead times and on-time delivery
Other accounts
Evaluating Sources of Supply
Vendor analysis - evaluating the
sources of supply in terms of
Price
Quality
Services
Location
Inventory policy
Flexibility
Supplier as a Partner
Aspect
Supplier
Partner
Number of suppliers
Many
One or a few
Length of relationship
May be brief
Long-term
Low price
Major consideration
Moderately important
Reliability
May not be high
High
Openness
Low
High
Quality
May be unreliable;
buyer inspects
At the source; vendor
certified
Volume of business
May be low
High
Flexibility
Relatively low
Relatively high
Location
Widely dispersed
Nearness is important
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
Critical Issues
Strategic importance
Cost
Quality
Agility
Customer service
Competitive advantage
Technology management
Benefits
Risks
Critical Issues
Purchasing function
Increased outsourcing
Increased conversion to lean production
Just-in-time deliveries
Globalization