Transcript supplylogisticmanagement-ch72016.ppt

Supply Chain Management; Chapter 7
Department of Business Administration
SPRING 2015-2016
Chapter 7: Supply Chain and Logistics Management
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Supply Chain Management; Chapter 7
Outline: What You Will Learn . . .
 Define supply chain and logistics management
 Discuss the nature and importance supply chain and
logistics management
 Discuss the goal of the Supply Chain Management.
 Discuss the Value Chain
 Describe fhe five major Supply Chain drivers
 Define Global Supply Chain
 Discuss the concept of Ethics and Supply Chain
 Define Strategic Responsibilities and Supply Chain...
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Supply Chain Management; Chapter 7
Same old same old-Supply Chain
 The practice of supply chain management is guided by some
basic underlying concepts that have not changed much over the
centuries.
 Clerchus of Sparta in 401 B.C., recognized the value of supply
in his speech to the small Greek army. In other words survival
of the Greek army depended not only on its discipline, training,
and morale but also on its supply chain.
 Alexander the Great based his strategies and campaigns on his
army’s unique capabilities and these were made possible by
effective supply chain management.
 In the spirit of the saying, “amateurs talk strategy and professionals
talk logistics,”
 Alexander was a master of supply chain management and he could
not have succeeded otherwise.
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Supply Chain Management; Chapter 7
Same old same old-Supply Chain
 The practice of supply chain management is guided by some
basic underlying concepts that have not changed much over
the centuries.
 Several hundred years ago, Napoleon made the remark,
“An army marches on its stomach.
 Napoleon was a master strategist and a skilful general
and this remark shows that he clearly understood the
importance of what we would now call an efficient
supply chain. Unless the soldiers are fed, the army cannot
move.
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Supply Chain Management; Chapter 7
Supply Chain
 A supply chain represents all the stages at which value is
added in producing and delivering a product or service from
suppliers (and their suppliers) to customers (and their
customers).
 supply chain is a term that describes how organizations
(suppliers, manufacturers, distributors, and customers) are linked
together
 Supply Chain Management has an important role to play in
moving goods more quickly to their destination.
 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.
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Supply Chain Management; Chapter 7
A Typical Supply Chain
 Manufacturing Supply Chain
 Mfg, storage, distributing, Retailer, and Customer
 Service Supply Chain
 Storage, Service and Customer
 Supply Chain Flow
 Good and services flow clockwise
 Cash flows counter-clockwise
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Supply Chain Management; Chapter 7
A farm to market supply chain
 A farm to market supply chain shows key suppliers at each stage
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Supply Chain Management; Chapter 7
Value Chain
 Supply chains are sometimes called value chains.
 This means that value is added as goods and services progress
through chain.
 Value Chain Components
 Supply
o This starts at the begining of the chain and ends with the
internal operations of the organization.
 Demand
o It starts at the point where the organization’s output is delivered
to its immediate customer and ends with the final customer in
the chain.
o The demand chain is the sales and distribution portion of the
value chain.
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Supply Chain Management; Chapter 7
The goal of the Supply Chain Management
 Determining the appropriate level of outsourcing
 Managing procurement
 Managing Suppliers
 Managing customer relationships
 Being able to quickly identify problems and respond to them
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Supply Chain Management; Chapter 7
The Five Major
Supply Chain Drivers
Inventory
Production
Information
Trasportation
Location
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Supply Chain Management; Chapter 7
Trends in Supply Chain Management
 Measuring supply chain ROI
 This enables manager to incorporate economics into outsourcing and other
decisions, giving them a rational basis for managing their supply chains.
 Greening the supply chain
 This generating interest for variety of reasons including corporate
responsibility, regulations and public pressure i.e. Reducing pollution and
choosing green suppliers.
 Reevaluating outsourcing
 This is a second chance looking at outsourcing, especially global suppliers. i.e
lower labor costs, converting fixed costs to variable costs, freeing up capital
to devote to other needs etc...
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Supply Chain Management; Chapter 7
Trends in Supply Chain Management
 Integrating IT
 This produces real time data that can enhance strategic planning and help
business to control costs, measure quality and productivity, respond quickly
to problems and improve supply chain operations...
 Managing risks
 This develops strategies to manage risks. i.e. risk avoidance, risk reduction,
risk transfer etc...
 Adopting lean principles
 This improves the performance of their supply chains. i.e. It can easily
eliminate traditional supply chain. In other words, eliminate non value added
processes, improving product flow by using pull system...
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Supply Chain Management; Chapter 7
The effect of Global Supply Chain
 Global Logistics
 It was so easy to deal with supply chain management in the past.
Good and services were used to flow from developed countries
to under-developed countries. Flow of raw-materials was other
way around.
 Difficulties in Global Logistics




Claim 50% shares in a firm’s partnership
An increase in labor wages
New opportunities in India, China and Russia
Some trade agreement organizations make international trade
easier; such as NAFTA or EU
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Supply Chain Management; Chapter 7
Global Supply Chain
 Make use of outsourcing
 Pursue opportunities beyond their domestic market
 Products should be design globally
 Low labor and material cost
 Some services may be outsourced to the countries such as
China and India...
 Well and young educated people
 Language and cultural differences
 Technological improvement
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Supply Chain Management; Chapter 7
Global Supply Chain
 Outsourcing is defined as the act of moving a firm’s internal
activities and decision responsibility to outside providers.
 Reasons to Outsorcing
 Organizationally-driven
 Improvement-driven
 Financially-driven
 Revenue-driven
 Cost-driven
 Employee-driven
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Supply Chain Management; Chapter 7
Global Supply Chain:Supply Network
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The Wal-Mart supply Chain
Supply Chain Management; Chapter 7
 To succeed in the competitive
markets that make up today’s
economy, companies must
learn to align their supply
chains with the demands of
the markets they serve.
Supply chain performance is
now a distinct competitive
advantage for companies
who excel in this area.
 One of the largest companies in North America is a testament to the power of effective
supply chain management. Wal-Mart has grown steadily over the last 20 years and
much, if not most, of its success is directly related to its evolving capabilities to
continually improve its supply chain.
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Supply Chain Management; Chapter 7
Measuring Supply-Chain Performance
 One of the most commonly used measures in all of operations
management is “Inventory Turnover”
Cost of goods sold
Inventory turnover 
Average aggregate inventory value
 In situations where distribution inventory is dominant, “Weeks
of Supply” is preferred and measures how many weeks’ worth
of inventory is in the system at a particular time
 Average aggregate inventory value 
 52 weeks
Weeks of supply  
Cost of goods sold


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Supply Chain Management; Chapter 7
Example of Measuring Supply-Chain
Performance
 Suppose a company’s new annual report claims their costs of
goods sold for the year is $160 million and their total
average inventory (production materials + work-in-process)
is worth $35 million. This company normally has an
inventory turn ratio of 10. What is this year’s Inventory
Turnover ratio? What does it mean?
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Supply Chain Management; Chapter 7
Example of Measuring Supply-Chain
Performance-Answer
Inventory turnover 
Cost of goods sold
Average aggregate inventory value
 = $160/$35
 = 4.57
 Since the company’s normal inventory turnover ration is 10,
a drop to 4.57 means that the inventory is not turning over as
quickly as it had in the past. Without knowing the industry
average of turns for this company it is not possible to
comment on how they are competitively doing in the
industry, but they now have more inventory relative to their
cost of goods sold than before.
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Supply Chain Management; Chapter 7
Ethics and Supply Chain
 Bribing government or company officials
 Ignoring health, safety, and environment standards
 Violating basic rights of workers
 Mislabeling country of origin
 Selling goods abroad that are banned at home.
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Supply Chain Management; Chapter 7
Strategic Responsibilities and Supply Chain
 Supply Chain strategy alignment
 How is outsorcing employed
 Network configuration
 Location of supplier, production facilities, distrubution center
 Information Technology
 Integrating system, monitoring inventory sytem, tracking of shipments
 Product and services
 New product design and service selection
 Capacity planning
 Long term needs for the capacity are assessed
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Supply Chain Management; Chapter 7
Strategic responsibilities and Supply Chain
 Strategic partnerships
 Choices are made carefully
 Distribution strategy
 Use centralized or decentralized distribution
 Deciding to use own facilities and equipment or not
 Uncertainty and risk reduction
 Potential source of risk should be identified or acceptable
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Supply Chain Management; Chapter 7
Creating an effective Supply Chain
 Strategic sourcing
 is a term that plays an important role for an effective SC
 Analysing the procurement process to lower costs by reducing
waste and non value added activities, increasing profits, reduce
risks, and improve supplier performance.
 Trust
 Information velocity
 Supply Chain visibility
 Event management (unplanned activities such as delayed shipment)
 Performance metrics (Fill rate: % demand on stock, late deliveries,
inventory turnover response time etc...)
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Supply Chain Management; Chapter 7
Purchasing Interfaces- Functional Areas
Accounting
Operations
Purchasing
Design and engineering
Receiving
Supplier (vendor)
Excluded from the exam topics
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Supply Chain Management; Chapter 7
Purchasing Cycle
Excluded from the exam topics
 Purchasing Cycle: Series of steps that begin with a request for purchase and
end with notification of shipment received in satisfactory condition.
Supplier
Requisition
Purchasing Cycle
Monitor orders
Order with a vendor
Receiving orders
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Supply Chain Management; Chapter 7
Purchasing Cycle
 Purchasing Cycle: Series of steps that begin with a request for purchase
and end with notification of shipment received in satisfactory condition.
 Requisition
 A description of the item
 The quantity and quality
 Desired delivery dates
 Supplier
 They should have the capability of supplying the desired goods
 Order with a vendor
 Large and expensive one-time purchase of equipment
 A vendor need to be used for small purchase
Excluded from the exam topics
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Supply Chain Management; Chapter 7
Purchasing Cycle
 Purchasing Cycle: Series of steps that begin with a request for purchase
and end with notification of shipment received in satisfactory condition.
 Monitor orders
 They follow up on orders, especially larger orders with lengthy lead
time.
 Receiving orders
 It must notify purchasing, accounting, and the operating unit that
requested the goods.
Excluded from the exam topics
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Supply Chain Management; Chapter 7
Purchasing Strategies
 Plans to help achieve company mission
 Affect long-term competitive position
 Strategic options
 Many suppliers
 Few suppliers
 Keiretsu network
 Vertical integration
 Virtual company
Plan
© 1995 Corel Corp.
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Supply Chain Management; Chapter 7
Supply-Chain Strategies
Negotiate with many suppliers; play one supplier against
another
Develop long-term “partnering” arrangements with a
few suppliers who will work with you to satisfy the end
customer
Keiretsu - have your suppliers become part of a company
coalition.
Vertically integrate; buy the actual supplier
Create a virtual company that uses suppliers on an asneeded basis.
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Supply Chain Management; Chapter 7
Many Suppliers Strategy
 Many sources per item
 Adversarial relationship
 Short-term
 Little openness
 High prices
 large lots
 Delivery to receiving dock
© 1995 Corel Corp.
Excluded from the exam topics
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Supply Chain Management; Chapter 7
Few Suppliers Strategy
 One or few sources per item
 Partnership (JIT)
 Long-term, stable
 On-site audits & visits
 Exclusive contracts
 Low prices (large orders)
 Frequent, small lots
 Delivery to point of use
© 1995
Corel
Corp.
Excluded from the exam topics
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Supply Chain Management; Chapter 7
Vertical Integration Strategy
 Vertical integration is a strategy
and a control mechanism.
 In the form of Vertical
integration, the companies in the
same supply chain merge under
the joint management.
 Horizontal integration is a
strategy where one company
buys its rival company.
Raw Material
(Suppliers)
Backward
Integration
Current
Transformation
Forward
Integration
Finished Goods
(Customers)
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Supply Chain Management; Chapter 7
Forms of Vertical Integration
Iron Ore
Silicon
Steel
Automobiles
Farming
Raw Material
(Suppliers)
Flour Milling
Backward
Integration
Current
Transformation
Integrated
Circuits
Forward
Integration
Distribution
Circuit Boards
System
Dealers
Computers
Watches
Calculators
Baked Goods
Finished Goods
(Customers)
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Supply Chain Management; Chapter 7
Logistics
 Logistics is the part of a supply chain involved with the
forward and reverse flow of goods, services, cash and
information.
 Logistics is the movement of goods through the supply
chain.
 Logistics is the art and science of obtaining, producing, and
distributing material and product in the proper place and in
proper quantities”
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Supply Chain Management; Chapter 7
Logistics Management
 Logistics Management includes management of inbound
and
outbound
transportation,
material
handling,
warehousing, inventory, distribution and reverse logistics.
 First time, the word of Logistics was used for military
purposes in 1905. Military staffs and personnels were
transported from one point to another.
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Supply Chain Management; Chapter 7
Logistics Functions
 People prefer to use the Logistics Functions or the concept
of Logistics becomes popular because of;
 An increase in transportation and distance costs
 An increase in production
 An increase in use of JIT and Lean system
 An increase in type of products
 An increase in use of technology
 An increase in use of recycling materials
 An increase in number of international companies
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Supply Chain Management; Chapter 7
Logistics Organization
 Purchasing System
 Production System
 Distribution System
 Examples for logistics companies
 Craft Inc. :
o Sales of volume is 10 billion per annum for food staffs.
 Bayer AG:
o Sales of volume is 25 billion per annum for food staffs...
3000 distribution points... Logistics budget is 5 billion dollar
per annum...
Excluded from the exam topics
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Supply Chain Management; Chapter 7
Logistics Organization
 Examples for logistics companies
 Canon Inc.:
o It is the 100th biggest company about photograph machines.
 FedEx:
o Sales of volume is 12 billion per annum for delivery staffs...
3 billion parcels distributed... Number of customers is 2
million..
 United Parcel Service:
o Sales of volume is 22 billion per annum for delivery
staffs... 3.1 billion packets distributed to the point...
Number of transportation vehicles is 2 million..
Excluded from the exam topics
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Supply Chain Management; Chapter 7
Related issues in Logistics
 How to best transport goods
– Modes of transportation
• Truck, ship, rail pipelines
– Warehouses
• Consolidation
• Cross Docking
• Hub-and-Spoke systems
 Facility Location
Excluded from the exam topics
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Supply Chain Management; Chapter 7
Related issues in Logistics
 Facility Location
•
•
•
•
•
•
•
Proximity to Customers
Business Climate
Total Costs
Infrastructure
Quality of Labor
Suppliers
Other Facilities
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Supply Chain Management; Chapter 7
Related issues in Logistics
 Facility Location
•
•
•
•
•
•
•
Free Trade Zones
Political Risk
Government Barriers
Trading Blocs
Environmental Regulation
Host Community
Competitive Advantage
Excluded from the exam topics
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Supply Chain Management; Chapter 7
How to calculate Facility Location-The centroid method
 The centroid method is used for locating single facilities
that considers existing facilities, the distances between
them, and the volumes of goods to be shipped between
them
 This methodology involves formulas used to compute the
coordinates of the two-dimensional point that meets the
distance and volume criteria stated in the formula.
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Supply Chain Management; Chapter 7
How to calculate Facility Location-The centroid method
Cx =
d V
V
ix
i
i
Cy =
d V
V
iy
i
i
Where:
Cx = X coordinate of centroid
Cy = Y coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith location
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Supply Chain Management; Chapter 7
How to calculate Facility Location-The centroid method
Example 1a
 Several automobile showrooms are located according to
the following grid which represents coordinate locations
for each showroom
 Question: What is the best location for a new Z-Mobile
warehouse/temporary storage facility considering only
distances and quantities sold per month?
Y
Q
(790,900)
D
(250,580)
A
(100,200)
(0,0)
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X
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Supply Chain Management; Chapter 7
How to calculate Facility Location-The centroid method
Example-1a
To begin, you must identify the
existing facilities on a twodimensional plane or grid and
determine their coordinates.
Y
Q
(790,900)
D
(250,580)
A
(100,200)
(0,0)
X
You must also have the
volume information on the
business activity at the
existing facilities.
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Supply Chain Management; Chapter 7
How to calculate Facility Location-The centroid method
Solution
You then compute the new coordinates using the formulas:
Cx =
100(1250) + 250(1900) + 790(2300)
2,417,000
=
= 443.49
1250 + 1900 + 2300
5,450
Cy =
200(1250) + 580(1900) + 900(2300)
3,422,000
=
= 627.89
1250 + 1900 + 2300
5,450
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Supply Chain Management; Chapter 7
How to calculate Facility Location-The centroid method
Solution
You then take the coordinates and place them on the map:
Y
Q
New
location
of facility
Z about
(443,627)
(790,900)
D
Z
(250,580)
A
(100,200)
(0,0)
X
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Supply Chain Management; Chapter 7
Calculate Facility Location-Induvidual volume/ distance
d (V)Induvid ual distance/v olume = (X - Cx) 2  (Y - Cy) 2
Where:
Cx = X coordinate of computed location facility
Cy = Y coordinate of computed location facility
dx = X coordinate distance/volume
dy = Y coordinate distance/volume
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Supply Chain Management; Chapter 7
Calculate Facility Location-The centroid method
d (V)Total distance/v olume =  d (v) t
where
d (v) = distance/volume to town or city
t = total annual distance /volume
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Supply Chain Management; Chapter 7
Calculate Facility Location-The centroid method
 Example 1b: Based on the information below:
 (1b/1) calculate the distance for each showroom.
 (1b/2) calculate the total volume for the new location.
Y
Q
(790,900)
D
(250,580)
A
(100,200)
(0,0)
MGMT 405, POM, 2014/15. Lec Notes
X
Showroom
No of cars sold
A
1250
D
1900
Q
2300
© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
Calculate Facility Location-The centroid method
 Example 1b: Based on the information below:
 (1b/1) Individual distance for each showroom.
dA=SQRT((100-443.49)^2+(200-627.89)^2)=548.70
dD=SQRT((250-443.49)^2+(580-627.89)^2)=199.32
dQ==SQRT((790-443.49)^2+(900-627.89)^2)=440.58
 (1b/2) calculate the total volume for new location.
d(v)=2077944 cars sold...
MGMT 405, POM, 2014/15. Lec Notes
© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
Facility Location
Example 2
The
Clayton County Rescue Squad and
Ambulance service which serve five rural town as
in the following table:
Town
Abbeville
Benton
Clayton
Dunnig
Eden
Coordinates
y
x
20
20
35
10
9
25
15
32
8
10
Annual Trips
75
105
135
60
90
53
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© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
Facility Location
Example 2
 The Clayton County Rescue Squad and Ambulance
service which serve five rural town try to find out the
best possible garage or facility location among the
towns.
 (a) Determine facility location for the system
 (b) Calculate individual distance for each town
 (c) Compute the total distance for the new locations
that minimizes the total miles from the towns.
 (d) Show the figures calculated on a graph
54
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© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
How to calculate Facility Location-The centroid method
Solution (a) for example 2
You then compute the new coordinates using the formulas:
Cx =
20(75) + 10(105) + 25(135)  32(60)  10(90)
= 18.80
75 + 105 + 135  60  90
20(75) + 35(105) + 9(135)  15(60)  8(90)
CY =
= 16.69
75 + 105 + 135  60  90
55
MGMT 405, POM, 2014/15. Lec Notes
© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
How to calculate Facility Location
Example 2- b/c
d (V)Induvid ual distance/v olume = (X - Cx) 2  (Y - Cy) 2
d (V) total distance/volume =  d (v) t
dA=sqroot[(20-18.80)2+(20-16.69)2]=3.52
dB=20.31
dC=9.87
dD=13.30
dE=12.36
D(v)=3.52(75)+....+12.36(90)=5642.20 total distance.
56
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© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Facility Location for example 2- d
Supply Chain Management; Chapter 7
Rescue Squad Facility Location
57
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Supply Chain Management; Chapter 7
Facility Location
Example 3
We have 4 suppliers to transport goods to the Lahma
company and the other information given in the following
table:

City
Izmir
Istanbul
Ankara
Bursa
Coordinates
y
x
200
200
500
100
600
250
300
500
Annual load
65
120
90
75
58
MGMT 405, POM, 2014/15. Lec Notes
© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
Facility Location
Example 3
 4 suppliers transport goods to the Lahma company
where they try to find out the best possible facility
location among the cities.
 (a) Determine facility location for the system
 (b) Calculate individual distance for each city
 (c) Compute the total distance for the new locations
that minimizes the total miles from the cities.
 (d) Show the figures calculated on a graph
59
MGMT 405, POM, 2014/15. Lec Notes
© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
Facility Location
Example 3-a
Location centers:
200(65) + 100(120) + 250(90)  500(75)
= 242.85
65 + 120 + 90  60  75
200(65) + 500(120) + 600(90)  300(75)
Cy  =
= 427.14
65 + 120 + 90  60  75
Cx =
60
MGMT 405, POM, 2014/15. Lec Notes
© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
Facility Location
Example 3- b/c
d (V)Induvid ual distance/v olume = (X - Cx) 2  (Y - Cy) 2
d (V) total distance/volume =  d (v) t
dL=sqroot[(200-242.85)2+(200-427.14.)2]=231.14
diz
231.14
dis
491.34
dan
173.00
dbu
286.86
D(v)=231.14(65)+...+286.86(75)=111071.97 total distance.
61
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© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
Facility Location
Example 3- d, e
Location
700
600
600
500
500
427.14
400
300
300
200
200
100
0
0
100
200
300
400
500
600
62
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© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
How to calculate Incremental holding cost
Example-3
 Incremental holding cost= H(d)/365
 H=Annual earning potential of shipped item, d= difference
between shipping alternatives.
 Determine shipping alternative, one day or three days when
holding cost is $1000 with one day shipping cost is $40 and
three day shipping cost is
a) $35
b) $30
Excluded from the final exam topics
63
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© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
Supply Chain Management; Chapter 7
How to calculate Incremental holding cost
Solution
 Incremental holding cost= H(d)/365
 H=Annual earning potential of shipped item, d= difference
between shipping alternatives.
 H=$1000 per year
with one day shipping, time saving will be 2 days
IHC=1000(2)/365=$ 5.48
a) $40-$35=$5 cost saving is less than incremental cost $5.48
b) $40- $30=$10 cost saving exceeds incremental cost $5.48
Excluded from the final exam topics
64
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Supply Chain Management; Chapter 7
Thanks
65
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© Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.