McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 11 Supply Chain Management

11-2 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.

11-3 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.

11-4 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

11-5  Warehouses  Factories  Processing centers  Distribution centers  Retail outlets  Offices Facilities

11-6 Functions and Activities  Forecasting  Purchasing  Inventory management  Information management  Quality assurance  Scheduling  Production and delivery  Customer service

11-7 Typical Supply Chains Typical Supply Chains Purchasing ReceivingStorageOperationsStorage ProductionDistribution

11-8 Typical Supply Chain for a Manufacturer Typical Supply Chain for a Manufacturer Supplier Storage } Mfg.StorageDist.RetailerCustomer Figure 11.1a

11-9 Supplier } StorageService Customer Typical Supply Chain for a Service Typical Supply Chain for a Service Figure 11.1b

Improve operations 2.Increasing levels of outsourcing 3.Increasing transportation costs 4.Competitive pressures 5.Increasing globalization 6.Increasing importance of e-commerce 7.Complexity of supply chains 8.Manage inventories Need for Supply Chain Management

11-11 Bullwhip Effect Figure 16.3 Final Customer Initial Supplier Demand Inventory oscillations become progressively larger looking backward through the supply chain

11-12 Benefits of Supply Chain Management OrganizationBenefit Campbell SoupDoubled inventory turnover rate Hewlett-PackardCut supply costs 75% Sport ObermeyerDoubled profits and increased sales 60% National BicycleIncreased market share from 5% to 29% Wal-MartLargest and most profitable retailer in the world

11-13 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

11-14 Global Supply Chains  Increasing more complex  Language  Culture  Currency fluctuations  Political  Transportation costs  Local capabilities  Finance and economics  Environmental

11-15 Elements of Supply Chain Management Deciding how to best move and store materialsLogistics Determining location of facilitiesLocation Monitoring supplier quality, delivery, and relations Suppliers Evaluating suppliers and supporting operationsPurchasing Meeting demand while managing inventory costsInventory Controlling quality, scheduling workProcessing Incorporating customer wants, mfg., and timeDesign Predicting quantity and timing of demandForecasting Determining what customers wantCustomers Typical IssuesElement Table 11.1

11-16 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

11-17  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

11-18 Logistics Movement within the facility Incoming and outgoing shipments Bar coding EDI Distribution JIT Deliveries

11-19 Materials Movement Figure 11.4 RECEIVING Storage Work center Work center Storage Work center Storage Shipping

11-20  Distribution requirements planning (DRP) is a system for inventory management and distribution planning  Extends the concepts of MRPII Distribution Requirements Planning

11-21  Management uses DRP to plan and coordinate:  Transportation  Warehousing  Workers  Equipment  Financial flows Uses of DRP

11-22  E-Business: the use of electronic technology to facilitate business transactions  Applications include  Internet buying and selling   Order and shipment tracking  Electronic data interchange E-Business

11-23  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 Advantages E-Business

11-24  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 Disadvantages of E-Business

11-25 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

11-26 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

11-27 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

11-28 SCOR Metrics PerspectiveMetrics ReliabilityOn-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment FlexibilitySupply chain response time Upside production flexibility ExpensesSupply chain management costs Warranty cost as a percent of revenue Value added per employee Assets/utilizationTotal inventory days of supply Cash-to-cash cycle time Net asset turns Table 11.4

11-29 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

11-30 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

11-31 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

11-32 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

Develop strategic objectives and tactics 2.Integrate and coordinate activities in the internal supply chain 3.Coordinate activities with suppliers with customers 4.Coordinate planning and execution across the supply chain 5.Form strategic partnerships Creating an Effective Supply Chain

11-34 Supply Chain Performance Drivers 1.Quality 2.Cost 3.Flexibility 4.Velocity 5.Customer service

11-35 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

11-36  Barriers to integration of organizations  Getting top management on board  Dealing with trade-offs  Small businesses  Variability and uncertainty  Long lead times Challenges

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

11-38 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

11-39 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

11-40 Supply Chain Issues Quality control Production planning and control Inventory policies Purchasing policies Production policies Transportation policies Quality policies Design of the supply chain, partnering Operating IssuesTactical Issues Strategic Issues

11-41 Supply Chain Benefits and Drawbacks ProblemPotential Improvement BenefitsPossible Drawbacks Large inventories Smaller, more frequent deliveries Reduced holding costs Traffic congestion Increased costs Long lead times Delayed differentiation Disintermediation Quick responseMay not be feasible May need absorb functions Large number of parts ModularFewer parts Simpler ordering Less variety Cost Quality OutsourcingReduced cost, higher quality Loss of control VariabilityShorter lead times, better forecasts Able to match supply and demand Less variety Table 11.5

11-42  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. Purchasing

11-43  Develop and implement purchasing plans for products and services that support operations strategies Goal of Purchasing

11-44  Identifying sources of supply  Negotiating contracts  Maintaining a database of suppliers  Obtaining goods and services  Managing supplies Duties of Purchasing

11-45 Purchasing Interfaces Purchasing Legal Accounting Operations Data processing Design Receiving Suppliers Figure 11.5

11-46 Purchasing Cycle 1.Requisition received 2.Supplier selected 3.Order is placed 4.Monitor orders 5.Receive orders Purchasing Legal Accounting Operations Dataprocess-ing Design Receiving Suppliers

11-47  Value analysis  Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance Value Analysis vs. Outsourcing

11-48  Centralized purchasing  Purchasing is handled by one special department  Decentralized purchasing  Individual departments or separate locations handle their own purchasing requirements Centralized vs Decentralized Purchasing

11-49  Choosing suppliers  Evaluating sources of supply  Supplier audits  Supplier certification  Supplier relationships  Supplier partnerships Suppliers

11-50  Quality and quality assurance  Flexibility  Location  Price Factors in Choosing a Supplier

11-51  Product or service changes  Reputation and financial stability  Lead times and on-time delivery  Other accounts Factors in Choosing a Supplier (cont’d)

11-52 Evaluating Sources of Supply  Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service

11-53  Vendor analysis - evaluating the sources of supply in terms of  Price  Quality  Services  Location  Inventory policy  Flexibility Evaluating Sources of Supply

11-54 Supplier as a Partner AspectAdversaryPartner Number of suppliersManyOne or a few Length of relationship May be briefLong-term Low priceMajor considerationModerately important ReliabilityMay not be highHigh OpennessLowHigh QualityMay be unreliable; buyer inspects At the source; vendor certified Volume of businessMay be lowHigh FlexibilityRelatively lowRelatively high LocationWidely dispersedNearness is important Table 11.9

11-55  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 Supplier Partnerships

11-56 Critical Issues  Strategic importance  Cost  Quality  Agility  Customer service  Competitive advantage  Technology management  Benefits  Risks

11-57 Critical Issues  Purchasing function  Increased outsourcing  Increased conversion to lean production  Just-in-time deliveries  Globalization

11-58 Video: Tech Logistics

11-59 Video: Tracking, GPS

11-60 Video: Intermodel Transp.