MOS 3330 Operations Management Professor Burjaw Fall/Winter

Learning Objectives: 1.Supply chains 2.Supply chain related subjects 3.Bullwhip effect 4.Supply chain strategies 5.Supplier relationships MOS 3330 Supply Chain Management2

MOS 3330 Supply Chain Management 3

4 MOS 3330 Information Flow Information Flow Goods Flow Revenue Flow Suppliers Manufacturers WholesalersDistributorsRetailers Customers

MOS 3330 Supply Chain Management5 Primary Packaging Active Ingredients Formulation PackagingDistributor Label Manufacturer Secondary Packaging Retail Pharmacy Customer Chemicals Tablets Capsules Pharmaceutical products Bottles, caps Printed labels & materials Pharmaceutical products Pharmaceutical products Blank labels Tier 2 suppliers (for Packaging) Tier 1 suppliers (for Packaging)

MOS 3330 Supply Chain Management6 Suppliers Customers Information Flow Goods Flow Supply Data Customer Data Logistics Data Contract Manufacturers Logistics Providers Production Data

MOS 3330Supply Chain Management7 Logistics  slide 7 Purchasing  slide 8 Sourcing  slide 9 Bullwhip effect  slides Information management: accuracy, timing Globalization: foreign business practices and regulations e-Commerce Radio Frequency Identification (RFID)

Arizona college using RFID to monitor class attendance ◦ Goal: increase attendance ◦ Argument: no privacy and freedom of choice  RFID tags on driver licences and passports raise government debates  _16_A1_OKLAHO _16_A1_OKLAHO iPhone using Near Field Communication for In2Pay protective case allowing Visa information to be transferred wirelessly  h_your_visa_card.html h_your_visa_card.html

MOS 3330Supply Chain Management9 Shipping and delivery: transportation cost, mode, lead time, traffic management Highway  flexibility Rail or water  low cost Pipeline  high volume at low cost Air  fast Distribution management Facility location (where/how many facilities?): proximity to customers, business climate, quality of labour, infrastructure Positioning of inventory (where/how many to hold?) Third-party logistics (3PL) Outsourcing freight consolidation and distribution activities International business

MOS 3330Supply Chain Management10 Ordering and receiving materials: materials of correct quality, in correct quantity, at good price, and on time Purchasing cycle: 1. Purchasing receives the requisition 2. Purchasing selects a supplier 3. Purchasing places the order with the vendor 4. Monitoring orders 5. Receiving orders Interface with accounting, engineering, & legal dept. Develop a supplier base: select, evaluate & maintain  Sourcing

Selecting suppliers –Price, quality, services, location, inventory policy, flexibility Supplier selection strategies MOS 3330Supply Chain Management11 - Quantity discount - More responsive - Frequent deliveries - High quality - Better relations - Support just-in-time - Order is too small - High ordering cost - Competitive pricing - Spreading risks - Low dependence - Volume flexibility - Easier to test new supplier Single Sourcing Multiple Suppliers - Not enough capacity - Government regulations

Increasing distortion of information along the supply chain –Customer demand gets distorted as information reaches suppliers Contributing factors –Batch ordering, high ordering cost, free return policy –Promotions, pricing that leads to forward buy –No visibility of end demand, inaccurate forecast –Long lead time, localized reaction –Mistrust, conflict of interest MOS 3330Supply Chain Management12

MOS 3330Supply Chain Management13 Source: Johnson & Pike (1999) Central warehouse order size Grocery store order size Distribution centre order size

MOS 3330Supply Chain Management14 Poor demand planning Supplier schedule variability Customer switching Stockouts and late orders Increased safety stock Small Shipments & Shipping b/w Warehouses Raw material expediting Schedule changes Productivity loss Higher WIP Inventory Loss of volume breaks Higher freight costs Higher raw material inventory Higher finished goods inventory & warehousing costs Higher shipping costs Lower revenues Manufacturer Distributor Retailer Poor service & longer lead time

Traditional “solution” = increase inventory Modern approach Examine the contributing factors Improve the supply chain metrics Understand the supply chain relationships: interdependent, systemic and goal sharing  Improve coordination, communication & collaboration MOS 3330Supply Chain Management15

Physical proximity –75% of Honda’s suppliers are located within 150 miles of its Marysville plant in Ohio Plant-direct shipping: from the manufacturer to retailer –Pampers to Wal-Mart, Dell Computer Cross-docking: goods move from one loading dock to another without being stored as an inventory –Wal-Mart distribution centres MOS 3330Supply Chain Management16 DIRECT SHIP CROSS DOCK STORAGE ReceivingReplenishPickingStagingShippingPut away

Postponement: customize products as late as possible –Distribution centres performing assembly, packaging, etc. Vendor-managed inventory: let the vendor manage ordering, warehousing, shipping, and placing products –IKEA, music CDs at department stores Virtual integration: allow suppliers to access critical information in real time –Retail Link at Wal-Mart: Point-of-Sales (POS) data shared with its suppliers Vertical integration: control the most or all of a supply chain –McDonald’s in Russia CPFR –See the next slide MOS 3330Supply Chain Management17

MOS 3330Supply Chain Management18 C ollaborative P lanning, F orecasting, and R eplenishment Process where trading partners share and discuss planning, forecasting, and replenishment information in order to work in partnership from a single forecast Share forecast through the CPFR process Share replenishment data through the supplier schedule Guidelines for information sharing Operating agreement Voluntary Inter-Industry Commerce Standards (VICS) Builds collaborative and strategic relationships

MOS 3330Supply Chain Management19 Cooperative - Fewer suppliers - Longer term contracts - Move away from price-based purchase criteria - Win-win relationship Open market environment - Multiple suppliers - Short term decisions Collaborative - Open exchange of information - Strategic relationship - Price based decisions - Adversarial - Joint planning - Technology sharing Future: mass collaboration at the industry level?

MOS 3330Supply Chain Management20 Lower inventory Shorter cycle time Lower total cost Higher service levels Stronger relationship with supply chain members