Supply Chain Management Chapter 7 Supply Chain Management To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.

Supply Chain All activities associated with the flow and transformation of goods and services from raw materials to the end user, the customer A sequence of business activities from suppliers through customers that provide the products, services, and information to achieve customer satisfaction

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The Supply Chain

The Supply Chain Figure 7.1 Customers Suppliers Producers Distributors Products and Services Customers Total satisfaction with quality, price, delivery, and service Distributors Package and delivery Inventory Producers Finished goods, end products and services Suppliers Materials, parts, sub-assemblies, and services Figure 7.1

The Supply Chain Information Figure 7.1 Customers Suppliers Producers Products and Services Customers Total satisfaction with quality, price, delivery, and service Distributors Package and delivery Inventory Producers Finished goods, end products and services Suppliers Materials, parts, sub-assemblies, and services Figure 7.1

The Supply Chain Information Cash Figure 7.1 Customers Suppliers Products and Services Customers Total satisfaction with quality, price, delivery, and service Distributors Package and delivery Inventory Producers Finished goods, end products and services Suppliers Materials, parts, sub-assemblies, and services Figure 7.1

Supply Chain Management Synchronization of activities required to achieve maximum competitive benefits Coordination, cooperation, and communication Rapid flow of information Vertical integration

Supply Chain Uncertainty Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability Inventory is a form of insurance Distorted information is one of the main causes of uncertainty

Information in the Supply Chain Centralized coordination of information flows Integration of ordering, production, transportation, and distribution Direct access to domestic and global transportation and distribution channels Locating and tracking the movement of every item in the supply chain

Information in the Supply Chain Consolidation of purchasing from all suppliers Intercompany and intracompany information access Data interchange Data acquisition at the point of origin and point of sale Instantaneous updating of inventory levels

Electronic Business Replacement of physical processes with electronic ones Cost and price reductions Reduction or elimination of intermediaries Shortening transaction times for ordering and delivery Wider presence and increased visibility

Electronic Business Greater choices and more information for customers Improved service Collection and analysis of customer data and preferences Virtual companies with lower prices Leveling the playing field for smaller companies Gain global access to markets & customers

Table 7.1 Supply Chain Evolution at Nabisco

Electronic Data Interchange Computer-to-computer exchange of business documents in a standard format Quick access, better customer service, less paperwork, better communication, increased productivity, improved tracing and expediting, improves billing and cost efficiency

Bar Codes Computer readable codes attached to items flowing through the supply chain Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans 1234 5678

The Internet Instant global access to organizations, individuals, and information sources Fundamentally changes the way organizations do business Removed geographic barriers Adds speed and accessibility to the supply chain

Figure 7.2 Build-to-Order Cars over the Internet

The E-Automotive Supply Chain

The E-Automotive Supply Chain SUPPLY CHAIN PROCESS AUTOMOTIVE PAST E-AUTOMOTIVE Customer sales Push—sell from inventory Pull—Build-to-order Production Goal of even and stable production Focus on customer demand, respond with supply chain flexibility Distribution Mass approach Fast, reliable, and customized to get cars to specific customer location Customer relationships Dealer-owned Shared by dealers and manufacturers Managing uncertainty Large car inventory at dealers Small inventories with shared information and strategically placed parts inventories Procurement Batch-oriented; dealers order based on allocations Orders made in real time based on available-to-promise information Product design Complex products don’t match customer needs Simplified products based on better information about what customers want Table 7.2

Intranets and Extranets Intranets are internet-like networks that operate within a single organization Extranets are intranets that can be connected to the global internet Difference is in who has access to the system

IT Issues Increased benefits and sophistication come with increased costs Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient Security problems are very real Partnership and trust are important elements that may be new to business relationships

Suppliers Purchased materials account for about half of manufacturing costs Materials, parts, and service must be delivered on time, of high quality, and low cost Suppliers should be integrated into their customers’ supply chains Partnerships should be established On-demand delivery (JIT) is a frequent requirement

Sourcing Relationship between customers and suppliers focuses on collaboration and cooperation Outsourcing has become a long-term strategic decision Organizations focus on core competencies Single-sourcing is increasingly a part of supplier relations

E-Procurement Business-to-business commerce conducted on the Internet Benefits include lower transaction costs, lower prices, reduce clerical labor costs, and faster ordering and delivery times Currently used more for indirect goods E-Marketplaces service industry-specific companies and suppliers

Figure 7.3 The Wal-Mart Supply Chain

Figure 7.4 Centralized Supply at Honda America

Distribution The actual movement of products and materials between locations Handling of materials and products at receiving docks, storing products, packaging, and shipping Often called logistics Driving force today is speed Particularly important for Internet dot-coms

Figure 7.5 Order Fulfillment at Amazon.com

Distribution Centers and Warehousing DCs are some of the largest business facilities in the United States Trend is for more frequent orders in smaller quantities Flow-through facilities and automated material handling Final assembly and product configuration may be done at the DC

Warehouse Management Systems Highly automated systems Controls item putaway, picking, packing, and shipping Transportation management, order management, yard management, labor management, warehouse optimization

Figure 7.6 A WMS

Vendor-Managed Inventory Manufacturers generate orders, not distributors Stocking information is accessed using EDI A first step towards supply chain collaboration Increased speed, reduced errors, and improved service

Collaborative Distribution and Outsourcing Collaborative planning, forecasting, and replenishment (CPFR) Internet-based exchange of data and information Significant decrease in inventory levels and more efficient logistics Companies focus on core competencies

Transportation Important element, often overlooked Common methods are railroads, trucking, water, air, intermodal, package carriers, and pipelines

Railroads 150,000 miles in US Low cost, high-volume Improving flexibility intermodal service double stacking

Trucking Most used mode in US Flexible, small loads Consolidation, Internet load match sites Part of TQM supplier-customer relationship Single sourcing reduces number of trucking firms serving a company

Air Rapidly growing segment of transportation industry Lightweight, small items Quick, reliable, expensive Major airlines and US Postal Service, UPS, FedEx, DHL

Package Carriers FedEx, UPS, US Postal Service, DHL Significant growth driven by e-businesses Use several modes of transportation Expensive Fast and reliable Innovative use of technologies

Intermodal Combination of several modes of transportation Most common are truck/rail/truck and truck/water/rail/truck Enabled by the use of containers

Water One of oldest means of transport Low-cost, high-volume, slow Bulky, heavy and/or large items Standardized shipping containers improve service The most common form of international shipping

Pipelines Primarily for oil & refined oil products Slurry lines carry coal or kaolin High capital investment Low operating costs Can cross difficult terrain

Internet Transportation Exchanges Bring together shippers and carriers Initial contact, negotiations, auctions Typically only one form of transportation, intermodal exchanges have been difficult to develop

The Transportation Method Ship items at lowest cost Sources have fixed supplies Destinations have fixed demand

Transportation Problem

Transportation Problem GRAIN ELEVATOR SUPPLY 1. Kansas City 150 2. Omaha 175 Des Moines 275 600 tons MILL DEMAND A. Chicago 200 B. St. Louis 100 Cincinnati 300 Example 7.1

Transportation Problem GRAIN ELEVATOR SUPPLY 1. Kansas City 150 2. Omaha 175 Des Moines 275 600 tons MILL DEMAND A. Chicago 200 B. St. Louis 100 Cincinnati 300 MILL GRAIN Chicago St. Louis Cincinnati ELEVATOR A B C Kansas City $6 $8 $10 Omaha 7 11 11 Des Moines 4 5 12 Example 7.1

The Transportation Tableau

The Transportation Tableau TO FROM Chicago St. Louis Cincinnati SUPPLY Kansas City 6 8 10 150 Omaha 7 11 11 175 Des Moines 4 5 12 275 DEMAND 200 100 300 600 Example 7.1

The Transportation Tableau TO FROM Chicago St. Louis Cincinnati SUPPLY Kansas City 6 8 10 150 Omaha 7 11 11 175 Des Moines 4 5 12 275 DEMAND 200 100 300 600 Demand (tons) Supply (tons) Des Moines (275) Omaha (175) Kansas City (150) Chicago (200) Cincinnati (300) St. Louis (100) 7 4 11 6 8 5 12 10 Figure 7.7

Solving Transportation Problems Manual methods Stepping-stone Modified distribution (MODI) Computer solution Excel POM/QM for Windows

Solution for Grain Shipment

Solution for Grain Shipment TO GRAIN FROM Chicago St. Louis Cincinnati SUPPLY SHIPPED Kansas City 25 0 125 150 150 Omaha 0 0 175 175 175 Des Moines 175 100 0 275 275 DEMAND 200 100 300 600 GRAIN 200 100 300 SHIPPED COST $4525 Based on Exhibit 7.3

Figure 7.8 Linking the Supply Chain with SAP

Global Supply Chain Free trade & global opportunities Nations form trading groups No tariffs or duties Freely transport goods across borders

Global Supply Chain Problems National and regional differences Customs, business practices, and regulations Foreign markets are not homogeneous Quality can be a major issue

Duties and Tariffs Proliferation of trade agreements Group members charge uniform tariffs Member nations have a competitive advantage within the group

Duties and Tariffs

Duties and Tariffs Figure 7.9 APEC NAFTA TAFTA FTAA ASEAN CALM ATPA ANZCERTA FTAA NAFTA CALM ATPA MERCOSUR TAFTA Figure 7.9

Landed Cost and Internet-Based ITL Systems Knowing landed cost is critical in international trade Common components are transportation charges, tariffs, duties, and taxes ITL systems convert language and currency between trading partners

Infrastructure Obstacles to Global Trade Some emerging markets lack suitable distribution systems, i.e. roads, rail systems Existing roads and ports may be inadequate Market instability, political instability Vertical integration is a common solution