Week 2 BUSN 6110 Summer 2013

Supply Chain Management

Supply Chain Management/Ops Management Finance Acct’g Marketing Supply Chain Management/Ops Management Info Systems Business Admin Business Mgmt Sales Intl Business

Supply Chain Management First appearance – Financial Times Importance - → Inventory ~ 14% of GDP → GDP ~ $12 trillion → Warehousing/Trans ~ 9% of GDP → Rule of Thumb - $12 increase in sales to = $1 savings in Supply Chain 1982 Peter Drucker – last frontier Supply Chain problems can cause ≤ 11% drop in stock price Customer perception of company

SCOR Reference: www.supply-chain.org

End-to-End Supply Chain Supplier Customer Suppliers’ Supplier Source Internal or External Your Company Return Deliver Make Plan Customers’ Customer SCOR reference model Because SCOR is does not represent organizations, but rather activities, it is ‘boundaryless’. This is intentional. When you are considering how a supply-chain operates, you don’t want to ‘stop’ describing it when you must look at the activities of some participants. You can, in effect, look all the way from a grain of sand to a finished computer. In looking at various ways to describe this, you can use an anecdote that SCOR looks from “Cow to Cone” for Ice Cream, or if you feel particularly humorous, “from Stump to Rump” for toilet paper. Different trainers use different anecdotes, but you need to get across to the audience that by using Standard names Standard interconnects Boundaries only defined by process start/stop points You have the ability to truly optimize the performance of very, very large systems, cutting waste, cycle time, and improving cash consumption. This is a second unique feature of the SCOR model. Whether from Cow to Cone or from Rock to Ring SCOR is not limited by organizational boundaries Copyright © Supply Chain Council, 2008. All rights reserved 6

SCOR Model Capturing the configuration of a supply chain A supply chain configuration is driven by: Plan levels of aggregation and information sources Source locations and products Make production sites and methods Deliver channels, inventory deployment and products Return locations and methods

SCOR Metrics Measuring the performance of the supply chain and comparing against internal and external industry goals Supply chain performance is focused on: Reliability - achievement of customer demand fulfilment on-time, complete, without damage etc. Responsiveness - the time it takes to react to and fulfill customer demand Agility - the ability of supply chain to increase/decrease demand within a given planned period Cost - objective assessment of all components of supply chain cost Assets - the assessment of all resources used to fulfill customer demand

Supply Chain Management is simple, but not easy. “The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash.” APICS Dictionary, 13th Edition Supply Chain Management is simple, but not easy.

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 Bullwhip effect

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

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

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 – camera phones, cell phones, thumb drives Collaboration 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 - what is JIT and does it work?

Sourcing How does single source differ from sole source? 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 Barriers How does single source differ from sole source?

Sourcing and Suppliers Supplier Selection Selection Evaluation Supplier Certification Sourcing and Ethics

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

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 (postponement) may be done at the DC

Transportation

Railroads 95,000 - 150,000 miles in US Low cost, high-volume Improving flexibility intermodal service double stacking Complaints: slow, inflexible, large loads Advantages: large/bulky loads, intermodal

Trucking Most used mode in US -75% of total freight (volume not total weight) Flexible, small loads Consolidation, Internet load match sites Truck load (TL) vs. Less Than Truck Load (LTL)

Air Lightweight, small items Quick, reliable, expensive (relatively expensive depending on costs of not getting item there) Major airlines and US Postal Service, UPS, FedEx

Package Carriers UPS, US Postal Service, FedEx Ground Significant growth driven by e-businesses and the move to smaller shipments and consumer desire to have it NOW Use several modes of transportation Innovative use of technologies in some cases Online tracking – some better than others

Intermodal Combination of several modes of transportation Most common are truck/rail/truck and truck/water/rail/truck Enabled by the use of containers – the development of the 20 and 40 foot containers significantly changed the face of shipping

Water One of oldest means of transport Low-cost, high-volume, slow (relative) Security - sheer volume - millions of containers annually 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 initial capital investment Low operating costs Can cross difficult terrain

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

Quality Management Quality is a measure of goodness that is inherent to a product or service. Bottom line: perspective has to be from the Customer – fitness for use

What Is Quality? “The degree of excellence of a thing” (Webster’s Dictionary) “The totality of features and characteristics that satisfy needs” (ASQ) Fitness for use Quality of design

Quality Quality Management – not owned by any functional area – cross functional Measure of goodness that is inherent to a product or service

FedEx and Quality Digitally Assisted Dispatch System – communicate with 30K couriers 1-10-100 rule  1 – if caught and fixed as soon as it occurs, it costs a certain amount of time and money to fix  10 – if caught later in different department or location = as much as 10X cost  100 – if mistake is caught by the customer = as much as 100X to fix

Product Quality Dimensions Product Based – found in the product attributes User Based – if customer satisfied Manufacturing Based – conform to specs Value Based – perceived as providing good value for the price

Dimensions of Quality (Garvin) Performance Basic operating characteristics Features “Extra” items added to basic features Reliability Probability product will operate over time

Dimensions of Quality (Garvin) Conformance Meeting pre-established standards Durability Life span before replacement Serviceability Ease of getting repairs, speed & competence of repairs

Dimensions of Quality (Garvin) Aesthetics Look, feel, sound, smell or taste Safety Freedom from injury or harm Other perceptions Subjective perceptions based on brand name, advertising, etc

Service Quality Time & Timeliness Completeness Courtesy Customer waiting time, completed on time Completeness Customer gets all they asked for Courtesy Treatment by employees

Service Quality Consistency Accessibility & Convenience Accuracy Same level of service for all customers Accessibility & Convenience Ease of obtaining service Accuracy Performed right every time Responsiveness Reactions to unusual situations

Quality of Conformance Ensuring product or service produced according to design Depends on Design of production process Performance of machinery Materials Training

Quality Philosophers Walter Shewhart – Statistical Process Control W. Edwards Deming Joseph Juran – strategic and planning based Armand Fiegenbaum – total quality control “entire business must be involved in quality improvement”

Deming’s 14 Points Create constancy of purpose Adopt philosophy of prevention Cease mass inspection Select a few suppliers based on quality Constantly improve system and workers Institute worker training

Deming’s 14 Points Instill leadership among supervisors Eliminate fear among employees Eliminate barriers between departments Eliminate slogans Remove numerical quotas

Deming’s 14 Points Enhance worker pride Institute vigorous training and education programs Develop a commitment from top management to implement these 13 points

The Deming Wheel (or PDCA Cycle) 1. Plan Identify the problem and develop the plan for improvement. 2. Do Implement the plan on a test basis. 3. Study/Check Assess the plan; is it working? 4. Act Institutionalize improvement; continue the cycle. Also known as the Shewart Cycle

Six Sigma Quality management program that measures and improves the operational performance of a company by identifying and correcting defects in the company’s processes and products

Six Sigma Started By Motorola Define Measure Analyze Improve Control Made Famous by General Electric 40% of GE executives’ bonuses tied to 6 sigma implementation

Malcolm Baldrige National Quality Award Category 3 – determine requirements, expectations, preferences of customers and markets Category 4 – what is important to the customer and the company; how does company improve

Total Quality Management Customer defined quality Top management leadership Quality as a strategic issue All employees responsible for quality Continuous improvement Shared problem solving Statistical quality control Training & education for all employees

Cost of Quality Cost of achieving good quality Prevention Planning, Product design, Process, Training, Information Appraisal Inspection and testing, Test equipment, Operator Cost of achieving good quality Prevention quality planning, product design process, training information Appraisal inspection & testing test equipment operator Cost of poor quality Internal failure costs scrap, rework process failure & downtime downgrading products External failure costs customer complaints returns, warranty product liability, lost sales 18

Cost of Quality Cost of poor quality Internal failure costs Scrap, Rework, Process failure, Process downtime, Price-downgrading External failure costs Customer complaints, Product return, Warranty, Product liability, Lost sales Cost of achieving good quality Prevention quality planning, product design process, training information Appraisal inspection & testing test equipment operator Cost of poor quality Internal failure costs scrap, rework process failure & downtime downgrading products External failure costs customer complaints returns, warranty product liability, lost sales 18

Cause-and-Effect Diagram Quality Problem Out of adjustment Tooling problems Old / worn Machines Faulty testing equipment Incorrect specifications Improper methods Measurement Poor supervision Lack of concentration Inadequate training Human Deficiencies in product design Ineffective quality management Poor process design Process Inaccurate temperature control Dust and Dirt Environment Defective from vendor Not to specifications Material- handling problems Materials Also known as Ishikawa Diagram or Fish Bone

Lots of Hoopla and no follow through Hot House Quality Lots of Hoopla and no follow through

ISO 9000:2008 Customer focus Leadership Involvement of the people Process approach Systems approach to management Continual process improvement – GAO Factual approach to decision making Mutually beneficial supplier relationships

Implications Of ISO 9000 Truly international in scope Certification required by many foreign firms U.S. firms export more than $150 billion annually to Europe Adopted by U.S. Navy, DuPont, 3M, AT&T, and others

ISO Accreditation 3rd party registrar assesses quality program European registration 3rd party registrar assesses quality program European Conformity (CE) mark authorized United States 3rd party registrars American National Standards Institute (ANSI) American Society for Quality (ASQ) Registrar Accreditation Board (RAB)

Next week Supply chain case study