12-1 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Chapter 12 Supply Chain Management

12-2 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 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. Each organization is typically both a supplier and a customer in the chain

12-3 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Warehouses Factories Processing centers Distribution centers Retail outlets Offices Facilities

12-4 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Typical Supply Chains Purchasing ReceivingStorageOperationsStorage ProductionDistribution

12-5 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Supplier Storage } Service Customer Typical Supply Chain for a Service

12-6 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management The Goal The goal of supply chain management is to link all components of the chain in order to meet market demand as efficiently as possible

12-7 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Improve operations and profitability Increasing levels of outsourcing Increasing transportation costs Competitive pressures Increasing globalization Increasing importance of e-commerce Complexity of supply chains Manage inventories Need for Supply Chain Management

12-8 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Benefits of Supply Chain Management Lower inventories Lower costs Higher productivity Improved ability to respond to fluctuations in demand Shorter lead times Higher profits Greater customer loyalty

12-9 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management 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

12-10 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management 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

12-11 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Characteristics of an Effective Supply Chain An effective supply chain should allow each member of the chain to: –Share forecasts –Determine the status of orders in real time –Access inventory data of partners The flow of information is just as important as the flow of goods and supplies

12-12 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Increasing outsourcing Increasing conversion to lean production Increasing globalization Purchasing in Supply Chain Management

12-13 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Internal Supply Chain External Supply Chain Internal Supply Chain Key: SuppliersDistributionCustomersProcessing

12-14 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Logistics –Refers to the movement of materials and information within a facility and to incoming and out going shipments of goods and materials Logistics

12-15 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Logistics Movement within the facility Incoming and outgoing shipments Bar coding EDI Distribution JIT Deliveries

12-16 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Materials Movement Figure 12-5 RECEIVING Storage Work center Work center Storage Work center Storage Shipping

12-17 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management EDI--direct transmission of interorganizational transactions such as purchase orders and payments through computerized communications Benefits: –Increased productivity –Reduction of paperwork –Lead time and inventory reduction –Facilitation of just-in-time systems –Electronic transfer of funds –Improved control of operations –Reduction in clerical labor –Increased accuracy Electronic Data Interchange

12-18 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management E-Commerce: the use of electronic technology to facilitate business transactions Applications include –Internet buying and selling – –Order and shipment tracking –Electronic data interchange E-Commerce

12-19 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management 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-Commerce

12-20 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management 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-Commerce

12-21 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Develop strategic objectives and tactics Integrate and coordinate activities in the internal supply chain Coordinate suppliers with customers Coordinate planning and execution Form strategic partnerships Creating an Effective Supply Chain

12-22 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Quality Cost Flexibility Velocity –Inventory velocity –Information velocity Customer service Supply Chain Performance Drivers

12-23 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Barriers to integration of organizations Getting top management on board Dealing with trade-offs Small businesses Variability and uncertainty Long lead times Challenges

12-24 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Lot-size-inventory –Bullwhip effect Inventory-transportation costs Lead time-transportation costs Product variety-inventory Cost-customer service Trade-offs

12-25 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Bullwhip Effect Tier 2 Suppliers Tier 1 Suppliers ProducerDistributorCustomers Ordering Amount of inventory =