Operations Management William J. Stevenson 8th edition

Supply Chain Management CHAPTER 16 Supply Chain Management Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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

Functions and Activities Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service

Typical Supply Chains Purchasing Receiving Storage Operations Production Distribution

Typical Supply Chain for a Manufacturer Figure 16.1a Supplier Storage } Mfg. Dist. Retailer Customer

Typical Supply Chain for a Service Figure 16.1b Supplier } Storage Service Customer

Need for Supply Chain Management Improve operations Increasing levels of outsourcing Increasing transportation costs Competitive pressures Increasing globalization Increasing importance of e-commerce Complexity of supply chains Manage inventories

Bullwhip Effect Figure 16.3 = Amount of inventory Tier 2 Suppliers Producer Distributor Retailer Final Customer

Benefits of Supply Chain Management Organization Benefit Campbell Soup Doubled inventory turnover rate Hewlett-Packard Cut supply costs 75% Sport Obermeyer Doubled profits and increased sales 60% National Bicycle Increased market share from 5% to 29% Wal-Mart Largest and most profitable retailer in the world

Benefits of Supply Chain Management Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty

Elements of Supply Chain Management Table 16.1 Deciding how to best move and store materials Logistics Determining location of facilities Location Monitoring supplier quality, delivery, and relations Suppliers Evaluating suppliers and supporting operations Purchasing Meeting demand while managing inventory costs Inventory Controlling quality, scheduling work Processing Incorporating customer wants, mfg., and time Design Predicting quantity and timing of demand Forecasting Determining what customers want Customers Typical Issues Element

Logistics 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 Movement within the facility Incoming and outgoing shipments Bar coding EDI Distribution JIT Deliveries 214800 232087768

Materials Movement Figure 16.4 Work center Work center Storage RECEIVING Storage Work center Work center Shipping

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

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

Electronic Data Interchange EDI – the direct transmission of interorganizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos.

Electronic Data Interchange 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

Efficient Consumer Response Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry Reflects companies’ efforts to achieve quick response using EDI and bar codes

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

Advantages E-Commerce 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

Disadvantages of E-Commerce 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

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

SCOR Metrics Table 16.4 Perspective Metrics Reliability On-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment Flexibility Supply chain response time Upside production flexibility Expenses Supply chain management costs Warranty cost as a percent of revenue Value added per employee Assets/utilization Total inventory days of supply Cash-to-cash cycle time Net asset turns

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

Supply Chain Performance Drivers Quality Cost Flexibility Velocity Customer service

Velocity Inventory velocity Information 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

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

Trade-offs Lot-size-inventory Inventory-transportation costs Bullwhip effect Inventory-transportation costs Cross-docking Lead time-transportation costs Product variety-inventory Delayed differentiation Cost-customer service Disintermediation

Supply Chain Benefits and Drawbacks Table 16.5 Problem Potential Improvement Benefits Possible Drawbacks Large inventories Smaller, more frequent deliveries Reduced holding costs Traffic congestion Increased costs Long lead times Delayed differentiation Disintermediation Quick response May not be feasible May need absorb functions Large number of parts Modular Fewer parts Simpler ordering Less variety Cost Quality Outsourcing Reduced cost, higher quality Loss of control Variability Shorter lead times, better forecasts Able to match supply and demand