Introduction to Operations Management Supply Chain Management (Ch.11) Hansoo Kim (金翰秀) Dept. of Management Information Systems, YUST

Supply Chain Management OM Overview Class Overview (Ch. 0) X Operations, Productivity, and Strategy (Ch. 1, 2) X Project Management (Ch. 17) Strategic Capacity Planning (Ch. 5, 5S) Process Selection/ Facility Layout; LP (Ch. 6, 6S) X X X Mgmt of Quality/ Six Sigma Quality (Ch. 9, 10) X X Queueing/ Simulation (Ch. 18) Supply Chain Management (Ch 11) Location Planning and Analysis (Ch. 8) JIT & Lean Mfg System (Ch. 15) Demand Mgmt Forecasting (Ch 3) Aggregated Planning (Ch. 13) Inventory Management (Ch. 12) MRP & ERP (Ch 14) Term Project

Today’s Outline Explain what a supply chain is. Explain the need to manage a supply chain and the potential benefits of doing so. Explain the increasing importance of outsourcing. State the objective of supply chain management. List the elements of supply chain management. Identify the strategic, tactical, and operations issues in supply chain management. Describe the bullwhip effect and the reasons why it occurs.

Today’s Outline Explain the value of strategic partnering. Discuss the critical importance of information exchange across a supply chain. Outline the key steps, and potential challenges, in creating an effective supply chain. Explain the importance of the purchasing function in business organizations. Describe the responsibilities of purchasing. Explain the term value analysis. Identify several guidelines for ethical behavior in purchasing.

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. Supply chain management: is the strategic coordination of business functions within a business organization and throughout its supply chain for the purpose of integrating supply and demand management. Sometimes referred to as value chains

Functions /Activities Facilities Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service Warehouses Factories Processing centers Distribution centers Retail outlets Offices

Typical Supply Chain

Need for Supply Chain Management The need to 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 The bullwhip effect: demand variations begin at the customer end of the chain and become increasingly large as they radiate backwards through the chain Why? Inventory oscillations become progressively larger looking backward through the supply chain

Global Supply Chain and Outsourcing Producing in China -> Selling in USA Supply Chains linked in global pattern Made in USA? => Assembled in USA with China Components! => or Designed in USA but made in China!!! Increasing more complex Language, Culture, Currency fluctuations, Political, Transportation costs, Local capabilities, Finance and economics, Environmental Outsourcing Producing? ->Buying More Concentrate on what we can do better!

Benefits of Effective 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 effective supply chain management include lower inventories, lower costs, higher productivity, greater agility, shorter lead times, higher profits, and greater customer loyalty.

Elements of Supply Chain Management Table 11.1

Strategic or Operational Two types of decisions in supply chain management Strategic – design and policy Operational – day-today activities Major decisions areas Location Production Inventory Distribution

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

Distribution Requirements Planning (DRP) Distribution requirements planning (DRP) is a system for inventory management and distribution planning Extends the concepts of MRPII Management uses DRP to plan and coordinate: Transportation Warehousing Workers Equipment Financial flows

Ryder delivers (in trucks labeled “Saturn”) bins of speedometers and odometers to Saturn’s Spring Hill, Tennessee, plant. Thursday, 9:00 a.m.: A Ryder truck arrives at a Saturn supplier in Winchester, Virginia. Drivers check the onboard computer, which provides destination and routing information, along with e stimated travel times. Spring Hill, Tennessee, Friday, 3:00 a.m.: After parking the trailer in a computer-assigned spot in Ryder’s switching yard two miles from the Saturn plant, the driver downloads a key-shaped floppy disk from the onboard computer into Ryder’s mainframe. The mainframe generates performance reports for Saturn. 12:53 p.m.: The trailer arrives at one of Saturn’s 56 receiving docks just in time for Saturn workers to unload the bins and unwrap the pre-inspected instruments to ready them for the production line. 12:50 p.m.: The trailer approaches the Saturn plant.

E-Business E-Business: 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-Business 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-Business 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

Source: As seen in Business 2. 0 Copyright © 2002, Xplane Corp Source: As seen in Business 2.0 Copyright © 2002, Xplane Corp. Used with permission. RFID

CPFR CPFR Collaborative Planning, Forecasting, and Replenishment Focuses on information sharing among trading partners Forecasts can be frozen and then converted into a shipping plan Eliminates typical order processing CPFR Process Step 1 – Front-end agreement Step 2 – Joint business plan Steps 3-5 – Sales forecast Steps 6-8 – Order forecast collaboration Step 9 – Order generation/delivery execution

CPFR Results Nabisco and Wegmans Wal-mart and Sara Lee 50% increase in category sales Wal-mart and Sara Lee 14% reduction in store-level inventory 32% increase in sales Kimberly-Clark and Kmart Increased category sales that exceeded market growth

Purchasing (구매) Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service. Purchasing cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition. Goal of Purchasing is to develop and implement purchasing plans for products and services that support operations strategies Duty of Purchasing Identifying sources of supply, Negotiating contracts, Maintaining a database of suppliers, Obtaining goods and services, Managing supplies

Purchasing Interfaces Purchasing Cycle Requisition received Supplier selected Order is placed Monitor orders Receive orders Figure 11.5

Centralized vs Decentralized Purchasing Purchasing is handled by one special department Decentralized purchasing Individual departments or separate locations handle their own purchasing requirements

Guidelines for ethical behavior in purchasing Principles Loyalty to employer. Justice to those you deal with Faith in your profession Standards of purchasing practice Avoid appearance of unethical or compromising practice. Follow the lawful instructions of your employer. Refrain from private activity that might conflict with the interests of your employer. Refrain from soliciting or accepting gifts, favors, or services from present or potential suppliers. Handle confidential or proprietary employer or supplier information with due care.

Guidelines for ethical behavior in purchasing Standards of purchasing practice Practice courtesy and impartiality in all aspects of your job. Refrain from reciprocal agreements that constrain competition. Know and obey the letter and spirit of laws governing purchasing. Demonstrate support for small, disadvantaged, and minority owned businesses. Discourage involvement in employer sponsored programs of nonbusiness, personal purchases. Enhance the profession by maintaining current knowledge and the highest ethical standards. Conduct international purchasing in accordance with the laws, customs, and practices of foreign countries, but consistent with the laws of the United States, your organization’s policies, and these guidelines.

Supplier Management Choosing suppliers Evaluating sources of supply Supplier audits Supplier certification Supplier relationships Supplier partnerships

Factors in Choosing a Supplier

Evaluating Sources of Supply Vendor analysis - evaluating the sources of supply in terms of Price Quality Services Location Inventory policy Flexibility

Supplier as adversary versus supplier as partner

Supplier Partnerships Ideas from suppliers could lead to improved competitiveness Reduce cost of making the purchase Reduce transportation costs Reduce production costs Improve product quality Improve product design Reduce time to market Improve customer satisfaction Reduce inventory costs Introduce new products or services

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