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

Supply-Chain Management Defined Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together. Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer. 4

Supply Chain Management (SCM) Definition: Philosophy that describes how organizations should manage their various supply chains to achieve strategic advantage

Supply Chain Management (SCM) Objective: Synchronize requirements of the final customer with flow of materials and information along the supply chain to reach a balance between high customer satisfaction/service and cost.

The Supply Chain Information Supplier Network Manufacturing Unit External Suppliers Internal Information Supplier Network Manufacturing Unit Distribution Center Retailer Transformation Processes Raw Material & Component Inventories Work-in- Process Finished Goods Customer Network U l t i m a t e C u s t o m e r s

Facilities Warehouses Factories Processing centers Distribution centers Retail outlets Offices

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 11.1a Supplier Storage } Mfg. Dist. Retailer Customer

Typical Supply Chain for a Service Figure 11.1b 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 Demand Initial Supplier Final Customer Inventory oscillations become progressively larger looking backward through the supply chain

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 Integrates separate organizations into a cohesive operating system

Global Supply Chains Increasing more complex Language Culture Currency fluctuations Political Transportation costs Local capabilities Finance and economics Environmental

Elements of Supply Chain Management Table 11.1 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

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

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

Materials Movement Figure 11.4 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

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

Reverse Logistics Reverse logistics – the backward flow of goods returned to the supply chain Processing returned goods Sorting, examining/testing, restocking, repairing Reconditioning, recycling, disposing Gatekeeping – screening goods to prevent incorrect acceptance of goods Avoidance – finding ways to minimize the number of items that are returned

Effective Supply Chain Requires linking the market, distribution channels processes, and suppliers Supply chain should enable members to: Share forecasts Determine the status of orders in real time Access inventory data of partners

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 11.4 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

RFID Technology Used to track goods in supply chain RFID tag attached to object Similar to bar codes but uses radio frequency to transmit product information to receiver RFID eliminates need for manual counting and bar code scanning

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

Trade-offs Bullwhip effect Cross-docking Inventories are progressively larger moving backward through the supply chain Cross-docking Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks Avoids warehouse storage

Trade-offs Delayed differentiation Disintermediation Production of standard components and subassemblies, which are held until late in the process to add differentiating features Disintermediation Reducing one or more steps in a supply chain by cutting out one or more intermediaries

Supply Chain Issues Operating Issues Tactical Issues Strategic Issues Quality control Production planning and control Inventory policies Purchasing policies Production policies Transportation policies Quality policies Design of the supply chain, partnering Operating Issues Tactical Issues Strategic Issues

Supply Chain Benefits and Drawbacks Table 11.5 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