C11- Supply ChainManagement

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. Purchasing Receiving Storage Operations Production Distribution Typical Supply Chains Sometimes referred to as value chains

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

} } Typical Supply Chain for a Manufacturer Typical Supply Chain for a Service Supplier Storage } Mfg. Dist. Retailer Customer 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 Demand Initial Supplier Final Customer Inventory oscillations become progressively larger looking backward through the supply chain

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

Benefits from SCM 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

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

Elements of Supply Chain Management 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 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 Movement within the facility Incoming and outgoing shipments Bar coding EDI Distribution JIT Deliveries 214800 232087768

Materials Movement 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 Used to plan and coordinate various operations Transportation Warehousing Workers Equipment Financial flows Uses of DRP

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 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 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

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

Supply chain should enable members to: 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 Trust among trading partners Effective communications Supply chain visibility Event-management capability The ability to detect and respond to unplanned events Performance metrics Successful Supply Chain

SCOR Metrics 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 SCOR has identified over 200 key performance metrics to monitor overall supply chain performance (level 1 metrics), as well as very focused metrics to help a specific process to improve (level 2 and 3 metrics). This metrics are used to build performance trends for areas under improvement, or to compare against industry best practice performance.

Performance Attribute Definition Level 1 Metric Supply Chain Reliability The performance of the supply chain in delivering: the correct product, to the correct place and customer, at the correct time, in the correct condition and packaging, and with the correct quantity and documentation Delivery Performance Fill Rates Perfect Order Fulfillment Supply Chain Responsiveness The velocity at which a supply chain provides products to the customer. Order Fulfillment Lead Times Supply Chain Flexibility The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage. Supply Chain Response Time Production Flexibility Supply Chain Costs The costs associated with operating the supply chain.  Cost of Goods Sold Total Supply Chain Management Costs Value-Added Productivity Warranty / Returns Processing Costs Supply Chain Asset Management Efficiency The effectiveness of an organization in managing assets to support demand satisfaction.  This includes the management of all assets: fixed and working capital.    Cash-to-Cash Cycle Time Inventory Days of Supply Asset Turn http://www.scpiteam.com/SCOR%20Metrics.htm

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

CPFR- Collaborative Planning, Forecasting, and Replenishment 1. Develop Front End Agreement 2. Create the Joint Business Plan 3. Create the Sales Forecast 4. Identify Exceptions for Sales Forecast 5. Resolve/Collaborate on Exception Items 6. Create Order Forecast 7. Identify Exceptions for Order Forecast 8. Resolve/Collaborate on Exception Items 9. Order Generation CPFR Process Focuses on information sharing among trading partners Forecasts can be frozen and then converted into a shipping plan Eliminates typical order processing

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

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 Quality Cost Flexibility Velocity Customer service SC Performance Drivers Inventory 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

Supply chain optimization Barriers to integration of organizations Getting top management on board Dealing with trade-offs Small businesses Variability and uncertainty Long lead times Challenges Trade-offs Lot-size-inventory 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 Delayed differentiation 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 Delayed differentiation 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 Situational Comparison 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

Purchasing 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. Develop and implement purchasing plans for products and services that support operations strategies Goal of Purchasing Identifying sources of supply Negotiating contracts Maintaining a database of suppliers Obtaining goods and services Managing supplies Duties of Purchasing

Purchasing Interfaces Legal Accounting Operations Data processing Design Receiving Suppliers

Requisition received Supplier selected Order is placed Monitor orders Receive orders Purchasing Cycle Purchasing Legal Accounting Operations Data process- ing Design Receiving Suppliers

Centralized purchasing Decentralized purchasing Purchasing is handled by one special department Decentralized purchasing Individual departments or separate locations handle their own purchasing requirements Value analysis Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance

Supplier selection Choosing suppliers Evaluating sources of supply Supplier audits Supplier certification Supplier relationships Supplier partnerships Quality and quality assurance Flexibility Location Price Product or service changes Reputation and financial stability Lead times and on-time delivery Other accounts Factors in Choosing a Supplier Vendor analysis: Evaluating the sources of supply in terms of Quality Services Inventory policy Evaluating Sources of Supply

Supplier as a Partner Aspect Adversary Partner Number of suppliers Many One or a few Length of relationship May be brief Long-term Low price Major consideration Moderately important Reliability May not be high High Openness Low Quality May be unreliable; buyer inspects At the source; vendor certified Volume of business May be low Flexibility Relatively low Relatively high Location Widely dispersed Nearness is important

Supplier Partnerships- Ideas could improve 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

Critical Issues Increased outsourcing Cost Quality Agility Customer service Competitive advantage Strategic importance Benefits Risks Technology management Increased outsourcing Increased conversion to lean production Just-in-time deliveries Globalization Purchasing function

Learning Objectives 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.

Learning Objectives 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.