Supply Chain Management

Learning Objectives Be Able To Apply Concepts Listed In Learning Goals Be Able To Use Formulas Listed In Equation Summary of Chapter 1

Introduction Materials Are Any Commodities Used Directly or Indirectly in Producing a Product or Service. Raw Materials, Component Parts, Assemblies, & Supplies A Supply Chain Is the Way Materials Flow Through Different Organizations From Raw Material Supplier to Finished Goods Consumer. 2

Supply Chain Management Supply Chain Management Includes All Management Functions Related to Flow of Materials From Company’s Direct Suppliers to Its Direct Customers. Includes Purchasing, Traffic, Production Control, Inventory Control, Warehousing, & Shipping. Materials Management & Logistics Management Includes All Decisions About Purchasing Materials and Services, Inventories, Production Levels, Staffing Patterns, Schedules, and Distribution. 3

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Inventory at Different Stocking Points Supplier Manufacturing plant Distribution center Retailer Figure 8.1 Raw materials Work in process Finished goods 5

Supply Chain Management in a Manufacturing Plant Receiving and Inspection Raw Materials, Parts, and In-process Ware- Housing Production Finished Goods housing Inspection, Packaging, And Shipping Suppliers Customers Materials Management Purchasing Control Warehousing and Inventory Control and Traffic Physical materials flow Information flow 6

Four Important Activities in SCM Purchasing Logistics Warehousing Expediting 7

Purchasing Factors Increasing Importance of Purchasing Today: Tremendous Impact of Material Costs on Profit -- 60-70% of Sales Dollar Paid to Material Suppliers Popularity of JIT Manufacturing -- Supply Deliveries Must Be Exact in Timing, Quantity, & Quality Increasing Global Competition -- More Competition for Scarce Resources, & Geographically Stretched-out Supply Chain 8

Mission of Purchasing Develop Purchasing Plans for Each Major Product or Service Consistent With Operations Strategies: Low Production Costs Fast and On-Time Deliveries High Quality Products & Services Flexibility 9

Purchasing Management Maintain Database of Available, Qualified Suppliers Select Suppliers to Supply Each Material Negotiate Contracts With Suppliers Act As Interface Between Company & Suppliers Provide Training to Suppliers on Latest Technologies 10

Managing the Customer Interface Order Placement Process—Involves Activities Required to Register Need for Product or Service & to Confirm Acceptance of Order Order Fulfillment Process—Involves Activities Required to Deliver Product or Service to Customer Inventory Pooling Forward Placement Vendor-Managed Inventories Continuous Replenishment 11

Managing the Supplier Interface E-Purchasing EDI—Enables Transmission of Routine Business Documents with Standard Format over Telephone or Direct Lines I-ERP—Allowing Portal to ERP System Between Customer and Supplier Supplier Selection & Certification Selection—Price, Quality, Deliver, Green Certification—Verification Supplier Can Deliver Goods Customer Requires Supplier Relations Outsourcing 12

Advantages of Centralized Purchasing Buy in Large Quantities --> Better Prices More Clout With Suppliers --> Greater Supply Continuity Larger Purchasing Department --> Buyer Specialization Combine Small Orders --> Less Order Cost Duplication Combine Shipments --> Lower Transportation Costs Better Overall Control 13

Request for Quotations Receive & Inspect Goods Purchasing Process Material Requisition Request for Quotations Select Best Supplier Purchase Order Receive & Inspect Goods From Purchasing, To Potential Suppliers From Any Department, To Purchasing Based on Quality, Price, Lead Time, Dependability To Selected Supplier From Supplier, to Receiving, Quality Control, Warehouse 14

Make-or-Buy Analysis Considerations in Make-or-Buy Decisions: Lower Cost - Purchasing or Production? Better Quality - Supplier or In-House? More Reliable Deliveries - Supplier or In-House? What Degree of Vertical Integration Is Desirable? Should Distinctive Competencies Be Outsourced? 15

JIT Purchasing Key Elements of JIT Purchasing Are: Cooperative, Not Adversarial Relationships Longer-Term Relationships, Fewer Suppliers Delivery & Quality Enters Into Selecting a Supplier JIT in Supplier’s Operation Suppliers Nearby Shipments Delivered Directly to Production Line Deliveries in Small, Standard-Size, Returnable Containers Minimum of Paperwork 16

Logistics Logistics Usually Refers to Management of: Movement of Materials Within Factory Shipment of Incoming Materials From Suppliers Shipment of Outgoing Products to Customers 17

Movement of Materials within Factories Incoming Vehicles Receiving Dock Quality Control Warehouse Work Center Other Work Centers Packaging Finished Goods Shipping Outgoing Typical Locations From/To Which Material Is Moved: 18

Shipments To and From Factories Traffic Departments Routinely Examine Shipping Schedules & Select: Shipping Methods Time Tables Ways of Expediting Deliveries Traffic Management Is Specialized Field Requiring Technical Training in DOT and ICC Regulations & Rates. 19

Shipments To and From Factories Distribution, or Physical Distribution, Is Shipment of Finished Goods Through Distribution System to Customers. A Distribution System Is Network of Shipping & Receiving Points Starting With Factory & Ending With Customers. 20

Shipments To and From Factories Distribution Requirements Planning DRP Is Planning for Replenishment of Regional Warehouse Inventories. DRP Uses MRP-type Logic to Translate Regional Warehouse Requirements Into Central Distribution-Center Requirements, Which Are Then Translated Into Gross Requirements in MPS at Factory. 21

Shipments To and From Factories Distribution Requirements Planning Scheduled Receipts Are Previously-placed Orders That Are Expected to Arrive in a Given Week Planned Receipt of Shipments Are Orders Planned, but Not Yet Placed, for the Future Projected Ending Inventory Is Computed As: Previous Week’s Projected Ending Inventory + Planned Receipt of Shipments in Current Week + Scheduled Receipt of Shipments in Current Week -- Forecasted Demand in Current Week 22

Shipments To and From Factories DRP Time-Phased Order Point Record Forecasted demand (units) Scheduled receipts Projected ending inventory Planned receipt of shipments Planned orders for shipments Region. Warehouse #1 LT = 1 Std. Quantity = 50 SS = 10 60 -1 80 50 30 40 1 2 3 20 10 5 4 Week 23

Shipments To and From Factories Distribution Resource Planning Distribution Resource Planning Extends DRP So That Key Resources of Warehouse Space, Workers, Cash, & Vehicles Are Provided in Correct Quantities at Correct Times. 24

Innovations in Logistics New Developments Affecting Logistics Include: All-Freight Airports Inter-Modal Shipping In-Transit Rates Consolidated Shipments Air-Freight & Trucking Deregulation Advanced Logistics Software 25

Warehousing Warehousing Is Management of Materials While They Are in Storage. Warehousing Activities Include: Storing Dispersing Ordering Accounting Periodic Inventory Perpetual Inventory 26

Warehousing Record Keeping Within Warehousing Requires Stock Record for Each Item That Is Carried in Inventories. The Individual Item Is Called a Stock-Keeping Unit (SKU). Stock Records Are Running Accounts That Show: On-Hand Balance Receipts & Expected Receipts Disbursements, Promises, & Allocations 27

Inventory Accounting In Past, Inventory Accounting Based On: Periodic Inventory Accounting Systems -- Periodic (End-of-Day) Updating of Inventory Records Physical Inventory Counts -- Periodic (End-of-Year) Physical Counting of All SKUs at One Time Today, More and More Firms Are Using: Perpetual Inventory Accounting Systems -- Real-Time Updating of Records As Transactions Occur Cycle Counting -- Ongoing (Daily or Weekly) Physical Counting of Different SKUs 28

Measuring the Performance Materials Managers Level and Value of In-House Inventories Percentage of Orders Delivered on Time Number of Stockouts Annual Cost of Materials Annual Cost of Transportation Annual Cost of Warehouse Number of Customer Complaints Other Factors 29

Inventory Measures 30