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 connects suppliers, producers and final customers together in a tework that is essential to the creation and delivery of goods and services. (Value chains are the chain of activities and functions WITHIN a single organization.)

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

Supply Chain Management (SCM) The strategic coordination of the supply chain for the purpose of intergating supply and demand management. The strategic coordination of the supply chain for the purpose of intergating supply and demand management.

Logistics The part of a supply chain involved with the forward and reverse flow of goods, services, cash and information. The part of a supply chain involved with the forward and reverse flow of goods, services, cash and information. Movement within the facility Incoming and outgoing shipments Distribution

Facilities Warehouses Warehouses Factories Factories Processing centers Processing centers Distribution centers Distribution centers Retail outlets Retail outlets Offices Offices …

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

Key issues of SCM Determinate the appropriate level of outsourcing Determinate the appropriate level of outsourcing Managing procurement Managing procurement Managing suppliers Managing suppliers Managing customer relationships Managing customer relationships Being able to quickly identify and respond to problems Being able to quickly identify and respond to problems Managing risks and uncertainty Managing risks and uncertainty

Typical Supply Chains Typical Supply Chains Purchasing ReceivingStorageOperationsStorage ProductionDistribution

Typical Supply Chain for a Manufacturer Typical Supply Chain for a Manufacturer Supplier Storage } Mfg.StorageDist.RetailerCustomer

A farm-to-market supply chain 1. Farm (wheat) Suppliers: equipment, repair, feed, seed, fertilizer, pesticides, energy/fuel Suppliers: equipment, repair, feed, seed, fertilizer, pesticides, energy/fuel 2. Mill (flour) equipment, repair, energy equipment, repair, energy 3. Bakery (bread) equipment, repair, energy, other ingredients equipment, repair, energy, other ingredients 4. Supermarket (bread sold to the final customer) TransportTransport

Supplier } StorageService Customer Typical Supply Chain for a Service Typical Supply Chain for a Service

Supply chain and Cash flow Reverse logistics Customers Logistics Suppliers Production Goods and services Cash flow Consumers Marketing Design

Elements of Supply Chain Management Deciding how to best move and store materialsLogistics Determining location of facilitiesLocation Monitoring supplier quality, delivery, and relations Suppliers Evaluating suppliers and supporting operationsPurchasing Meeting demand while managing inventory costsInventory Controlling quality, scheduling workProcessing Incorporating customer wants, mfg., and timeDesign Predicting quantity and timing of demandForecasting Determining what customers wantCustomers Typical IssuesElement

Global supply chains Product design Product design Products sold globally Products sold globally Outsourcing to low labor cost countries Outsourcing to low labor cost countries Difficulties: language, culture, currency fluctuations, increased tratnsportation costs and lead time, increased need for trust Difficulties: language, culture, currency fluctuations, increased tratnsportation costs and lead time, increased need for trust

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

Purchasing Cycle 1. Requisition received 2. Supplier selected 3. Order is placed 4. Monitor orders 5. Receive orders Purchasing Legal Accounting Operations Dataprocess-ing Design Receiving Suppliers

Centralized vs. Decentralized purchasing Centralized purchasing Centralized purchasing Purchasing is handled by one special department Purchasing is handled by one special department Lower prices, better service and closer attention from suppliers, employing specialists Lower prices, better service and closer attention from suppliers, employing specialists Decentralized purchasing Decentralized purchasing Individual departments or separate locations handle their own purchasing requirements Individual departments or separate locations handle their own purchasing requirements Aware to different local needs, quicker response Aware to different local needs, quicker response

1. Lot-size vs. inventory Bullwhip effect Bullwhip effect 2. Inventory vs. transportation costs (reducing average costs) Cross-docking Cross-docking 3. Lead time vs. transportation costs 4. Product variety vs. inventory Delayed differentiation Delayed differentiation 5. Cost vs. customer service Disintermediation Disintermediation Trade-offs

Trade-offs Bullwhip effect Bullwhip effect Demand variations begin at the customer end of the chain and become increasingly large as they radiate backwards through the chain. Demand variations begin at the customer end of the chain and become increasingly large as they radiate backwards through the chain. Inventories are progressively larger moving backward through the supply chain. Inventories are progressively larger moving backward through the supply chain.

Bullwhip Effect 1 (uncertainty) Initial supplier Demand Final customer Backward effect

Bullwhip Effect 2 Tier 2 Suppliers Tier 1 Suppliers ProducerDistributorRetailer Final Customer Amount of inventory =

Trade-offs Cross-docking Cross-docking Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded immediately onto outbound trucks. Avoids warehouse storage. Reduces holding costs and lead times.

Trade-offs Delayed differentiation Delayed differentiation Production of standard components and subassemblies, which are held until late in the process to add differentiating features (expl. automobiles produced without extras) Production of standard components and subassemblies, which are held until late in the process to add differentiating features (expl. automobiles produced without extras) Disintermediation Disintermediation Reducing one or more steps in a supply chain by cutting out one or more intermediaries. Reducing one or more steps in a supply chain by cutting out one or more intermediaries.

Supply Chain Benefits and Drawbacks ProblemPotentialImprovementBenefitsPossibleDrawbacks 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 in final products CostQualityOutsourcing Reduced cost, higher quality Loss of control (even on quality) Variability Shorter lead times, better forecasts Able to match supply and demand Less variety

Successful Supply Chain Trust among trading partners Trust among trading partners Effective communications Effective communications Supply chain visibility Supply chain visibility Event-management capability Event-management capability The ability to detect and respond to unplanned events (uncertainty) The ability to detect and respond to unplanned events (uncertainty) Performance metrics Performance metrics

LOGISTICS The movement of materials, services, cash, and information in a supply chain. The movement of materials, services, cash, and information in a supply chain. Movement within a facility Movement within a facility Incoming and outgoing shipments (traffic managemment) Incoming and outgoing shipments (traffic managemment)

Movement within a facility From incoming vehicles to receiving From incoming vehicles to receiving From receiving to storage From receiving to storage From storage to work centres From storage to work centres Between work centres (or temporary storages) Between work centres (or temporary storages) From operations to final storage From operations to final storage From storage to packing/shipping From storage to packing/shipping From shipping to outgoing vehicles From shipping to outgoing vehicles

Evaluating shipping alternatives

Example

Solutions Example 1: Example 1: H(d)/365 = (2000*10)(5-2)/365 = H(d)/365 = (2000*10)(5-2)/365 = < < 135 Use the 2 days freight. Use the 2 days freight. Example 2: Example 2: Between overnight and 2-days freights: Between overnight and 2-days freights: H(d)/365 = (200*0.3*80)(1)/365 = H(d)/365 = (200*0.3*80)(1)/365 = The 2-days freight is better than the overnight-freight [13.15< ]. The 2-days freight is better than the overnight-freight [13.15< ]. Between 2-days and 6-days freights: Between 2-days and 6-days freights: H(d)/365 = (200*0.3*80)(4)/365 = H(d)/365 = (200*0.3*80)(4)/365 = The 6-days freight is better than the 2-days-freight [52.60<( )]. The 6-days freight is better than the 2-days-freight [52.60<( )]. The best choice is the 6-days freight. The best choice is the 6-days freight.

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