12-1 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management

12-2 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management SUPPLY CHAIN MANAGEMENT PART FIVE Chapter Twelve Supply Chain Management Chapter Twelve Supplement Purchasing & Supplier Management Chapter Thirteen Inventory Management Chapter Fourteen Aggregate Planning Chapter Fifteen MRP & ERP Chapter Sixteen Just-in-Time Systems Chapter Sixteen Supplement Maintenance Chapter Seventeen Scheduling

12-3 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Chapter 12 Supply Chain Management

12-4 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. 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.

12-5 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Warehouses Factories Processing centres Distribution centres Retail outlets Offices Facilities

12-6 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Typical Supply Chains Purchasing ReceivingStorageOperationsStorage ProductionDistribution

12-7 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Typical Supply Chain for a Manufacturer Supplier Storage } Mfg.Dist.RetailerCustomerStorage

12-8 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Supplier Storage } Service Customer Typical Supply Chain for a Service

12-9 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Customers are Suppliers Initial Supplier Customer Supplier Customer Supplier Customer Supplier Final Customer

12-10 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. 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 Need for Supply Chain Management

12-11 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Benefits of Supply Chain Management OrganizationBenefit Campbell SoupDoubled inventory turnover rate Hewlett-PackardCut supply costs 75% Sport ObermeyerDoubled profits and increased sales 60% National BicycleIncreased market share from 5% to 29% Wal-MartLargest and most profitable retailer in the world

12-12 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management 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

12-13 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Increasing outsourcing Increasing conversion to lean production Increasing globalization Purchasing in Supply Chain Management

12-14 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Internal Supply Chain External Supply Chain Internal Supply Chain Key: SuppliersDistributionCustomersProcessing

12-15 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Supply Chain Issues Quality control Production planning and control Inventory policies Purchasing policies Production policies Transportation policies Quality policies Design of the supply chain, partnering Operating IssuesTactical Issues Strategic Issues

12-16 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management SCOR Metrics PerspectiveMetrics ReliabilityOn-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment FlexibilitySupply chain response time Upside production flexibility ExpensesSupply chain management costs Warranty cost as a percent of revenue Value added per employee Assets/utilizationTotal inventory days of supply Cash-to-cash cycle time Net asset turns

12-17 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Logistics –Refers to the movement of materials and information within a facility and to incoming and out going shipments of goods and materials Logistics

12-18 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Logistics Movement within the facility Incoming and outgoing shipments Bar coding EDI Distribution JIT Deliveries

12-19 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Materials Movement Figure 12-3 RECEIVING Storage Work centre Work centre Storage Work centre Storage Shipping

12-20 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Increased productivity Reduction of paperwork Lead time and inventory reduction Facilitation of just-in-time systems Electronic transfer of funds Improved control of operations Reduction in clerical labour Increased accuracy Electronic Data Interchange

12-21 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry –Reflects companies’ efforts to achieve quick response using EDI and bar codes Efficient Consumer Response

12-22 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Distribution requirements planning (DRP) is a system for inventory management and distribution planning Extends the concepts of MRPII Distribution Requirements Planning

12-23 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Management uses DRP to plan and coordinate: –Transportation –Warehousing –Workers –Equipment –Financial flows Uses of DRP

12-24 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management E-Commerce: the use of electronic technology to facilitate business transactions Applications include –Internet buying and selling – –Order and shipment tracking –Electronic data interchange E-Commerce

12-25 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management 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 Advantages E-Commerce

12-26 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management 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 of E-Commerce

12-27 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Buyer exchange MRO- catalogue hub Supplier exchange BPO Neutral exchange B2B Market Places

12-28 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Develop strategic objectives and tactics Integrate and coordinate activities in the internal supply chain Coordinate suppliers with customers Coordinate planning and execution Form strategic partnerships Creating an Effective Supply Chain

12-29 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Quality Cost Flexibility Velocity Customer service Supply Chain Performance Drivers

12-30 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Barriers to integration of organizations Getting top management on board Dealing with trade-offs Small businesses Variability and uncertainty Long lead times Challenges

12-31 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Lot-size-inventory –Bullwhip effect Inventory-transportation costs Lead time-transportation costs Product variety-inventory Cost-customer service Trade-offs

12-32 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Bullwhip Effect Tier 2 Suppliers Tier 1 Suppliers ProducerDistributorCustomers Ordering Amount of inventory =

12-33 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Supply Chain Management Supply Chain Benefits and Drawbacks ProblemPotential Improvement BenefitsPossible Drawbacks Large inventories Smaller, more frequent deliveries Reduced holding costs Traffic congestion Increased costs Long lead timesDelayed differentiation Disintermediation Quick responseMay not be feasible May need absorb functions Large number of parts ModularFewer parts Simpler ordering Less variety Cost Quality OutsourcingReduced cost, higher quality Loss of control VariabilityShorter lead times, better forecasts Able to match supply and demand Less variety