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.)

Supply Chain Management (SCM) 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. Movement within the facility Incoming and outgoing shipments Distribution

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

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

Typical Supply Chains Purchasing Receiving Storage Operations Production Distribution

Typical Supply Chain for a Manufacturer Supplier Storage } Mfg. Dist. Retailer Customer

A farm-to-market supply chain Farm (wheat) Suppliers: equipment, repair, feed, seed, fertilizer, pesticides, energy/fuel Mill (flour) equipment, repair, energy Bakery (bread) equipment, repair, energy, other ingredients Supermarket (bread sold to the final customer) T r a n s p o r t

Typical Supply Chain for a Service Supplier } Storage Service Customer

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

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

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

Global supply chains Product design Products sold globally Outsourcing to low labor cost countries 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: Identifying sources of supply Negotiating contracts Maintaining a database of suppliers Obtaining goods and services 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 Requisition received Supplier selected Legal Accounting Operations Data process- ing Design Receiving Suppliers Requisition received Supplier selected Order is placed Monitor orders Receive orders

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

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

Trade-offs Bullwhip effect Cross-docking 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. 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.

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

Bullwhip Effect 2 = Amount of inventory Tier 2 Suppliers Tier 1 Producer Distributor Retailer Final Customer

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

Supply Chain Benefits and Drawbacks 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 in final products Cost Quality Outsourcing 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 Effective communications Supply chain visibility Event-management capability The ability to detect and respond to unplanned events (uncertainty) Performance metrics

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