Supply Chain Management- Chapter 11 There are no problem solving assignments from Chapter 11

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. Sometimes referred to as value chains

Warehouses Factories Processing centers Distribution centers Retail outlets Offices Facilities

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

Typical Supply Chains Purchasing ReceivingStorageOperationsStorage ProductionDistribution

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

Supplier } StorageService Customer Typical Supply Chain for a Service

1.Improve operations 2.Increasing levels of outsourcing 3.Increasing transportation costs 4.Competitive pressures 5.Increasing globalization 6.Increasing importance of e-commerce 7.Complexity of supply chains 8.Manage inventories 9.For industries with volatile industries Need for Supply Chain Management

Bullwhip Effect Final Customer Initial Supplier Demand 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 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

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 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

Strategic or Operational Two types of decisions in supply chain management –Strategic – design and policy (mostly long term decisions) –Operational – day-today activities (short term decisions) Major decisions areas –Location of members –Production processes –Inventory flow and management –Distribution system

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 Logistics

Distribution requirements planning (DRP) is a system for inventory management and distribution planning Distribution Requirements Planning

E-Business: the use of electronic technology to facilitate business transactions Applications include –Internet buying and selling – –Order and shipment tracking –Electronic data interchange E-Business

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-Business

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-Business

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

Effective/Successful 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

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

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 *Refers to “Supply Chain Operations Reference,” which attempts to standardize measurements of supply chain performance.

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 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 –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

1.Develop strategic objectives and tactics 2.Integrate and coordinate activities in the internal supply chain 3.Coordinate activities with suppliers with customers 4.Coordinate planning and execution across the supply chain 5.Form strategic partnerships Creating an Effective Supply Chain

Supply Chain Performance Drivers 1.Quality 2.Cost 3.Flexibility 4.Velocity (see next slide) 5.Customer service

Velocity 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

The following slides simply outline the purchasing function which is common to most organizations. You will not be tested on this material, but it could be helpful in reference to job interviews. Hence, you should review these slides. NOTE

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. Purchasing

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 Purchasing Legal Accounting Operations Data processing Design Receiving Suppliers

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

Value analysis –Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance Value Analysis vs. Outsourcing

Centralized purchasing – Purchasing is handled by one special department Decentralized purchasing –Individual departments or separate locations handle their own purchasing requirements Centralized vs Decentralized Purchasing

Choosing suppliers Evaluating sources of supply Supplier audits Supplier certification Supplier relationships Supplier partnerships Suppliers

Quality and quality assurance Flexibility Location Price Factors in Choosing a Supplier

Product or service changes Reputation and financial stability Lead times and on-time delivery Other accounts Factors in Choosing a Supplier (cont’d)

Evaluating Sources of Supply Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service

Vendor analysis - evaluating the sources of supply in terms of –Price –Quality –Services –Location –Inventory policy –Flexibility Evaluating Sources of Supply

Supplier as a Partner AspectAdversaryPartner Number of suppliersManyOne or a few Length of relationship May be briefLong-term Low priceMajor considerationModerately important ReliabilityMay not be highHigh OpennessLowHigh QualityMay be unreliable; buyer inspects At the source; vendor certified Volume of businessMay be lowHigh FlexibilityRelatively lowRelatively high LocationWidely dispersedNearness is important

Ideas from suppliers could lead to improved competitiveness 1.Reduce cost of making the purchase 2.Reduce transportation costs 3.Reduce production costs 4.Improve product quality 5.Improve product design 6.Reduce time to market 7.Improve customer satisfaction 8.Reduce inventory costs 9.Introduce new products or services Supplier Partnerships

Critical Issues Strategic importance –Cost –Quality –Agility –Customer service –Competitive advantage Technology management –Benefits –Risks

Critical Issues Purchasing function –Increased outsourcing –Increased conversion to lean production –Just-in-time deliveries –Globalization