© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 1 Chapter Extension 12 Supply Chain Management

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 2 Agenda What is a supply chain? What factors affect supply chain performance? How does supply chain profitability differ from organizational profitability? What is the bullwhip effect? What are the functions of supplier relationship management? How do information systems affect supply chain performance?

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 3 What Is a Supply Chain? Network of organizations and facilities Transforms raw materials into products delivered to customers Works with companies and consumers up and down the chain Customers order from retailers Retailers order from distributors Distributors order from manufacturers Manufacturers get raw materials from suppliers Transportation companies, warehouses, and inventories also involved

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 4 Chain is a misleading word. Supply chain is a network. Dell computer directly sells to customer and therefore, both retailer and distributors are omitted from supply chain.

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 5 Supply Chain Relationships Figure CE12-1

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 6 Sample Supply Chain lCustomer is the only source of revenue

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 7 Nike’s Supply Chain Great in theory but it did not always work

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 8 Factors That Affect Supply Chain Performance?

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 9 Factors That Affect Supply Chain Performance? Facilities: Where to locate? How Large? How items be stored and retrieved Inventory: all material in supply chain (SC), including raw material, each company in SC has their own inventory, balancing between availability and cost Order frequency Transportation: owned or outsourced Information: affects the way the orgs in SC request, respond and inform each other Purpose: Order and return Availability: which orgs have access to which info and when

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 10 Increased outsourcing Large global supply networks Increased competition Consumer driven Today’s Supply Chain Reality Lack of visibility reduces suppliers’ ability to handle variability Suppliers use inventory buffers to compensate increasing costs Errors in manual replenishment (filling) processes can cause stock-outs All of these issues can increase costs, lower customer service and reduce revenue

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 11 Problem & Pain Manufacturers – business pain Manual replenishment – increased stock-outs Unnecessary inventory buffers Increased premium freight costs (expediting) Reduced order fill rates – poor customer service Lower revenues – missed opportunities Suppliers – business pain Lack of visibility – increased inventory buffers Reduced capacity utilization Reduced order-fill rates Reduced transportation efficiencies (expediting)

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide Share data and information to create visibility 2. Interact to match expectations 3. Synchronize resources and processes to perform as one Collaboration is Key for Adaptiveness My Company Customers Suppliers Outsourcing Partner

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 13 Supply Chain Profitability Vs. Organizational Profitability Difference between sum of revenue generated and sum of costs incurred in SC Maximum profit from chain Can not be achieved if organizations maximize profits in isolation Profitability increases when organizations operate at less than maximum profitability Example of REI ski package ( all or none)

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 14 What Is the Bullwhip Effect? Variety in the size and timing of orders increases at each stage up supply chain Natural dynamic of multistage nature of supply chain Unrelated to erratic customer demand Large fluctuations force distributors, manufacturers, and suppliers to carry large inventories Reduces overall profitability Eliminate effect by giving participants access to consumer-demand information Interorganizational information systems share data

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 15 Example: Diaper order from retailer: Retailer waits until the inventory falls below ceratin level and then reorder + a few more The same process applied to distributors and also to the manufacturer Small change in demand is amplified at each stage of SC and becomes quite large at the end of the chain.

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 16 The Bullwhip Effect

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 17 What Are the Functions of Supplier Relationship Management? SRM Process for managing contacts between an organization and suppliers Supplier in SRM is any organization that sells something to an organization that has a SRM application Integrated system Supports inbound logistics primary activity and procurement support activity Three basic processes Source Purchase Settle

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 18 B 2 B In One Section of the Supply Chain

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 19 Summary of SRM Processes Figure CE12-6

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 20 How Do Information Systems Affect Supply Chain Performance? Positive impact on supply chain performance Reduced cost of buying and selling Sourcing, buying, settling faster, easier, more effective Expanded supply chain speed Dollar value of goods exchanged in given period of time Enabled suppliers and customers to reduce inventory size and costs Improve delivery scheduling Enables just-in-time inventory Example: without Information systems, Amazon.com would not have been able to process an average of 41 items per second for 24 hours on Dec. 14, 2005

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 21 SCM Demos Supply Chain Case Study Xbox supply chain Microsoft SCM KiMs ( MS testimonial) KiMs