Adeyl Khan, Faculty, BBA, NSU

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 Facilities Warehouses Factories Processing centers Distribution centers Retail outlets Offices

Adeyl Khan, Faculty, BBA, NSU 16-3 Functions and Activities Forecasting Purchasing Inventory management Information management Functions and Activities Quality assurance Scheduling Production and delivery Customer service Purchasing ReceivingStorageOperationsStorage ProductionDistribution

Adeyl Khan, Faculty, BBA, NSU Typical Supply Chain for a Manufacturer & Service 16-4 Supplier Storage } Mfg.StorageDist.RetailerCustomer Supplier } StorageService Customer

Adeyl Khan, Faculty, BBA, NSU Need for 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 16-5

Adeyl Khan, Faculty, BBA, NSU Bullwhip Effect 16-6 Figure 16.3 Final Customer Initial Supplier Demand Inventory oscillations become progressively larger looking backward through the supply chain

Adeyl Khan, Faculty, BBA, NSU 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 16-7

Adeyl Khan, Faculty, BBA, NSU 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 16-8

Adeyl Khan, Faculty, BBA, NSU 16-9 Global Supply Chains  Increasing more complex  Language  Culture  Currency fluctuations  Political  Transportation costs  Local capabilities  Finance and economics  Environmental

Adeyl Khan, Faculty, BBA, NSU 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

Adeyl Khan, Faculty, BBA, NSU Strategic or Operational  Two types of decisions in supply chain management  Strategic – design and policy  Operational – day-today activities  Major decisions areas  Location  Production  Inventory  Distribution

Adeyl Khan, Faculty, BBA, NSU 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  Application Areas  Movement within the facility  Incoming and outgoing shipments  Bar coding  EDI  Distribution  JIT Deliveries

Adeyl Khan, Faculty, BBA, NSU Materials Movement RECEIVING Storage Work center Work center Storage Work center Storage Shipping

Adeyl Khan, Faculty, BBA, NSU Distribution Requirements Planning  Distribution requirements planning (DRP) is a system for inventory management and distribution planning  Extends the concepts of MRPII Management uses DRP to plan and coordinate: Transportation Warehousing Workers Equipment Financial flows

Adeyl Khan, Faculty, BBA, NSU E-Business  E-Business: the use of electronic technology to facilitate business transactions  Applications include  Internet buying and selling   Order and shipment tracking  Electronic data interchange Advantages 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

Adeyl Khan, Faculty, BBA, NSU Disadvantages of 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 16-16

Adeyl Khan, Faculty, BBA, NSU 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 16-17

Adeyl Khan, Faculty, BBA, NSU Effective 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 16-18

Adeyl Khan, Faculty, BBA, NSU 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 16-19

Adeyl Khan, Faculty, BBA, NSU SCOR Metrics Supply-Chain Operations Reference-model 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 Diagnostic tool address, improve, and communicate Diagnostic tool address, improve, and communicate

Adeyl Khan, Faculty, BBA, NSU 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

Adeyl Khan, Faculty, BBA, NSU Collaborative Planning, Forecasting and Replenishment - CPFR  CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the supply chain.  Focuses on information sharing among trading partners  Forecasts can be frozen and then converted into a shipping plan  Eliminates typical order processing Front-end agreement 2 Joint business plan 3-5 Sales forecast 6-8 Order forecast collaboration 9 Order generation/delivery execution

Adeyl Khan, Faculty, BBA, NSU 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 Agora & Pran Foods

Adeyl Khan, Faculty, BBA, NSU Creating an Effective Supply Chain  Develop strategic objectives and tactics  Integrate and coordinate activities in the internal supply chain  Coordinate activities with suppliers with customers  Coordinate planning and execution across the supply chain  Form strategic partnerships 16-24

Adeyl Khan, Faculty, BBA, NSU Supply Chain Performance Drivers  Quality  Cost  Flexibility  Velocity  Customer service 16-25

Adeyl Khan, Faculty, BBA, NSU 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 16-26

Adeyl Khan, Faculty, BBA, NSU Challenges  Barriers to integration of organizations  Getting top management on board  Dealing with trade-offs  Small businesses  Variability and uncertainty  Long lead times 16-27

Adeyl Khan, Faculty, BBA, NSU Trade-offs  Bullwhip effect- Lot-size-inventory  Inventories are progressively larger moving backward through the supply chain  Cross-docking- Inventory-transportation costs  Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks  Avoids warehouse storage  Delayed differentiation- Product variety-inventory  Production of standard components and subassemblies, which are held until late in the process to add differentiating features  Disintermediation- Cost-customer service  Reducing one or more steps in a supply chain by cutting out one or more intermediaries 16-28

Adeyl Khan, Faculty, BBA, NSU 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

Adeyl Khan, Faculty, BBA, NSU Supply Chain Benefits and Drawbacks ProblemPotential Improvement BenefitsPossible Drawbacks Large inventories Smaller, more frequent deliveries Reduced holding costs Traffic congestion Increased costs Long lead times Delayed 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 16-30

Adeyl Khan, Faculty, BBA, NSU Purchasing Cycle  Requisition received  Supplier selected  Order is placed  Monitor orders  Receive orders Purchasing Legal Accounting Operations Dataprocess-ing Design Receiving Suppliers

Adeyl Khan, Faculty, BBA, NSU Value Analysis vs. Outsourcing  Value analysis  Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance 16-32

Adeyl Khan, Faculty, BBA, NSU Centralized vs Decentralized Purchasing  Centralized purchasing  Purchasing is handled by one special department  Decentralized purchasing  Individual departments or separate locations handle their own purchasing requirements 16-33

Adeyl Khan, Faculty, BBA, NSU Suppliers  Choosing suppliers  Evaluating sources of supply  Supplier audits  Supplier certification  Supplier relationships  Supplier partnerships 16-34

Adeyl Khan, Faculty, BBA, NSU Factors in Choosing a Supplier  Quality and quality assurance  Flexibility  Location  Price  Product or service changes  Reputation and financial stability  Lead times and on-time delivery  Other accounts 16-35

Adeyl Khan, Faculty, BBA, NSU Evaluating Sources of Supply  Vendor analysis - evaluating the sources of supply in terms of  Price  Quality  Services  Location  Inventory policy  Flexibility 16-36

Adeyl Khan, Faculty, BBA, NSU 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 16-37

Adeyl Khan, Faculty, BBA, NSU Supplier Partnerships  Ideas from suppliers could lead to improved competitiveness  Reduce cost of making the purchase  Reduce transportation costs  Reduce production costs  Improve product quality  Improve product design  Reduce time to market  Improve customer satisfaction  Reduce inventory costs  Introduce new products or services 16-38

Adeyl Khan, Faculty, BBA, NSU Critical Issues Purchasing function Increased outsourcing Increased conversion to lean production Just-in-time deliveries Globalization Strategic importance Cost Quality Agility Customer service Competitive advantage Technology management Benefits Risks

Adeyl Khan, Faculty, BBA, NSU Remember the group project 40

Adeyl Khan, Faculty, BBA, NSU Learning Objectives  Explain what a supply chain is.  Explain the need to manage a supply chain and the potential benefits of doing so.  Explain the increasing importance of outsourcing.  State the objective of supply chain management.  List the elements of supply chain management.  Identify the strategic, tactical, and operations issues in supply chain management.  Describe the bullwhip effect and the reasons why it occurs.

Adeyl Khan, Faculty, BBA, NSU Learning Objectives  Explain the value of strategic partnering.  Discuss the critical importance of information exchange across a supply chain.  Outline the key steps, and potential challenges, in creating an effective supply chain.  Explain the importance of the purchasing function in business organizations.  Describe the responsibilities of purchasing.  Explain the term value analysis.  Identify several guidelines for ethical behavior in purchasing.