Chapter 1 SUPPLY CHAIN MANAGEMENT: An Overview

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. After reading this chapter, you should be able to do the following: Learning Objectives ● Evaluate the external change drivers in the global economy and their impact on global supply chains. ● Discuss the development of supply chain management in leading organizations and understand its contributions to their financial viability. ● Appreciate the significance and role of supply chain management among private as well as public or nonprofit organizations. ● Understand the contributions of supply chain management to organizational efficiency and effectiveness for competing successfully in the global marketplace. 2

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Explain the benefits that can be achieved from implementing supply chain practices. ● Understand the major challenges and issues facing organizations developing and implementing supply chain strategies. 3 Learning Objectives, continued

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The APICS-Standard Planning Framework

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Intro to Supply Chain ● Materials Any commodities used directly or indirectly in producing a product or service. ○ Raw material (ROH), semi-finished product (HALB), finished product (FERT), and Trading material (HAWA). ● Supply chain Flow of materials through various organizations from the raw material supplier to the finished goods consumer.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Supply Chain Management ● Definition All management functions related to the flow of materials from the company’s direct suppliers to its direct customers. ● Functions included: purchasing, traffic, production control, inventory control, warehousing, and shipping. ● Two alternative names: Materials management Logistics management

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Supply Chains Definition Supply Chain – A supply chain is the network of organizations, people, technology, activities, information and resources involved in the production of a product or a service – Includes suppliers, manufacturers, transporters, warehouses, retailers and customers Production System – A manufacturing subsystem that includes all functions required to design, produce, distribute, and service a manufactured product. A Supply Chain consists of one or many production systems that work together in the fulfillment of a customer order Best viewed as a network

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Supply Chain for Steel in an Automobile Door MININGCOMPANY Mines iron ore STEELMILL Forms steel ingot STEELCOMPANY Forms sheet metal IronoreSteelingots AUTOMOTIVESUPPLIER Makes door AUTOMOBILEMANUFACTURER Makes automobile CARDEALERSHIP Does preparation Cardoor Car Car FINALCONSUMER Drives automobile Prepared Preparedcar Sheetmetal

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Supply Chain Management in a Manufacturing Plant ReceivingandInspectionRawMaterials, Parts, and In-processWare-HousingProductionFinishedGoodsWare-housingInspection,Packaging,AndShipping Suppliers Customers Materials Management PurchasingProductionControl Warehousing and Inventory Control Shipping and Traffic Physical materials flow Information flow

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Logistics ● Logistics usually refers to management of: movement of materials within the factory (Internal) shipment of incoming materials from suppliers (Inbound) shipment of outgoing products to customers (Outbound)

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Movement of Materials within Factories IncomingVehiclesIncomingVehiclesReceivingDockReceivingDockQualityControlQualityControlWarehouseWarehouse WorkCenterWorkCenter Other Work Centers CentersPackagingPackagingFinishedGoodsFinishedGoods ShippingShippingShippingDockShippingDockOutgoingVehiclesOutgoingVehicles The typical locations from/to which material is moved: The typical locations from/to which material is moved:

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Material flow (shipping) Decisions ● “Transportation Problem” Problem involves shipping a product from several sources (ex. factories) with limited supply to several destinations (ex. warehouses) with demand to be satisfied Per-unit cost of shipping from each source to each destination is specified Optimal solution minimizes total shipping cost and specifies the quantity of product to be shipped from each source to each destination

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Warehousing ● Definition Warehousing is the management of materials while they are in storage. Viewed as distribution center (DC) ● Conventional warehousing activities: Ordering Storing Dispersing Accounting

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Warehousing ● Record keeping within warehousing requires a stock record for each item that is carried in inventories. ● The individual item is called a stock- keeping unit (SKU). ● Stock records are running accounts that show: On-hand balance Receipts and expected receipts Disbursements, promises, and allocations

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Forces Driving the Rate of Change Major external forces that change today’s enterprise operations and raise the importance of SCM: 1. Globalization 2. Enabling technology 3. Focus on core business and competence 4. Partnership and consolidation (vertical & horizontal integration) and power shift (to SCM) 5. The empowered consumer 6. Government policy and regulation 15

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Short supply chain history Started in the 1960s with the development of the physical distribution concept Initial focus on physical distribution and outbound logistics It took off in the 1980s, the logistics or integrated logistics management concept developed in a growing number of organizations The underlying logic of the systems or total cost concept was developed as the rationale for logistics management Supply chain management can be viewed as a pipeline or conduit (or value chain) for the efficient and effective flow of products/materials, services, information, and financials The Supply Chain Concept

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 1-1 A View of Logistics Management

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 1-2 Integrated Logistics Management 18 Source: Center for Supply Chain Research, Penn State University.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 1-3 Generic Value Chain Source: Michael Porfun, Competitive Advantage (New York: The Free Press, 1985): 37

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 1-4 Integrated Supply Chain Source: Center for Supply Chain Research, Penn State University

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 1-5 Throughput time comparison Source: “Efficient Consumer Response: Enhancing Consumer Value in the Grocery Industry” by Kurt Salmon Associates, Inc. (Jan. 1993)

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 1-6 Total Supply Chain Management Cost Source: Supply Chain Council

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Supply Chain Networks The network facilities and supporting transportation is important Increased complexity for organizations is a problem Inventory Deployments ○ Inventory duplication ○ Bullwhip effect Collection and storage of vast amounts of data Cost/Value ○ Efficiency (cost) and effectiveness (value) prevention of suboptimization Organizational Relationships ○ Tradeoffs and optimization Performance Measurement ○ Why and how Major Supply Chain Issues

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Major Supply Chain Issues, continued ● Supply Chain Networks (continued) Technology ○ Challenge is to evaluate and successfully implement the technology Transportation Management ○ Right product, right time, right quantity, right quality, right cost, right destination Supply Chain Security ○ Concern and potential challenge since 9/11

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Cash flow has become one of the most important measures of financial viability in today’s global markets. Supply chains are an important determinant of improved cash flow since they impact order cycle time to customers. ● Supply chains are an important determinant of capital consumption since they impact working capital, inventory levels, and other assets such as warehouses. ● Efficient and effective supply chains can free up valuable resources and improve customer fulfillment systems so as to increase return on investment or assets and improve shareholder value. Summary

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● The accelerated rate of change in our economy has accelerated the necessity of continuing changes in organizations or even transformation to remain competitive. ● The rate of change has been driven by a set of external forces including but not limited to globalization, technology, organizational consolidation and shifts in power in supply chains, an empowered consumer, and government policy and regulations. ● The conceptual basis of the supply chain is not new. In fact, organizations have evolved from physical distribution management to logistics management to supply chain management. 26 Summary, continued

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Supply chains are boundary spanning and require managing three flows—products, information, financials (cash), and demand. ● Supply chain management is a journey, not a goal, and there are no “silver bullets” since all supply chains are unique. ● Information is power, and collaborative relationships internally and externally are a necessary ingredient for success. ● The performance of supply chains must be measured in terms of overall corporate goals for success. ● Supply chains need to focus on the customers at the end of the supply chain and be flexible and responsive. 27 Summary, continued

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Technology is important to facilitate change, but it must follow a process and educate people to address problems and issues appropriately. ● Transportation management and security have become increasingly important in the twenty-first century because of changes that have occurred. 28 Summary, continued