1. McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 11 Supply Chain Management

2. 11-2 Learning Objectives  Explain what a supply chain is and need to manage.  Explain the increasing importance of outsourcing.  Identify the strategic, tactical, and operations issues in supply chain management.  Describe the bullwhip effect and the reasons why it occurs.  Discuss the critical importance of information exchange across a supply chain.  Describe the responsibilities of purchasing.

3. 11-3 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

4. 11-4  Warehouses  Factories  Processing centers  Distribution centers  Retail outlets  Offices Facilities

5. 11-5 Functions and Activities  Forecasting  Purchasing  Inventory management  Information management  Quality assurance  Scheduling  Production and delivery  Customer service

6. 11-6 Typical Supply Chains Typical Supply Chains Purchasing ReceivingStorageOperationsStorage ProductionDistribution

7. 11-7 Typical Supply Chain for a Manufacturer Typical Supply Chain for a Manufacturer Supplier Storage } Mfg.StorageDist.RetailerCustomer Figure 11.1a

8. 11-8 Supplier } StorageService Customer Typical Supply Chain for a Service Typical Supply Chain for a Service Figure 11.1b

9. 11-9 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 Need for Supply Chain Management

10. 11-10 Bullwhip Effect Figure 16.3 Final Customer Initial Supplier Demand Inventory oscillations become progressively larger looking backward through the supply chain

11. 11-11 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

12. 11-12 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

13. 11-13 Global Supply Chains  Increasing more complex  Language  Culture  Currency fluctuations  Political  Transportation costs  Local capabilities  Finance and economics  Environmental

14. 11-14 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 Table 11.1

15. 11-15  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

16. 11-16  Distribution requirements planning (DRP) is a system for inventory management and distribution planning  Extends the concepts of MRPII Distribution Requirements Planning

17. 11-17  Management uses DRP to plan and coordinate:  Transportation  Warehousing  Workers  Equipment  Financial flows Uses of DRP

18. 11-18  E-Business: the use of electronic technology to facilitate business transactions  Applications include  Internet buying and selling  E-mail  Order and shipment tracking  Electronic data interchange E-Business

19. 11-19  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

20. 11-20  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

21. 11-21 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

22. 11-22 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

23. 11-23 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

24. 11-24 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

25. 11-25 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

26. 11-26 CPFR Process Step 1 – Front-end agreement Step 2 – Joint business plan Steps 3-5 – Sales forecast Steps 6-8 – Order forecast collaboration Step 9 – Order generation/delivery execution

27. 11-27 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

28. 11-28 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

29. 11-29 Supply Chain Performance Drivers 1.Quality 2.Cost 3.Flexibility 4.Velocity 5.Customer service

30. 11-30 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

31. 11-31  Barriers to integration of organizations  Getting top management on board  Dealing with trade-offs  Small businesses  Variability and uncertainty  Long lead times Challenges

32. 11-32 1.Lot-size-inventory  Bullwhip effect 2.Inventory-transportation costs  Cross-docking 3.Lead time-transportation costs 4.Product variety-inventory  Delayed differentiation 5.Cost-customer service  Disintermediation Trade-offs

33. 11-33 Trade-offs  Bullwhip effect  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 onto outbound trucks  Avoids warehouse storage

34. 11-34 Trade-offs  Delayed differentiation  Production of standard components and subassemblies, which are held until late in the process to add differentiating features  Disintermediation  Reducing one or more steps in a supply chain by cutting out one or more intermediaries

35. 11-35 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

36. 11-36  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

37. 11-37  Develop and implement purchasing plans for products and services that support operations strategies Goal of Purchasing

38. 11-38  Identifying sources of supply  Negotiating contracts  Maintaining a database of suppliers  Obtaining goods and services  Managing supplies Duties of Purchasing

39. 11-39 Purchasing Interfaces Purchasing Legal Accounting Operations Data processing Design Receiving Suppliers Figure 11.5

40. 11-40 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

41. 11-41  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

42. 11-42  Choosing suppliers  Evaluating sources of supply  Supplier audits  Supplier certification  Supplier relationships  Supplier partnerships Suppliers

43. 11-43  Quality and quality assurance  Flexibility  Location  Price Factors in Choosing a Supplier

44. 11-44  Product or service changes  Reputation and financial stability  Lead times and on-time delivery  Other accounts Factors in Choosing a Supplier (cont’d)

45. 11-45 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 Table 11.9