1. 1 Chapter 8 Supply Chain Management

2. Chapter 8:Supply Chain Management2 Example: Procter & Gamble 4 Developed its continuous replenishment program (CRP) to provide customers with quicker and more accurate stock replenishment 4 Elimination of nonvalue-adding costs 4 Reduced cycle times

3. Chapter 8:Supply Chain Management3 Benefits of P&G’s CRP Program 4 Reduced inventories in customer warehouses from 19 to 6 days. 4 Increased inventory turnover from 19 to 60. 4 Reduced administrative costs by eliminating paperwork. 4 Increased service levels from 96.4 percent to 99.2 percent.

4. Chapter 8:Supply Chain Management4 How CRP Works 4 Orders originating from retail stores are transmitted via EDI and collected at customer distribution centers (CDC). 4 Orders received at CDC are compared to on-hand inventory levels and sent on to customer’s headquarters where optimum order quantities are established. 4 Orders sent to both CDC and PG headquarters.

5. Chapter 8:Supply Chain Management5 How CRP Works continued 4 P&G headquarters forwards orders to appropriate manufacturing plants. 4 Once produced, product shipped to CDC and then on to retail store.

6. Chapter 8:Supply Chain Management6 Dell Computer 4 Direct Model 4 Use of Information Technology –provides suppliers with access to Dell’s inventories 4 Minimum Inventory Levels

7. Chapter 8:Supply Chain Management7 Supply Chain Management Crusade 4 Focus is on entire value chain 4 Includes –lean production –JIT –TQM –purchasing –product/service design

8. Chapter 8:Supply Chain Management8 Defining Supply Chain Management 4 Coordination and integration of all supply chain activities into seamless process. 4 Enables organizations to plan and collaborate across supply chain. 4 Goal is to deliver right product to right place at right time in order to maximize profit.

9. Chapter 8:Supply Chain Management9 Strategic Advantages of Supply Chain 4 Supply chain management includes the supply, storage, and movement of materials, information, personnel, equipment, and finished goods within the organization and between its environment. 4 Goal of supply chain management is to integrate the entire process of satisfying the customer’s needs all along the supply chain.

10. Chapter 8:Supply Chain Management10 Strategic Advantages of Supply Chain Management continued 4 Supply chain costs often represent 50% or more of total operating costs 4 Firms that have implemented supply chain management –Have 45% supply chain cost advantage –50% lower inventory –17% faster delivery of final product –Larger market shares and higher customer loyalty

11. 11 The Supply Chain

12. Chapter 8:Supply Chain Management12 Outsourcing 4 Outsourcing often major element of SCM –Example: textile industry 4 Contract Manufactures

13. Chapter 8:Supply Chain Management13 Purchasing 4 Activities to reliably obtain materials by the time they are needed in the product supply process. 4 Important considerations include price, quality, lead times, and reliability. 4 Manufacturing organizations spend an average of 55 percent of revenue for outside materials and services. 4 These same organizations spend only 6 percent on labor and 3 percent on overhead.

14. Chapter 8:Supply Chain Management14 JIT and Purchasing Widespread use of JIT has increased importance of purchasing and procurement since delays in the receipt of materials will stop a JIT program dead in its tracks.

15. Chapter 8:Supply Chain Management15 Potential for Lowering Cost and Increasing Profits Total sales = $10,000,000 Purchased materials = 7,000,000 Labor and salaries = 2,000,000 Overhead = 500,000 Profit = 500,000 Operations Costs Breakdown:

16. Chapter 8:Supply Chain Management16 To Double Profits... 4 Increase sales by 100 percent 4 Increase selling price by 5 percent 4 Decrease labor and salaries by 25 percent 4 Decrease overhead by 100 percent 4 Decrease purchase cost by 7.1 percent

17. Chapter 8:Supply Chain Management17 Purchasing Versus Procurement 4 Purchasing implies a monetary transaction. 4 Procurement is simply the responsibility for acquiring the goods and services the organization needs.

18. Chapter 8:Supply Chain Management18 Differences Between Purchasing by Individuals and Organizations 4 Organizations purchase larger volumes and dollar amounts. 4 Organization may be larger than its suppliers. 4 Very few suppliers exist for certain organizational goods, whereas many typically exist for consumer goods. 4 Certain discounts may be available to organizations.

19. 19 Selecting a Supplier

20. Chapter 8:Supply Chain Management20 Characteristics of Good Suppliers 4 Deliveries made on time and are of quality and in the quantity specified. 4 Fair prices. 4 Able to respond to unforeseen changes. 4 Continually improves products and services.

21. Chapter 8:Supply Chain Management21 Four Major Areas in Evaluating Sources of Supply 4 Technical and Engineering Capability 4 Manufacturing Strengths 4 Financial Strengths 4 Management Capability

22. Chapter 8:Supply Chain Management22 Cost-Price Analysis 4 Objective is to reduce total cost. 4 Price is only one component of total cost. 4 Many organizations have found the best way to lower total cost is to work with and help key suppliers lower their costs. 4 Costs should come down in accordance with the learning curve. 4 A low price is meaningless if quality is insufficient or delivered late disrupting schedules.

23. Chapter 8:Supply Chain Management23 Key Elements of Effective Purchasing 4 They leverage their buying power. 4 They commit to a small number of dependable suppliers. 4 They work with and help their suppliers reduce total cost.

24. 24 Logistics

25. Chapter 8:Supply Chain Management25 Logistics 4 Planning and controlling efficient, effective flows of goods, services, and information from one point to another.

26. Chapter 8:Supply Chain Management26 The Bullwhip Effect 4 Each segment further down the whip goes faster than the one above it. 4 Same effect often observed in supply chains.

27. Chapter 8:Supply Chain Management27 Trade-offs Between Transportation and Location 4 Processing Natural Resources –Large loss in size or weight during processing –High economies of scale exist –Raw material is perishable 4 Immobile Outputs

28. Chapter 8:Supply Chain Management28 The Problem of Location with a Single Source and Multiple Recipients

29. 29 The Multifacility Problem

30. Chapter 8:Supply Chain Management30 The Multifacility Distribution Situation 4 Multiple facilitates 4 Multiple stages 4 Unspecified sites 4 Unknown quantities 4 Multiple outputs

31. Chapter 8:Supply Chain Management31 Distribution Requirements Planning (DRP)

32. 32 Transportation

33. Chapter 8:Supply Chain Management33 Modes of Transportation and Routing 4 Water 4 Rail 4 Truck 4 Air Which one is the cheapest?

34. Chapter 8:Supply Chain Management34 Factors to Consider in Transportation Decisions 4 Cost per unit shipped 4 Ability to fill the transporting vehicle 4 Total shipment cost 4 Safety of contents 4 Shipping time 4 Availability of insurance 4 Perishability 4 Difficulty of arranging shipment 4 Delivery accommodations 4 Seasonal considerations 4 Consolidation possibilities 4 Size of product

35. Chapter 8:Supply Chain Management35 Production 4 Lean production 4 Channel assembly

36. 36 The Role of Information Technology in Supply Chain Management

37. Chapter 8:Supply Chain Management37 E-Commerce 4 Traditional means of communication was paper 4 Electronic commerce is a term used to describe a variety of approaches for conducting business in a paperless environment –Electronic Data Interchange (EDI) –Bar Coding and Scanning –Databases –Email –Electronic funds transfer –Internet –Point of sale terminals –ERP systems

38. Chapter 8:Supply Chain Management38 Categorizing B2B Online Marketplaces

39. Chapter 8:Supply Chain Management39 The Beer Game Board and Initial Conditions

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