1. 11 Supply Chain Management and Logistics McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 11-2 Agenda Supply Chain Management (SCM) Supply Chain Logistics

3. 11-3 Supply chain management: An integrated philosophy to manage the multidirectional flow of materials and information through an entire channel, from the first raw material supplier to the ultimate user of the finished product. Supply Chain Management

4. 11-4 Objectives of SCM Optimizing coordination in operations and requirements Optimizing coordination in operations and requirements Minimizing duplication and non-value- adding activities Minimizing duplication and non-value- adding activities Reducing costs while maintaining superior quality and customer service Reducing costs while maintaining superior quality and customer service Reducing inventory Reducing inventory Reducing cycle times Reducing cycle times

5. 11-5 New Key Terms in SCM Value Proposition: a clear concise set of factual statements describing the real value (benefits) customers can expect to receive from a firm’s products and services. A good value proposition quantitatively differentiates the firm’s offerings from those of competitors, (e.g., 40-50% material savings). Value Chain: an analysis process that disaggregates the channel system into each channel member’s activities and specifically considers how each activity creates value for the channel’s ultimate customers.

6. 11-6 New Key Terms in SCM Value Added: traditionally referred to how much margin a particular product could earn for a firm. High value added products were preferred over low value added products. Recently the phrase is also used to refer to how much value a channel member brings to a particular product’s supply chain.

7. 11-7 Supply Chain Logistics Traditionally the management of material flow inbound, through, and outbound from a particular firm. The sum of the channel members supply chain logistics are coordinated on a channel wide scale by Supply Chain Management.

8. 11-8 Logistics Management Logistics involves more than physical distribution. In the science of logistics, the flow of materials is efficiently managed inbound-through and outbound of an organization. Two primary product flows: Materials management (physical supply): Flows that provide raw materials, components, and supplies to the production process. Physical distribution management: Flows that deliver the completed product to customers and channel intermediaries.

9. 11-9 The Materials Management Concept Usually one manager responsible for planning, organizing, motivating, and controlling all the activities principally concerned with the flow of materials into an organization. Usually one manager responsible for planning, organizing, motivating, and controlling all the activities principally concerned with the flow of materials into an organization. View material flow as a system. View material flow as a system.

10. 11-10 The Materials Management Concept Approaches to Materials Management Approaches to Materials Management Traditional ApproachTraditional Approach Just-in-Time (JIT) ApproachJust-in-Time (JIT) Approach Integrated Supply StrategiesIntegrated Supply Strategies Reasons for Adopting the Materials Management Concept Reasons for Adopting the Materials Management Concept Improved communication and coordination between departmentsImproved communication and coordination between departments Can balance conflicting interests Can balance conflicting interests Faster, smoother material flow Faster, smoother material flow Lower inventory and logistics costs Lower inventory and logistics costs

11. 11-11 Just-In-Time Systems JIT = Just-In-Time JIT = Just-In-Time Adopted and implemented by many original equipment manufacturers (OEMs) and suppliers of component parts and materials. Adopted and implemented by many original equipment manufacturers (OEMs) and suppliers of component parts and materials. An operational philosophy thought to epitomize the relationship marketing model. An operational philosophy thought to epitomize the relationship marketing model. Uses a “pull” approach; much more than material arriving just in time. Uses a “pull” approach; much more than material arriving just in time.

12. 11-12 JIT Features Zero defects—Strict quality control Zero defects—Strict quality control Frequent, reliable delivery of quantities as needed Frequent, reliable delivery of quantities as needed Close location Close location Advanced telecommunications, EDI. Advanced telecommunications, EDI. Single sourcing—Customer-supplier partnerships/alliances Single sourcing—Customer-supplier partnerships/alliances Value analysis Value analysis Early supplier involvement Early supplier involvement Evergreen contracts Evergreen contracts Customer access to financial and process information Customer access to financial and process information

13. 11-13 JIT System Pre-1985 U.S. Mfg. Integrated JIT versus U.S. Manufacturing (pre-1985) What it isAn integratedThe way it has philosophy of always been done operating a business Raw material and A liability to be Protection against in-process inventoryeliminatedproblems, necessary to maximize machine utilization Order sizeImmediate needs Based on EOQ and only efficient long production runs.

14. 11-14 JIT System Pre-1985 U.S. Mfg. Production setup timeFast at insignificant Low-priority concern cost; flexible (Ex: same die change manufacturing =5 hours) (Ex: stamping die change =5 minutes) SuppliersPart of the team-Adversary-multiple single source source single source source DeliveryMust arrive within Arrives on due date small time window, plus or minus, go right to the line, packaged for packaged for warehouse storage assembly efficiency Integrated JIT vs. U.S. Manufacturing (pre-1985)

15. 11-15 JIT System Pre-1985 U.S. Mfg. PurchasingInvolve supplier in Design in secret, design; long-term competitive bidding; contracts at fixed contract for current pricesrequirement; recognize need for price increases Efficiency Workers see as Workers see as threat improvements strengthening company Production control andDemand “pull”—Forecast “push”— scheduling Kanban to minimize maximize machine in-process inventoryutilization Integrated JIT vs. U.S. Manufacturing (pre-1985)

16. 11-16 MRP Systems MRP = Materials Requirement Planning MRP = Materials Requirement Planning MRP systems: Large computer systems used to plan and schedule operations using a “push” approach. MRP systems: Large computer systems used to plan and schedule operations using a “push” approach. Starting from the order due dates and forecast, MRP considers every required raw material, operating supply, and component part, their order of use, and what equipment they will occupy. Starting from the order due dates and forecast, MRP considers every required raw material, operating supply, and component part, their order of use, and what equipment they will occupy. Backs into a schedule of what will have to be done when, including what will have to be ordered when and received when. Backs into a schedule of what will have to be done when, including what will have to be ordered when and received when.

17. 11-17 Physical Distribution (outbound material flow) Physical distribution: The process of planning, implementing, and controlling efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer's requirements. Why is it important to learn about physical distribution? Physical distribution cost can represent 20% or more of the selling price of a product. It is an integrated part of the entire company system—problems in other areas impact distribution and vice versa. From customer’s perspective, the supplier’s physical distribution function gets the right products to them, at the right place, at the right time. These are basic customer rights (along with right price and right condition).

18. 11-18 Supplier Manufacturer Customer Materials management Physical distribution management Logistics Management

19. 11-19 Supply chain management (a series of connected logistics flows) Logistics management Materials managementPhysical distribution Incoming transportationTraffic management ReceivingShipping PurchasingCustomer service Incoming warehousingFinished goods Inventory control

20. 11-20 Functions of Traffic Management Mode and carrier selection Routing Claims processing Operation of private (company-owned) transportation

21. 11-21 Many of the imported goods you purchase were shipped in 20-foot or 40-foot steel containers

22. 11-22 Large cranes loaded the containers on a ship. ) (Image courtesy of the Port of Charleston)

23. 11-23 Larger container ships can hold 4,000 to 6,000 containers. (Image courtesy of Maersk Sealand)

24. 11-24 After unloading from the ship, the containers can be loaded onto a flatbed rail car for additional intermodal shipping. (Image courtesy of CSX Corp.)

25. 11-25 Alternatively, a container can be attached to a set of wheels for motor transport (as an 18-wheeler trailer).

26. 11-26 Intermodal container motor carrier (Image courtesy of Maersk Sealand)

27. 11-27 Rail freight carrierBarge/river freight carrier (Image courtesy of CSX Corp.)

28. 11-28 PipelineAir freight carrier Container stack trainJumbo jet air freight

29. 11-29 Major Advantages by Transportation Mode Motor Speed of delivery Diversity of equipment Flexibility Frequency of movement Transfer of goods to other carriers Convenient to both shipper and receiver Rail Mass movement of goods Low unit cost of movement Dependability Long-haul moving Wide coverage to major markets and suppliers Many auxiliary services (i.e., switching) Transfer of goods to other carriers Specialized equipment Water Very low unit cost of movement Movement of low-unit-value commodities Long-haul movement Mass movement of bulk commodities (continued)

30. 11-30 Pipeline Lowest unit cost of movement Mass movement of liquid or gas products Long-haul moving Large capacity Most dependable mode Air Frequent service to major markets Large capability Overnight service Most rapid speed of any carrier Intermodal Cost savings Lower loss and damage claims due to containerization Service extended to more shippers and receivers Reduced handling and storage costs Major Advantages by Transportation Mode

31. 11-31 Controllable Elements in a Logistics System Customer service Logistics communications Warehousing Packaging Production planning Order processing Transportation Inventory control Materials Handling Plant and warehouse location

32. 11-32 Major Categories of Service Complaints Traffic and transportation Damaged merchandise Carrier did not meet standard transit time Merchandise delivered prior to date promised Carrier failed to follow customer routing Carrier did not comply with specific instructions Errors present on bill of lading Condition or type of transport equipment not satisfactory Warehousing and packaging Merchandise delivered late Problem with containers in packaging plants Special promotion merchandise not specified in delivery Errors in warehouse release forms Incorrect types and quantities of merchandise shipped Papers not mailed promptly to headquarters Field warehouse delivered damaged merchandise

33. 11-33 Inventory control Stockouts Contaminated products received Product identification errors Poor merchandise shipped Sales order service Delayed shipments Invoice, sales coding, or brokerage errors Special instructions ignored No notification of late shipments Major Categories of Service Complaints

34. 11-34 11-4