0. Supply Chain Management

1. Learning Objectives Be Able To Apply Concepts Listed In Learning Goals
Be Able To Use Formulas Listed In Equation Summary of Chapter 1

2. Introduction
Materials Are Any Commodities Used Directly or Indirectly in Producing a Product or Service.
Raw Materials, Component Parts, Assemblies, & Supplies
A Supply Chain Is the Way Materials Flow Through Different Organizations From Raw Material Supplier to Finished Goods Consumer. 2

3. Supply Chain Management
Supply Chain Management Includes All Management Functions Related to Flow of Materials From Company’s Direct Suppliers to Its Direct Customers.
Includes Purchasing, Traffic, Production Control, Inventory Control, Warehousing, & Shipping.
Materials Management & Logistics Management Includes All Decisions About Purchasing Materials and Services, Inventories, Production Levels, Staffing Patterns, Schedules, and Distribution. 3

4. 4

5. Inventory at Different Stocking Points
Supplier Manufacturing plant Distribution center Retailer
Figure 8.1
Raw
materials
Work in
process
Finished
goods 5

6. Supply Chain Management in a Manufacturing Plant
Receiving
and
Inspection
Raw
Materials,
Parts, and
In-process
Ware-
Housing
Production
Finished
Goods
housing
Inspection,
Packaging,
And
Shipping
Suppliers
Customers
Materials Management
Purchasing
Control
Warehousing and
Inventory Control
and Traffic
Physical materials flow
Information flow 6

7. Four Important Activities in SCM
Purchasing
Logistics
Warehousing
Expediting 7

8. Purchasing Factors Increasing Importance of Purchasing Today:
Tremendous Impact of Material Costs on Profit % of Sales Dollar Paid to Material Suppliers
Popularity of JIT Manufacturing -- Supply Deliveries Must Be Exact in Timing, Quantity, & Quality
Increasing Global Competition -- More Competition for Scarce Resources, & Geographically Stretched-out Supply Chain 8

9. Mission of Purchasing
Develop Purchasing Plans for Each Major Product or Service Consistent With Operations Strategies:
Low Production Costs
Fast and On-Time Deliveries
High Quality Products & Services
Flexibility 9

10. Purchasing Management
Maintain Database of Available, Qualified Suppliers
Select Suppliers to Supply Each Material
Negotiate Contracts With Suppliers
Act As Interface Between Company & Suppliers
Provide Training to Suppliers on Latest Technologies 10

11. Managing the Customer Interface
Order Placement Process—Involves Activities Required to Register Need for Product or Service & to Confirm Acceptance of Order
Order Fulfillment Process—Involves Activities Required to Deliver Product or Service to Customer
Inventory Pooling
Forward Placement
Vendor-Managed Inventories
Continuous Replenishment 11

12. Managing the Supplier Interface
E-Purchasing
EDI—Enables Transmission of Routine Business Documents with Standard Format over Telephone or Direct Lines
I-ERP—Allowing Portal to ERP System Between Customer and Supplier
Supplier Selection & Certification
Selection—Price, Quality, Deliver, Green
Certification—Verification Supplier Can Deliver Goods Customer Requires
Supplier Relations
Outsourcing 12

13. Advantages of Centralized Purchasing
Buy in Large Quantities --> Better Prices
More Clout With Suppliers --> Greater Supply Continuity
Larger Purchasing Department --> Buyer Specialization
Combine Small Orders --> Less Order Cost Duplication
Combine Shipments --> Lower Transportation Costs
Better Overall Control 13

14. Request for Quotations Receive & Inspect Goods
Purchasing Process
Material Requisition
Request for Quotations
Select Best Supplier
Purchase Order
Receive & Inspect Goods
From Purchasing,
To Potential Suppliers
From Any Department,
To Purchasing
Based on Quality, Price,
Lead Time, Dependability
To Selected Supplier
From Supplier, to Receiving,
Quality Control, Warehouse 14

15. Make-or-Buy Analysis Considerations in Make-or-Buy Decisions:
Lower Cost - Purchasing or Production?
Better Quality - Supplier or In-House?
More Reliable Deliveries - Supplier or In-House?
What Degree of Vertical Integration Is Desirable?
Should Distinctive Competencies Be Outsourced? 15

16. JIT Purchasing Key Elements of JIT Purchasing Are:
Cooperative, Not Adversarial Relationships
Longer-Term Relationships, Fewer Suppliers
Delivery & Quality Enters Into Selecting a Supplier
JIT in Supplier’s Operation
Suppliers Nearby
Shipments Delivered Directly to Production Line
Deliveries in Small, Standard-Size, Returnable Containers
Minimum of Paperwork 16

17. Logistics Logistics Usually Refers to Management of:
Movement of Materials Within Factory
Shipment of Incoming Materials From Suppliers
Shipment of Outgoing Products to Customers 17

18. Movement of Materials within Factories
Incoming
Vehicles
Receiving
Dock
Quality
Control
Warehouse
Work
Center
Other Work
Centers
Packaging
Finished
Goods
Shipping
Outgoing
Typical Locations From/To Which Material Is Moved: 18

19. Shipments To and From Factories
Traffic Departments Routinely Examine Shipping Schedules & Select:
Shipping Methods
Time Tables
Ways of Expediting Deliveries
Traffic Management Is Specialized Field Requiring Technical Training in DOT and ICC Regulations & Rates. 19

20. Shipments To and From Factories
Distribution, or Physical Distribution, Is Shipment of Finished Goods Through Distribution System to Customers.
A Distribution System Is Network of Shipping & Receiving Points Starting With Factory & Ending With Customers. 20

21. Shipments To and From Factories
Distribution Requirements Planning
DRP Is Planning for Replenishment of Regional Warehouse Inventories.
DRP Uses MRP-type Logic to Translate Regional Warehouse Requirements Into Central Distribution-Center Requirements, Which Are Then Translated Into Gross Requirements in MPS at Factory. 21

22. Shipments To and From Factories
Distribution Requirements Planning
Scheduled Receipts Are Previously-placed Orders That Are Expected to Arrive in a Given Week
Planned Receipt of Shipments Are Orders Planned, but Not Yet Placed, for the Future
Projected Ending Inventory Is Computed As:
Previous Week’s Projected Ending Inventory
+ Planned Receipt of Shipments in Current Week
+ Scheduled Receipt of Shipments in Current Week
-- Forecasted Demand in Current Week 22

23. Shipments To and From Factories
DRP Time-Phased Order Point Record
Forecasted demand (units)
Scheduled receipts
Projected ending inventory
Planned receipt of shipments
Planned orders for shipments
Region. Warehouse #1 LT = 1
Std. Quantity = SS = 10 60 -1 80 50 30 40 1 2 3 20 10 5 4
Week 23

24. Shipments To and From Factories
Distribution Resource Planning
Distribution Resource Planning Extends DRP So That Key Resources of Warehouse Space, Workers, Cash, & Vehicles Are Provided in Correct Quantities at Correct Times. 24

25. Innovations in Logistics
New Developments Affecting Logistics Include:
All-Freight Airports
Inter-Modal Shipping
In-Transit Rates
Consolidated Shipments
Air-Freight & Trucking Deregulation
Advanced Logistics Software 25

26. Warehousing
Warehousing Is Management of Materials While They Are in Storage.
Warehousing Activities Include:
Storing
Dispersing
Ordering
Accounting
Periodic Inventory
Perpetual Inventory 26

27. Warehousing
Record Keeping Within Warehousing Requires 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 & Expected Receipts
Disbursements, Promises, & Allocations 27

28. Inventory Accounting In Past, Inventory Accounting Based On:
Periodic Inventory Accounting Systems -- Periodic (End-of-Day) Updating of Inventory Records
Physical Inventory Counts -- Periodic (End-of-Year) Physical Counting of All SKUs at One Time
Today, More and More Firms Are Using:
Perpetual Inventory Accounting Systems -- Real-Time Updating of Records As Transactions Occur
Cycle Counting -- Ongoing (Daily or Weekly) Physical Counting of Different SKUs 28

29. Measuring the Performance Materials Managers
Level and Value of In-House Inventories
Percentage of Orders Delivered on Time
Number of Stockouts
Annual Cost of Materials
Annual Cost of Transportation
Annual Cost of Warehouse
Number of Customer Complaints
Other Factors 29

30. Inventory Measures 30