1. McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved SECTION 8.1 SUPPLY CHAIN FUNDAMENTALS

2. 8-2 BASICS OF SUPPLY CHAIN The supply chain has three main links: 1.Materials flow from suppliers and their “upstream” suppliers at all levels 2.Transformation of materials into semifinished and finished products through the organization’s own production process 3.Distribution of products to customers and their “downstream” customers at all levels

3. 8-3 BASICS OF SUPPLY CHAIN Organizations must embrace technologies that can effectively manage supply chains

4. 8-4 BASICS OF SUPPLY CHAIN

5. 8-5 Metrics Supply Chain Management is heavily reliant on measurements and mathematical formulas. You’ll learn several techniques in the QBA class.

6. 8-6 Background Most of the ideas came from Japan. A key figures was Edward Deming Statistical Quality control Continuous Improvement Fourteen Points Deming Prize

7. 8-7 Toyota Production System Just in Time Inventory Kan Ban systems Jidoka – Self regulating machines 5 Whys 6 sigmas quality.

8. 8-8 INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAIN IT’s primary role is to create integrations or tight process and information linkages between functions within a firm

9. 8-9 INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAIN Factors Driving SCM

10. 8-10 Visibility Supply chain visibility – the ability to view all areas up and down the supply chain Bullwhip effect – occurs when distorted product demand information passes from one entity to the next throughout the supply chain. We saw this in the Beer supply chain exercise.

11. 8-11 Consumer Behavior Companies can respond faster and more effectively to consumer demands through supply chain enhancements Demand planning software – generates demand forecasts using statistical tools and forecasting techniques

12. 8-12 Competition Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain Supply chain execution (SCE) software – automates the different steps and stages of the supply chain

13. 8-13 Speed

14. 8-14 SUPPLY CHAIN MANAGEMENT SUCCESS FACTORS

15. 8-15 SUPPLY CHAIN MANAGEMENT SUCCESS FACTORS SCM industry best practices include: 1.Make the sale to suppliers 2.Wean employees off traditional business practices 3.Ensure the SCM system supports the organizational goals 4.Deploy in incremental phases and measure and communicate success 5.Be future oriented

16. 8-16 SCM SUCCESS STORIES Numerous decision support systems (DSSs) are being built to assist decision makers in the design and operation of integrated supply chains DSSs allow managers to examine performance and relationships over the supply chain and among: –Suppliers –Manufacturers –Distributors –Other factors that optimize supply chain performance

17. McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved SECTION 8.2 APPLYING A SUPPLY CHAIN DESIGN

18. 8-18 USING IT TO DRIVE THE SUPPLY CHAIN The four primary drivers of supply chain management 1.Facilities 2.Inventory 3.Transportation 4.Information Organizations use these four drivers to support either a supply chain strategy focusing on efficiency or a supply chain strategy focusing on effectiveness

19. 8-19 Mike’s Paper Route Increase Efficiency = Lower Cost Increase Effectiveness = Many features Devise a strategy for Mike’s paper route. 5 - 8 1-2

20. 8-20 FACILITIES DRIVER Facility – processes or transforms inventory into another product, or it stores the inventory before shipping it to the next facility Three primary facilities components 1.Location 2.Capacity 3.Operational design

21. 8-21 FACILITIES DRIVER

22. 8-22 INVENTORY DRIVER Inventory – offsets discrepancies between supply and demand Inventory management and control software – provides control and visibility to the status of individual items maintained in inventory Two primary inventory components 1.Cycle inventory 2.Safety inventory

23. 8-23 INVENTORY 1: Cycle Inventory Cycle inventory – the average amount of inventory held to satisfy customer demands between inventory deliveries –Cycle inventory efficiency – holding small amounts of inventory and receiving orders weekly or even daily –Cycle inventory effectiveness – holding large amounts of inventory and receiving inventory deliveries only once a month

24. 8-24 INVENTORY 2: Safety Inventory Safety inventory – extra inventory held in the event demand exceeds supply –Safety inventory efficiency – holding small amounts of safety inventory –Safety inventory effectiveness – holding large amounts of safety inventory

25. 8-25 TRANSPORTATION DRIVER Transportation – moves inventories between the different stages in the supply chain Two primary inventory components 1.Method of transportation 2.Transportation route

26. 8-26 TRANSPORTATION 1: Method of Transportation Global inventory management system – provides the ability to locate, track, and predict the movement of every component or material anywhere upstream or downstream in the supply chain –Method of transportation efficiency –Method of transportation effectiveness

27. 8-27 TRANSPORTATION 2: Transportation Route Transportation planning software – tracks and analyzes the movement of materials and products to ensure the delivery of materials and finished goods at the right time, the right place, and the lowest cost Distribution management software – coordinates the process of transporting materials from a manufacturer to distribution centers to the final customer –Transportation route efficiency –Transportation route effectiveness

28. 8-28 INFORMATION DRIVER Information – an organization must decide how and what information it wants to share with its supply chain partners Two primary information components 1.Information sharing 2.Push verses pull strategy

29. 8-29 INFORMATION 1: Information Sharing Information sharing efficiency – freely share lots of information to increase the speed and decrease the costs of supply chain processing Information sharing effectiveness – share only selected information with certain individuals, which will decrease the speed and increase the costs of supply chain processing

30. 8-30 INFORMATION 2: Push vs. Pull Information Strategy Pull information strategy (efficiency) – supply chain partners are responsible for pulling all relevant information –Pull technology – pulls information Push information strategy effectiveness – organization takes on the responsibility to push information out to its supply chain partners –Push technology – sends information

31. 8-31 APPLYING A SUPPLY CHAIN DESIGN

32. 8-32 FUTURE SUPPLY CHAIN TRENDS Fastest growing SCM components –Supply chain event management (SCEM) –Selling chain management –Collaborative engineering –Collaborative demand planning