1. © 2011 Pearson Education, Inc. publishing as Prentice Hall Figure 11.1

2. Supply chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system Competition is no longer between companies; it is between supply chains

3. 1.Transportation vendors 2.Suppliers 3.Distributors 4.Contracts 5.Accounts payable and receivable 6.Warehousing and inventory 7.Order fulfillment 8.Sharing customer, forecasting, and production information Important activities include determining

4. Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle Customer Retailer Distributor Manufacturer Supplier

5. Procurement, Manufacturing and Replenishment cycles Customer Order Cycle Customer Order Arrives PUSH PROCESSESPULL PROCESSES

6. Operational Functions  Forecasting demand  Selecting suppliers  Ordering materials  Inventory control  Scheduling production  Shipping & delivery  Information management  Quality management  Customer service Strategic Functions  Chain structure design  Strategic partnerships  Make-or-buy decisions

7.  Wrong forecasts  Late deliveries  Poor quality  Machine breakdowns  Canceled orders  Erroneous information

8. Consumer Sales at Retailer 0 100 200 300 400 500 600 700 800 900 1000 13579 11131517192123252729313335373941 Consumer demand Retailer's Orders to Wholesaler 0 100 200 300 400 500 600 700 800 900 1000 13579 11131517192123252729313335373941 Retailer Order Wholesaler's Orders to Manufacturer 0 100 200 300 400 500 600 700 800 900 1000 13579 11131517192123252729313335373941 Wholesaler Order Manufacturer's Orders with Supplier 0 100 200 300 400 500 600 700 800 900 1000 147 1013161922252831343740 Manufacturer Order

10.  Carry Just-in-Case inventory (often referred to as safety stock) ◦ Expensive!  Rework the supply chain so that sources of risk/uncertainty are reduced ◦ A couple of examples of how this has been done:  Until two years ago, Dell did not include the replenishment cycle in its supply chain structure and all of its computers were BTO.  Companies use RFID tags to keep track of inventory throughout the supply chains  Companies use Every-Day-Low-Pricing strategies to reduce the bullwhip effect

11.  Opportunities for effectively managing the supply chain by reducing sources of uncertainty (reading assignment 3): ◦ Point of sales systems ◦ Single stage control of replenishment: Radio Frequency Identification Tags ◦ Lot size reduction ◦ Postponement ◦ Drop shipping ◦ Blanket orders ◦ Vendor-managed inventory ◦ Standardization

12. Low High Price Responsiveness Customer Need Implied Demand Uncertainty Functional Products: Detergent, Gas Innovative Products: High Fashion, AppleWatch

13.  Responsiveness: the ability to ◦ Respond to wide ranges of quantities demanded ◦ Meet short lead times ◦ Handle a large variety of products ◦ Build highly innovative products ◦ Meet a very high service level  Efficiency: ◦ Minimize the cost of making and delivering a product to the customer

14. Efficient ChainResponsive Chain Primary GoalLow CostQuick Response Pricing StrategyLower MarginsHigher Margins Manufacturing Strategy High UtilizationMaintain Capacity Flexibility Inventory StrategyMinimize InventoryMaintain Safety Inventory Lead Time StrategyReduce if possibleAggressively Reduce Supplier StrategySelect based on Cost and Quality Select based on Speed, Flexibility and Quality Transportation StrategyLow Cost ModesResponsive Modes

15.  Negotiate with many suppliers; play one supplier against another  Develop long-term “partnering” arrangements with a few suppliers who will work with you to satisfy the end customer  Vertically integrate; buy the actual supplier

16.  Company ◦ Financial stability ◦ Management ◦ Location  Product ◦ Quality ◦ Price  Service ◦ Delivery on time ◦ Condition on arrival ◦ Technical support ◦ Training

17. Tactic  1. Reduce total number of suppliers  Certify suppliers  Ask for JIT delivery from key suppliers  Involve key suppliers in new product design  Develop software linkages to suppliersResults  Average 20% reduction in 5 years  Almost 40% of all companies surveyed were themselves currently certified  About 60% ask for this; about 54% do this  Almost 80% claim to do this  About 50% claim this; about 15% more than have EDI links to suppliers

18. © 2011 Pearson Education, Inc. publishing as Prentice Hall Table 11.6 Typical Firms Benchmark Firms Lead time (weeks)158 Time spent placing an order42 minutes15 minutes Percentage of late deliveries33%2% Percentage of rejected material1.5%.0001% Number of shortages per year4004

19.  Assets committed to inventory Percent invested in inventory = x 100 Total inventory investment Total assets Investment in inventory = $11.4 billion Total assets = $44.4 billion Percent invested in inventory = (11.4/44.4) x 100 = 25.7%

20. © 2011 Pearson Education, Inc. publishing as Prentice Hall Table 11.7 Inventory as a % of Total Assets (with exceptional performance) Manufacturing15% (Toyota 5%) Wholesale34% (Coca-Cola 2.9%) Restaurants2.9% (McDonald’s.05%) Retail27% (Home Depot 25.7%)