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14-1 Supply Chain Management
Supply Chain Management
G. Krishna Ranga Rao
14-2 Supply Chain Management
Supply Chain ManagementSupply Chain Management
• Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.
Sometimes referred to as Sometimes referred to as value chainsvalue chains
14-3 Supply Chain Management
• Warehouses• Factories• Processing centers• Distribution centers• Retail outlets• Offices
FacilitiesFacilities
14-4 Supply Chain Management
Functions and ActivitiesFunctions and Activities
• Forecasting• Purchasing• Inventory management• Information management• Quality assurance• Scheduling• Production and delivery• Customer service
14-5 Supply Chain Management
Typical Supply ChainsTypical Supply Chains
Purchasing Receiving Storage Operations Storage
Production Distribution
14-6 Supply Chain Management
Typical Supply Chain for a ManufacturerTypical Supply Chain for a Manufacturer
Supplier
Supplier
Supplier
Storage} Mfg. Storage Dist. Retailer Customer
Figure 14.1a
14-7 Supply Chain Management
Supplier
Supplier
} Storage Service Customer
Typical Supply Chain for a ServiceTypical Supply Chain for a ServiceFigure 14.1b
14-8 Supply Chain Management
1. Improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-commerce
7. Complexity of supply chains
8. Manage inventories
Need for Supply Chain ManagementNeed for Supply Chain Management
14-9 Supply Chain Management
Bullwhip EffectBullwhip Effect
Tier 2Suppliers
Tier 1Suppliers
ProducerDistributorRetailer FinalFinalCustomerCustomer
Amount ofAmount ofinventoryinventory=
Figure 14.3
14-10 Supply Chain Management
Benefits of Supply Chain ManagementBenefits of Supply Chain Management
Organization Benefit
Campbell Soup Doubled inventory turnover rate
Hewlett-Packard Cut supply costs 75%
Sport Obermeyer Doubled profits and increased sales 60%
National Bicycle Increased market share from 5% to 29%
Wal-Mart Largest and most profitable retailer in the world
14-11 Supply Chain Management
Benefits of Supply Chain ManagementBenefits of Supply Chain Management
• Lower inventories• Higher productivity• Greater agility• Shorter lead times• Higher profits• Greater customer loyalty
14-12 Supply Chain Management
Elements of Supply Chain ManagementElements of Supply Chain Management
Deciding how to best move and store materialsLogistics
Determining location of facilitiesLocation
Monitoring supplier quality, delivery, and relationsSuppliers
Evaluating suppliers and supporting operationsPurchasing
Meeting demand while managing inventory costsInventory
Controlling quality, scheduling workProcessing
Incorporating customer wants, mfg., and timeDesign
Predicting quantity and timing of demandForecasting
Determining what customers wantCustomers
Typical IssuesElement
Table 14.1
14-13 Supply Chain Management
• Logistics• Refers to the movement of materials and
information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain
LogisticsLogistics
14-14 Supply Chain Management
LogisticsLogistics
• Movement within the facility
• Incoming and outgoing shipments
• Bar coding
• EDI
• Distribution
• JIT Deliveries
0
214800 232087768
14-15 Supply Chain Management
Materials MovementMaterials MovementFigure 14.4
RE
CE
IVIN
G
Storage
Workcenter
Work centerWork center
Storage
Workcenter
Storage
Shipping
14-16 Supply Chain Management
• Distribution requirements planning (DRP) is a system for inventory management and distribution planning
• Extends the concepts of MRPII
Distribution Requirements PlanningDistribution Requirements Planning
14-17 Supply Chain Management
• Management uses DRP to plan and coordinate: • Transportation• Warehousing• Workers• Equipment• Financial flows
Uses of DRPUses of DRP
14-18 Supply Chain Management
Electronic Data InterchangeElectronic Data Interchange
• EDI – the direct transmission of interorganizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos.
14-19 Supply Chain Management
• Increased productivity• Reduction of paperwork• Lead time and inventory reduction• Facilitation of just-in-time systems• Electronic transfer of funds• Improved control of operations• Reduction in clerical labor• Increased accuracy
Electronic Data InterchangeElectronic Data Interchange
14-20 Supply Chain Management
• Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry• Reflects companies’ efforts to achieve quick
response using EDI and bar codes
Efficient Consumer ResponseEfficient Consumer Response
14-21 Supply Chain Management
• E-Commerce: the use of electronic technology to facilitate business transactions
• Applications include• Internet buying and selling• E-mail• Order and shipment tracking• Electronic data interchange
E-CommerceE-Commerce
14-22 Supply Chain Management
• Companies can:• Have a global presence• Improve competitiveness and quality• Analyze customer interests• Collect detailed information• Shorten supply chain response times• Realize substantial cost savings• Create virtual companies• Level the playing field for small companies
Advantages E-CommerceAdvantages E-Commerce
14-23 Supply Chain Management
• Customer expectations
• Order quickly -> fast delivery
• Order fulfillment
• Order rate often exceeds ability to fulfill it
• Inventory holding
• Outsourcing loss of control
• Internal holding costs
Disadvantages of E-CommerceDisadvantages of E-Commerce
14-24 Supply Chain Management
Successful Supply ChainSuccessful Supply Chain
• Trust among trading partners
• Effective communications
• Supply chain visibility
• Event-management capability
• The ability to detect and respond to unplanned events
• Performance metrics
14-25 Supply Chain Management
SCOR MetricsSCOR Metrics
Perspective Metrics
Reliability On-time deliveryOrder fulfillment lead timeFill rate (fraction of demand met from stock)Perfect order fulfillment
Flexibility Supply chain response timeUpside production flexibility
Expenses Supply chain management costsWarranty cost as a percent of revenueValue added per employee
Assets/utilization Total inventory days of supplyCash-to-cash cycle timeNet asset turns
Table 14.4
14-26 Supply Chain Management
CPFRCPFR
• Collaborative Planning, Forecasting, and Replenishment
• Focuses on information sharing among trading partners
• Forecasts can be frozen and then converted into a shipping plan
• Eliminates typical order processing
14-27 Supply Chain Management
CPFR ProcessCPFR Process
Step 1 – Front-end agreement
Step 2 – Joint business plan
Steps 3-5 – Sales forecast
Steps 6-8 – Order forecast collaboration
Step 9 – Order generation/delivery execution
14-28 Supply Chain Management
CPFR ResultsCPFR Results
• Nabisco and Wegmans
• 50% increase in category sales
• Wal-mart and Sara Lee
• 14% reduction in store-level inventory
• 32% increase in sales
• Kimberly-Clark and Kmart
• Increased category sales that exceeded market growth
14-29 Supply Chain Management
1. Develop strategic objectives and tactics
2. Integrate and coordinate activities in the internal supply chain
3. Coordinate activities with suppliers with customers
4. Coordinate planning and execution across the supply chain
5. Form strategic partnerships
Creating an Effective Supply ChainCreating an Effective Supply Chain
14-30 Supply Chain Management
Supply Chain Performance DriversSupply Chain Performance Drivers
1. Quality
2. Cost
3. Flexibility
4. Velocity
5. Customer service
14-31 Supply Chain Management
VelocityVelocity
• Inventory velocity
• The rate at which inventory(material) goes through the supply chain
• Information velocity
• The rate at which information is communicated in a supply chain
14-32 Supply Chain Management
• Barriers to integration of organizations
• Getting top management on board
• Dealing with trade-offs
• Small businesses
• Variability and uncertainty
• Long lead times
ChallengesChallenges
14-33 Supply Chain Management
1. Lot-size-inventory• Bullwhip effect
1. Inventory-transportation costs• Cross-docking
1. Lead time-transportation costs
2. Product variety-inventory• Delayed differentiation
1. Cost-customer service• Disintermediation
Trade-offsTrade-offs
14-34 Supply Chain Management
Trade-offsTrade-offs
• Bullwhip effect
• Inventories are progressively larger moving backward through the supply chain
• Cross-docking
• Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks
• Avoids warehouse storage
14-35 Supply Chain Management
Trade-offsTrade-offs
• Delayed differentiation
• Production of standard components and subassemblies, which are held until late in the process to add differentiating features
• Disintermediation
• Reducing one or more steps in a supply chain by cutting out one or more intermediaries
14-36 Supply Chain Management
Supply Chain IssuesSupply Chain Issues
Quality controlProduction planning and control
Inventory policiesPurchasing policiesProduction policiesTransportation policiesQuality policies
Design of the supply chain, partnering
Operating IssuesTactical IssuesStrategic Issues
14-37 Supply Chain Management
Supply Chain Benefits and DrawbacksSupply Chain Benefits and Drawbacks
Problem PotentialImprovement
Benefits PossibleDrawbacks
Large inventories
Smaller, more frequent deliveries
Reduced holding costs
Traffic congestionIncreased costs
Long lead times Delayed differentiationDisintermediation
Quick response May not be feasibleMay need absorb functions
Large number of parts
Modular Fewer partsSimpler ordering
Less variety
CostQuality
Outsourcing Reduced cost, higher quality
Loss of control
Variability Shorter lead times, better forecasts
Able to match supply and demand
Less variety
Table 14.5
14-38 Supply Chain Management
• Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.
PurchasingPurchasing
14-39 Supply Chain Management
• Develop and implement purchasing plans for products and services that support operations strategies
Goal of PurchasingGoal of Purchasing
14-40 Supply Chain Management
• Identifying sources of supply
• Negotiating contracts
• Maintaining a database of suppliers
• Obtaining goods and services
• Managing supplies
Duties of PurchasingDuties of Purchasing
14-41 Supply Chain Management
Purchasing InterfacesPurchasing Interfaces
Purchasing
Legal
AccountingOperations
Dataprocessing
Design
ReceivingSuppliers
Figure 14.5
14-42 Supply Chain Management
Purchasing CyclePurchasing Cycle
1. Requisition received
2. Supplier selected
3. Order is placed
4. Monitor orders
5. Receive orders
PurchasingPurchasing
LegalLegal
AccountingAccountingOperationsOperations
DataDataprocess-process-inging
DesignDesign
ReceivingReceiving
SuppliersSuppliers
14-43 Supply Chain Management
• Value analysis• Examination of the function of purchased
parts and materials in an effort to reduce cost and/or improve performance
Value Analysis vs. OutsourcingValue Analysis vs. Outsourcing
14-44 Supply Chain Management
• Centralized purchasing
• Purchasing is handled by one special department
• Decentralized purchasing
• Individual departments or separate locations handle their own purchasing requirements
Centralized vs Decentralized PurchasingCentralized vs Decentralized Purchasing
14-45 Supply Chain Management
• Choosing suppliers
• Evaluating sources of supply
• Supplier audits
• Supplier certification
• Supplier relationships
• Supplier partnerships
SuppliersSuppliers
14-46 Supply Chain Management
• Quality and quality assurance• Flexibility• Location• Price
Factors in Choosing a SupplierFactors in Choosing a Supplier
14-47 Supply Chain Management
• Product or service changes• Reputation and financial stability• Lead times and on-time delivery• Other accounts
Factors in Choosing a Supplier (cont’d)Factors in Choosing a Supplier (cont’d)
14-48 Supply Chain Management
Evaluating Sources of SupplyEvaluating Sources of Supply
• Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service
14-49 Supply Chain Management
• Vendor analysis - evaluating the sources of supply in terms of• Price• Quality• Services• Location• Inventory policy• Flexibility
Evaluating Sources of SupplyEvaluating Sources of Supply
14-50 Supply Chain Management
Supplier as a PartnerSupplier as a Partner
Aspect Adversary PartnerNumber of suppliers Many One or a few
Length of relationship May be brief Long-term
Low price Major consideration Moderately important
Reliability May not be high High
Openness Low High
Quality May be unreliable; buyer inspects
At the source; vendor certified
Volume of business May be low High
Flexibility Relatively low Relatively high
Location Widely dispersed Nearness is important
Table 14.9
14-51 Supply Chain Management
• Ideas from suppliers could lead to improved competitiveness
1. Reduce cost of making the purchase2. Reduce transportation costs3. Reduce production costs4. Improve product quality5. Improve product design6. Reduce time to market7. Improve customer satisfaction8. Reduce inventory costs9. Introduce new products or services
Supplier PartnershipsSupplier Partnerships
14-52 Supply Chain Management
Critical IssuesCritical Issues
• Strategic importance• Cost• Quality• Agility• Customer service• Competitive advantage
• Technology management• Benefits• Risks
14-53 Supply Chain Management
Critical IssuesCritical Issues
• Purchasing function• Increased outsourcing• Increased conversion to lean production• Just-in-time deliveries• Globalization
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