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16-1 Supply Chain Management
William J. Stevenson
Operations Management
8th edition
16-2 Supply Chain Management
16-3 Supply Chain Management
Supply 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
16-4 Supply Chain Management
Warehouses Factories Processing centers Distribution centers Retail outlets Offices
Facilities
16-5 Supply Chain Management
Functions and Activities
Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service
16-6 Supply Chain Management
Typical Supply Chains
Purchasing Receiving Storage Operations Storage
Production Distribution
16-7 Supply Chain Management Typical Supply Chain for a Manufacturer
Supplier
Supplier
Supplier
Storage} Mfg. Storage Dist. Retailer Customer
Figure 16.1a
16-8 Supply Chain Management
Supplier
Supplier
} Storage Service Customer
Typical Supply Chain for a ServiceFigure 16.1b
16-9 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 Management
16-10 Supply Chain Management
Bullwhip Effect
Tier 2Suppliers
Tier 1Suppliers
Producer Distributor Retailer FinalFinalCustomerCustomer
Amount ofAmount ofinventoryinventory=
Figure 16.3
16-11 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
16-12 Supply Chain Management
Benefits of Supply Chain Management
Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty
16-13 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 16.1
16-14 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
Logistics
16-15 Supply Chain Management
Logistics• Movement within the facility
• Incoming and outgoing shipments
• Bar coding
• EDI
• Distribution
• JIT Deliveries
0
214800 232087768
16-16 Supply Chain Management
Materials MovementFigure 16.4R
EC
EIV
ING
Storage
Workcenter
Work centerWork center
Storage
Workcenter
Storage
Shipping
16-17 Supply Chain Management
Distribution requirements planning (DRP) is a system for inventory management and distribution planning
Extends the concepts of MRPII
Distribution Requirements Planning
16-18 Supply Chain Management
Management uses DRP to plan and coordinate: Transportation Warehousing Workers Equipment Financial flows
Uses of DRP
16-19 Supply Chain Management
Electronic Data Interchange
EDI – the direct transmission of interorganizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos.
16-20 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 Interchange
16-21 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 Response
16-22 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-Commerce
16-23 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-Commerce
16-24 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-Commerce
16-25 Supply Chain Management
Successful 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
16-26 Supply Chain Management
SCOR 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 16.4
16-27 Supply Chain Management
CPFR
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
16-28 Supply Chain Management
CPFR 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
16-29 Supply Chain Management
CPFR 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
16-30 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 Chain
16-31 Supply Chain Management
Supply Chain Performance Drivers
1. Quality
2. Cost
3. Flexibility
4. Velocity
5. Customer service
16-32 Supply Chain Management
Velocity
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
16-33 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
Challenges
16-34 Supply Chain Management
1. Lot-size-inventory Bullwhip effect
2. Inventory-transportation costs Cross-docking
3. Lead time-transportation costs
4. Product variety-inventory Delayed differentiation
5. Cost-customer service Disintermediation
Trade-offs
16-35 Supply Chain Management
Trade-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
16-36 Supply Chain Management
Trade-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
16-37 Supply Chain Management
Supply Chain Issues
Quality controlProduction planning and control
Inventory policiesPurchasing policiesProduction policiesTransportation policiesQuality policies
Design of the supply chain, partnering
Operating IssuesTactical IssuesStrategic Issues
16-38 Supply Chain ManagementSupply 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 16.5
16-39 Supply Chain Management
Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.
Purchasing
16-40 Supply Chain Management
Develop and implement purchasing plans for products and services that support operations strategies
Goal of Purchasing
16-41 Supply Chain Management
Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies
Duties of Purchasing
16-42 Supply Chain Management
Purchasing Interfaces
Purchasing
Legal
AccountingOperations
Dataprocessing
Design
ReceivingSuppliers
Figure 16.5
16-43 Supply Chain Management
Purchasing 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
16-44 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. Outsourcing
16-45 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 Purchasing
16-46 Supply Chain Management
Choosing suppliers
Evaluating sources of supply
Supplier audits
Supplier certification
Supplier relationships
Supplier partnerships
Suppliers
16-47 Supply Chain Management
Quality and quality assurance Flexibility Location Price
Factors in Choosing a Supplier
16-48 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)
16-49 Supply Chain Management
Evaluating Sources of Supply
Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service
16-50 Supply Chain Management
Vendor analysis - evaluating the sources of supply in terms of Price Quality Services Location Inventory policy Flexibility
Evaluating Sources of Supply
16-51 Supply Chain Management
Supplier 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 16.9
16-52 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 Partnerships
16-53 Supply Chain Management
Critical Issues
Strategic importance Cost Quality Agility Customer service Competitive advantage
Technology management Benefits Risks
16-54 Supply Chain Management
Critical Issues
Purchasing function Increased outsourcing Increased conversion to lean production Just-in-time deliveries Globalization
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