Supply Chain ManagementSupply Chain Management

Operations Management - 5th EditionOperations Management - 5th Edition

Chapter 10Chapter 10

Roberta Russell & Bernard W. Taylor, IIIRoberta Russell & Bernard W. Taylor, III

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What is a Supply Chain?What is a Supply Chain?

All facilities, functions, activities, All facilities, functions, activities, associated with flow and transformation associated with flow and transformation of goods and services from raw materials of goods and services from raw materials to customer, as well as the associated to customer, as well as the associated information flowsinformation flows

An integrated group of processes to An integrated group of processes to “source,” “make,” and “deliver” products“source,” “make,” and “deliver” products

All parties involved, directly or indirectly, All parties involved, directly or indirectly, in the fulfillment of a customer requestin the fulfillment of a customer request

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““Supply Networks”Supply Networks”

Most supply chains have multiple Most supply chains have multiple supplierssuppliers A better term would be Supply NetworksA better term would be Supply Networks

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Supply Chain IllustrationSupply Chain Illustration

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Supply Supply Chain Chain for for Denim Denim JeansJeans

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Supply Supply Chain Chain

for for Denim Denim

Jeans Jeans (cont.)(cont.)

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Supply Chain ProcessesSupply Chain Processes

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Supply Chain for Service Supply Chain for Service ProvidersProviders

More difficult than manufacturingMore difficult than manufacturing Does not necessarily focus on the flow of Does not necessarily focus on the flow of

physical goodsphysical goods Focuses on human resources and Focuses on human resources and

support servicessupport services More compact and less extendedMore compact and less extended

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Supply Chain Management (SCM)

Managing flow of information through supply chain in order to attain the level of synchronization that will make it more responsive to customer needs while lowering costs

Keys to effective SCM information communication cooperation trust

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Objectives of SCMObjectives of SCM

Maximize valueMaximize value Increase firm’s profitabilityIncrease firm’s profitability Increase revenueIncrease revenue

Responsiveness, flexibilityResponsiveness, flexibility Reduce costsReduce costs

For making product, transportation, receiving For making product, transportation, receiving orders, and customer serviceorders, and customer service

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Value vs. Supply ChainValue vs. Supply Chain

Value chain every step from raw materials to the eventual end

user ultimate goal is delivery of maximum value to the

end user Supply chain

activities that get raw materials and subassemblies into manufacturing operation

Terms are often used interchangeably

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SCM Decision PhasesSCM Decision Phases

Supply chain strategy or designSupply chain strategy or design Supply chain planningSupply chain planning Supply chain operationsSupply chain operations

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Strategy and DesignStrategy and Design

How should the SC be structured over How should the SC be structured over several years?several years?

What should be the locations and What should be the locations and capacities of production and capacities of production and warehousing?warehousing?

How should we take into account How should we take into account uncertainty in future market conditions?uncertainty in future market conditions?

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How is Strategic Fit Achieved?How is Strategic Fit Achieved?

Step 1: Understanding the customer and Step 1: Understanding the customer and demand uncertaintydemand uncertainty

Step 2: Understanding the supply chainStep 2: Understanding the supply chain Step 3: Implementing policies to match Step 3: Implementing policies to match

strategic business model with the supply strategic business model with the supply chainchain

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Step 1: Understanding Customer Step 1: Understanding Customer and Demand Uncertaintyand Demand Uncertainty

Identify the needs of the customer segment(s) Identify the needs of the customer segment(s) being servedbeing served

Demand uncertainty: how much product is Demand uncertainty: how much product is demanded by each customer segment?demanded by each customer segment?

SC uncertainty: what can go wrong within the SC uncertainty: what can go wrong within the SC?SC? Late deliveries, inflated orders, long variable lead Late deliveries, inflated orders, long variable lead

times, incomplete shipments, bad quality shipmentstimes, incomplete shipments, bad quality shipments One “solution” to this problem is to hold extra One “solution” to this problem is to hold extra

inventory.inventory. Is this a good idea?Is this a good idea?

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Bullwhip EffectBullwhip Effect

Occurs when slight demand variability is magnified as information moves back upstream

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Step 2: Understanding the SCStep 2: Understanding the SC

There is a cost to achieving There is a cost to achieving responsivenessresponsiveness

High Low

Low

High

Responsiveness

Cost

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Step 3: Achieving Strategic FitStep 3: Achieving Strategic Fit

Ensure SC is consistent with target customers’ Ensure SC is consistent with target customers’ needsneeds

Implied uncertainty spectrum

Responsive supply chain

Efficient supply chain Certain

demandUncertain demand

Responsiveness spectrum

Zone of

Strateg

ic

Fit

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Supply Chain PlanningSupply Chain Planning

Intermediate range planning (quarter to a Intermediate range planning (quarter to a year)year)

Similar to aggregate planning (Chap 13)Similar to aggregate planning (Chap 13) Start with forecast, consider options for Start with forecast, consider options for

supply, timing of marketing promotionssupply, timing of marketing promotions

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Supply Chain OperationsSupply Chain Operations

Daily to weekly planningDaily to weekly planning Goal is handle incoming order in best Goal is handle incoming order in best

possible mannerpossible manner Allocate inventory or production to Allocate inventory or production to

particular orders, decide shipment mode, particular orders, decide shipment mode, set delivery schedule, place set delivery schedule, place replenishment ordersreplenishment orders

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Supply Chain IntegrationSupply Chain Integration

Getting the various supply chain Getting the various supply chain members to collaborate and work members to collaborate and work togethertogether

IT has been an integral partIT has been an integral part

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Process View of a SCProcess View of a SC

Two main viewsTwo main views Cycle ViewCycle View

Clearly defines processes involved and the Clearly defines processes involved and the owners of each processowners of each process

Push/Pull ViewPush/Pull View

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Cycle ViewCycle View

Customer Order CycleCustomer Order Cycle

CustomerCustomer

RetailerRetailer

DistributorDistributor

ManufacturerManufacturer

SupplierSupplier

Replenishment CycleReplenishment Cycle

Manufacturing CycleManufacturing Cycle

Procurement CycleProcurement Cycle

Customer ArrivalCustomer Arrival

Customer Order EntryCustomer Order Entry

Cust Order FulfillmentCust Order Fulfillment

Cust Order ReceivingCust Order Receiving Retail Order TriggerRetail Order Trigger

Retail Order EntryRetail Order Entry

Retail Order FulfillmentRetail Order Fulfillment

Retail Order ReceivingRetail Order Receiving Order Arrival from Order Arrival from

warehouse/distributorwarehouse/distributor

Production SchedulingProduction Scheduling

Manufacturing & ShippingManufacturing & Shipping

Receiving at Receiving at warehouse/distributorwarehouse/distributor Order from manufacturerOrder from manufacturer

Production or raw Production or raw materialsmaterials

ShippingShipping

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Push/Pull ViewPush/Pull View

Categorizes processes based on Categorizes processes based on whether:whether: They are initiated in response to a customer They are initiated in response to a customer

order (PULL)order (PULL) They are initiated in anticipation of a They are initiated in anticipation of a

customer order (PUSH) customer order (PUSH)

Examples?Examples?

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Macro ProcessesMacro Processes

All SCM processes can be classified into 3 All SCM processes can be classified into 3 macro processesmacro processes Customer Relationship Management (CRM) – Customer Relationship Management (CRM) –

Customer/FirmCustomer/Firm Market, sell, call center, order managementMarket, sell, call center, order management

Internal Supply Chain Management (ISCM) – Firm Internal Supply Chain Management (ISCM) – Firm Strategic planning, demand planning, supply planning, Strategic planning, demand planning, supply planning,

fulfillment, field servicefulfillment, field service Supplier Relationship Management (SRM) – Supplier Relationship Management (SRM) –

Firm/SupplierFirm/Supplier Sourcing, negotiation, buy, design collaboration, supply Sourcing, negotiation, buy, design collaboration, supply

collaborationcollaboration

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Suppliers and OutsourcingSuppliers and Outsourcing

Sourcing selection of suppliers

Outsourcing purchase of goods and services from an

outside supplier Core competencies

what a company does best Single sourcing

a company purchases goods and services from only a few (or one) suppliers

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DistributionDistribution

Encompasses all channels, processes, and Encompasses all channels, processes, and functions, including warehousing and functions, including warehousing and transportation, that a product passes on its transportation, that a product passes on its way to final customerway to final customer

Often called logisticsOften called logistics LogisticsLogistics

transportation and distribution of goods transportation and distribution of goods and servicesand services

Driving force today is speedDriving force today is speed Particularly important for Internet dot-comsParticularly important for Internet dot-coms

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Amazon.com

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Distribution Centers (DCs)Distribution Centers (DCs)

DCs are some of the largest business DCs are some of the largest business facilities in the United Statesfacilities in the United States

Trend is for more frequent orders in Trend is for more frequent orders in smaller quantitiessmaller quantities

Flow-through facilities and automated Flow-through facilities and automated material handlingmaterial handling

PostponementPostponement final assembly and product configuration final assembly and product configuration

may be done at the DCmay be done at the DC

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TransportationTransportation

Rail low-value, high-density, bulk

products, raw materials, intermodal containers

not as economical for small loads, slower, less flexible than trucking

Trucking main mode of freight

transport in U.S. small loads, point-to-point

service, flexible More reliable, less damage

than rails; more expensive than rails for long distance

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Transportation (cont.)Transportation (cont.)

Air most expensive and fastest, mode of

freight transport lightweight, small packages <500 lbs high-value, perishable and critical

goods less theft

Package Delivery small packages fast and reliable increased with e-Business primary shipping mode for Internet

companies

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Transportation (cont.)Transportation (cont.)

Water low-cost shipping mode primary means of international shipping U.S. waterways slowest shipping mode

Intermodal combines several modes of shipping-

truck, water and rail key component is containers

Pipeline transport oil and products in liquid form high capital cost, economical use long life and low operating cost

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SCM SoftwareSCM Software

Enterprise Resource Planning (ERP) software that integrates components of a

company by sharing and organizing information and data

SAP was first ERP software mySAP.com

web enabled modules that allow collaboration between companies along the supply chain

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Recent Trends in SCMRecent Trends in SCM

RFIDRFID GlobalizationGlobalization Supply chain securitySupply chain security Network optimizationNetwork optimization Transportation issuesTransportation issues

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RFID CapabilitiesRFID Capabilities

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RFID Capabilities (cont.)RFID Capabilities (cont.)

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RFID in (RFID in (Future?Future?) Wal-Mart) Wal-Mart

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Global Supply ChainGlobal Supply Chain

To compete globally requires an To compete globally requires an effective supply chaineffective supply chain

Information technology is an Information technology is an “enabler” of global trade“enabler” of global trade

Nations form trading groupsNations form trading groups No tariffs or dutiesNo tariffs or duties

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Obstacles to Global Chain Obstacles to Global Chain TransactionsTransactions

Increased documentation for invoices, cargo insurance, letters of credit, ocean bills of lading or air waybills, and inspections

Ever changing regulations that vary from country to country that govern the import and export of goods

Trade groups, tariffs, duties, and landing costs Limited shipping modes Differences in communication technology and

availability

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Obstacles to Global Chain Obstacles to Global Chain Transactions (cont.)Transactions (cont.)

Different business practices as well as language barriers

Government codes and reporting requirements that vary from country to country

Numerous players, including forwarding agents, custom house brokers, financial institutions, insurance providers, multiple transportation carriers, and government agencies

Since 9/11, numerous security regulations and requirements

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Effects of 9/11 on Global ChainsEffects of 9/11 on Global Chains

Increase security measuresIncrease security measures added time to supply chain schedulesadded time to supply chain schedules Increased supply chain costsIncreased supply chain costs

24 hours rules for “risk screening”24 hours rules for “risk screening” extended documentationextended documentation extend time by 3-4 daysextend time by 3-4 days

Inventory levels have increased 5%Inventory levels have increased 5% Other costs Other costs include:

new people, technologies, equipment, surveillance, communication, and security systems, and training necessary for screening at airports and seaports around the world