Supply ChainSupply Chain ManagementManagement

Supply ChainSupply Chain

TThe sequence of organizations - their he sequence of organizations - their facilities, functions, and activities - that are facilities, functions, and activities - that are involved in producing and delivering a involved in producing and delivering a product or service.product or service.Supply chain connects suppliers, Supply chain connects suppliers, producers and final customers together in producers and final customers together in a tework that is essential to the creation a tework that is essential to the creation and delivery of goods and services.and delivery of goods and services.

(Value chains are the chain of (Value chains are the chain of activities and activities and functions WITHIN a functions WITHIN a single organization.)single organization.)

Benefits of Supply Chain Benefits of Supply Chain ManagementManagement

Lower Lower inventoriesinventories Higher Higher productivityproductivity Greater Greater agilityagility Shorter Shorter lead timeslead times Higher Higher profitsprofits Greater customer Greater customer loyaltyloyalty

Supply Chain Management Supply Chain Management (SCM)(SCM)

The strategic coordination of the The strategic coordination of the supply chain for the purpose of supply chain for the purpose of intergating supply and demand intergating supply and demand management.management.

LogisticsLogistics

The part of a supply chain involved The part of a supply chain involved with the forward and reverse flow of with the forward and reverse flow of goods, services, cash and goods, services, cash and information.information. Movement within the facility Incoming and outgoing shipments Distribution

FacilitiesFacilities

WarehousesWarehouses FactoriesFactories Processing centersProcessing centers Distribution centersDistribution centers Retail outletsRetail outlets OfficesOffices ……

Functions and ActivitiesFunctions and Activities

ForecastingForecasting PurchasingPurchasing Inventory managementInventory management Information managementInformation management Quality assuranceQuality assurance SchedulingScheduling Production and deliveryProduction and delivery Customer serviceCustomer service

Key issues of SCMKey issues of SCM

Determinate the appropriate level of Determinate the appropriate level of outsourcingoutsourcing

Managing Managing procurementprocurement Managing Managing supplierssuppliers Managing Managing customercustomer relationships relationships Being able to quickly identify and Being able to quickly identify and

respond to problemsrespond to problems Managing Managing risksrisks and uncertaintyand uncertainty

Typical Supply ChainsTypical Supply Chains

Purchasing Receiving Storage Operations Storage

Production Distribution

Typical Supply Chain for a Typical Supply Chain for a ManufacturerManufacturer

Supplier

Supplier

Supplier

Storage} Mfg. Storage Dist. Retailer Customer

A farm-to-market supply A farm-to-market supply chainchain

1.1. Farm (wheat)Farm (wheat) Suppliers: equipment, repair, feed, Suppliers: equipment, repair, feed,

seed, fertilizer, pesticides, energy/fuelseed, fertilizer, pesticides, energy/fuel

2.2. Mill (flour)Mill (flour) equipment, repair, energyequipment, repair, energy

3.3. Bakery (bread)Bakery (bread) equipment, repair, energy, other equipment, repair, energy, other

ingredientsingredients

4.4. Supermarket (bread sold to the final Supermarket (bread sold to the final customer)customer)

Transport

Supplier

Supplier

} Storage Service Customer

Typical Supply Chain for Typical Supply Chain for a Servicea Service

Supply chain and Cash Supply chain and Cash flowflow

Reverse logistics

Customers

Logistics

Suppliers

Production

Goods and servicesCash flow

Consumers

Marketing

Design

Elements of Supply Chain Elements of Supply Chain ManagementManagement

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

Global supply chainsGlobal supply chains

Product designProduct design Products sold globallyProducts sold globally Outsourcing to low labor cost Outsourcing to low labor cost

countriescountries

Difficulties: language, culture, Difficulties: language, culture, currency fluctuations, increased currency fluctuations, increased tratnsportation costs and lead time, tratnsportation costs and lead time, increased need for trustincreased need for trust

PROCUREMENTPROCUREMENT PurchasingPurchasing is responsible for obtaining the materials, is responsible for obtaining the materials,

parts, and supplies and services needed to produce a parts, and supplies and services needed to produce a product or provide a service.product or provide a service. GoalGoal: to d: to develop and implement purchasing plans for evelop and implement purchasing plans for products and services that support operations strategiesproducts and services that support operations strategies. .

DutiesDuties:: Identifying sources of supplyIdentifying sources of supply Negotiating contractsNegotiating contracts Maintaining a database of suppliersMaintaining a database of suppliers Obtaining goods and servicesObtaining goods and services Managing suppliesManaging supplies

Purchasing cycle: series of steps that begin with a Purchasing cycle: series of steps that begin with a request for purchase and end with notification of request for purchase and end with notification of shipment recieved in satisfactory condition.shipment recieved in satisfactory condition.

Purchasing CyclePurchasing Cycle

1.1. Requisition receivedRequisition received

2.2. Supplier selectedSupplier selected

3.3. Order is placedOrder is placed

4.4. Monitor ordersMonitor orders

5.5. Receive ordersReceive orders

PurchasingPurchasing

LegalLegal

AccountingAccountingOperationsOperations

DataDataprocess-process-inging

DesignDesign

ReceivingReceiving

SuppliersSuppliers

Centralized vs. Centralized vs. Decentralized purchasingDecentralized purchasing

Centralized purchasingCentralized purchasing Purchasing is handled by one special Purchasing is handled by one special

departmentdepartment Lower prices, better service and closer attention Lower prices, better service and closer attention

from suppliers, employing specialistsfrom suppliers, employing specialists

Decentralized purchasingDecentralized purchasing Individual departments or separate locations Individual departments or separate locations

handle their own purchasing requirementshandle their own purchasing requirements Aware to different local needs, quicker responseAware to different local needs, quicker response

1.1. Lot-sizeLot-size vs. vs. inventoryinventory Bullwhip effectBullwhip effect

2.2. Inventory Inventory vs. vs. transportation coststransportation costs (reducing (reducing average costs)average costs) Cross-dockingCross-docking

3.3. Lead time Lead time vs. vs. transportation coststransportation costs

4.4. Product variety Product variety vs. vs. inventoryinventory Delayed differentiationDelayed differentiation

5.5. Cost Cost vs. vs. customer servicecustomer service DisintermediationDisintermediation

Trade-offsTrade-offs

Trade-offsTrade-offs Bullwhip effectBullwhip effect

Demand variations begin at the customer Demand variations begin at the customer end of the chain and become increasingly end of the chain and become increasingly large as they radiate backwards through the large as they radiate backwards through the chain.chain.

Inventories are progressively larger moving Inventories are progressively larger moving backward through the supply chain.backward through the supply chain.

Bullwhip EffectBullwhip Effect 1 1((uncertaintyuncertainty))

Initial supplier

DemandFinal

customer

Backward effect

Bullwhip EffectBullwhip Effect 2 2

Tier 2Suppliers

Tier 1Suppliers

Producer Distributor Retailer FinalFinalCustomerCustomer

Amount ofAmount ofinventoryinventory=

Trade-offsTrade-offs

Cross-dockingCross-dockingGoods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded immediately onto outbound trucks. Avoids warehouse storage. Reduces holding costs and lead times.

Trade-offsTrade-offs Delayed differentiationDelayed differentiation

Production of standard components Production of standard components and subassemblies, which are held and subassemblies, which are held until late in the process to add until late in the process to add differentiating featuresdifferentiating features (expl. (expl. automobiles produced without extras)automobiles produced without extras)

DisintermediationDisintermediation Reducing one or more steps in a Reducing one or more steps in a

supply chain by cutting out one or supply chain by cutting out one or more intermediariesmore intermediaries..

Supply Chain Benefits Supply Chain Benefits and Drawbacksand Drawbacks

ProblemProblem PotentialPotentialImprovementImprovement

BenefitsBenefits PossiblePossibleDrawbacksDrawbacks

Large Large inventoriesinventories

Smaller, more Smaller, more frequent frequent deliveriesdeliveries

Reduced Reduced holding costsholding costs

Traffic Traffic congestioncongestionIncreased costsIncreased costs

Long lead Long lead timestimes

Delayed Delayed differentiationdifferentiationDisintermediationDisintermediation

Quick responseQuick response May not be May not be feasiblefeasibleMay need May need absorb absorb functionsfunctions

Large Large number of number of partsparts

Modular Modular Fewer partsFewer partsSimpler Simpler orderingordering

Less varietyLess variety in in final productsfinal products

CostCostQualityQuality

OutsourcingOutsourcing Reduced cost, Reduced cost, higher qualityhigher quality

Loss of controlLoss of control (even on (even on quality)quality)

VariabilityVariability Shorter lead Shorter lead times, better times, better forecastsforecasts

Able to match Able to match supply and supply and demanddemand

Less varietyLess variety

Successful Supply ChainSuccessful Supply Chain

TrustTrust among trading partners among trading partners

Effective Effective communicationscommunications

Supply chain Supply chain visibilityvisibility

Event-management capabilityEvent-management capability The ability to detect and respond to The ability to detect and respond to

unplanned eventsunplanned events (uncertainty)(uncertainty)

Performance metricsPerformance metrics

LOGISTICSLOGISTICS

The movement of materials, The movement of materials, services, cash, and information in a services, cash, and information in a supply chain.supply chain.

Movement within a facilityMovement within a facility Incoming and outgoing shipments Incoming and outgoing shipments

(traffic managemment)(traffic managemment)

Movement within a Movement within a facilityfacility

From incoming From incoming vehicles to vehicles to receivingreceiving

From receiving to From receiving to storagestorage

From storage to From storage to work centreswork centres

Between work Between work centres (or centres (or temporary storages)temporary storages)

From operations to From operations to final storagefinal storage

From storage to From storage to packing/shippingpacking/shipping

From shipping to From shipping to outgoing vehiclesoutgoing vehicles

Evaluating shipping Evaluating shipping alternativesalternatives

ExampleExample

SolutionsSolutions Example 1:Example 1:

H(d)/365 = (2000*10)(5-2)/365 = 164.38H(d)/365 = (2000*10)(5-2)/365 = 164.38 164.38 < 135164.38 < 135 Use the 2 days freight.Use the 2 days freight.

Example 2:Example 2: Between overnight and 2-days freights:Between overnight and 2-days freights:

H(d)/365 = (200*0.3*80)(1)/365 = 13.15H(d)/365 = (200*0.3*80)(1)/365 = 13.15 The 2-days freight is better than the overnight-freight The 2-days freight is better than the overnight-freight

[13.15<300-260].[13.15<300-260]. Between 2-days and 6-days freights:Between 2-days and 6-days freights:

H(d)/365 = (200*0.3*80)(4)/365 = 52.60H(d)/365 = (200*0.3*80)(4)/365 = 52.60 The 6-days freight is better than the 2-days-freight The 6-days freight is better than the 2-days-freight

[52.60<(260-180)].[52.60<(260-180)].

The best choice is the 6-days freight.The best choice is the 6-days freight.

THANK YOU FOR YOUR THANK YOU FOR YOUR ATTENTION!ATTENTION!