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Supply Chain Supply Chain ManagementManagement
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Introduction to Supply Chains Introduction to Supply Chains andand
Supply Chain ManagementSupply Chain Management
Supply ChainSupply Chain (Definition of) (Definition of)
The sequence of organizations- their facilities, functions, processes and activities- that are involved in producing and delivering a product or service
Sometimes referred to as value chain
Components of Supply (Value) ChainsComponents of Supply (Value) Chains
• Supply Component: Starts at the beginning of the SC and ends with the internal operations of the organization.
• Demand Component: Starts at the point where the organization’s output is delivered to its immediate customer and ends with the final customer in the chain. Demand chain is the sales and distributon portion of the value chain
The length of each component depends on where a particular organization is in the chain
The Supply ChainThe Supply Chain
Products and Services
Products and Services
Products and Services
CustomersCustomers
Total satisfaction with quality, price, delivery, and service
DistributorsDistributors
Package and delivery
Inventory
ProducersProducers
Finished goods, end products and services
Inventory
SuppliersSuppliers
Inventory
Materials, parts, sub-assemblies, and services
Downstream SC membersUpstream SC members
The Supply ChainThe Supply Chain
Information
Products and Services
Products and Services
Products and Services
CustomersCustomers
Total satisfaction with quality, price, delivery, and service
DistributorsDistributors
Package and delivery
Inventory
ProducersProducers
Finished goods, end products and services
Inventory
SuppliersSuppliers
Inventory
Materials, parts, sub-assemblies, and services
The Supply ChainThe Supply Chain
Information
Cash
Products and Services
Products and Services
Products and Services
CustomersCustomers
Total satisfaction with quality, price, delivery, and service
DistributorsDistributors
Package and delivery
Inventory
ProducersProducers
Finished goods, end products and services
Inventory
SuppliersSuppliers
Inventory
Materials, parts, sub-assemblies, and services
Consumer
Retailer
Manufacturer
Material Flow
VISA®
Credit Flow
Supplier
Supplier Wholesaler
Retailer
CashFlow
OrderFlowSchedules
The Supply-ChainThe Supply-Chain
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Flow ManagementFlow Management
Three types of flow– Product and service flow
• Involves movement of goods and services from suppliers to customers as well as handling customer service needs and product returns
– Information flow• Involves sharing forecasts and sales data, transmitting
orders, tracking shipments, and updating order status
– Financial flow• Involves credit terms, payments, and consignment and
title ownership arrangements
Typical Supply Chain for a Typical Supply Chain for a ManufacturerManufacturer
Supplier
Supplier
Supplier
Storage} Mfg. Storage Dist. Retailer Customer
Supplier
Supplier
} Storage Service Customer
Typical Supply Chain for a ServiceTypical Supply Chain for a Service
Supply Chain ManagementSupply Chain Management (Definition of) (Definition of)(1 of 2) (1 of 2)
A total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end user (planning, organizing, directing and controlling flows of materials)
Managing all activities associated with the flow and transformation of goods and services from raw materials to the end user, the customer, as well as the associated information flows
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The strategic coordination of business functions within a business organization and throughout its supply chain for the purpose of integrating supply and demand management
The process of planning, implementing and controlling supply chain operations.
Supply Chain ManagementSupply Chain Management(Definition of)(Definition of)(2 of 2) (2 of 2)
Goals of Goals of Supply Chain ManagementSupply Chain Management (1 of 2) (1 of 2)
Synchronization of activities required to achieve maximum competitive benefits
Coordination, cooperation, and communication and timing among SC members
Ensuring rapid flow of information among members
Goals of Goals of Supply Chain ManagementSupply Chain Management(2 of 2) (2 of 2)
Linking the market, distribution channels, processes and suppliers so that market demand is met as efficiently as possible across the chain
Matching supply and demand at each stage of the chain as effectively and efficiently as possible
Ultimate goal: Achieving customer satisfaction and maximizing supply chain profits
FacilitiesFacilities Involved in SCM Involved in SCM
The sequence of the supply chain begins with basic suppliers and extends all the way to the final customer Warehouses Factories Processing centers Distribution centers Retail outlets Offices
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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
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Supply Chain ManagementSupply Chain Management Issues Issues (1 of 3) (1 of 3)
Determining what customers want
Predicting (forecasting) quantity and timing of demand
Incorporating customer wants to product design
Determining appropriate levels of outsourcing
Managing procurement (purchasing)
Managing and evaluating suppliers (monitoring supplier quality, delivery and relations)
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Supply Chain ManagementSupply Chain Management Issues Issues(2 of 3)(2 of 3)
Determining the location of facilities
Managing customer relationships
Information management
Managing supporting operations
Managing risk
Managing flows
Quality assurance and control
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Supply Chain ManagementSupply Chain Management Issues Issues(3 of 3)(3 of 3)
Production planning, scheduling and control
Inventory management (meeting demand while managing inventory costs)
Logistics
Deciding how best to move and store materials (distribution and delivery)
Cstomer service
Identifying problems and responding to them
Strategic Strategic &&OperationalOperationalDecisions in Supply Chains Decisions in Supply Chains
Three types of decisions in supply chain management– Strategic – design and policy– Tactical– Operational – day-today activities
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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
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Strategic ResponsibilitiesStrategic Responsibilities
Supply chain strategy alignment Network configuration Information technology Products and services Capacity planning Strategic partnerships Distribution strategy Uncertainty and risk reduction
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Tactical ResponsibilitiesTactical Responsibilities
ForecastingSourcingOperations planningInventory policiesQuality policiesTransportation planningCollaborating
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Operational ResponsibilitiesOperational ResponsibilitiesSchedulingReceivingTransformingOrder fulfillingManaging inventoryShippingInformation sharingControlling
Typical Supply ChainTypical Supply Chain Activities Activities
PurchasingReceiving Storage Operations Storage
Production Distribution
Processes involved in SCM•Acquiring customer orders•Procuring materials and components from suppliers (sourcing and procurement)•Producing or manufacturing products (transformation activities) •Filling customer orders•Logistics (the part of the SC involved with the forward and reverse flow of goods, services, cash and information)
Trends in SCMTrends in SCM• Reevaluation of outsourcing• Risk management• Inventory management• Lean supply chains• Sustainability
As a result of these trends, organizations are likely to give serious thought to reconfiguring their supply chains to• reduce risks, • improve flow, • increase profits and • increase customer satisfaction
As a result of these trends, organizations are likely to give serious thought to reconfiguring their supply chains to• reduce risks, • improve flow, • increase profits and • increase customer satisfaction
Supply-Chain Costs as a Percent of SalesSupply-Chain Costs as a Percent of Sales
• All industry• Automobile• Food• Lumber• Paper• Petroleum• Transportation
• 52%• 67%• 60%• 61%• 55%• 79%• 62%
Industry Percent of Sales
Factors That Contribute to the Increased Factors That Contribute to the Increased Need for Effective Supply Chain Need for Effective Supply Chain
ManagementManagementneed to improve operations increased levels of outsourcingincreasing transportation costscompetitive pressuresincreasing globalizationincreasing importance of e-commerceincreasing complexity of supply chainsincreasing pressure to decrease inventories
Benefits of Supply Chain ManagementBenefits of Supply Chain Management
Lower inventoriesLower costs Higher productivityGreater agilityShorter lead timesHigher profitsGreater customer loyaltyIntegration of seperate organizations into a cohesive
operating system
Actual Actual BenefitsBenefits Gained by Gained by Supply Chain Supply Chain ManagementManagement
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
Requirements of a Requirements of a Successful Supply ChainSuccessful Supply ChainIt begins with strategic sourcing
Analyzing the procurement process to lower costs by reducing waste and non-value-added activities, increasing profits, reducing risks and improving supplier performance
Trust among trading partners
Effective cooperation and communications
Supply chain should enable members to 1) share forecasts, 2) determine the status of orders in real time, 3) access inventory data of partners
Supply chain visibility
Inventory velocity
Event-management capability
The ability to detect and respond to unplanned events
Measuring SC Performance: Performance metrics
Creating an Effective Supply ChainCreating an Effective Supply Chain
An Effective Supply Chain requires linking the market, distribution channels processes, and suppliers
1. Develop strategic objectives and tactics
2. Integrate and coordinate activities in the internal supply chain
3. Coordinate activities with suppliers and with distributors
4. Coordinate planning and execution across the supply chain
5. Form strategic partnerships
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SC Performance MeasuresSC Performance Measures
Supply Chain Performance DriversSupply Chain Performance Drivers
1. Quality
2. Cost
3. Flexibility
4. Velocity (inventory velocity, information velocity)
5. Customer service
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Supply Chain PerformanceSupply Chain Performance Measures Measures
1. Financial• Return on assets• Cost• Cash flow• Profits
2. Suppliers• Quality• On-time deliveriy• Cooperation• flexibility
3. Operations• Productivity• Quality
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Supply Chain PerformanceSupply Chain Performance Measures Measures
4. Inventory• Avarage value• Turnover• Weeks of supply
5. Order fulfillment• Order accuracy• Time to fill orders• Percentage of incompete orders shipped• Percentage of orders delivered on time
6. Customers.• Costomer satisfaction• Percentage of customer complaints
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Measuring SC PerformanceMeasuring SC Performance: Inventory : Inventory TurnoverTurnover
• One of the most commonly used measures is “Inventory Turnover”
valueinventory aggregate Average
sold goods ofCost turnoverInventory
valueinventory aggregate Average
sold goods ofCost turnoverInventory
Measuring SC PerformanceMeasuring SC Performance: : 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
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Inventory ManagementInventory Management
Supply Chain UncertaintySupply Chain Uncertainty
Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability
Inventory is a form of insurance
Distorted information is one of the main causes of uncertainty
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Inventory ManagementInventory Management within A SC within A SC
Inventory issues in SCM– Inventory location
• Centralized inventories• Decentralized inventories
– Inventory velocity• The speed at which goods move through a supply chain
– The effect of demand variability on inventories
The bullwhip effect• Inventory oscillations that become increasingly larger
looking backward through the supply chain
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The Bullwhip EffectThe Bullwhip Effect• Variations in demand cause inventories to fluctuate and get
out of control• Results in higher costs and lower customer satisfaction
– Inventory fluctuation can be magnified by• Periodic ordering• Dverreactions to stockouts• Quality problems• Labor problems• Unusual weather cnoditions• Delays in shipments of goods• Communication delays• Incomplete communications • Lack of coordination of activities among organizations • Forecast inaccuracies• Order batching• Product mix changes• Sales incentives and promotions• Liberal product return policies
Bullwhip EffectBullwhip Effect
Final CustomerInitialSupplier
Demand
Demand variations begin at the customer end of the chain and become increasingly large as they radiate backwards through the chain (nventory oscillations become progressively larger moving backward through the supply chain)
Inventories in a SC: Inventories in a SC: Bullwhip EffectBullwhip Effect O
rder
Q
uan t
ity
Time
Retailer’s Orders
Ord
er
Qua
n tit
y
Time
Wholesaler’s Orders
Ord
er
Qua
n tit
y
Time
Manufacturer’s Orders
The magnification of variability in orders in the supply-chainThe magnification of variability in orders in the supply-chain
A lot of retailers each with little variability in their orders….
A lot of retailers each with little variability in their orders….
…can lead to greater variability for a fewer number of wholesalers, and…
…can lead to greater variability for a fewer number of wholesalers, and…
…can lead to even greater variability for a single manufacturer.
…can lead to even greater variability for a single manufacturer.
Inventories in a SC: Inventories in a SC: Bullwhip EffectBullwhip Effect
Tier 2Suppliers
Tier 1Suppliers
Producer Distributor Retailer FinalFinalCustomerCustomer
Amount ofAmount ofinventoryinventory=
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Mitigating the Bullwhip EffectMitigating the Bullwhip Effect
• Good supply chain management can overcome the bullwhip effect– Strategic buffering
• Holding inventory at a distribution center rather than at retail outlets
– Replenishment based on need
• Vendor-managed inventory– Vendors monitor goods and replenish retail inventories
when supplies are low
Vendor-Managed InventorVendor-Managed Inventoriesies
The use of a local supplier to maintain inventory for the manufacturer
Stocking information is accessed using EDIA first step towards supply chain collaboration Increased speed, reduced errors, and improved
service
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Supply Chains and
Information Technology
Role of Role of Information in the Supply ChainInformation in the Supply Chain(1 of 2) (1 of 2)
Centralized coordination of information flows Integration of transportation, distribution, ordering, and
productionDirect access to domestic and global transportation and
distribution channelsLocating and tracking the movement of every item in the
supply chain
Role of IRole of Information in the Supply Chainnformation in the Supply Chain (2 of 2)(2 of 2)
Data interchangeData acquisition at the point of origin and point of sale Intercompany and intracompany information access Instantaneous updating of inventory levels Increasing the rate at which information is communicated
in a SC.
Some IT Applications for SCM (1 of 3)Some IT Applications for SCM (1 of 3)Electronic Business (replacement of physical processes with electronic ones)
Electronic Data Interchange (a computer-to-computer exchange of business documentsincluding purchase orders, shipping notices, and debit or credit memos) in a standard format)
Bar Coding (computer readable codes attached to items flowing through the SC). Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and delivery plans
1234 5678
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Some IT Applications for SCM (2 of 3)Some IT Applications for SCM (2 of 3)RFID (Radio Frequency Identification) Technology
A technology that uses radio waves to identify objects, such as goods in supply chains)Similar to bar codes but
uses radio frequency to transmit product information to receiverAre able to convey much more informationDo not require line-of-sight for readingDo not need to be read one at a time
Used to track goods in supply chainRFID tags attached to objectsRFID eliminates need for manual counting and bar code scanning
Some IT Applications for SCM (3 of 3) Some IT Applications for SCM (3 of 3)
Internet (provides instant access to organizations, individuals and information sources; fundamentaly changes the way organizations do business; add speed and accessibility to the SC)
Intranets (internet-like networks that operate within a single organization)
Extranets (intranets that can be connected to the global internet & that include a company’s suppliers and customers; they allow limited access)
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The Wal-Mart Supply Chain
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Wall-Mart CaseWall-Mart Case
Wal-Mart has a satellite network for electronic data interchange that allows vendors to directly access point-of-sale data in real time, enabling them to improve their forecasting and inventory management.
Wal-Mart also uses the system for issuing purchase orders and receiving invoices from its vendors.
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• 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
Benefits of ElectronicBenefits of Electronic Data Interchange Data Interchange
The InternetThe Internet Instant global access to organizations,
individuals, and information sourcesFundamentally changes the way organizations
do businessRemoved geographic
barriersAdds speed and accessibility
to the supply chain
Build-to-Order Cars over the Internet
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Linking the Supply Chain with SAP
• E-Business: the use of electronic technology to facilitate business transactions Involves the interaction of different business organizations as well as the interaction of individuals with business organizations. Replacement of physical processes with electronic ones
• Applications include:– Internet buying and selling– E-mail– Order and shipment tracking– Electronic data interchange
EElectronic lectronic BusinessBusiness
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Essential Features of E-BusinessEssential Features of E-Business
The Web site (front-end design) Order fulfillment (back end)
Order processsingBillingİnventory managementWarehousingPackingShipingDelivery
Global presence and increased visibilityGlobal access to markets and customersImproved competitiveness, quality and serviceGreater choices and more and easy access to
information for customers Collection and analysis of detailed customer data,
interests and preferencesShortened supply chain response times
Advantages Advantages of of E-BusinessE-Business (1 of 2) (1 of 2)
Shortened transaction times for ordering and delivery Cost savings and price reductions Virtual companies with lower pricesLeveling the playing field for small companies Reducing or eliminating intermediaries (disintermetiation) Improved service
Advantages Advantages of of E-BusinessE-Business (2 of 2) (2 of 2)
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E-Business Order Fulfillment ProblemsE-Business Order Fulfillment Problems• Efficient web sites do not necessarily mean the rest of the
supply chain will be as efficient
Customer expectations– Order quickly Quick delivery
• Demand variability creates order fulfillment problems• Sometimes Internet demand exceeds an organization’s ability
to fulfill orders• Inventory
– Outsourcing order fulfillment• Loss of control
– Build large warehouses• Internal holding costs
IT IssuesIT Issues Increased benefits and sophistication come with
increased costs
Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient
Security problems are very real
Partnership and trust are important elements that may be new to business relationships
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ProcurementProcurement
ProcurementProcurement
Development and implementation of purchasing plans for products and services that support operations strategies
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E-ProcurementE-ProcurementBusiness-to-business commerce conducted on the
Internet
Benefits include lower transaction costs, lower prices, reduce clerical labor costs, and faster ordering and delivery times
Currently used more for indirect goods
E-Marketplaces service industry-specific companies and suppliers
• Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.
• Purchasing cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition.
PurchasingPurchasing
Importance of PurchasingImportance of Purchasing
Purchasing is important because:
- it is a major cost center
- affect quality of final product
- aids strategy of low cost, response and differentiation
• Develop and implement purchasing plans for products and services that support operations strategies.
• Develop, evaluate, and determine the best supplier, price, and delivery for the products and services that can be best obtained externally
GoalGoals s of Purchasingof Purchasing
• Identifying sources of supply
• Negotiating contracts
• Maintaining a database of suppliers
• Obtaining goods and services
• Managing supplies
Duties of PurchasingDuties of Purchasing
Purchasing InterfacesPurchasing Interfaces
Purchasing
Legal
AccountingOperations
Dataprocessing
Design
ReceivingSuppliers
Purchasing CyclePurchasing Cycle
1. Requisition received
2. Supplier selected
3. Order is placed
4. Orders are monitored
5. Orders are received
PurchasingPurchasing
LegalLegal
AccountingAccountingOperationsOperations
DataDataprocess-process-inging
DesignDesign
ReceivingReceiving
SuppliersSuppliers
• Centralized purchasing
– Purchasing is handled by one special department
• Decentralized purchasing
– Individual departments or separate locations handle their own purchasing requirements
Centralized vs Decentralized Centralized vs Decentralized PurchasingPurchasing
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Centralized Supply at Honda America
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Supplier ManagementSupplier Management
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SuppliersSuppliersPurchased materials account for about half of
manufacturing costs
Materials, parts, and service must be delivered on time, of high quality, and low cost
Suppliers should be integrated into their customers’ supply chains
Partnerships should be established
On-demand delivery (JIT) is a frequent requirement
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• Sourcing (choosing suppliers)
– Vendor analysis (evaluating sources of supply)
– Supplier audits
– Supplier certification
• Supplier relationship management
• Supplier partnerships
– CPFR
– Strategic partnering
Supplier Related IssuesSupplier Related Issues
SourcingSourcingSourcing is the selection of suppliers
Relationship between customers and suppliers focuses on collaboration and cooperation
Outsourcing has become a long-term strategic decision
Organizations focus on core competencies
Single-sourcing is increasingly a part of supplier relations
Evaluating the sources of supply in terms of:• Price• Quality and quality pratices• Flexibility• Location• Past experience• Product or service changes• Reputation and financial stability• Lead times and on-time delivery• Inventory policy• Services (such as technical support and training) provided
The above criteria can be classified as 1) those related to the organization, 2) those related to the product, and 3) those related to the service provided
Vendor AnalysisVendor Analysis
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Supplier Audits and CertificationSupplier Audits and Certification
• Supplier audit– A means of keeping current on suppliers’ production (or
service) capabilities, quality and delivery problems and resolutions, and performance on other criteria
• Supplier certification– Involves a detailed examination of a supplier’s policies
and capabilities– The process verifies the supplier meets or exceeds the
requirements of a buyer
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Supplier Relationship ManagementSupplier Relationship Management
• Type of relationship is often governed by the duration of the trading relationship– Short-term
• Oftentimes involves competitive bidding• Minimal interaction
– Medium-term• Often involves an ongoing relationship
– Long-term• Often involves greater cooperation that evolves into a
partnership
Contrasting Supplier RelationshipsContrasting Supplier Relationships
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
Ideas from suppliers could lead to improved competitiveness
1.Reduce cost of making the purchase
2.Reduce transportation costs
3.Reduce production costs
4.Improve product quality
5.Improve product design
6.Reduce time to market
7.Improve customer satisfaction
8.Reduce inventory costs
9.Introduce new products or services
Supplier PartnershipsSupplier Partnerships
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CCollaborative ollaborative PPlanning, lanning, FForecasting, and orecasting, and RReplenishmenteplenishment
A system based on the notion that there should be
information sharing among supply chain trading partners in planning, forecasting and inventory replenishment
cooperation among supply chain trading partners in planning
coordination of activities
Requires partners to agree on common goals (goal sharing)
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CPFR ProcessCPFR Process
• Internet-based exchange of data and information• Significant decrease in inventory levels and more
efficient logistics• Companies focus on core competencies• Eliminates typical order processig
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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
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Strategic PartneringStrategic Partnering
Two or more business organizations that have complementary products or services join so that each may realize a strategic benefit
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Order FulfillmentOrder Fulfillment
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Order FulfillmentOrder Fulfillment
Order fulfillment– The process involved in responding to customer
orders– Often a function of the degree of customization
required• Common approaches
– Engineer-to-order (ETO)– Make-to-order (MTO)– Assemble-to-order (ATO)– Make-to-stock (MTS)
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Figure 7.5 Order Fulfillment at Amazon.com
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Distribution System DesignDistribution System Design
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Distribution SystemDistribution System
Encompasses all of the distribution channels, processes and functions, including warehousing and transportation, that a product passes through on its way to the final customer.
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LogisticsLogistics
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Refers to the movement of materials, services, cash and information in a supply chain.
Includes:• movement within a facility, • incoming and outgoing shipments of goods and materials
(traffic management)• decisions on shipping methods and time • information flow throughout the supply chain (RFID to track
goods)
LogisticsLogistics
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Logistics ManagementLogistics Management- Includes and Integrates all materials functions
Purchasing Inventory management Production control Management of inbound outbound
transportation, material handling Warehousing and stores Order fulfillment and distribution Incoming quality control
Objective: Efficient, low cost operations
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Materials Materials Movement Within a FacilityMovement Within a Facility
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Incoming and Outgoing ShipmentsIncoming and Outgoing Shipments
Traffic management– Overseeing the shipment of incoming and
outgoing goods• Handles schedules and decisions on shipping method
and times, taking into account:– Costs of shipping alternatives– Government regulations– Needs of the organization– Shipping delays or disruptions
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DistributionDistribution
The actual movement of products and materials between locations
Handling of materials and products at receiving docks, storing products, packaging, and shipping
Often called logisticsDriving force today
is speedParticularly important
for Internet dot-coms
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TransportationTransportationThe movement of products and materials from one
location to another as it makes its way to the end-use customer
Important element, often overlookedCommon methods are railroads, trucking, water, air,
intermodal, package carriers, and pipelines
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Evaluating Shipping AlternativesEvaluating Shipping Alternatives
Considerations include:• Shipping costs• Availabilitiy• Materials being shipped• Coordination of shipments with other SC activities• Flexibility• Speed • Environmental considerations
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Distribution Centers Distribution Centers and Warehousingand Warehousing
Trend is for more frequent orders in smaller quantities
Flow-through facilities and automated material handling
Final assembly and product configuration may be done at the DC
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Warehouse Management SystemsWarehouse Management Systems
Highly automated systems
Controls item putaway, picking, packing, and shipping
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
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A WMS
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Third-Party LogisticsThird-Party Logistics
The term used to describe the outsourcing of logistics management.
Includes warehousing and distribution
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Reverse LogisticsReverse LogisticsReverse logistics – the backward flow of goods returned to the supply
chain (the process of transporting returned items)Products are returned to companies or third party handlers for a variety
of reasons (Defective products,recalled products,obsolete products, unsold products, parts replaced in the field, items for recycling, waste) and in a variety of conditions
Processing returned goods• Sorting, examining/testing, restocking, repairing• Reconditioning, recycling, disposing
Elements of return management • Gatekeeping – screening returned goods to prevent incorrect
acceptance of goods• Avoidance – finding ways to minimize the number of items that are
returned
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Global Supply Chain Management Global Supply Chain Management
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Global Supply ChainsGlobal Supply Chains
Product design often uses inputs from around the world
Some manufacturing and service activities are outsourced to countries where labor and/or materials costs are lower
Products are sold globally
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Complexities of Complexities of Global Supply ChainsGlobal Supply ChainsNational and regional differencesLanguage and cultural differencesCurrency fluctuationsPolitical instabilityQuality issuesCustoms, business practices, Nonhomogeneoity of foreign markets Financial and economic considerationsGovernmental, environmental and regulatory considerations. Increased transportation costs and lead time Increased need for trust amongst supply chain partnersLocal capabilities Inadequate transportation and communication infrastructures
Infrastructure Obstacles to Global Infrastructure Obstacles to Global TradeTrade
Some emerging markets lack suitable distribution systems, i.e. roads, rail systems
Existing roads and ports may be inadequate
Market instability, political instability
Vertical integration is a common solution
Global Supply-Chain IssuesGlobal Supply-Chain Issues
Supply chains in a global environment must be:– Flexible enough to react to sudden changes in parts
availability, distribution, or shipping channels, import duties, and currency rates
– Able to use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out
– Staffed with local specialists to handle duties, trade, freight, customs and political issues
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Challanges within a Supply Chain Challanges within a Supply Chain
Barriers to integration of organizations
Getting top management on board
Small businesses
Variability and uncertainty
Long lead times
Dealing with trade-offs
ChallengesChallenges to Optimizing SCs to Optimizing SCs
1. Lot-size-inventory (bullwhip)2. Inventory-transportation costs
–Cross-docking3. Lead time-transportation costs4. Product variety-inventory
–Delayed differentiation5. Cost-customer service
–Disintermediation
Trade-offsTrade-offs in SCM in SCM
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Trade-OffsTrade-Offs
• Lot-size-inventory trade-off– Large lot sizes yield benefits in terms of quantity discounts and lower
annual setup costs, but it increases the amount of safety stock (and inventory carrying costs) carried by suppliers
• Inventory-transportation costs– Suppliers prefer to ship full truckloads instead of partial loads to
spread shipping costs over as many units as possible. This leads to greater holding costs for customers
– Cross-docking• A technique whereby goods arriving at a warehouse from a supplier are unloaded from
the suppliers truck and loaded onto outbound truck, thereby avoiding warehouse storage
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Trade-OffsTrade-Offs
• Lead time-transportation costs– Suppliers like to ship in full loads, but waiting for sufficient orders
and/or production to achieve a full load may increase lead time
• Product variety-inventory– Greater product variety usually means smaller lot sizes and higher
setup costs, as well as higher transportation and inventory management costs
– Delayed differentiation (a technique to increase SC efficiency)• Production of standard components and subassemblies which are held until late in the
process to add differentiating features
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Trade-OffsTrade-Offs
• Cost-customer service– Producing and shipping in large lots reduces costs, but increases
lead time
– Disintermediation (a technique to increase SC efficiency)
• Reducing one or more steps in a supply chain by cutting out one or more intermediaries
– Drop Shipping
• Shipping directly from the supplier to the end consumer, rather than from the seller, saving both time and reshipping costs
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Techniques to Increase SC EfficiencyTechniques to Increase SC Efficiency
Techniques to Increase SC EfficiencyTechniques to Increase SC Efficiency• Delayed differentiation
Postponing the tasks of differentiating a product for a specific customer until the latest possible point in the supply-chain network. Production of standard components and subassemblies, which are held until late in the process to add differentiating features
– Channel assembly (sending distributors the individual components and modules rather than finished goods)
• Disintermediation– Reducing one or more steps in a supply chain by cutting out one or more
intermediaries
+ Cross Docking
+ Drop Shipping
Other Techniques to Increase SC EfficiencyOther Techniques to Increase SC Efficiency• Outsourcing• Blanket orders (a long-term purchase commitment to a supplier
for items that are to be delivered against short-term releases to ship
Drop Shipping and Special Packaging – supplier will ship to end consumer rather than to seller
• Vendor managed inventory systems The use of a local supplier to maintain inventory for the manufacturer.
• Electronic ordering and funds transfer (paperless ordering, payment by wire)
• Internet purchasing (e-procurement)
Potential SolutionsPotential Solutions to SC Problemsto SC ProblemsProblem Potential
ImprovementBenefits Possible
DrawbacksLarge 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
Critical IssuesCritical Issues in SCM in SCM • Increased strategic importance • Emphasis on cost, quality,agility and customer
service• Technology management• Increased conversion to lean production• Just-in-time deliveries• Few suppliers and vendor integration• Increased outsourcing• Globalization
Supply-Chain Performance Supply-Chain Performance ComparedCompared
Typical FirmsBenchmark
FirmsAdministrative costs as percent of purchases
3.3% 0.8%
Lead time (weeks) 15 8
Time spent in placing order 42 minutes 15 minutes
Percentage of late deliveries 33% 2%
Percentage of rejected material 1.5% .0001%
Number of shortages per year 400 4
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