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sl3003ch16

sl3003ch16

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06/21/2009

 
345
16
Supply ChainManagement
Douglas Burke 
16.1INTRODUCTION
Supply chain management 
has a quaint ring to it. It conjures images of an industrialeconomy with warehouses, transportation systems, suppliers, and assembly lines. Inthe world of manufacturing, this bricks-and-mortar vision is still fairly accuratedespite all the click-and-order hype associated with cyberspace. Manufacturingenterprises around the world living in this traditional vision are experiencing changeat a rapidly increasing pace. Some of the changes they face are fiercely competitivemarkets, shorter and shorter product life cycles, heightened customer expectations,and a diminished ability to raise prices even on high-demand products.With these changes come enormous business pressures. Pressure to find moreeffective ways to shorten the concept-to-delivery cycle. Pressure to drive out ineffi-ciencies in all their processes. Pressure to develop and execute a strategic plan thatwill anticipate and address these changes. Only by aggressively seeking processimprovements and enhancements to cost, quality, productivity, and customer satis-faction can companies hope to survive these changes.As manufacturers seek the mechanisms for survival, they turn their attention tothe supply chain, seeking to capture improved efficiency. Currently, considerableactivity in manufacturing is focused on eliminating inefficiencies through supplychain management. Abramson (1999) reports that inventory being held across theretail supply chain at any one time amounts to $1 trillion. Of those inventories, 15to 20% ($150 to 200 billion worldwide; $40 to 50 billion in the United States) couldbe eliminated through improved supply chain management in the form of planning,forecasting, and replenishment. Anderson, Britt, and Donavon (1997) report thatcompanies now recognize the importance of meeting customer needs. By usingsupply chain management, companies can tailor products and services to specificcustomers and win customer loyalty. This loyalty translates into profits. Xerox hasfound satisfied customers six times as likely to buy additional Xerox products overa period of 18 months than dissatisfied customers. Other benefits that can be gainedthrough supply chain management are improved cash utilization (how soon afterdelivery do you get paid?), flexible schedules, shortened schedules, delivery of product or services at the time of need, and price advantages.How can a business gain all those advantages through supply chain management?It is first necessary to have an extremely effective Six Sigma process to protect againstlosing customers due to product nonperformance. Next, a mature and effective lean
© 2002 by CRC Press LLC
 
346
The Manufacturing Handbook of Best Practices
manufacturing program must be in place to ensure the maintenance of minimuminventory levels while the manufacturing processes are still consistently deliveringproduct to the customer on time. Finally, the company needs to integrate Six Sigmaand lean manufacturing across the entire supply chain by including supply chainmanagement in its strategic planning process. Strategic planning, lean manufactur-ing, and Six Sigma are covered in separate sections of this book. The remainder of this chapter focuses on contemporary issues that exist in supply chain management,the more traditional topics of inventory management and control, and the importanceof synchronizing supply to demand.
16.2DEFINING THE MANUFACTURING SUPPLY CHAIN
There are probably as many de
nitions of a supply chain as there are practitioners of supply chain management (SCM). Poirier and Reiter (1996) de
ne the supply chain asa system of organizations that delivers products and services to its customers. Thissupply chain model can be illustrated as a network of linked organizations that has acommon purpose of delivering product and services through the best possible means.Another supply chain de
nition, developed by Kearney (1994), shows linked groupsof enterprises that work synchronously to acquire, convert, and distribute goods andservices to the customer. Kearney also captures the need to distribute new designsthrough the network, ensuring a rapid response to the dynamic requirements of themarket.Though Copacino (1997) never presents a concise de
nition of the supply chain,he alludes to it as all the players and activities necessary to convert raw materialsinto product and deliver them to consumers on time and at the right location in themost ef 
cient manner. In this supply chain model, the major business processes of a manufacturing company are composed of suppliers, manufacturing, distributionretailing, and consumers. He extends this model by showing the demand-and-supplychain as integrating functions to the major business processes.Walker and Alber (1999) de
ne the manufacturing supply chain as the globalnetwork used to deliver products and services from raw materials to end customersthrough an engineered
ow of information, physical distribution, and cash.Mohrman (1999) de
nes the supply chain as the business, capital, material, andinformation associated with the
ow of goods. The total supply-and-demand chainextends from natural resources through a network of value-added steps and transportlinks until it reaches the ultimate consumer.Different practitioners developed these de
nitions for different reasons. Althoughit would seem that they are completely different, closer examination of these de
nitionsreveals common key themes that can be used to develop our own de
nition. Thisde
nition will be generic enough to be applicable to any manufacturing supply chain.One key concept is that the supply chain is a network of linked companies andorganizations. This network has a broad span that starts with obtaining naturalresources and ends when the product or service reaches the ultimate customer.Finally, the dynamics of a supply chain involve the conversion of natural resourcesinto a product or service that is delivered to a customer. With this, we can developour de
nition of a generic manufacturing supply chain:
© 2002 by CRC Press LLC
 
Supply Chain Management
347
A supply chain is a dynamic network of interlinked organizations that converts naturalresources into products or services that are delivered to the consumer at the rightplace and at the right time.
A simple graphical model of this supply chain is shown in Figure 16.1. Fromthis illustration, we see that the supply chain starts when a supplier (or suppliers)converts natural resources into usable materials for the manufacturing company.Usable materials can be raw material, such as steel bar stock, if the manufacturingcompany is a machine shop or subassemblies if the manufacturing company is apersonal computer-manufacturing
rm. After all the necessary resources are suppliedto the manufacturing
rm, they are converted into the end product for which thecustomer ultimately pays. A logistics organization, not depicted in Figure 16.1, isnecessary to ensure the proper delivery of the end product to the consumer.To better illustrate this supply chain model, let
s look at it in the context of theaerospace industry. In the aerospace industry, a jet engine manufacturing supplychain can be a very complicated group of companies. Suppliers would start bypurchasing raw aluminum and steel stock and converting it into castings and forgings.Other suppliers may take those castings and forgings and machine them, addinggears, splines, shafts, and motors to create mechanical subassemblies. These sub-assemblies are then delivered to the engine-manufacturing
rm where they areassembled into complete and functional jet engines. These engines are tested, pack-aged, and shipped to the consumer through the logistics network.Inventory of all types can be found at all stages of the supply chain. As illustrated,raw material inventories are typically accumulated at the beginning. Work-in-processinventory in the form of subassemblies and partially assembled jet engines willaccumulate at the manufacturing stage. Finished goods inventory in the form of completed jet engines can accumulate in the logistics network, at the distributioncenters, and at the customer
s site.Another interesting aspect of the manufacturing supply chain is that information
ows in the opposite direction of the product. Products and services typically
owfrom suppliers to the manufacturing
rm. From there the products and services aretransported to the customer through a logistics network. Conversely, informationabout consumption patterns, points of sales, and demand forecasts
ows from thecustomer to the manufacturing
rm. From there the manufacturing
rm disseminatesthe information and
ows it down to the appropriate suppliers.From this we can conclude that a supply chain is a very complex group of suppliers, manufacturing
rms, and logistics organizations that must work together
FIGURE 16.1
Generic manufacturing supply chain model.
Raw MaterialInventoryWork-In-ProcessInventoryFinished Goods Inventory
SupplyResources
Produce Productor ServiceDistribute Productor ServiceConsumeProduct orService
© 2002 by CRC Press LLC

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