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Supply Chain Management
Operations Management -- 5th Edition Operations Management 5th Edition
Roberta Russell & Bernard W. Taylor, III
Copyright 2006 John Wiley & Sons, Inc.
Beni Asllani University of Tennessee at Chattanooga
Supply Chain Management Information Technology: A Supply Chain Enabler Supply Chain Integration Suppliers
Copyright 2006 John Wiley & Sons, Inc.
Lecture Outline (cont.)
E-Procurement Distribution Supply Chain Management Software Measuring Supply Chain Performance Global Supply Chain
Copyright 2006 John Wiley & Sons, Inc.
All facilities, functions, activities, associated with flow and transformation of goods and services from raw materials to customer, as well as the associated information flows An integrated group of processes to “source,” “make,” and “deliver” products
Copyright 2006 John Wiley & Sons, Inc.
Supply Chain Illustration
Copyright 2006 John Wiley & Sons, Inc. 10-5 10-
Supply Chain for Denim Jeans
Copyright 2006 John Wiley & Sons, Inc. 10-6 10-
Inc.Supply Chain for Denim Jeans (cont. 10-7 10- Supply Chain Processes Copyright 2006 John Wiley & Sons.) Copyright 2006 John Wiley & Sons. Inc. 10-8 10- 4 .
Inc. 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 used interchangeably Copyright 2006 John Wiley & Sons. Inc. 10-9 10- Value vs.Supply Chain for Service Providers More difficult than manufacturing Does not focus on the flow of physical goods Focuses on human resources and support services More compact and less extended Copyright 2006 John Wiley & Sons. 10-10 10- 5 .
10-11 10- Supply Chain Uncertainty One goal in SCM: respond to uncertainty in customer demand without creating costly excess inventory Factors that contribute to uncertainty inaccurate demand forecasting long variable lead times late deliveries incomplete shipments product changes batch ordering price fluctuations and discounts inflated orders Negative effects of uncertainty lateness incomplete orders Inventory insurance against supply chain uncertainty Copyright 2006 John Wiley & Sons.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 Copyright 2006 John Wiley & Sons. 10-12 10- 6 . Inc. Inc.
10-13 10- Information Technology: A Supply Chain Enabler Information links all aspects of supply chain E-business replacement of physical business processes with electronic ones Bar code and point-of-sale data creates an instantaneous computer record of a sale Radio frequency identification (RFID) technology can send product data from an item to a reader via radio waves Electronic data interchange (EDI) a computer-to-computer exchange of business documents Internet allows companies to communicate with suppliers. shippers and other businesses around the world. 10-14 10- 7 . instantaneously Copyright 2006 John Wiley & Sons. Inc. Inc.Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream Copyright 2006 John Wiley & Sons. customers.
Inc. Inc. suppliers. and distribution channels Copyright 2006 John Wiley & Sons.) Improved service as a result of instant accessibility to services Collection and analysis of voluminous amounts of customer data and preferences Creation of virtual companies Leveling playing field for small companies Gaining global access to markets.E-business and Supply Chain Cost savings and price reductions Reduction or elimination of the role of intermediaries Shortening supply chain response and transaction times Gaining a wider presence and increased visibility for companies Greater choices and more information for customers Copyright 2006 John Wiley & Sons. 10-16 10- 8 . 10-15 10- E-business and Supply Chain (cont.
Keenan. Inc. Inc. Copyright 2006 John Wiley & Sons.” Business Week (November 20. 112–115.) Source: F. “Logistics Gets a Little Respect.” Business Week (November 20. 2000). pp. pp. Keenan. “Logistics Gets a Little Respect. 2000). 10-18 10- 9 . Copyright 2006 John Wiley & Sons.Supply Chain Evolution at Nabisco Source: F. 10-17 10- Supply Chain Evolution at Nabisco (cont. 112–115.
2000). Inc. 10-19 10- RFID Capabilities Copyright 2006 John Wiley & Sons.” Business Week (November 20. Copyright 2006 John Wiley & Sons. Keenan.Supply Chain Evolution at Nabisco (cont. pp. 10-20 10- 10 . Inc.) Source: F. 112–115. “Logistics Gets a Little Respect.
10-21 10- Build-to-order cars over Build. Inc.RFID Capabilities (cont. Inc.tothe Internet Copyright 2006 John Wiley & Sons. 10-22 10- 11 .) Copyright 2006 John Wiley & Sons.
Inc. and customized to get cars to specific customer location Shared by dealers and manufacturers 10-23 10- Distribution Distribution Mass approach Customer Customer relationship relationship Dealer-owned Copyright 2006 John Wiley & Sons. E-automotive Supply Chain (cont. reliable. respond with supply chain flexibility Fast. 10-24 10- 12 . Inc.) Supply Chain Processes Managing Managing uncertainty uncertainty Procurement Procurement Automotive Past Large car inventory at dealers Batch-oriented. dealers order based on allocations Complex products don’t match customer needs E-Automotive Small inventories with shared information and strategically placed parts inventories Orders made in real time based on available-topromise information Simplified products based on better information about what customers want Product Product design design Copyright 2006 John Wiley & Sons.E-automotive Supply Chain Supply Chain Processes Customer sales Customer sales Production Production Automotive Past Push—sell from inventory stock Goal of even and stable production E-Automotive Pull—build-to-order Focus on customer demand.
and design Reduced bullwhip effect Lower Costs (material. operating. forecasting. etc.) Coordinated workflow. 10-25 10- Supply Chain Integration (cont.) Higher capacity utilization Improved customer service levels Copyright 2006 John Wiley & Sons. Inc. replenishment. logistics. procurement Production efficiencies Fast response Improved service Quicker to market Adopt new business models and technologies Penetration of new markets Creation of new products Improved efficiency Mass customization Copyright 2006 John Wiley & Sons. Inc. production and operations.Supply Chain Integration Information sharing among supply chain members Reduced bullwhip effect Early problem detection Faster response Builds trust and confidence Collaborative planning. 10-26 10- 13 .
and Replenishment Process for two or more companies in a supply chain to synchronize their demand forecasts into a single plan to meet customer demand Parties electronically exchange past sales trends point-of-sale data on-hand inventory scheduled promotions forecasts Copyright 2006 John Wiley & Sons. 10-28 10- 14 . 10-27 10- Suppliers Procurement purchase of goods and services from suppliers On-demand (direct response) delivery requires supplier to deliver goods when demanded by customer Continuous replenishment supplying orders in a short period of time according to a predetermined schedule Cross-enterprise teams coordinate processes between company and supplier Copyright 2006 John Wiley & Sons. Inc. Forecasting. Inc.Collaborative Planning.
Inc. 10-30 10- 15 .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 Copyright 2006 John Wiley & Sons. 10-29 10- Original Equipment Manufacturer (OEM) Maintenance Repair and Operation (MPO) Corporate Services Copyright 2006 John Wiley & Sons. Inc.
10-32 10- 16 .E-Procurement Direct purchase from suppliers over the Internet Direct products go directly into production process a product. Inc. indirect products not E-marketplaces web sites where companies and suppliers conduct business-to-business activities Reverse auction a company posts orders on the Internet for suppliers to bid on Copyright 2006 John Wiley & Sons. 10-31 10- Online Sourcing/ Procurement Process Copyright 2006 John Wiley & Sons. Inc.
Inc.) Copyright 2006 John Wiley & Sons. Inc. 10-34 10- 17 . 10-33 10- Online Sourcing/ Procurement Process (cont.Online Sourcing/ Procurement Process (cont.) Copyright 2006 John Wiley & Sons.
Inc. Copyright 2006 John Wiley & Sons. 60–71. that a product passes on its way to final customer Often called logistics Logistics transportation and distribution of goods and services Driving force today is speed Particularly important for Internet dot-coms dotCopyright 2006 John Wiley & Sons. March–April 1992). including warehousing and transportation. pp. 10-36 10- 18 .Relationship between Facilities and Functions along the Wal-Mart Supply Chain Source: Adapted from Garrison Wieland for “Wal-Mart’s Supply Chain.” Harvard Business Review 70(2. Inc. and functions. 10-35 10- Distribution Encompasses all channels. processes.
10-38 10- 19 . 10-37 10- Distribution Centers (DC) and Warehousing DCs are some of the largest business facilities in the United States Trend is for more frequent orders in smaller quantities Flow-through facilities and automated material handling Postponement final assembly and product configuration may be done at the DC Copyright 2006 John Wiley & Sons. Inc. Inc.Amazon.com Copyright 2006 John Wiley & Sons.
picking. 10-39 10- A WMS Copyright 2006 John Wiley & Sons. Inc. and shipping Features transportation management order management yard management labor management warehouse optimization Copyright 2006 John Wiley & Sons. Inc. packing.tooperations of a DC Controls item putaway. 10-40 10- 20 .Warehouse Management Systems Highly automated system that runs day-to-day day.
10-42 10- 21 . not distributors or retailers Stocking information is accessed using EDI A first step towards supply chain collaboration Increased speed. reduced errors. Inc. 10-41 10- Collaborative Logistics and Distribution Outsourcing Collaborative planning. and replenishment create greater economies of scale Internet-based exchange of data and information Significant decrease in inventory levels and more efficient logistics Companies focus on core competencies Copyright 2006 John Wiley & Sons. Inc. forecasting.Vendor-Managed Inventory Manufacturers generate orders. and improved service Copyright 2006 John Wiley & Sons.
bulk products.Transportation Rail low-value. small packages <500 lbs high-value. intermodal containers not as economical for small loads. less flexible than trucking Trucking main mode of freight transport in U.) Air most expensive and fastest. Inc. point-to-point service. flexible More reliable. mode of freight transport lightweight. raw materials. 10-43 10- Transportation (cont. perishable and critical goods less theft Package Delivery small packages fast and reliable increased with e-Business primary shipping mode for Internet companies Copyright 2006 John Wiley & Sons. slower. less damage than rails. small loads. Inc. 10-44 10- 22 . high-density.S. more expensive than rails for long distance Copyright 2006 John Wiley & Sons.
freightquote. waterways slowest shipping mode Intermodal combines several modes of shippingtruck. negotiations.com www. auctions Examples www.) Water low-cost shipping mode primary means of international shipping U. 10-45 10- Internet Transportation Exchanges Bring together shippers and carriers Initial contact. water and rail key component is containers Pipeline transport oil and products in liquid form high capital cost. Inc.S.nte. 10-46 10- 23 .com Copyright 2006 John Wiley & Sons. Inc.Transportation (cont. economical use long life and low operating cost Copyright 2006 John Wiley & Sons.
SCM 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. 10-47 10- Linking Supply Chain with SAP Copyright 2006 John Wiley & Sons. Inc. Inc. 10-48 10- 24 .com web enabled modules that allow collaboration between companies along the supply chain Copyright 2006 John Wiley & Sons.
Inc. 10-49 10- Key Performance Indicators Inventory turns = Cost of goods sold Average aggregate value of inventory Average aggregate value of inventory = = (average inventory for item i) X (unit value item i) Days of supply = Average aggregate value of inventory (Costs of goods sold)/(365 days) Copyright 2006 John Wiley & Sons. 10-50 10- 25 .Measuring Supply Chain Performance Key performance indicators inventory turnover cost of annual sales per inventory unit inventory days of supply total value of all items being held in inventory fill rate fraction of orders filled by a distribution center within a specific time period Copyright 2006 John Wiley & Sons. Inc.
416.000 = 29. 5.3 Days of supply = $34. Cost of goods sold: $425 million Production materials and parts: $4.000.000 Finished goods: $12.416.465.000 $425.6 ($425. 2.000 = 12. 4.000)/(365) 10-51 10- Copyright 2006 John Wiley & Sons.Key Performance Indicators: Example 1. 000.416.000 Work-in-process: $17. Other Measures of Supply Chain Performance Process Control used to monitor and control any process in supply chain Supply Chain Operations Reference (SCOR) establish targets to achieve “best in class” performance Copyright 2006 John Wiley & Sons.629. Inc.322. Inc. 10-52 10- 26 . 000 Inventory turns = $34.000 Total average aggregate value of inventory (2+3+4): $34. 3.
perfectly matched with order with no errors Supply Chain Order fulfillment Number of days from order receipt to Responsivenes lead time customer delivery s Supply Chain Flexibility Supply chain response time Production flexibility Copyright 2006 John Wiley & Sons. including order management. Inc. production and delivery requirements Source Procure goods and services to meet planned or actual demand Make Transform product to a finished state to meet planned or actual demand Deliver Provide products to meet demand. Inc. transportation and distribution Return Return products. 10-53 10- SCOR: Customer Facing Performance Performance Definition Attribute Metric Supply Chain Delivery Reliability Delivery performance Fill rate Perfect order fulfillment Percentage of orders delivered on time and in full to the customer Percentage of orders shipped within24 hours of order receipt Percentage of orders delivered on time and in full. post-delivery customer support Copyright 2006 John Wiley & Sons.SCOR Model Processes Plan Develop a course of action that best meets sourcing. Number of days for supply chain to respond to an unplanned significant change in demand without a cost penalty Number of days to achieve an unplanned 20% change in orders without a cost penalty 10-54 10- 27 .
SCOR: Internal Facing Performance Performance Definition Attribute Metric Supply Chain Cost Supply chain management cost Cost of goods sold Value-added productivity Warranty/returns processing cost Direct and indirect cost to plan. similar to sales per employee Direct and indirect costs associated with returns including defective. source and deliver products and services Direct cost of material and labor to produce a product or service Direct material cost subtracted from revenue and divided by the number of employees. Global Supply Chain To compete globally requires an effective supply chain Information technology is an “enabler” of global trade Nations form trading groups No tariffs or duties Copyright 2006 John Wiley & Sons. planned maintenance and excess inventory Number of days that cash is tied up as working capital Number of days that cash is tied up as inventory Revenue divided by total assets including working capital and fixed assets 10-55 10- Supply Chain Asset Management Efficiency Cash-to-cash cycle time Inventory days of supply Asset turns Copyright 2006 John Wiley & Sons. Inc. 10-56 10- 28 . Inc.
numerous security regulations and requirements Copyright 2006 John Wiley & Sons. financial institutions. ocean bills of lading or air waybills. including forwarding agents. custom house brokers. 10-58 10- 29 . and government agencies Since 9/11. tariffs. letters of credit. duties. cargo insurance. and landing costs Limited shipping modes Differences in communication technology and availability Copyright 2006 John Wiley & Sons.) Different business practices as well as language barriers Government codes and reporting requirements that vary from country to country Numerous players. Inc.Obstacles to Global Chain Transactions Increased documentation for invoices. 10-57 10- Obstacles to Global Chain Transactions (cont. insurance providers. and inspections Ever changing regulations that vary from country to country that govern the import and export of goods Trade groups. Inc. multiple transportation carriers.
10-60 10- 30 .Duties and Tariffs Proliferation of trade agreements Group members charge uniform tariffs Member nations have a competitive advantage within the group Trade specialists include freight forwarders.) APEC NAFTA FTAA TAFTA ASEAN CALM ATPA MERCOSUR ANZCERTA Copyright 2006 John Wiley & Sons. Inc. 10-59 10- Duties and Tariffs (cont. and export management and trading companies Copyright 2006 John Wiley & Sons. Inc. export packers. customs house brokers.
and transporting a product to the site of consumption or another port Value added tax (VAT) an indirect tax assessed on the increase in value of a good at any stage of production process from raw material to final product Clicker shock Occurs when an ordered is placed with a company that does not have the capability to calculate landed cost Copyright 2006 John Wiley & Sons. 10-62 10- 31 . 10-61 10- Web-based International Trade Logistic Systems International trade logistics web-based software systems reduce obstacles to global trade convert language and currency provide information on tariffs. Inc. storing. and customs processes attach appropriate weights. duties.Landed Cost Total cost of producing. and unit prices to individual products ordered over the Web incorporate transportation costs and conversion rates calculate shipping costs online while a company enters an order track global shipments Copyright 2006 John Wiley & Sons. measurements. Inc.
and training necessary for screening at airports and seaports around the world Copyright 2006 John Wiley & Sons. communication.Recent Trends in Globalization for U. Inc.S. surveillance. equipment. Inc. technologies. Companies Two significant changes passage of NAFTA admission of China in WTO Electronic Industry 70% of cost is in components major supply chains have moved to China Proliferation of counterfeit parts Copyright 2006 John Wiley & Sons. 10-63 10- Effects of 9/11 on Global Chains Increase security measures added time to supply chain schedules Increased supply chain costs 24 hours rules for “risk screening” screening” extended documentation extend time by 3-4 days 3- Inventory levels have increased 5% Other costs include: new people. 10-64 10- 32 . and security systems.
The purchaser may make back-up copies for his/her own use only and backnot for distribution or resale. Inc. or damages caused by the use of these programs or from the programs use of the information herein. Copyright 2006 John Wiley & Sons.Copyright 2006 John Wiley & Sons. All rights reserved. John Wiley & John Sons. omissions. 10-65 10- 33 . Request for further information should be addressed to the Permission Department. Inc. Inc. The Publisher assumes no responsibility for responsibility errors. Reproduction or translation of this work beyond that beyond permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful.
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