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MANAGEMENT 44: SUPPLY CHAIN MANAGEMENT SUPPLY CHAIN consists of all parties involved in the fulfillment of customer requests.

. SUPPLY CHAIN MANAGEMENT a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time in order to minimize system wide costs while satisfying service level requirements. Goals: High customer service level (responsiveness) Lowest cost (efficiency) SUPPLY CHAIN COSTS 1. Material Cost including inbound transport 2. Conversion cost including wastage 3. Inventories 4. Distribution Costs 5. Administrative Expenses CYCLE VIEW 1. Customer Order Cycle (retailer, consumer) Customer arrival Customer order entry Customer order fulfillment Customer order receiving 2. Replenishment Cycle (retailer, distributor/factory) Retail order trigger Retail order entry Retail order fulfillment Retail order receiving 3. Manufacturing Cycle (wholesaler, manufacturer) Order arrival Product scheduling Manufacturing and shipping Receiving 4. Procurement Cycle PUSH/PULL VIEW 1. Push-based supply chain based on long-term forecast 2. Pull-based supply chain based on customer demands 3. Push-Pull supply chain Push process: Procurement

Pull process: Customer order & manufacturing cycle COMPETITIVE STRATEGY set of customer needs that it seeks to satisfy through its products and services STRATEGIC FIT consistency between the customer priorities that the competitive strategy hopes to satisfy and the supply chain capabilities that the supply chain aims to build. 1. Understanding uncertainty customer and supply chain

Implied demand uncertainty exists due to the portion of demand that the supply chain is required to meet. Supply uncertainty results from the capability of the supply chain. 2. Understanding the supply chain increasing responsiveness means additional cost that lowers supply chain efficiency. 3. Achieving strategic fit the greater the implied uncertainty, the more responsive the supply chain should be. SUPPLY CHAIN DRIVERS AND OBSTACLES 1. FACILITIES locations to or from which inventory is transported, stored, assembled, or fabricated Components: a) Location (efficiency vs responsiveness) b) Capacity (flexibility vs efficiency) c) Manufacturing methodology Product focus performs many different functions in producing a single type of product. Functional focus performs few functions on many types of products. d) Warehousing methodology SKU storage stores all of one type of product together Job lots storage all different types of products needed to perform a particular task or satisfy a particular type of customer are stored together.

Notes: Supply Chain Management| Maria Carmela Rojo Caupayan

Cross docking goods are not warehoused in a facility (ex. walmart)


Inventory Control Technique ABC Analysis Items % annual inventory value % annual inventory items Stock level Delivery schedule Review and control

2. INVENTORY all raw materials, work in process, and finished goods within the supply chain. Cycle Inventory amount of inventory used to satisfy demand between receipt of supplier shipments. Safety Inventory inventory held in case demand exceeds expectations, to counter uncertainty. Seasonal Inventory inventory built up to counter predictable variable in demand. Sourcing set of business processes required to purchase goods and services. Functions of Inventory - buffer uncertainty - decouple or break dependencies - geographical specialization - stored capacity - volume purchases due to quantity discounts, transportation economies - stockpiling in anticipation of future price increases Inventory Costs Ordering costs cost incurred to place an order or to set up production. transportation costs forms communication labor Carrying costs cost incurred to store and maintain inventory. financing - interest earned if placed in another investment opportunity ownership insurance and taxes risks stock deterioration, obsolescence, damage, theft, shrinkage overhead warehousing, handling, stock mgt Stock-out costs cost of not having the proper item when needed lost sales or lost customers additional cost due to the need for immediate availability Methods of Inventory Valuation First-In First Out (FIFO) oldest goods are issued first Last-In First Out (LIFO) latest goods are issued first

Class A 60-70% 10-20% low Most frequent Most tight & frequent

Class B 20-30% 20-30% medium Less frequent Less tight & frequent

Class C 10-20% 60-70% high Least frequent Least tight & frequent

3. TRANSPORTATION movement of the inventory from one point to another in the supply chain Physical distribution methods and means by which a product is physically transferred from one point of production to the point where they are made available to the customer. Transportation management efficient management and selection of the mode of transfers form one place to another. Functions Product movement Product Storage Principles Economy of scale cost per unit weight decreases as the quantity of shipment increases. Economy of distance minimize idle time Goal: maximize load size and shipping distance Objectives use larger trucks as these are more economical utilize full vehicle capacity minimize idle time Participants Shipper/ consignor Destination Carriers and agents Internet Public

Notes: Supply Chain Management| Maria Carmela Rojo Caupayan

Factors Affecting Transportation Decisions Carrier party that moves or transports the product - vehicle-related cost - fixed operating cost - trip-related cost Shipper party that requires the movement of the product between two points in the supply chain - transportation cost - inventory cost - facility cost Operating Characteristics Speed elapsed movement time Availability ability of a mode to service any given location Dependability potential variance from expected & published delivery schedule Capability ability to handle any transport requirement such as load size Frequency quantity of scheduled movement Mode of transportation: air, truck/ motor vehicle, rail, ship/ water vehicle, pipeline, electronic Intermodal use of more than one mode of transportation to move a shipment to its destination Route the path along which a product can be shipped Network the collection of locations and routes along which a product can be shipped Design Options for a Transportation Network Direct Shipping Network Direct Shipping with Milk Runs All Shipments via Central Distribution Center with inventory storage All Shipments via Central Distribution Center with cross-dock Shipping via Distribution Center using Milk Runs
Network Structure Direct Shipping Direct Shipping with Milk Runs Pros no intermediate warehouse easy to coordinate lower transportation costs for small lots lower inventories Cons High inventories Significant receiving expense Increased coordination complexity

All Shipments via Central DC with inventory storage All Shipments via Central DC with inventory storage Shipping via DC using milk runs

lower inbound transportation cost through consolidation very low inventory requirement lower transportation cost through consolidation lower outbound transportation cost for small lots

increased inventory cost increased handling at DC increased coordination complexity Further increased coordination and complexity

4. INFORMATION Coordination and Information Sharing occurs when all the different stages of a supply chain work toward the objective of maximizing total supply chain profitability rather than each stage devoting itself to its own profitability without profitability without considering total supply chain. WAREHOUSE LAYOUT PLANNING determines to a large extent how efficiently operations are performed because the layout generally influences the pace, motions, effort and safety with which the employees work. Objectives of Layout Planning Use space efficiently Allow the most efficient material handling Provide the most economical storage in relation to cost of equipment, use of space, damage to material, and handling labor Provide maximum flexibility in order to meet changing storage and handling requirements Make the warehouse a model of good housekeeping Characteristics of an Effective Warehouse Layout Storage effectiveness Space utilization Safety and housekeeping Working conditions and employee satisfaction Ease of supervision Materials handling effectiveness Flow of movement effectiveness Appearance, promotional value Key Aspects of Warehouse Operations & Management Physical Facilities Systems and Controls People Management Warehouse a place for storage or any space or area that is used to keep materials, goods, products and other items

Notes: Supply Chain Management| Maria Carmela Rojo Caupayan

for a period of time until finally withdrawn, used, transferred or sold. - a place where things are kept and protected from elements and safeguarded from losses. Need for warehousing take advantage of production economies support companys customer service policies achieve transportation economies take advantage of quantity purchase discounts meet changing market conditions Objectives to receive materials and supplies in accordance with proper documentation procedures and in conformance with specified quality plan and provide adequate storage space for goods to keep storage of goods in accordance with efficient practices including ease of order picking protect stocks from damage, pilferage and unauthorized movement implement a system of reconciling inventory records and actual physical stock issue and transfer materials and goods in conformance with set documentation procedures assist in the effective and efficient disposal of scrap Functions - receive and store materials - protect materials from damage or unauthorized removal - issue materials in right quantity at the right time and to the right place - provide the above services at the least possible cost Warehouse Processes Receiving - orderly receipt of all materials coming into the warehouse - providing assurance that the quantity and quality of such materials are ordered - disbursing materials to storage or to units requiring them Prepackaging performed when products are received in bulk subsequently packaged in merchandisable quantities, or in combinations with other parts to form kits or assortments. Put-away act of placing the merchandise in storage

Storage physical containment of merchandise while it is awaiting demand Order picking process of removing items from storage to meet a specific demand Packaging Sorting Packing and shipping - checking orders for completeness - packaging materials in an appropriate shipping container - preparing shipping documents - weighing shipments to determine charges - accumulating orders by outbound carrier - loading trucks Types of Warehouses general purpose special purpose warehouses - refrigerated - storage for flammable materials - secured storage for highly valuable goods shed or semi-covered open storage Ownership
Private - owned by the firm storing the goods - opportunity to reduce cost for large volumes of goods - high level of control - represent financial risk and loss of flexibility Public - for profit organizations that contract or lease various warehousing and distribution services - provide a number of specialized services - provide flexibility - lack of ownership to the owner of goods

Basic Warehouse Decisions - warehouse ownership - number of warehouses - locations and size of warehouse - layout and control of warehouse - item stored Materials Handling involves any movement of materials vertically, horizontally and diagonally, both manually and mechanically.

Notes: Supply Chain Management| Maria Carmela Rojo Caupayan