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CHAPTER 8

SUPPLY CHAIN MANAGEMENT

McGraw-Hill/Irwin

2008 The McGraw-Hill Companies, All Rights Reserved

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Chapter Eight Overview


SECTION 8.1 SUPPLY CHAIN FUNDAMENTALS
Basics of Supply Chain Information Technologys Role in the Supply Chain Supply Chain Management Success Factors SCM Success Stories

SECTION 8.2 APPLYING A SUPPLY CHAIN DESIGN


Using Information Technology to Drive the Supply Chain Facilities Driver Inventory Driver Transportation Driver Information Driver Applying a Supply Chain Design Future Supply Chain Trends

SECTION 8.1

SUPPLY CHAIN FUNDAMENTALS

McGraw-Hill/Irwin

2008 The McGraw-Hill Companies, All Rights Reserved

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LEARNING OUTCOMES
1. List and describe the components of a typical supply chain
Define the relationship between decision making and supply chain management Identify the factors driving supply chain management Summarize the best practices for implementing a successful supply chain management system

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BASICS OF SUPPLY CHAIN


The average company spends nearly half of every dollar that it earns on production In the past, companies focused primarily on manufacturing and quality improvements to influence their supply chains

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BASICS OF SUPPLY CHAIN


The supply chain has three main links:
1. Materials flow from suppliers and their upstream suppliers at all levels 2. Transformation of materials into semifinished and finished products through the organizations own production process 3. Distribution of products to customers and their downstream customers at all levels

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BASICS OF SUPPLY CHAIN


Organizations must embrace technologies that can effectively manage supply chains

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BASICS OF SUPPLY CHAIN

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INFORMATION TECHNOLOGYS ROLE IN THE SUPPLY CHAIN


ITs primary role is to create integrations or tight process and information linkages between functions within a firm

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INFORMATION TECHNOLOGYS ROLE IN THE SUPPLY CHAIN


Factors Driving SCM

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Visibility
Supply chain visibility the ability to view all areas up and down the supply chain
Bullwhip effect occurs when distorted product demand information passes from one entity to the next throughout the supply chain

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Consumer Behavior
Companies can respond faster and more effectively to consumer demands through supply chain enhances
Demand planning software generates demand forecasts using statistical tools and forecasting techniques

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Competition
Supply chain planning (SCP) software uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain
Supply chain execution (SCE) software automates the different steps and stages of the supply chain

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Competition
SCP and SCE in the supply chain

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Speed

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SUPPLY CHAIN MANAGEMENT SUCCESS FACTORS

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SUPPLY CHAIN MANAGEMENT SUCCESS FACTORS


SCM industry best practices include:
1. Make the sale to suppliers 2. Wean employees off traditional business practices 3. Ensure the SCM system supports the organizational goals 4. Deploy in incremental phases and measure and communicate success 5. Be future oriented

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SCM SUCCESS STORIES


Top reasons why more and more executives are turning to SCM to manage their extended enterprises

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SCM SUCCESS STORIES


Numerous decision support systems (DSSs) are being built to assist decision makers in the design and operation of integrated supply chains DSSs allow managers to examine performance and relationships over the supply chain and among:
Suppliers Manufacturers Distributors Other factors that optimize supply chain performance

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SCM SUCCESS STORIES

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OPENING CASE QUESTIONS Dells Famous Supply Chain


1. How might Dell use each of the five basic SCM components? 2. How had Dell influenced visibility, consumer behavior, competition, and speed though the use of IT in its supply chain?
3. Explain the seven principles of SCM in reference to Dells business model

SECTION 8.2

APPLYING A SUPPLY CHAIN DESIGN

McGraw-Hill/Irwin

2008 The McGraw-Hill Companies, All Rights Reserved

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LEARNING OUTCOMES
5. List and describe the four drivers of supply chain management 6. Explain supply chain management strategies focused on efficiency
7. Explain supply chain management strategies focused on effectiveness

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USING IT TO DRIVE THE SUPPLY CHAIN


The four primary drivers of supply chain management
1. 2. 3. 4. Facilities Inventory Transportation Information

Organizations use these four drivers to support either a supply chain strategy focusing on efficiency or a supply chain strategy focusing on effectiveness

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USING IT TO DRIVE THE SUPPLY CHAIN

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FACILITIES DRIVER
Facility processes or transforms inventory into another product, or it stores the inventory before shipping it to the next facility
Three primary facilities components
1. Location 2. Capacity 3. Operational design

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FACILITIES 1: Location
Location efficiency centralize the location to gain economies of scale, which increases efficiency
Location effectiveness decentralize the locations to be closer to the customers, which increases effectiveness

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FACILITIES 2: Capacity
Capacity efficiency minimal excess capacity with the ability to produce only what is required
Capacity effectiveness large amounts of excess capacity which can handle wide swings in demand

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FACILITIES 3: Operational Design


Operational design efficiency product focus design allows the facility to become highly efficient at producing one single product, increasing efficiency
Operational design effectiveness functional focus design allows the facility to perform a specific function on many different types of products, increasing effectiveness

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FACILITIES DRIVER

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INVENTORY DRIVER

Inventory offsets discrepancies between supply and demand


Inventory management and control software provides control and visibility to the status of individual items maintained in inventory

Two primary inventory components


1. Cycle inventory 2. Safety inventory

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INVENTORY 1: Cycle Inventory


Cycle inventory the average amount of inventory held to satisfy customer demands between inventory deliveries
Cycle inventory efficiency holding small amounts of inventory and receiving orders weekly or even daily Cycle inventory effectiveness holding large amounts of inventory and receiving inventory deliveries only once a month

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INVENTORY 2: Safety Inventory


Safety inventory extra inventory held in the event demand exceeds supply
Safety inventory efficiency holding small amounts of safety inventory Safety inventory effectiveness holding large amounts of safety inventory

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INVENTORY DRIVER

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TRANSPORTATION DRIVER
Transportation moves inventories between the different stages in the supply chain
Two primary inventory components
1. Method of transportation 2. Transportation route

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TRANSPORTATION 1: Method of Transportation


Global inventory management system provides the ability to locate, track, and predict the movement of every component or material anywhere upstream or downstream in the supply chain
Method of transportation efficiency Method of transportation effectiveness

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TRANSPORTATION 2: Transportation Route


Transportation planning software tracks and analyzes the movement of materials and products to ensure the delivery of materials and finished goods at the right time, the right place, and the lowest cost
Distribution management software coordinates the process of transporting materials from a manufacturer to distribution centers to the final customer
Transportation route efficiency Transportation route effectiveness

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TRANSPORTATION DRIVER

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INFORMATION DRIVER
Information an organization must decide how and what information it wants to share with its supply chain partners
Two primary information components
1. Information sharing 2. Push verses pull strategy

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INFORMATION 1: Information Sharing


Information sharing efficiency freely share lots of information to increase the speed and decrease the costs of supply chain processing
Information sharing effectiveness share only selected information with certain individuals, which will decrease the speed and increase the costs of supply chain processing

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INFORMATION 2: Push vs. Pull Information Strategy


Pull information strategy (efficiency) supply chain partners are responsible for pulling all relevant information
Pull technology pulls information

Push information strategy effectiveness organization takes on the responsibility to push information out to its supply chain partners
Push technology sends information

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INFORMATION DRIVER

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APPLYING A SUPPLY CHAIN DESIGN


Wal-Marts supply chain management strategy emphasizes efficiency, but also maintains adequate levels of effectiveness
Facilities focus Efficiency Inventory focus Efficiency Transportation focus Effectiveness Information focus - Efficiency

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APPLYING A SUPPLY CHAIN DESIGN

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FUTURE SUPPLY CHAIN TRENDS


Fastest growing SCM components
Supply chain event management (SCEM) Selling chain management Collaborative engineering Collaborative demand planning

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OPENING CASE QUESTIONS Dells Famous Supply Chain


4. Identify the four primary drivers of SCM and explain how Dell uses each one to gain efficiency or effectiveness in its supply chain
5. Choose one of the fast growth SCM components and explain how Dell can use it to increase business operations 6. What is RFID and how could Dell use the technology to improve its supply chain?

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CLOSING CASE ONE BudNet


1. How can an SCM system help a distributor such as Anheuser-Busch make its supply chain more effective and efficient? 2. SCM is experiencing explosive growth. Explain why this statement is true using BudNet as an example 3. Evaluate BudNets effect on each of the five factors that are driving SCM success 4. List and describe the components of a typical supply chain along with its ability to help Budweiser make effective decisions

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CLOSING CASE TWO Listerines Journey


1. Summarize SCM and describe WarnerLamberts supply chain strategy. Diagram the SCM components
2. Detail Warner-Lamberts facilities strategy 3. Detail Warner-Lamberts inventory strategy

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CLOSING CASE TWO Listerines Journey


4. What would happen to Warner-Lamberts business if a natural disaster in Saudi Arabia depletes its natural gas resources?
5. Assess the impact to Warner-Lamberts business if the majority of the eucalyptus crop was destroyed in a natural disaster 6. Detail Warner-Lamberts information strategy

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CLOSING CASE THREE Levis


1. How did Levi Strauss achieve business success through the use of supply chain management? 2. What might have happened to Levis if its top executives had not supported investments in SCM? 3. David Bergen, Levis CIO, put together a crossfunctional team of key managers from IT, finance, and sales to transform Levis systems to meet Wal-Marts requirements. Analyze the relationships between these three business areas and SCM systems. How can an SCM system help support these three critical business areas?

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CLOSING CASE THREE Levis


4. Describe the five basic SCM components in reference to Wal-Marts business model
5. Explain RFID and provide an example of how Levis could use the technology to increase its business operations