Supply Chain Management

Operations Management

William J. Stevenson

8th edition


Supply Chain Management

Supply Chain Management

Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.

Sometimes referred to as value chains


Supply Chain Management


Warehouses • Factories • Processing centers • Distribution centers • Retail outlets • Offices


Supply Chain Management

Functions and Activities

Forecasting • Purchasing • Inventory management • Information management • Quality assurance • Scheduling • Production and delivery • Customer service


Supply Chain Management

Typical Supply Chains



Purchasing Receiving Storage Operations Storage

Retailer Customer . Storage Dist.14-6 Supply Chain Management Typical Supply Chain for a Manufacturer Figure 14.1a Supplier Supplier Supplier } Storage Mfg.

14-7 Typical Supply Chain for a Service Supply Chain Management Figure 14.1b Supplier } Storage Service Customer Supplier .

4. 5. 3. 6.14-8 Need for Supply Chain Management 1. Supply Chain Management Improve operations Increasing levels of outsourcing Increasing transportation costs Competitive pressures Increasing globalization Increasing importance of e-commerce Complexity of supply chains Manage inventories . 8. 2. 7.

3 Amount of inventory = Tier 2 Tier 1 Final Producer istributor D Retailer Suppliers Suppliers Customer .14-9 Supply Chain Management Bullwhip Effect Figure 14.

Benefits of Supply Chain Management Organization Campbell Soup Hewlett-Packard Sport Obermeyer National Bicycle Wal-Mart 14-10 Supply Chain Management Benefit Doubled inventory turnover rate Cut supply costs 75% Doubled profits and increased sales 60% Increased market share from 5% to 29% Largest and most profitable retailer in the world .

Benefits of Supply Chain Management • 14-11 Supply Chain Management Lower inventories • Higher productivity • Greater agility • Shorter lead times • Higher profits • Greater customer loyalty .

1 Element Customers Forecasting Design Processing Inventory Purchasing Suppliers Location Logistics Typical Issues Determining what customers want Predicting quantity and timing of demand Incorporating customer wants. and time Controlling quality. mfg. and relations Determining location of facilities Deciding how to best move and store materials .. scheduling work Meeting demand while managing inventory costs Evaluating suppliers and supporting operations Monitoring supplier quality.14-12 Supply Chain Management Elements of Supply Chain Management Table 14. delivery.

14-13 Supply Chain Management Logistics • Logistics • Refers to the movement of materials and information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain .

14-14 Supply Chain Management Logistics • Movement within the facility • Incoming and outgoing shipments • Bar coding • EDI • Distribution • JIT Deliveries 0 214800 232087768 .

4 Work center Storage Storage Storage RECEIVING Shipping .14-15 Supply Chain Management Materials Movement Work center Work center Work center Figure 14.

14-16 Supply Chain Management Distribution Requirements Planning • Distribution requirements planning (DRP) is a system for inventory management and distribution planning Extends the concepts of MRPII • .

14-17 Supply Chain Management Uses of DRP • Management uses DRP to plan and coordinate: Transportation • Warehousing • Workers • Equipment • Financial flows • .

. including purchase orders. and debit or credit memos. shipping notices.14-18 Supply Chain Management Electronic Data Interchange • EDI – the direct transmission of interorganizational transactions. computer-tocomputer.

14-19 Supply Chain Management Electronic Data Interchange • 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 .

14-20 Supply Chain Management Efficient Consumer Response • Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry • Reflects companies’ efforts to achieve quick response using EDI and bar codes .

14-21 Supply Chain Management E-Commerce • E-Commerce: the use of electronic technology to facilitate business transactions • Applications include • Internet buying and selling • E-mail • Order and shipment tracking • Electronic data interchange .

14-22 Supply Chain Management Advantages E-Commerce • Companies can: • Have a global presence • Improve competitiveness and quality • Analyze customer interests • Collect detailed information • Shorten supply chain response times • Realize substantial cost savings • Create virtual companies • Level the playing field for small companies .

14-23 Supply Chain Management Disadvantages of E-Commerce Customer expectations • • Order quickly -> fast delivery • Order fulfillment • Order rate often exceeds ability to fulfill it • Inventory holding • • Outsourcing loss of control Internal holding costs .

14-24 Supply Chain Management Successful Supply Chain • • • • Trust among trading partners Effective communications Supply chain visibility Event-management capability • The ability to detect and respond to unplanned events • Performance metrics .

14-25 Supply Chain Management SCOR Metrics Metrics Table 14.4 Perspective Reliability On-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment Supply chain response time Upside production flexibility Supply chain management costs Warranty cost as a percent of revenue Value added per employee Total inventory days of supply Cash-to-cash cycle time Net asset turns Flexibility Expenses Assets/utilization .

14-26 Supply Chain Management CPFR • Collaborative Planning. and Replenishment Focuses on information sharing among trading partners Forecasts can be frozen and then converted into a shipping plan Eliminates typical order processing • • • . Forecasting.

14-27 Supply Chain Management CPFR Process Step 1 – Front-end agreement Step 2 – Joint business plan Steps 3-5 – Sales forecast Steps 6-8 – Order forecast collaboration Step 9 – Order generation/delivery execution .

14-28 Supply Chain Management CPFR 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 .

2.14-29 Supply Chain Management Creating an Effective Supply Chain 1. 5. . 4. Develop strategic objectives and tactics Integrate and coordinate activities in the internal supply chain Coordinate activities with suppliers with customers Coordinate planning and execution across the supply chain Form strategic partnerships 3.

2. 4. 5.14-30 Supply Chain Management Supply Chain Performance Drivers 1. Quality Cost Flexibility Velocity Customer service . 3.

14-31 Supply Chain Management Velocity • Inventory velocity • The rate at which inventory(material) goes through the supply chain • Information velocity • The rate at which information is communicated in a supply chain .

14-32 Supply Chain Management Challenges • • • • • • Barriers to integration of organizations Getting top management on board Dealing with trade-offs Small businesses Variability and uncertainty Long lead times .

Lead time-transportation costs Product variety-inventory • Delayed differentiation Disintermediation 1. 2. Inventory-transportation costs • 1. Cost-customer service • .14-33 Supply Chain Management Trade-offs 1. Lot-size-inventory • Bullwhip effect Cross-docking 1.

14-34 Supply Chain Management Trade-offs • Bullwhip effect • Inventories are progressively larger moving backward through the supply chain • 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 • .

14-35 Supply Chain Management Trade-offs • Delayed differentiation • Production of standard components and subassemblies. which are held until late in the process to add differentiating features • Disintermediation • Reducing one or more steps in a supply chain by cutting out one or more intermediaries .

14-36 Supply Chain Management Supply Chain Issues Tactical Issues Inventory policies Purchasing policies Production policies Transportation policies Quality policies Strategic Issues Design of the supply chain. partnering Operating Issues Quality control Production planning and control .

5 Benefits Possible Drawbacks Traffic congestion Increased costs May not be feasible May need absorb functions Less variety Large inventories Reduced holding costs Quick response Long lead times Delayed differentiation Disintermediation Large number of Modular parts Cost Quality Variability Outsourcing Fewer parts Simpler ordering Reduced cost. better Able to match supply Less variety forecasts and demand . higher Loss of control quality Shorter lead times. more frequent deliveries Table 14.14-37 Supply Chain Management Supply Chain Benefits and Drawbacks Problem Potential Improvement Smaller.

parts. .14-38 Supply Chain Management Purchasing • Purchasing is responsible for obtaining the materials. and supplies and services needed to produce a product or provide a service.

14-39 Supply Chain Management Goal of Purchasing • Develop and implement purchasing plans for products and services that support operations strategies .

14-40 Supply Chain Management Duties of Purchasing • • • • • Identifying sources of supply Negotiating contracts Maintaining a database of suppliers Obtaining goods and services Managing supplies .

5 Purchasing Data processing Design Receiving Suppliers .14-41 Supply Chain Management Purchasing Interfaces Legal Operations Accounting Figure 14.

4. 2. 3.14-42 Supply Chain Management Purchasing Cycle Legal Operations Accounting 1. 5. Requisition received Supplier selected Order is placed Monitor orders Receive orders Purchasing Data processing Design Receiving Suppliers .

14-43 Supply Chain Management Value Analysis vs. Outsourcing Value analysis • • Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance .

14-44 Supply Chain Management Centralized vs Decentralized Purchasing • Centralized purchasing • Purchasing is handled by one special department • Decentralized purchasing • Individual departments or separate locations handle their own purchasing requirements .

14-45 Supply Chain Management Suppliers • • • • • • Choosing suppliers Evaluating sources of supply Supplier audits Supplier certification Supplier relationships Supplier partnerships .

14-46 Supply Chain Management Factors in Choosing a Supplier • Quality and quality assurance • Flexibility • Location • Price .

Factors in Choosing a Supplier (cont’d) • 14-47 Supply Chain Management Product or service changes • Reputation and financial stability • Lead times and on-time delivery • Other accounts .

and service . reputation. quality.14-48 Supply Chain Management Evaluating Sources of Supply • Vendor analysis: Evaluating the sources of supply in terms of price.

14-49 Supply Chain Management Evaluating Sources of Supply • Vendor analysis .evaluating the sources of supply in terms of • Price • Quality • Services • Location • Inventory policy • Flexibility .

9 Aspect Number of suppliers Length of relationship Low price Reliability Openness Quality Volume of business Flexibility Location Partner One or a few Long-term Moderately important High High May be unreliable.14-50 Supply Chain Management Supplier as a Partner Adversary Many May be brief Major consideration May not be high Low Table 14. vendor inspects certified May be low Relatively low Widely dispersed High Relatively high Nearness is important . buyer At the source.

Reduce transportation costs 3. Improve product design 6. Introduce new products or services . Reduce production costs 4. Reduce time to market 7. Improve product quality 5.14-51 Supply Chain Management Supplier Partnerships • Ideas from suppliers could lead to improved competitiveness 1. Reduce cost of making the purchase 2. Improve customer satisfaction 8. Reduce inventory costs 9.

14-52 Supply Chain Management Critical Issues • Strategic importance • Cost • Quality • Agility • Customer service • Competitive advantage • Technology management • Benefits • Risks .

14-53 Supply Chain Management Critical Issues • Purchasing function • Increased outsourcing • Increased conversion to lean production • Just-in-time deliveries • Globalization .

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