BOPR 5301 – OPERATIONS MANAGEMENT

#8 : Supply Chain Management (ch.10)

Felix F Lukman,M.M.
felix_lukman@pmbs.ac.id

1-1
15 May 2013
th
 Supply Chains
• All facilities, functions, and 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 2011 John Wiley & Sons, Inc. 10-2

The Supply Chain – Figure10.1

Copyright 2011 John Wiley & Sons, Inc. 10-3

Supply Chain for Denim Jeans
Figure 10.2a

Copyright 2011 John Wiley & Sons, Inc. 10-4

Supply Chain for Denim Jeans (cont.)
Figure 10.2b

Copyright 2011 John Wiley & Sons, Inc. 10-5

Supply Chain for Bottled Drink

Copyright 2011 John Wiley & Sons, Inc. 10-6

Supply Chain Processes

Copyright 2011 John Wiley & Sons, Inc. 10-7

 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 2011 John Wiley & Sons, Inc. 10-8

 Mc.D ‘s Supply Chain
www.mcdonaldsindia.com
• A McDonald's burger is not just a burger but an outcome of dedicated efforts by
farmers, its suppliers, distribution centre and a firm promise by McDonald's .
McDonald's contributes a great back end process which enables you to enjoy your favorite burger fresh
& hot, and for that, the supply chain truly acts as a backbone of the business.
• The supply chain begins at the grass root level, with the suppliers receving the crop from the farmers.
The crop is then processed and dispatched to the Distribution centres in special temperature controlled
trucks, which ensures that the quality of the items is not compromised. These items are stored in rooms
with different temperature zones and are finally dispatched to the McDonald's restaurants on the basis
of their requirements. McDonald's expectation of 'Cold, Clean, and On-Time Delivery'
plays a very vital role in maintaining the integrity of the products throughout the
entire 'cold chain'.

Copyright 2011 John Wiley & Sons, Inc. 10-9

 Value Chains
• 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
• ultimate goal is same as that of value chain

Copyright 2011 John Wiley & Sons, Inc. 10-10

 Supply Chain Management (SCM)
• Intergrating and 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
total costs
• Keys to effective SCM
• information
• communication
• cooperation
• trust

Copyright 2011 John Wiley & Sons, Inc. 10-12

 Supply Chain
Uncertainty and Inventory
• A major objective of SCM:
• respond to uncertainty in customer demand without creating
costly excess inventory
• Negative effects of uncertainty
• lateness
• incomplete orders
• Inventory
• insurance against supply chain uncertainty

10-13
 Supply Chain
Uncertainty and 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
“ Ornamental fish export case – Indonesia”

10-14
 Supply Chain
Uncertainty and Inventory
“ Ornamental fish export case – Indonesia” FINISH
START

Copyright 2011 John Wiley & Sons, Inc. 10-15

 Bullwhip Effect – p. 427
• Occurs when slight demand variability is
magnified as information moves back upstream

Copyright 2011 John Wiley & Sons, Inc. 10-16

 Risk Pooling
• Risks are aggregated to reduce the impact of
individual risks
• Combine inventories from multiple locations into one
• Reduce parts and product variability, thereby reducing the
number of product components
• Create flexible capacity

Copyright 2011 John Wiley & Sons, Inc. 10-17

 Information Technology:
A Supply Chain Enabler
• Information links all aspects of supply chain
• E-business
• replacement of physical business processes with
electronic ones
• Electronic data interchange (EDI)
• a computer-to-computer exchange of business documents
• Bar code and point-of-sale
• data creates an instantaneous computer record of a sale

10-18
 IT: Supply Chain Enabler – p. 434-435
• Radio frequency identification (RFID)
• technology can send product data from an item to a reader
via radio waves
• Internet
• allows companies to communicate with suppliers,
customers, shippers and other businesses around the
world instantaneously
• Build-to-order (BTO)
• direct-sell-to-customers model via the Internet; extensive
communication with suppliers and customer

Copyright 2011 John Wiley & Sons, Inc. 10-19

Supply Chain Enablers

Copyright 2011 John Wiley & Sons, Inc. 10-20

 E-Business & Supply Chain Management
• Savings due to lower transaction costs
• Reduction of intermediary roles
• Shorter supply chain response times
• Wider presence and increased visibility
• Greater choices & more info for customers
• Improved service
• Collection & analysis of huge amounts of customer data &
preferences
• Access to global markets, suppliers & distribution channels

Copyright 2011 John Wiley & Sons, Inc. 10-21

Electronic Data Interchange (EDI)
• Computer-to-computer exchange of documents
in a standard format
• Purchasing, shipping and receiving
• Improve customer service
• Reduce paperwork
• Increase productivity
• Improve billing and cost efficiency
• Reduce bullwhip effect through information
sharing

Copyright 2011 John Wiley & Sons, Inc. 10-22

 Bar Codes

• Automated data collection system

• Bar code contains identifying information
• Provide instantaneous tracking information
• Checkout scanners create point-of-sale
data
• Update inventory records
• Identify trends
• Order material
• Schedule orders
• Plan deliveries
Copyright 2011 John Wiley & Sons, Inc. 10-23
 Radio Frequency Identification
(RFID)
• Use radio waves to transfer data from chip to a reader
• Provides complete visibility of product location
• Continuous inventory monitoring
• Reduce labor to manage inventory
• Reduce inventory costs

• RFID is not standardized yet

• Difficult to track between systems

Copyright 2011 John Wiley & Sons, Inc. 10-24

RFID Capabilities

Copyright 2011 John Wiley & Sons, Inc. 10-25

 Supply Chain Integration
• Share information among supply chain
members
• Reduced bullwhip effect
• Early problem detection
• Faster response
• Builds trust and confidence
• Collaborative planning, forecasting,
replenishment, and design
• Reduced bullwhip effect
• Lower costs (material, logistics, operating, etc.)
• Higher capacity utilization
• Improved customer service levels

Copyright 2011 John Wiley & Sons, Inc. 10-26

 Supply Chain Integration
• Coordinated workflow, production and
operations, 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 2011 John Wiley & Sons, Inc. 10-27

 Collaborative Planning,
Forecasting, and Replenishment
(CPFR)
• 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 2011 John Wiley & Sons, Inc. 10-28

 SCM Software
• Enterprise resource planning (ERP)
• software that integrates the components of a
company by sharing and organizing
information and data

Copyright 2011 John Wiley & Sons, Inc. 10-29

Measuring Supply Chain Performance –
p.440

• Metrics used to measure supply chain performance

•Inventory turnover
Inventory turns
Cost of goods sold

Average aggregate value of inventory

•Total value (at cost) of inventory

Average aggregate value of inventory

  (average inventory for item i )  (unit value item i )

Copyright 2011 John Wiley & Sons, Inc. 10-30

 Measuring Supply Chain
•Days of supply
Performance
Days of supply
Average aggregate value of inventory

(Cost of goods sold)/(365 days)

•Fill rate: fraction of orders filled by a distribution center

within a specific time period

Copyright 2011 John Wiley & Sons, Inc. 10-31

Computing Key Performance
Indicators

Copyright 2011 John Wiley & Sons, Inc. 10-32

 Process Control and SCOR
• Process Control
• not only for manufacturing operations
• can be used in any processes of supply chain
• Supply Chain Operations Reference
(SCOR)
• a cross industry supply chain diagnostic tool
maintained by the Supply Chain Council

Copyright 2011 John Wiley & Sons, Inc. 10-33

SCOR Model Processes

Copyright 2011 John Wiley & Sons, Inc. 10-34