Chapter 10

Supply Chain Management

Strategy and Design
Russell and Taylor
Operations Management, 8th Edition
 Lecture Outline
• Supply Chains – Slide 4
• The Management of Supply Chains – Slide 11
• Green Supply Chains – Slide 17
• Information Technology: A Supply Chain Enabler
– Slide 19
• Supply Chain Integration – Slide 28
• Supply Chain Management (SCM) Software –
Slide 31
• Measuring Supply Chain Performance – Slide 32

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-2
 Learning Objectives
• Describe the key characteristics and management
strategies of the modern supply chain
• Discuss sustainable supply chain practices and the
impact of the environment on supply chain decisions
• Describe the role of information technology in supply
chains, and the need for supply chain integration
• Present the SCOR model and calculate key
performance indicators for monitoring supply chain
performance

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-3
 Supply Chains
• The facilities, functions, and activities involved in
producing and delivering a product or service from
suppliers to customers
• An integrated group of processes to “source,”
“make,” and “deliver” products

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-4
 The Supply Chain

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-5
 Supply Chain for Denim Jeans

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 Supply Chain for Denim Jeans

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 Supply Chain Processes

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 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-9
 Value Chains
• Value chain
• Broader than supply chain
• Customer management
• New product innovation
• Post-sales support
• Change management
• Demand-driven value chain
• Supply management
• Demand management
• Product management

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-10
 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-11
 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-12
 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-13
 Bullwhip Effect
• Occurs when slight demand variability is
magnified as information moves back upstream

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 Risk Management
• Formal process for coping with supply chain
uncertainty
• Evaluate and anticipate likelihood of supply
chain disruptions
• Plan for possible disruptions

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-15
 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-16
 Supply Chain Sustainability
• “Going green”
• Meeting present needs without compromising the
ability of future generations to meet their needs
• Sustaining human and social resources
• It can be cost effective and profitable
• Can provide impetus for product and process
innovations
• Impetus comes from downstream in the supply
chain and moves upstream to suppliers

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-17
 Sustainability and Quality Management
• Reducing waste through quality programs helps
achieve sustainability goals
• Improving fuel efficiency of vehicles
• Telecommuting
• Eco-friendly packing materials
• Energy-efficient facilities
• Changing thermostat settings

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-18
 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-19
 IT: Supply Chain Enabler
• 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-20
 Supply Chain Enablers

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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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-22
 Electronic Data Interchange
• 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

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 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-24
 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

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 RFID Capabilities

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 RFID Capabilities

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 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-28
 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-29
 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

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

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 Measuring Supply Chain Performance
• Key performance indicators
– Metrics used to measure supply chain performance
• Inventory turnover
Inventory turns
Cost of goodssold

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 )

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-32
 Measuring Supply Chain Performance
• Days of supply

Days of supply
Average aggregate value of inventory

(Cost of goodssold)/(365 days)

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

within a specific time period

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-33
Computing Key Performance Indicators

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 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

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-35
 SCOR Model Processes

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 SCOR Performance Metrics

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 10-37
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