15 Supply Chain

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Supply ChainManagement

Chapter 15

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc !ll rights reser"e#


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Supply Chain

Supply Chain:

the sequence of organizations - their facilities,functions, and activities - that are involved inproducing and delivering a product or service

Sometimes referred to as value chains

Instructor Slides 15-2


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Facilities

The sequence of the supply chain begins withbasic suppliers and extends all the way to thenal customer!arehouses

"actories #rocessing centers$istribution centers %etail outlets&'ces



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Functions and Activities

Supply chain functions and activities "orecasting #urchasing (nventory management

(nformation management)uality assurance Scheduling #roduction and delivery Customer service



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Supply Chain Management

Supply Chain Management (SCM) The strategic coordination of business

functions within a business organization andthroughout its supply chain for the purpose of

integrating supply and demand management



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SCM Managers

SCM Managers #eople at various levels of the organization who are

responsible for managing supply and demand bothwithin and across business organizations*

(nvolved with planning and coordinating activitiesSourcing and procurement of materials and services Transformation activities+ogistics



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Key SCM ssues

The goal of SCM is to match supply to demand aseectively and e'ciently as possible

ey issues.$etermining appropriate levels of outsourcing

Managing procurementManaging suppliersManaging customer relationships /eing able to quic0ly identify problems and respond to

themManaging ris0



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!rends in SCM

!rends a"ecting supply chain designand management:Measuring supply chain %&(12reening3 the supply chain%e-evaluating outsourcing(ntegrating (TManaging ris0s4dopting lean principles



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#lo$al Supply Chains

#lo$al supply chains #roduct design often uses inputs from around the world Some manufacturing and service activities are outsourced

to countries where labor and5or materials costs are lower #roducts are sold globally

Comple%ities +anguage and cultural dierences Currency 6uctuations #olitical instability (ncreasing transportation costs and lead times

(ncreased need for trust amongst supply chain partners



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Management &esponsi$ilities

Aspects of management responsi$ility:+egal/eing 0nowledgeable about laws and regulations of

the countries where supply chains exist

&beying laws and operating to conform toregulations

7conomicSupplying products and services to meet demand as

e'ciently as possible

7thicalConducing business in ways that are consistent with

the moral standards of society



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Management &esponsi$ility:Strategic

Certain strategic responsibilities have a ma8orimpact on the success of both supply chainmanagement and the business itself.Supply chain strategy alignment9etwor0 conguration(nformation technology#roducts and servicesCapacity planningStrategic partnerships$istribution strategy:ncertainty and ris0 reduction



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!actical

"orecasting

Sourcing

&perations #lanning

Managing inventory

Transportation planning

Collaborating

Scheduling

%eceiving

Transforming

&rder fullling

Managing inventory

Shipping

(nformation sharing

Controlling

Management &esponsi$ility:!actical and 'perational

Operational



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rocurement

The purchasing department is responsible forobtaining the materials, parts, and suppliesand services needed to produce a product orprovide a service*

!he goal of procurement$evelop and implement purchasing plans for

products and services that support operationsstrategies



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uties of purchasing

(dentifying sources of supply

9egotiating contracts

Maintaining a database of suppliers

&btaining goods and services

Managing supplies



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!he urchasing Cycle

!he main steps:

;* #urchasing receives the requisition

* Monitoring orders

?* %eceiving orders



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*+,usiness

*+$usiness The use of electronic technology to facilitate business

transactions

4pplications include

(nternet buying and selling7-mail&rder and shipment trac0ing7lectronic data interchange#roduct and service promotion

#rovide information about products and services



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Advantages of *+,usiness

Companies can: @ave a global presence (mprove competitiveness and quality of service 4nalyze customer interests Collect detailed information about clientsA preferences

Shorten supply chain response times %educe or eliminate the role of BtraditionalA retailers and5or

intermediaries %ealize substantial cost savings

Also allo-s the: Creation of virtual companies +eveling of the playing eld for small companies



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*+,usiness 'rder Ful.llmentro$lems

Customer e%pectations &rder quic0ly )uic0 delivery

emand varia$ility creates order ful.llmentpro$lems

Sometimes nternet demand e%ceeds anorgani/ation0s a$ility to ful.ll orders

nventory &utsourcing order fulllment

+oss of control

/uild large warehouses

(nternal holding costs



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Supplier Management

Choosing suppliers

Supplier audits

Supplier certication

Supplier relationship managementSupplier partnershipsC#"% collaborative planning, forecasting, and

replenishmentD

Strategic partnering



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endor Analysis2 Supplier Audits2and Supplier Certi.cation

endor analysis7valuating the sources of supply in terms of

price, quality, reputation, and service

Supplier audit 4 means of 0eeping current on suppliersA production or

serviceD capabilities, quality and delivery problems andresolutions, and performance on other criteria

Supplier certi.cation

(nvolves a detailed examination of a supplierAs policiesand capabilities

The process veries the supplier meets or exceeds therequirements of a buyer



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Supplier &elationship Management

!ype of relationship is often governed $ythe duration of the trading relationship Short-term&ftentimes involves competitive bidding

Minimal interactionMedium-term&ften involves an ongoing relationship

+ong-term&ften involves greater cooperation that evolves into

a partnership

Instructor Slides

15-21


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Strategic artnering

Two or more business organizations that havecomplementary products or services 8oin sothat each may realize a strategic benet*%ample:!hen a supplier agrees to hold inventory for a

customer in return for a long-term commitment The customerAs inventory holding cost is reduced and

the supplier is relieved of the costs that would beneeded to continually nd new customers



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nventory Management

nventory issues in SCM(nventory locationCentralized inventories$ecentralized inventories

(nventory velocity The speed at which goods move through a supply

chain

The bullwhip eect

(nventory oscillations that become increasinglylarger loo0ing bac0ward through the supply chain

Instructor Slides

15-23


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!he ,ull-hip *"ect

ariations in demand cause inventory3uctuations to 3uctuate and get out ofcontrol (nventory 6uctuation can be magnied by

#eriodic ordering%eactions to shortages"orecast inaccuracies&rder batchingSales incentives and promotions

+iberal product return policies %esults in@igher costs+ower customer satisfaction

Instructor Slides

15-24


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!he ,ull-hip *"ect



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Mitigating the ,ull-hip *"ect

#ood supply chain management canovercome the $ull-hip e"ect Strategic bueringe*g*, holding inventory at a distribution center rather

than at retail outlets %eplenishment based on needendor+managed inventory Eendors monitor goods and replenish retail inventories when

supplies are low

Instructor Slides

15-26


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'rder Ful.llment

'rder ful.llment The process involved in responding to

customer orders&ften a function of the degree of customization

requiredCommon approaches7ngineer-to-&rder 7T&DMa0e-to-&rder MT&D4ssemble-to-&rder 4T&DMa0e-to-Stoc0 MTSD

Instructor Slides

15-27


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4ogistics

4ogistics%efers to the movement of materials, services,

cash, and information in a supply chainMovements within a facility

(ncoming shipments&utgoing shipments



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Movement ithin a Facility

Instructor Slides

15-29`


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ncoming and 'utgoing Shipments

!ra6c management&verseeing the shipment of incoming and

outgoing goods@andles schedules and decisions on shipping

method and times, ta0ing into account.Costs of shipping alternatives2overnment regulations9eeds of the organizationShipping delays or disruptions

Instructor Slides

15-30


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!rac7ing #oods: &F

&adio fre8uency identi.cation (&F) 4 technology that uses radio waves to identify ob8ects,

such as goods in supply chainsSimilar to barcodes but

4re able to convey much more information

$o not require line-of-sight for reading

$o not need to be read one at a time

@as the ability to.(ncrease supply chain visibility(mprove inventory management(mprove quality control7nhance relationships with suppliers and customers

Instructor Slides

15-31


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9+4

!hird+party logistics (9+4) The outsourcing of logistics management(ncludes!arehousing and distribution

#otential benets include ta0ing advantage of. The specialistsA 0nowledge Their well-developed information system Their ability to obtain more favorable shipping rates



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Creating an *"ective Supply Chain

t $egins -ith strategic sourcing 4nalyzing the procurement process to lower costs by

reducing waste and non-value-added activities, increaseprots, reduce ris0s, and improve supplier performance

There must be

Trust7ective communication(nformation velocitySupply chain visibility7vent management capability#erformance metrics

Instructor Slides

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Managing &eturns

&everse 4ogistics The process of transporting returned items

#roducts are returned to companies or third partyhandlers for a variety of reasons and in a variety

of conditions 7lements of return management

#ate7eeping

Screening returned goods to prevent incorrectacceptance of goods

Avoidance"inding ways to minimize the number of items that are

returned

Instructor Slides

15-34


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Challenges

/arriers to integration of organizations

2etting top management on board

$ealing with trade-os

Small businesses

Eariability and uncertainty

%esponse time



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!rade+'"s

1 4ot+si/e+inventory trade+o" +arge lot sizes yield benets in terms of quantity discounts

and lower annual setup costs, but it increases the amount ofsafety stoc0 and inventory carrying costsD carried bysuppliers

; nventory+transportation cost trade+o" Suppliers prefer to ship full truc0loads instead of partial

loads to spread shipping costs over as many units aspossible* This leads to greater holding costs for customers

Cross+doc7ing4 technique whereby goods arriving at a warehouse from a

supplier are unloaded from the suppliers truc0 and loaded ontooutbound truc0, thereby avoiding warehouse storage

Instructor Slides

15-36


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!rade+'"s

9 4ead time+transportation costs trade+o" Suppliers li0e to ship in full loads, but waiting for su'cient

orders and5or production to achieve a full load mayincrease lead time


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!rade+'"s

5 Cost+customer service trade+o" #roducing and shipping in large lots reduces costs, but

increases lead time

isintermediation

%educing one or more steps in a supply chain by cuttingout one or more intermediaries



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'perations Strategy

*"ective supply chains are necessaryfor organi/ational success%equires integration of all aspects of the chainSupplier relationships are a critical component

of supply chain strategy+ean operations and six sigma are being

employed to improve supply chain success


15 Supply Chain

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