OM6-1Supply Chain Management Chapter 12 Supply Chain Management.

OM6-1 Supply Chain Management

Chapter 12

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.


• Warehouses

• Factories

• Processing centers

• Distribution centers

• Retail outlets

• Offices

Facilities


Typical Supply Chains

Purchasing ReceivingStorageOperationsStorage

Production Distribution


Typical Supply Chain for a Manufacturer

Supplier

Supplier

Supplier

Storage} Mfg. Dist. Retailer CustomerStorage


Supplier

Supplier

Storage} Service Customer

Typical Supply Chain for a Service


Customers are Suppliers

InitialSupplier

Customer

Supplier

Customer

Supplier

Customer

Supplier

FinalCustomer


• Improve operations• Increasing levels of outsourcing• Increasing transportation costs• Competitive pressures• Increasing globalization• Increasing importance of e-commerce• Complexity of supply chains• Manage inventories

Need for Supply Chain Management


Benefits if Supply Chain Management

Organization Benefit

Campbell Soup Doubled inventory turnover rate

Hewlett-Packard Cut supply costs 75%

Sport Obermeyer Doubled profits and increased sales 60%

National Bicycle Increased market share from 5% to 29%

Wal-Mart Largest and most profitable retailer in the world


Elements of Supply Chain Management

Deciding how to best move and store materialsLogistics

Determining location of facilitiesLocation

Monitoring supplier quality, delivery, and relationsSuppliers

Evaluating suppliers and supporting operationsPurchasing

Meeting demand while managing inventory costsInventory

Controlling quality, scheduling workProcessing

Incorporating customer wants, mfg., and timeDesign

Predicting quantity and timing of demandForecasting

Determining what customers wantCustomers

Typical IssuesElement


• Increasing outsourcing

• Increasing conversion to lean production

• Increasing globalization

Purchasing in Supply Chain Management


Internal Supply Chain

ExternalSupply Chain

InternalSupply Chain

Key:

Suppliers Distribution CustomersProcessing


Supply Chain Issues

Quality controlProduction planning and control

Inventory policiesPurchasing policiesProduction policiesTransportation policiesQuality policies

Design of the supply chain, partnering

Operating IssuesTactical IssuesStrategic Issues


SCOR Metrics

Perspective Metrics

Reliability On-time deliveryOrder fulfillment lead timeFill rate (fraction of demand met from stock)Perfect order fulfillment

Flexibility Supply chain response timeUpside production flexibility

Expenses Supply chain management costsWarranty cost as a percent of revenueValue added per employee

Assets/utilization Total inventory days of supplyCash-to-cash cycle timeNet asset turns


• Logistics– Refers to the movement of materials and

information within a facility and to incoming and out going shipments of goods and materials

Logistics


Logistics

• Movement within the facility

• Incoming and outgoing shipments

• Bar coding

• EDI

• Distribution

• JIT Deliveries

0

214800 232087768


Materials MovementFigure 12-5

RE

CE

IVIN

G

Storage

Workcenter

Work centerWork center

Storage

Workcenter

Storage

Shipping


• 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

Electronic Data Interchange


• 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

Efficient Consumer Response


• Distribution requirements planning (DRP) is a system for inventory management and distribution planning

• Extends the concepts of MRPII

Distribution Requirements Planning


• Management uses DRP to plan and coordinate: – Transportation– Warehousing– Workers– Equipment– Financial flows

Uses of DRP


• 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 iterchange

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

Advantages 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

Disadvantages of E-Commerce


• Buyer exchange

• MRO-catalog hub

• Supplier exchange

• BPO

• Neutral exchange

B2B Market Places


• Develop strategic objectives and tactics

• Integrate and coordinate activities in the internal supply chain

• Coordinate suppliers with customers

• Coordinate planning and execution

• Form strategic partnerships

Creating an Effective Supply Chain


• Quality

• Cost

• Flexibility

• Velocity

• Customer service

Supply Chain Performance Drivers


• Barriers to integration of organizations

• Getting top management on board

• Dealing with trade-offs

• Small businesses

• Variability and uncertainty

• Long lead times

Challenges


• Lot-size-inventory– Bullwhip effect

• Inventory-transportation costs

• Lead time-transportation costs

• Product variety-inventory

• Cost-customer service

Trade-offs


Bullwhip Effect

Tier 2Suppliers

Tier 1Suppliers

Producer Distributor Customers

Ordering

Amount ofinventory=


Supply Chain Benefits and Drawbacks

Problem PotentialImprovement

Benefits PossibleDrawbacks

Large inventories

Smaller, more frequent deliveries

Reduced holding costs

Traffic congestionIncreased costs

Long lead times Delayed differentiationDisintermediation

Quick response May not be feasibleMay need absorb functions

Large number of parts

Modular Fewer partsSimpler ordering

Less variety

CostQuality

Outsourcing Reduced cost, higher quality

Loss of control

Variability Shorter lead times, better forecasts

Able to match supply and demand

Less variety

OM6-1Supply Chain Management Chapter 12 Supply Chain Management.

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