Supply Chain Management

AG BM 460

Introduction

• Hanover Foods – 95% of output is produced under contract

• Contract w/ store or industrial customer or food service company including important variables

• Then plan production

• Then contract w/ farmers to get what you need – including all important variables

Enhancing the customer’s experience through Enhancing the customer’s experience through excellence in delivering the right products, excellence in delivering the right products, services, resources and information services, resources and information seamlesslyseamlessly to the to the right place at the right timeright place at the right time!!

Mission of the Supply Chain:Mission of the Supply Chain:

“Nowadays, it’s supply chains that compete with supply chains!”

Price Waterhouse Coopers

Supply Chain Management Introduction

• Some definitions– Supply Chain – the core business processes in an

organization that create and deliver a product or service, from concept through development and manufacturing or conversion, and into a market for consumption

– Supply Chain Management – the methods, systems and leadership that continuously improve an organization’s integrated processes for product and service design, purchasing, inventory management, logistics, distribution and customer satisfaction

Supply Chain Management

• More definitions– Upstream – the processes which occur before

manufacturing or production into a deliverable product or service, typically processes dedicated to getting raw materials from suppliers

– Downstream – the processes which occur after manufacturing or production, typically those processes dedicated to getting goods and services to customers and consumers

Definitions of Supply Chain Management

Supply Chain Management involves the flows between and among stages in a supply chain to maximize total profitability.

Chopra and Meindl, 2001

Supply Chain Optimization

• The traditional approach to supply chain management usually involves a collection of separate functional activities

• Integrated approach views costs to anybody as costs to the chain – prevents actions that save money on trucking but cost more money on inventory

Traditional versus Integrated SCM Approaches

• Independent inventory management policies

• Minimization of firm costs• Short-term focus• Information sharing limited to

current transaction• Corporate philosophies not

relevant• Each to their own success or

failure• Independent actions and

information systems

• Joint reduction of channel inventories

• Channel-wide cost savings• Long-term perspective• As required for planning and

monitoring• Compatible corporate

philosophies• Sharing of risks and rewards• Channel leadership and

compatible information systems

Some examples

• Inventory – independent or system-wide – supermarket buys 6 months of detergent on sale and stores it rather than work out a delivery schedule to get it as needed

• Costs – minimize your costs or system-wide costs – sale in Denver region so buy detergent for whole country there and haul it back to where it is needed or work out a delivery schedule from plant to local warehouses

Some examples

• Short or long term focus – are you making optimal decisions for today or for longer term – hog plant that underpays farmers today may find them out of business tomorrow and then no hog plant

• Information sharing – current transaction or broadly – are you working together to both succeed or just for short term gain

Some examples

• Corporate philosophies – working together requires recognition of other’s perspective, if not compatible philosophies – Hershey & WalMart

• Each out for himself or sharing risks and rewards – Hershey managing candy section for WalMart

Information Systems

• Non compatible systems once were the standard

• Now, electronic ordering – sharing scanner data – electronic invoicing – need compatible systems

SCM Activities: Industry Focus

1. Integrated Behaviour2. Mutual Sharing of Information3. Mutual Sharing of Risks and Rewards4. Cooperation5. Same Goal and Same Focus on Serving Customers6. Integration of Processes7. Partners to Build and Maintain Long-term Relationships

Cost

Inventorycosts

Transportcosts

Totalcosts

Rail Truck Air

Setting the Stage

• A supply chain is a linked set of value creating activities.– View chain as an integrated system.– Consumer driven … emphasis on quality.– Focus on improving system-wide

performance … then on the distribution of gains from those improvements.

– Transparency in inter-firm relationships.– Key role for chain leader.

Setting the Stage

• Key concerns in the design of supply chains in the food system include:– system-wide efficiency– distribution of returns– food safety and quality– adaptability and innovation

• Structural change and the need to link into more highly integrated supply chains pose new challenges for farm managers.

Mike Villa’s Produce Activities

• Contract with WalMart to supply produce over next 6 months

• Cost targets

• Quality targets

• Delivery targets

• Inventory targets

Consider a single product - onions

• Different sources

• Storable to a degree

• Planning ahead

• Managing logistics

• Dealing with surprises