Transcript
Supply Chain Supply Chain ManagementManagement
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Supply ChainSupply Chain (Definition of) (Definition of)
The sequence of organizations- their facilities, functions, processes and activities- that are involved in producing and delivering a product or service
Sometimes referred to as value chain
The Supply ChainThe Supply Chain
Products and Services
Products and Services
Products and Services
CustomersCustomers
Total satisfaction with quality, price, delivery, and service
DistributorsDistributors
Package and delivery
Inventory
ProducersProducers
Finished goods, end products and services
Inventory
SuppliersSuppliers
Inventory
Materials, parts, sub-assemblies, and services
Downstream SC members
The Supply ChainThe Supply Chain
Information
Products and Services
Products and Services
Products and Services
CustomersCustomers
Total satisfaction with quality, price, delivery, and service
DistributorsDistributors
Package and delivery
Inventory
ProducersProducers
Finished goods, end products and services
Inventory
SuppliersSuppliers
Inventory
Materials, parts, sub-assemblies, and services
The Supply ChainThe Supply Chain
Information
Cash
Products and Services
Products and Services
Products and Services
CustomersCustomers
Total satisfaction with quality, price, delivery, and service
DistributorsDistributors
Package and delivery
Inventory
ProducersProducers
Finished goods, end products and services
Inventory
SuppliersSuppliers
Inventory
Materials, parts, sub-assemblies, and services
Typical Supply Chain for a Typical Supply Chain for a ManufacturerManufacturer
Supplier
Supplier
Supplier
Storage} Mfg. Storage Dist. Retailer Customer
Supplier
Supplier
} Storage Service Customer
Typical Supply Chain for a ServiceTypical Supply Chain for a Service
Supply Chain ManagementSupply Chain Management
A total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end user (planning, organizing, directing and controlling flows of materials)
Encompasses all activities associated with the flow and transformation of goods and services from raw materials to the end user, the customer
Goals of Goals of Supply Chain ManagementSupply Chain Management (1 of 2) (1 of 2)
Synchronization of activities required to achieve maximum competitive benefits
Coordination, cooperation, and communication and timing among SC members
Ensuring rapid flow of information among members
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Goals of Goals of Supply Chain ManagementSupply Chain Management(2 of 2) (2 of 2)
Linking the market, distribution channels, processes and suppliers so that market demand is met as efficiently as possible across the chain
Matching supply and demand at each stage of the chainUltimate goal: Achieving customer satisfaction
WarehousesFactoriesProcessing centersDistribution centersRetail outletsOffices
FacilitiesFacilities Involved in SCM Involved in SCM
Strategic or OperationalStrategic or Operational
• Two types of decisions in supply chain management– Strategic – design and policy– Operational – day-today activities
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Typical Supply ChainTypical Supply Chain Activities Activities
Purchasing Receiving Storage Operations Storage
Production Distribution
Major decision areas:•Location•Production•Inventory•Distribution
Functions and ActivitiesFunctions and Activities Involved in SCM Involved in SCM ForecastingSchedulingPurchasingInventory managementInformation managementQuality assuranceProduction and delivery LogisticsCustomer service
Elements of Supply Chain Elements of Supply Chain ManagementManagement
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
Processes Involved in SCMProcesses Involved in SCM Acquiring customer ordersProcuring materials and components from
suppliersProducing or manufacturing productsFilling customer orders
Supply-Chain Costs as a Percent of SalesSupply-Chain Costs as a Percent of Sales
• All industry• Automobile• Food• Lumber• Paper• Petroleum• Transportation
• 52%• 67%• 60%• 61%• 55%• 79%• 62%
Industry Percent of Sales
Factors That Contribute to the Increased Factors That Contribute to the Increased Need for Effective Supply Chain Need for Effective Supply Chain
Management:Management:improve operations increased levels of outsourcingincreasing transportation costscompetitive pressuresincreasing globalizationincreasing importance of e-commerceincreasing complexity of supply chainsincreasing pressure to decrease inventories
Benefits of Supply Chain ManagementBenefits of Supply Chain Management
Lower inventoriesLower costs Higher productivityGreater agilityShorter lead timesHigher profitsGreater customer loyaltyIntegration of seperate organizations into a cohesive
operating system
Actual Actual BenefitsBenefits Gained by Gained by Supply Chain Supply Chain ManagementManagement
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
Effective Supply ChainEffective Supply Chain
• Requires linking the market, distribution channels processes, and suppliers
Requirements of a Requirements of a Successful Supply ChainSuccessful Supply ChainTrust among trading partners
Effective communications
Supply chain should enable members to 1) share forecasts, 2) determine the status of orders in real time, 3) access inventory data of partners
Supply chain visibility
Event-management capability
The ability to detect and respond to unplanned events
Measuring SC Performance: Performance metrics
Measuring SC PerformanceMeasuring SC Performance: Inventory : Inventory TurnoverTurnover
• One of the most commonly used measures is “Inventory Turnover”
valueinventory aggregate Average
sold goods ofCost turnoverInventory
valueinventory aggregate Average
sold goods ofCost turnoverInventory
Measuring SC PerformanceMeasuring SC Performance: : SCOR MetricsSCOR 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
Supply Chain UncertaintySupply Chain Uncertainty
Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability
Inventory is a form of insurance
Distorted information is one of the main causes of uncertainty
Bullwhip EffectBullwhip Effect
Final CustomerInitialSupplier
Demand
Inventory oscillations become progressivelylarger moving backward through the supply chain
Inventories in a SC: Inventories in a SC: Bullwhip EffectBullwhip Effect O
rder
Q
uan t
ity
Time
Retailer’s Orders
Ord
er
Qua
n tit
y
Time
Wholesaler’s Orders
Ord
er
Qua
n tit
y
Time
Manufacturer’s Orders
The magnification of variability in orders in the supply-chainThe magnification of variability in orders in the supply-chain
A lot of retailers each with little variability in their orders….
A lot of retailers each with little variability in their orders….
…can lead to greater variability for a fewer number of wholesalers, and…
…can lead to greater variability for a fewer number of wholesalers, and…
…can lead to even greater variability for a single manufacturer.
…can lead to even greater variability for a single manufacturer.
Inventories in a SC: Inventories in a SC: Bullwhip EffectBullwhip Effect
Tier 2Suppliers
Tier 1Suppliers
Producer Distributor Retailer FinalFinalCustomerCustomer
Amount ofAmount ofinventoryinventory=
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Role of Role of Information in the Supply ChainInformation in the Supply Chain(1 of 2) (1 of 2)
Centralized coordination of information flows Integration of transportation, distribution, ordering, and
productionDirect access to domestic and global transportation and
distribution channelsLocating and tracking the movement of every item in the
supply chain
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Role of IRole of Information in the Supply Chainnformation in the Supply Chain (2 of 2)(2 of 2)
Data interchangeData acquisition at the point of origin and point of sale Intercompany and intracompany information access Instantaneous updating of inventory levels
Some IT Applications for SCM (1 of 3)Some IT Applications for SCM (1 of 3)
Electronic Business (replacement of physical processes with electronic ones)
Electronic Data Interchange (a computer-to-computer exchange of business documents in a standard format)
Bar Coding (computer readable codes attached to items flowing through the SC). Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and delivery plans
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Some IT Applications for SCM (2 of 3)Some IT Applications for SCM (2 of 3)
RFID Technology•Used to track goods in supply chain•RFID tags attached to objects•Similar to bar codes but uses radio frequency to transmit product information to receiver•RFID eliminates need for manual counting and bar code scanning
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Some IT Applications for SCM (3 of 3) Some IT Applications for SCM (3 of 3)
Internet (provides instant access to organizations, individuals and information sources; fundamentaly changes the way organizations do business; add speed and accessibility to the SC)
Intranets (internet-like networks that operate within a single organization)
Extranets (intranets that can be connected to the global internet & that include a company’s suppliers and customers; they allow limited access)
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The InternetThe Internet Instant global access to organizations,
individuals, and information sourcesFundamentally changes the way organizations
do businessRemoved geographic
barriersAdds speed and accessibility
to the supply chain
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Build-to-Order Cars over the Internet
• E-Business: the use of electronic technology to facilitate business transactions
• Applications include:– Internet buying and selling– E-mail– Order and shipment tracking– Electronic data interchange
E-BusinessE-Business
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Global presence and increased visibilityGlobal access to markets and customersImproved competitiveness, quality and serviceGreater choices and more information for
customers Collection and analysis of customer data and
preferencesShortened supply chain response times
Advantages Advantages of of E-BusinessE-Business (1 of 2) (1 of 2)
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Shorten transaction times for ordering and delivery Cost and price reductions Virtual companies with lower pricesLeveling the playing field for small companies Reducing or eliminating intermediariesImproved service
Advantages Advantages of of E-BusinessE-Business (2 of 2) (2 of 2)
• 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-BusinessDisadvantages of E-Business
IT IssuesIT Issues Increased benefits and sophistication come with
increased costs
Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient
Security problems are very real
Partnership and trust are important elements that may be new to business relationships
• Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.
• Purchasing cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition.
PurchasingPurchasing
• Identifying sources of supply
• Negotiating contracts
• Maintaining a database of suppliers
• Obtaining goods and services
• Managing supplies
Duties of PurchasingDuties of Purchasing
Purchasing InterfacesPurchasing Interfaces
Purchasing
Legal
AccountingOperations
Dataprocessing
Design
ReceivingSuppliers
Purchasing CyclePurchasing Cycle
1. Requisition received
2. Supplier selected
3. Order is placed
4. Orders are monitored
5. Orders are received
PurchasingPurchasing
LegalLegal
AccountingAccountingOperationsOperations
DataDataprocess-process-inging
DesignDesign
ReceivingReceiving
SuppliersSuppliers
• Centralized purchasing
– Purchasing is handled by one special department
• Decentralized purchasing
– Individual departments or separate locations handle their own purchasing requirements
Centralized vs Decentralized Centralized vs Decentralized PurchasingPurchasing
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
• Choosing suppliers
• Evaluating sources of supply
• Supplier audits
• Supplier certification
• Supplier relationships
• Supplier partnerships
SuppliersSuppliers
SourcingSourcingSourcing is the selection of suppliers
Relationship between customers and suppliers focuses on collaboration and cooperation
Outsourcing has become a long-term strategic decision
Organizations focus on core competencies
Single-sourcing is increasingly a part of supplier relations
SuppliersSuppliersPurchased materials account for about half of
manufacturing costs
Materials, parts, and service must be delivered on time, of high quality, and low cost
Suppliers should be integrated into their customers’ supply chains
Partnerships should be established
On-demand delivery (JIT) is a frequent requirement
Evaluating the sources of supply in terms of:• Price• Quality • Flexibility• Location• Product or service changes• Reputation and financial stability• Lead times and on-time delivery• Inventory policy• Services (such as technical support) provided
Vendor AnalysisVendor Analysis
Supplier as a PartnerSupplier as a Partner
Aspect Adversary PartnerNumber of suppliers Many One or a few
Length of relationship May be brief Long-term
Low price Major consideration Moderately important
Reliability May not be high High
Openness Low High
Quality May be unreliable; buyer inspects
At the source; vendor certified
Volume of business May be low High
Flexibility Relatively low Relatively high
Location Widely dispersed Nearness is important
• Ideas from suppliers could lead to improved competitiveness
1.Reduce cost of making the purchase
2.Reduce transportation costs
3.Reduce production costs
4. Improve product quality
5. Improve product design
6.Reduce time to market
7. Improve customer satisfaction
8.Reduce inventory costs
9. Introduce new products or services
Supplier PartnershipsSupplier Partnerships
E-ProcurementE-ProcurementBusiness-to-business commerce conducted on the
Internet
Benefits include lower transaction costs, lower prices, reduce clerical labor costs, and faster ordering and delivery times
Currently used more for indirect goods
E-Marketplaces service industry-specific companies and suppliers
The Wal-Mart Supply Chain
Centralized Supply at Honda America
Distribution SystemDistribution System
Encompasses all of the distribution channels, processes and functions, including warehousing and transportation, that a product passes through on its way to the final customer.
DistributionDistribution
The actual movement of products and materials between locations
Handling of materials and products at receiving docks, storing products, packaging, and shipping
Often called logisticsDriving force today
is speedParticularly important
for Internet dot-coms
Refers to the movement of materials and information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain
LogisticsLogistics
Materials MovementMaterials Movement R
EC
EIV
ING
Storage
Workcenter
Work centerWork center
Storage
Workcenter
Storage
Shipping
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Figure 7.5 Order Fulfillment at Amazon.com
Third-Party LogisticsThird-Party Logistics
The term used to describe the outsourcing of logistics management.
Reverse LogisticsReverse Logistics• Reverse logistics – the backward flow of goods
returned to the supply chain• Processing returned goods
– Sorting, examining/testing, restocking, repairing– Reconditioning, recycling, disposing
• Gatekeeping – screening goods to prevent incorrect acceptance of goods
• Avoidance – finding ways to minimize the number of items that are returned
Distribution Centers Distribution Centers and Warehousingand Warehousing
Trend is for more frequent orders in smaller quantities
Flow-through facilities and automated material handling
Final assembly and product configuration may be done at the DC
Warehouse Management SystemsWarehouse Management Systems
Highly automated systems
Controls item putaway, picking, packing, and shipping
Cross-docking: Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks
Avoids warehouse storage
A WMS
Vendor-Managed InventoryVendor-Managed Inventory
Stocking information is accessed using EDIA first step towards supply chain collaboration Increased speed, reduced errors, and improved
service
TransportationTransportation
The movement of a product from one location to another as it makes its way to the end-use customer
Important element, often overlookedCommon methods are railroads, trucking, water, air,
intermodal, package carriers, and pipelines
Linking the Supply Chain with SAP
SC Design System: SC Design System: CPFRCPFR
Collaborative Planning, Forecasting, and Replenishment
A system based on the notion that there should be cooperation among supply chain partners in planning, coordination of activities and information sharing, which in turn requires partners to agree on common goals (goal sharing)
CPFR ProcessCPFR Process
• Internet-based exchange of data and information• Significant decrease in inventory levels and more
efficient logistics• Companies focus on core competencies
CPFR ResultsCPFR Results• Nabisco and Wegmans
– 50% increase in category sales
• Wal-mart and Sara Lee
– 14% reduction in store-level inventory
– 32% increase in sales
• Kimberly-Clark and Kmart
– Increased category sales that exceeded market growth
Global Supply Chain ProblemsGlobal Supply Chain Problems
National and regional differencesCustoms, business practices, and
regulationsForeign markets are
not homogeneousQuality can be a
major issue
Some Issues in Some Issues in Global Supply ChainsGlobal Supply Chains– Language– Culture– Currency fluctuations– Political– Transportation costs– Local capabilities– Finance and economics– Environmental
Infrastructure Obstacles to Global Infrastructure Obstacles to Global TradeTrade
Some emerging markets lack suitable distribution systems, i.e. roads, rail systems
Existing roads and ports may be inadequate
Market instability, political instability
Vertical integration is a common solution
1. Develop strategic objectives and tactics
2. Integrate and coordinate activities in the internal supply chain
3. Coordinate activities with suppliers & with customers
4. Coordinate planning and execution across the supply chain
5. Form strategic partnerships
Creating an Effective Supply ChainCreating an Effective Supply Chain
Supply Chain Performance DriversSupply Chain Performance Drivers
1. Quality
2. Cost
3. Flexibility
4. Velocity
5. Customer service
VelocityVelocity
• Inventory velocity
–The rate at which inventory(material) goes through the supply chain
• Information velocity
–The rate at which information is communicated in a supply chain
Barriers to integration of organizations
Getting top management on board
Small businesses
Variability and uncertainty
Long lead times
Dealing with trade-offs
ChallengesChallenges to Optimizing SCs to Optimizing SCs
1. Lot-size-inventory2. Inventory-transportation costs
–Cross-docking3. Lead time-transportation costs4. Product variety-inventory
–Delayed differentiation5. Cost-customer service
–Disintermediation
Trade-offsTrade-offs in SCM in SCM
Techniques to Increase SC EfficiencyTechniques to Increase SC Efficiency• Delayed differentiation
–Production of standard components and subassemblies, which are held until late in the process to add differentiating features
• Disintermediation
–Reducing one or more steps in a supply chain by cutting out one or more intermediaries
+ Cross Docking
+ Drop Shipping
Potential SolutionsPotential Solutions to SC Problemsto SC ProblemsProblem Potential
ImprovementBenefits Possible
DrawbacksLarge 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
Critical IssuesCritical Issues in SCM in SCM
• Increased strategic importance • Emphasis on cost, quality,agility and customer
service• Technology management• Increased conversion to lean production• Just-in-time deliveries• Few suppliers and vendor integration• Increased outsourcing• Globalization
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