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Supply Chain Management

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12-2

Supply Chain Management

PART FIVE

SUPPLY CHAIN MANAGEMENT

Chapter Twelve Supply Chain Management
Chapter Twelve Supplement Purchasing &
Supplier Management
Chapter Thirteen Inventory Management
Chapter Fourteen Aggregate Planning
Chapter Fifteen MRP & ERP
Chapter Sixteen Just-in-Time Systems
Chapter Sixteen Supplement Maintenance
Chapter Seventeen Scheduling

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12-3

Supply Chain Management

Chapter 12

Supply Chain
Management

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Operations Management, 2nd Canadian Edition, by Stevenson & Hojati

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12-4

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.

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12-5

Supply Chain Management

Facilities

Warehouses
Factories
Processing centres
Distribution centres
Retail outlets
Offices

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12-6

Supply Chain Management

Typical Supply Chains

Production

Distribution

Purchasing ReceivingStorageOperations Storage

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12-7

Supply Chain Management

Typical Supply Chain for a Manufacturer

Supplier
Supplier

Storage

Mfg.

Storage

Dist.

Retailer

Customer

Supplier

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12-8

Supply Chain Management

Typical Supply Chain for a Service

Supplier

Storage

Service

Customer

Supplier

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12-9

Supply Chain Management

Customers are Suppliers

Initial
Supplier

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Customer

Customer

Customer

Supplier

Supplier

Supplier

Final
Customer

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12-10 Supply Chain Management

Need for Supply Chain Management

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

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12-11 Supply Chain Management

Benefits of 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

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12-12 Supply Chain Management

Elements of Supply Chain Management

Element

Typical Issues

Customers

Determining what customers want

Forecasting

Predicting quantity and timing of demand

Design

Incorporating customer wants, mfg., and time

Processing

Controlling quality, scheduling work

Inventory

Meeting demand while managing inventory costs

Purchasing

Evaluating suppliers and supporting operations

Suppliers

Monitoring supplier quality, delivery, and relations

Location

Determining location of facilities

Logistics

Deciding how to best move and store materials

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12-13 Supply Chain Management

Purchasing in Supply Chain Management

Increasing outsourcing
Increasing conversion to lean
production
Increasing globalization

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12-14 Supply Chain Management

Internal Supply Chain

Suppliers

Processing

Distribution

Key:

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External
Supply Chain

Customers

Internal
Supply Chain

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12-15 Supply Chain Management

Supply Chain Issues

Strategic Issues
Design of the supply
chain, partnering

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Tactical Issues
Inventory policies
Purchasing policies
Production policies
Transportation policies
Quality policies

Operating Issues
Quality control
Production planning and
control

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12-16 Supply Chain Management

SCOR Metrics
Perspective

Metrics

Reliability

On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillment

Flexibility

Supply chain response time

Upside production flexibility

Expenses

Supply chain management costs

Warranty cost as a percent of revenue
Value added per employee

Assets/utilization

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Total inventory days of supply

Cash-to-cash cycle time
Net asset turns

Operations Management, 2nd Canadian Edition, by Stevenson & Hojati

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12-17 Supply Chain Management

Logistics
Logistics
Refers to the movement of materials and
information within a facility and to incoming
and out going shipments of goods and
materials

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12-18 Supply Chain Management

Logistics
Movement within the facility
Incoming and outgoing shipments
Bar coding
EDI
Distribution

214800 232087768

JIT Deliveries

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12-19 Supply Chain Management

Materials Movement
Figure 12-3
Work centre

Work centre

Work
centre

Storage

Work
centre

Storage

RECEIVING

Storage

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Shipping

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12-20 Supply Chain Management

Electronic Data Interchange

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 labour
Increased accuracy

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12-21 Supply Chain Management

Efficient Consumer Response

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

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12-22 Supply Chain Management

Distribution Requirements Planning

Distribution requirements planning

(DRP) is a system for inventory
management and distribution planning
Extends the concepts of MRPII

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Uses of DRP
Management uses DRP to plan and
coordinate:
Transportation
Warehousing
Workers
Equipment
Financial flows

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12-24 Supply Chain Management

E-Commerce
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 interchange

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Advantages 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

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Operations Management, 2nd Canadian Edition, by Stevenson & Hojati

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Disadvantages of 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

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12-27 Supply Chain Management

B2B Market Places

Buyer exchange
MRO- catalogue hub
Supplier exchange
BPO
Neutral exchange

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12-28 Supply Chain Management

Creating an Effective Supply Chain

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

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12-29 Supply Chain Management

Supply Chain Performance Drivers

Quality
Cost
Flexibility
Velocity
Customer service

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Challenges

Barriers to integration of organizations

Getting top management on board
Dealing with trade-offs
Small businesses
Variability and uncertainty
Long lead times

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Trade-offs
Lot-size-inventory
Bullwhip effect

Inventory-transportation costs
Lead time-transportation costs
Product variety-inventory
Cost-customer service

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12-32 Supply Chain Management

Bullwhip Effect
Amount of
= inventory

Tier 2
Suppliers

Tier 1
Suppliers

Producer

Distributor

Customers

Ordering

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12-33 Supply Chain Management

Supply Chain Benefits and Drawbacks

Problem

Potential
Improvement

Benefits

Possible
Drawbacks

Large
inventories

Smaller, more frequent

deliveries

Reduced holding
costs

Traffic congestion
Increased costs

Long lead times

Delayed differentiation
Disintermediation

Quick response

May not be feasible

May need absorb
functions

Large number of
parts

Modular

Fewer parts
Simpler ordering

Less variety

Cost
Quality

Outsourcing

Reduced cost, higher

quality

Loss of control

Variability

Shorter lead times, better

forecasts

Able to match supply

and demand

Less variety

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Operations Management, 2nd Canadian Edition, by Stevenson & Hojati

Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.