Supply Chain Management

1. Supply Chain Management

2. Learning Objectives • Explain what a supply chain is. • Explain the need to manage a supply chain and the potential benefits of doing so. • Explain the increasing importance of outsourcing. • State the objective of supply chain management. • List the elements of supply chain management. • Identify the strategic, tactical, and operations issues in supply chain management. • Describe the bullwhip effect and the reasons why it occurs.

3. Learning Objectives • Explain the value of strategic partnering. • Discuss the critical importance of information exchange across a supply chain. • Outline the key steps, and potential challenges, in creating an effective supply chain. • Explain the importance of the purchasing function in business organizations. • Describe the responsibilities of purchasing. • Explain the term value analysis. • Identify several guidelines for ethical behavior in purchasing.

4. 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. Sometimes referred to value chains

5. Facilities • Warehouses • Factories • Processing centers • Distribution centers • Retail outlets • Offices

6. Functions and Activities • Forecasting • Purchasing • Inventory management • Information management • Quality assurance • Scheduling • Production and delivery • Customer service

7. Typical Supply Chains Production Distribution Purchasing Supplier } Receiving Storage Operations Storage Supplier Storage Mfg. Storage Dist. Retailer Customer Supplier Manufacturer

8. Need for Supply Chain Management • Improve operations • Increasing levels of outsourcing • Increasing of transportation costs • Competitive pressures • Increasing globalization • Increasing importance of e-commerce • Complexity of supply chains • Manage inventories

9. Benefits of Supply Chain Management • Lower inventories/increase inventory turnover • Higher productivity • Greater agility • Shorter lead times • Higher profits • Greater customer loyalty • Integrates separate organizations into a cohesive operating system

10. Global Supply Chains • Increasing more complex • Language • Culture • Currency fluctuations • Political • Transportation costs • Local capabilities • Finance and economics • Environmental

11. Strategic / Operational • Two types of decisions in supply chain management • Strategic – design and policy • Operational – day-today activities • Major decisions areas • Location • Production • Inventory • Distribution

12. 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

13. Logistics • Logistics • 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

14. Logistics 0 214800 232087768 • Movement within the facility • Incoming and outgoing shipments • Bar coding • RFID • EDI • Distribution • JIT Deliveries

15. Materials Movement Work center Work center Work center Storage Work center Storage Storage RECEIVING Shipping

16. Distribution Requirements Planning • Distribution requirements planning (DRP) is a system for inventory management and distribution planning • Extends the concepts of MRPII

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

18. E-Business • 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 (EDI)

19. Advantages E-Business • 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

20. Disadvantages of E-Business • 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

21. Reverse 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

22. Effective Supply Chain • Requires linking the market, distribution channels, processes, and suppliers • Supply chain should enable members to: • Share forecasts • Determine the status of orders in real time • Access inventory data of partners

23. Successful Supply Chain • Trust among trading partners • Effective communications • Supply chain visibility • Event-management capability • The ability to detect and respond to unplanned events • Performance metrics

24. SCOR Metrics

25. RFID Technology • Used to track goods in supply chain • RFID tag attached to object • Similar to bar codes but uses radio frequency to transmit product information to receiver • RFID eliminates need for manual counting and bar code scanning

26. CPFR • Collaborative Planning, Forecasting, and Replenishment • Focuses on information sharing among trading partners • Forecasts can be frozen and then converted into a shipping plan • Eliminates typical order processing

27. CPFR Process Step 1 – Front-end agreement Step 2 – Joint business plan Steps 3-5 – Sales forecast Steps 6-8 – Order forecast collaboration Step 9 – Order generation/delivery execution

28. Supply Chain Performance Drivers • Quality • Cost • Flexibility • Velocity • Customer service

29. Velocity • 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

30. Challenges • Barriers to integration of organizations • Getting top management on board • Dealing with trade-offs • Small businesses • Variability and uncertainty • Long lead times

31. Trade-offs • Lot size-inventory • Bullwhip effect • Inventory-transportation costs • Cross-docking • Lead time-transportation costs • Product variety-inventory • Delayed differentiation • Cost-customer service • Disintermediation

32. Trade-offs • Bullwhip effect • Inventories are progressively larger moving backward through the supply chain • 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

33. Bullwhip Effect Demand InitialSupplier Final Customer Inventory oscillations become progressivelylarger looking backward through the supply chain

34. Trade-offs • 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

35. Supply Chain Benefits and Drawbacks

36. Reduce inventory Process downtime Scrap Setup time Quality problems Late deliveries Inventory level

37. Reduce inventory Inventory level Process downtime Scrap Setup time Quality problems Late deliveries

38. Reduce inventory Inventory level Process downtime Scrap Setup time Quality problems Late deliveries

39. Reduce Lot Sizes 200 – 100 – Q1 When average order size = 200 average inventory is 100 Inventory Q2 When average order size = 100 average inventory is 50 Time

40. Purchasing • 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. • Goal: Develop and implement purchasing plans for products and services that support operations strategies

41. Duties of Purchasing • Identifying sources of supply • Negotiating contracts • Maintaining a database of suppliers • Obtaining goods and services • Managing supplies

42. Purchasing Interfaces Legal Operations Accounting Data processing Purchasing Design Receiving Suppliers

43. Purchasing Cycle • Requisition received • Supplier selected • Order is placed • Monitor orders • Receive orders Value analysis • Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance

44. Centralized vs Decentralized Purchasing • Centralized purchasing • Purchasing is handled by one special department • Decentralized purchasing • Individual departments or separate locations handle their own purchasing requirements

45. Suppliers Management • Choosing suppliers • Evaluating sources of supply • Supplier audits • Supplier certification • Supplier relationships • Supplier partnerships

46. Factors in Choosing a Supplier • Quality and quality assurance • Flexibility • Location • Price • Product or service changes • Reputation and financial stability • Lead times and on-time delivery • Other accounts

47. Evaluating Sources of Supply • Vendor analysis - evaluating the sources of supply in terms of • Price • Quality • Services • Location • Inventory policy • Flexibility

48. Supplier as a Partner

49. Supplier Partnerships • Ideas from suppliers could lead to improved competitiveness; • Reduce cost of making the purchase • Reduce transportation costs • Reduce production costs • Improve product quality • Improve product design • Reduce time to market • Improve customer satisfaction • Reduce inventory costs • Introduce new products or services

50. Critical Issues • Strategic importance • Cost • Quality • Agility • Customer service • Competitive advantage • Technology management • Benefits • Risks