11 Supply Chain Management Slides prepared by Laurel Donaldson Douglas College
Explain what a supply chain is, the need to manage a supply chain including outsourcing, and identify strategic and tactical/operational supply chain activities. Describe what logistics is, select a transportation mode, and discuss some fast delivery methods, third party logistics, reverse logistics, and global supply chains. Discuss three technologies used in supply chain management, Outline the key steps in creating an effective supply chain, including Collaborative Planning Forecasting Replenishment (CPFR) and performance metrics. Explain the purchasing function in business organizations. Explain supplier management and partnership. LO 1 LO 2 LO 3 LO 4 LO 5 LO 6
Introduction • The Need for Supply Chain Management • Managing the Supply Chain • Logistics • Some Supply Chain Technologies • Creating an Effective Supply Chain • Purchasing • Supplier Management
Supply Chains SUPPLY CHAIN = VALUE CHAIN CONCEPT: Importance of Relationship INTEGRATEDORGANIZATIONS
Supply Chain Management • collaboration and coordination of all components of the supply chain so that market demand is met as efficiently and effectively as possible. • Physical movement of material • (end of chain) • Information movement • (beginning of chain)
Need for Supply Chain Management • Improve operations • Increasing levels of outsourcing • Increasing globalization • Increasing e-commerce • Manage inventories (bullwhip effect)
Outsourcing • Buying goods or services instead of producing or providing them in-house. • Benefits: • lower cost (due to economies of scale) • gain expertise and knowledge, or patent • gain flexibility (for temporary demand) • increase capacity • Risks: • reduction in control and expertise.
Outsourcing Example • The school cafeteria can make pizza for about $.30 per slice. • Cost for kitchen and labour is $200 per day • The nearby Pizza Palace delivers for $9.00 per pizza (8 slices) • Cost for labour reduced to $75 per day • Demand is about 120 slices per day • In-source (make) or outsource (buy)?
Bullwhip Effect Demand variability is progressively larger moving backward through a supply chain. Retailer’s Orders Wholesaler’s Orders Producer’s Orders Order Quantity Order Quantity Order Quantity Time Time Time …leads to more variability for a fewer number of wholesalers, and… …can lead to even more variability for a single producer. Many retailers each with a little variability in their orders...
Strategic Activities Tactical Activities Operating Activities Design of the supply chain, extent of integration Inventory policies Purchasing policies Production policies Transportation policies Quality policies Quality control Production planning and control Supply Chain Activities
Where to Hold Inventory? Value of inventory • Risk pooling • holding safety stocks in one central location rather than in multiple locations. • Delayed differentiation (postponement) • Production of standard components and products, and adding differentiating features later in the process. Specific nature of inventory
Logistics • Refers to the movement of materials and information • Movement within the facility • Incoming and outgoing shipments • Traffic management • overseeing the delivery of incoming and outgoing goods. • Distribution management • pack, store, handle at receiving docks, warehouses, retail outlets
Logistics Source: http://www.ic.gc.ca/eic/site/dsib-logi.nsf/vwapj/pg00026_eng.pdf/$file/pg00026_eng.pdf
0 214800 232087768 Logistics • Movement within the facility • Incoming and outgoing deliveries • Modes of transportation • Warehousing • Fast Delivery Methods • Distribution Requirements Planning • Third-Party Logistics • Reverse Logistics • Global Supply Chains • EDI, RFID and E-commerce
Work center Work center Work center Storage Work center Storage Storage RECEIVING Shipping Materials Movement
Modes of Transportation Most common Most flexible SPEED RELIABILITY COST
Selecting a Transportation Mode • Speed vs. Cost? • Balance transportation cost with inventory holding costs • Consider differences in safety stock required
Example: Selecting a Transportation Mode Cost of item = $1,750.00 Holding cost = $700 per year Alternative A cost $100 and takes 8 days Alternative B cost $120 and takes 7 days Total delivery cost = transportation (freight) cost + in-transit holding cost In-transit where H= annual holding cost of items being transported d = duration of transport (in days) For A: 100 + 700(8)/ 365 = $115.34 For B: 120 + 700(7)/ 365 = $133.42 Since it costs less to hold the product one day longer than it does for the faster shipping, choose Alternative A.
Warehousing • 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 Shipping and receiving docks Shipping and receiving docks
Fast Delivery Methods • quick response Just-in-time inventory replenishment • used in retailing • orders based on actual sales, not periodic orders • Efficient consumer response (ECR) expanded version of quick response initiative which includes some collaboration • used in the grocery industry • Vendor-Managed Inventory (VMI) agreement for supplier to access and maintain customer’s inventory • used in convenience stores, etc.
Distribution Requirements Planning (DRP) • system for synchronizing replenishment schedules across the supply chain • starts with forecast demand at the end of the distribution network (retail stores) • works backwards through network to obtain time-phased replenishment schedules for moving goods from factory through each level of the network DRP is a push system (based on forecasts) whereas quick response is a pull system (based on actual demand).
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
Electronic Data Interchange • Purchase orders, shipping notices, payments • Can extend to sales and inventory data • Many benefits • Reduced paperwork, clerical labour • Reduced lead time and inventory • Improved control of operations • Increased accuracy • Direct, computer-to-computer transmission of transactions between organizations
RFID Technology • Used to track goods in supply chain • RFID tag attached to object • uses radio frequency to transmit product information to receiver • eliminates need for manual counting and bar code scanning
E-Commerce • the use of computers and Internet to conduct buying and selling • Business to business (B2B) • Business to consumer (B2C) • E-marketplaces
Advantages E-Business • Companies can: • Have a global presence • Improve competitiveness and quality • Analyze customer interests • Collect detailed information • Shorten supply chain response times and costs • disintermediation • Realize substantial cost savings • Create virtual companies • Level the playing field for small companies
E-commerce Approaches Company warehouses Intermediation (suppliers ship) Outsourcing FULFILLMENT
Effective Supply Chain • Supply chain should enable members to: • Share forecasts • Determine the status of orders in real time • Access inventory data of partners Requires linking the market, distribution channels processes, and suppliers
CPFR • Collaborative Planning, Forecasting, and Replenishment • a process for communicating and agreeing on forecasts between the manufacturer and the customer (distributor) • Data exchanged electronically • Eliminates typical order processing
Purchasing • Purchasing is responsible for obtaining the materials, parts, supplies and services needed by the company. • Purchasing cycle: Series of steps that begin with a request for purchase and ends with paying the supplier.
Purchasing • GOALdevelop and implement purchasing plansfor goods and servicesthat support the business plan
Legal Operations Accounting Data processing Purchasing Design Receiving Suppliers Purchasing Interfaces Contracts, disputes Payments Main source of requests Inventory records, invoices Vendor analysis, manage relations Specs, info on new stuff, costs Info on shipments, handling
Value Analysis Examination of the function of purchased parts/components/products in an effort to reduce their cost • Select an item that has a high annual dollar value. • Identify the function of the item. • Ask: • Can the function be performed in another way? • Could another material or part be used? • Can specifications be less stringent to save cost or time? • Can two or more parts of the item be combined? • Can a different process be used on the item to save cost or time? • Do supplier/providers have suggestions for improvements? • Can packaging be improved or made less costly? • Evaluate the answers obtained, and make recommendations.
Negotiations Myths • Negotiation is a win-lose confrontation • The main goal is to obtain the lowest possible price • Each negotiation is an isolated transaction
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
Spend Analysis EXPENDITURE DATA with the purpose of Provide answers to such questions as: • What was bought? • From which suppliers? • What is the total expenditure on a part? • How much is spent with a supplier?
Norms of Ethics in Purchasing • Consider interests of organization • Be receptive to competent counsel from colleagues • Buy without prejudice • Strive for increased knowledge of materials and processes • Participate in professional development programs • Be honest and proper • Be prompt and courteous • Practice the PMAC Professional Code of Ethics • Assist fellow purchasers • Cooperate with the supply chain