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MBA 518 Operations Management. Supply Chain Management. Greg Magnan, PhD Fall, 2004. SC Defined SC Strategy SC Benefits SC Challenges Summary. AGENDA. Business Environmental Factors. Global Competition Cost, Quality, Delivery, Flexibility, Innovation Increasing Stockholder Demands

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MBA 518

Operations Management

Supply Chain Management

Greg Magnan, PhD

Fall, 2004

SC Defined

SC Strategy

SC Benefits

SC Challenges


business environmental factors
Business Environmental Factors
  • Global Competition
    • Cost, Quality, Delivery, Flexibility, Innovation
  • Increasing Stockholder Demands
    • ROIC, Asset Efficiency, EVA, etc.

SCM Uniquely Positioned

to Address BOTH

scm defined fawcett magnan 2001
SCM Defined(Fawcett & Magnan, 2001)

“Supply Chain Management involvescollaborationacross theenterpriseand amongchannel membersto design and manage value-addedmaterial, information and cash flowsto meet the needs of the endcustomer. The development and integration ofpeopleand technologicalresources underlie successful supply chain integration.”

potential benefits from scm
Potential Benefits from SCM
  • Increasedmarket shareandsalesgrowth
  • Reducedinventorylevels andtotal SCM costs
  • Decreased ordercycle/fulfillment time
  • Increased asset and capitalutilization
  • Improveddeliveryperformance
  • Fasterresponseto changing customer requirements
  • Improvedreturn on assetsand sales
  • Increasedforecastaccuracy
  • Reducedcash-to-cash cycle time
scm definition sc council suppliers supplier to customer s customer












SCM Definition: SC Council“Suppliers’ Supplier to Customer’s Customer”











Your Company



Internal or External

Internal or External

SCOR Model


NOTE: Barriers to SCM are

concentrated here


Manufacturing Supply Chain Management



Supplier interface

Production Entities


Internal Suppliers

Demand Planning



Sourcing, Ordering & Logistics



Lean Manufacturing



Production Engineering

Information: Visibility / Collaboration / Sharing

Organization: Strategy / Structure / People / Processes

supply chain flows
Supply Chain Flows

Source: Lee (2000)

supply chain performance timme timme 2000
Supply Chain PerformanceTimme & Timme, 2000
  • C-level Executives: CEO, CFO, COO, etc.
    • What is their view of SCM?
    • What language is needed to articulate benefits?
  • Growth, Profitability, Capital Utilization
    • How do they affect Economic Profit (EP)?

Source: Timme and Timme, “The Financial-SCM Connection,” SCMR, 2000.

supply chain performance timme timme 200014
Supply Chain PerformanceTimme & Timme, 2000
  • Economic Profit
  • SCM supports:
    • Revenue growth
    • Customer service
    • Cost reduction
    • Asset efficiency
  • Purchasing 100
supply chain strategy
Supply Chain Strategy

“Companies are investing resources--of both time and capital--to improve their supply chain capabilities. But many are not pleased with the return on these investments. The lack of coherent supply chain strategy typically lies at the root of the problem.” [emphasis added]

-- Derocher and Kilpatrick, “Six Supply Chain Lessons for the Millenium,” SCMR, 2000

strategic sc alignment fisher marshall what is the right supply chain for your product hbr 1997
Strategic SC Alignment(Fisher, Marshall, “What is the Right Supply Chain for Your Product?,” HBR, 1997)

Q: What happens when you have BOTH kinds of products??

A: Ought to have BOTH kinds of supply chains.

evolutionary status of scm
Evolutionary Status of SCM

Source: Poirier & Quinn, “A Survey of SC Progress,” SCMR, 2003

caps focus study 2001
CAPS Focus Study (2001)

sc relationship barriers
SC Relationship Barriers
  • Lack of Trust
  • Little Understanding or Commitment to SC Principles
  • Fear of Relinquishing Control
  • Different Goals & Objectives
  • Inadequate Information Systems
  • Short-term / “Wall Street” emphasis on outcomes
  • Involvement in too many supply chains

Source: Moberg, Speh & Freese, “SCM: Making the Vision a Reality,” SCMR, 2003

can you hear me now
“Can You Hear Me Now?”

Source: Handfield & Straight, “What Sourcing Channel is Right for You,” SCMR, 2003

sc relationship barriers solutions
SC Relationship Barriers--Solutions
  • Develop a New Breed of Manager
  • Build “Relationship-Management” Skills
  • Establish Inter-organizational Teams
  • Create New Performance Measures
  • Invest in Information Technology
  • Develop Long-term Focus (Boards, too)
  • Engage in More Practical and Applied Research

Source: Moberg, Speh & Freese, “SCM: Making the Vision a Reality,” SCMR, 2003

bullwhip effect
Bullwhip Effect

Source: Lee, et al., “The Bullwhip Effect In Supply Chains, SMR, 1997.

bullwhip effect order variation
Bullwhip Effect – Order Variation

Source: Lee, et al., “The Bullwhip Effect In Supply Chains, SMR, 1997.

matching supply demand
Matching Supply & Demand

Source: Vitasek, et al., “Solving the Supply–Demand Mismatch,” SCMR, 2003.

matching supply demand29
Matching Supply & Demand

Source: Vitasek, et al., “Solving the Supply–Demand Mismatch,” SCMR, 2003.

supply chain planning execution
Supply Chain Planning & Execution

Source: AMR Research, 2000

sc planning systems
SC Planning Systems

Source: Taylor, David A. “A Master Plan for Software Selection,” SCMR, 2004

sc planning systems32
SC Planning Systems

Source: Taylor, David A. “A Master Plan for Software Selection,” SCMR, 2004

e procurement what is it
e-Procurement: What is it?
  • What are the steps in procurement?
    • Need / Requisition
    • Supplier Selection
      • RFx, Negotiation, Auction, Criteria
    • Contract
    • Transactions
      • PO through payment
    • Relationship Maintenance
      • Performance
  • Which can be automated?
e procurement transactions
Purchase Order / Order

PO change?

ASN receipt


Receiving / Inspection

Accounting: matching


Supplier Performance

PO Ack. / Sales Order

Fulfillment (stock / mfg)




Payment received

e-Procurement: Transactions



Other issues: Forecasting, collaboration, planning systems, cost improvement (product and trans.)

strategic sourcing
Strategic Sourcing
  • “Applying standard analytics-driven processes for sourcing any category of spend.”
      • Purchasing Magazine
  • “Sourcing will be key to unlocking value.”
    • ISM/Forrester
    • Focus on procurement automation limits payback
    • Spend Management must begin with a sourcing strategy
      • Spend analysis, aggregation, supplier reduction
    • Online sourcing will catch up
      • “real value is in using enterprise-wide tools to enforce employee compliance with strategic sourcing agreements.”
ism forrester report on technology in sm q3 2003
ISM/Forrester Report on Technology in SM: Q3/2003
  • Adoption of online purchasing continues to grow
    • Large companies: 20% fully adopted
  • More companies are saving $ as a result
    • 45% of large volume
  • Materials purchased:
    • Indirect (89% bought some / 12% of indirect online)
    • Direct (74% bought some / 9.9% of direct online)
  • Auctions (25% used...large volume) and eMarketplaces (33%): about 45% increased use
  • Enterprise-wide tools: 46%
  • Online tools strengthen relationships: collaboration
  • Buyers mostly dissatisfied w/ Supplier online capability
  • Integration with suppliers was biggest challenge
prtm s sc advice
SC Critical Elements

SC Strategy

SC Processes

Organizational Model

Integrated Info. Sys.

Perf. Mgt. Framework

Setting Your Strategy

Define the Performance Criteria of SC

Set Perform. Targets

ID Operational Processes (order mgt., dist, etc.)

Select integration level for customers & suppliers

PRTM’s SC Advice

Source: PRTM, “Managing Your SC in the 21st Century,” 2002


Technology Enabled Supply Chain

Source: Porter, A.M. (2004), “The Case for Holistic Strategies,” Purchasing, March 18, pp. 55-59.

supplier rating criteria
Supplier Rating Criteria

Source: Carbone, James (2004), “Using TCO to Rate Suppliers,” Purchasing, Feb. 19, pp. 30-34.

  • Supply Chain Management
    • People, processes, technology
    • Materials, information, cash
  • Supply Chain Performance
    • Growth, profitability, capital utilization
    • Growing gap between haves and have-nots
  • Supply Chain Solutions
    • Strategy: Align internal and external processes & resources to business strategy and company performance objectives
    • Diagnostic: Pinpoint improvement needs
    • Education: Relationships, process change, executives