Supply Chain Management

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  • 1. Copyright 2006 John Wiley & Sons, Inc.Copyright 2006 John Wiley & Sons, Inc. Beni AsllaniBeni Asllani University of Tennessee at ChattanoogaUniversity of Tennessee at Chattanooga Supply Chain ManagementSupply Chain Management Operations Management - 5th EditionOperations Management - 5th Edition Chapter 10Chapter 10 Roberta Russell & Bernard W. Taylor, IIIRoberta Russell & Bernard W. Taylor, III
  • 2. Copyright 2006 John Wiley & Sons, Inc. 10-2 Lecture OutlineLecture Outline  Supply Chain Management  Information Technology: A Supply Chain Enabler  Supply Chain Integration  Suppliers
  • 3. Copyright 2006 John Wiley & Sons, Inc. 10-3 Lecture Outline (cont.)Lecture Outline (cont.)  E-Procurement  Distribution  Supply Chain Management Software  Measuring Supply Chain Performance  Global Supply Chain
  • 4. Copyright 2006 John Wiley & Sons, Inc. 10-4 Supply ChainSupply Chain  All facilities, functions, activities,All facilities, functions, activities, associated with flow and transformationassociated with flow and transformation of goods and services from raw materialsof goods and services from raw materials to customer, as well as the associatedto customer, as well as the associated information flowsinformation flows  An integrated group of processes toAn integrated group of processes to “source,” “make,” and “deliver” products“source,” “make,” and “deliver” products
  • 5. Copyright 2006 John Wiley & Sons, Inc. 10-5 Supply Chain IllustrationSupply Chain Illustration
  • 6. Copyright 2006 John Wiley & Sons, Inc. 10-6 SupplySupply ChainChain forfor DenimDenim JeansJeans
  • 7. Copyright 2006 John Wiley & Sons, Inc. 10-7 SupplySupply ChainChain forfor DenimDenim JeansJeans (cont.)(cont.)
  • 8. Copyright 2006 John Wiley & Sons, Inc. 10-8 Supply Chain ProcessesSupply Chain Processes
  • 9. Copyright 2006 John Wiley & Sons, Inc. 10-9 Supply Chain for ServiceSupply Chain for Service ProvidersProviders  More difficult than manufacturingMore difficult than manufacturing  Does not focus on the flow of physical goodsDoes not focus on the flow of physical goods  Focuses on human resources and supportFocuses on human resources and support servicesservices  More compact and less extendedMore compact and less extended
  • 10. Copyright 2006 John Wiley & Sons, Inc. 10-10 Value vs. Supply ChainValue vs. Supply Chain  Value chain  every step from raw materials to the eventual end user  ultimate goal is delivery of maximum value to the end user  Supply chain  activities that get raw materials and subassemblies into manufacturing operation  Terms are used interchangeably
  • 11. Copyright 2006 John Wiley & Sons, Inc. 10-11 Supply Chain Management (SCM)  Managing flow of information through supply chain in order to attain the level of synchronization that will make it more responsive to customer needs while lowering costs  Keys to effective SCM  information  communication  cooperation  trust
  • 12. Copyright 2006 John Wiley & Sons, Inc. 10-12 Supply Chain UncertaintySupply Chain Uncertainty  One goal in SCM:  respond to uncertainty in customer demand without creating costly excess inventory  Negative effects of uncertainty  lateness  incomplete orders  Inventory  insurance against supply chain uncertainty  Factors that contribute to uncertainty  inaccurate demand forecasting  long variable lead times  late deliveries  incomplete shipments  product changes batch ordering  price fluctuations and discounts  inflated orders
  • 13. Copyright 2006 John Wiley & Sons, Inc. 10-13 Bullwhip EffectBullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream
  • 14. Copyright 2006 John Wiley & Sons, Inc. 10-14 Information Technology: A Supply Chain Enabler  Information links all aspects of supply chain  E-business  replacement of physical business processes with electronic ones  Electronic data interchange (EDI)  a computer-to-computer exchange of business documents  Bar code and point-of-sale  data creates an instantaneous computer record of a sale  Radio frequency identification (RFID)  technology can send product data from an item to a reader via radio waves  Internet  allows companies to communicate with suppliers, customers, shippers and other businesses around the world, instantaneously
  • 15. Copyright 2006 John Wiley & Sons, Inc. 10-15 E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of the role of intermediaries  Shortening supply chain response and transaction times  Gaining a wider presence and increased visibility for companies  Greater choices and more information for customers
  • 16. Copyright 2006 John Wiley & Sons, Inc. 10-16 E-business and Supply Chain (cont.)  Improved service as a result of instant accessibility to services  Collection and analysis of voluminous amounts of customer data and preferences  Creation of virtual companies  Leveling playing field for small companies  Gaining global access to markets, suppliers, and distribution channels
  • 17. Copyright 2006 John Wiley & Sons, Inc. 10-17 Supply Chain Evolution atSupply Chain Evolution at NabiscoNabisco Source: F. Keenan, “Logistics Gets a Little Respect,” Business Week (November 20, 2000), pp. 112–115.
  • 18. Copyright 2006 John Wiley & Sons, Inc. 10-18 Supply Chain Evolution atSupply Chain Evolution at Nabisco (cont.)Nabisco (cont.) Source: F. Keenan, “Logistics Gets a Little Respect,” Business Week (November 20, 2000), pp. 112–115.
  • 19. Copyright 2006 John Wiley & Sons, Inc. 10-19 Supply Chain Evolution atSupply Chain Evolution at Nabisco (cont.)Nabisco (cont.) Source: F. Keenan, “Logistics Gets a Little Respect,” Business Week (November 20, 2000), pp. 112–115.
  • 20. Copyright 2006 John Wiley & Sons, Inc. 10-20 RFID CapabilitiesRFID Capabilities
  • 21. Copyright 2006 John Wiley & Sons, Inc. 10-21 RFID Capabilities (cont.)RFID Capabilities (cont.)
  • 22. Copyright 2006 John Wiley & Sons, Inc. 10-22 Build-to-order cars overBuild-to-order cars over the Internetthe Internet
  • 23. Copyright 2006 John Wiley & Sons, Inc. 10-23  Customer sales  Production  Distribution  Customer relationship  Customer sales  Production  Distribution  Customer relationship  Push—sell from inventory stock  Goal of even and stable production  Mass approach  Dealer-owned E-Automotive E-automotive Supply ChainE-automotive Supply Chain  Pull—build-to-order  Focus on customer demand, respond with supply chain flexibility  Fast, reliable, and customized to get cars to specific customer location  Shared by dealers and manufacturers Automotive Past Supply Chain Processes
  • 24. Copyright 2006 John Wiley & Sons, Inc. 10-24  Managing uncertainty  Procurement  Product design  Managing uncertainty  Procurement  Product design  Large car inventory at dealers  Batch-oriented; dealers order based on allocations  Complex products don’t match customer needs E-Automotive E-automotive Supply Chain (cont.)E-automotive Supply Chain (cont.)  Small inventories with shared information and strategically placed parts inventories  Orders made in real time based on available-to- promise information  Simplified products based on better information about what customers want Automotive Past Supply Chain Processes
  • 25. Copyright 2006 John Wiley & Sons, Inc. 10-25 Supply Chain IntegrationSupply Chain Integration  Information sharing among supply chain members  Reduced bullwhip effect  Early problem detection  Faster response  Builds trust and confidence  Collaborative planning, forecasting, replenishment, and design  Reduced bullwhip effect  Lower Costs (material, logistics, operating, etc.)  Higher capacity utilization  Improved customer service levels
  • 26. Copyright 2006 John Wiley & Sons, Inc. 10-26  Coordinated workflow, production and operations, procurement  Production efficiencies  Fast response  Improved service  Quicker to market  Adopt new business models and technologies  Penetration of new markets  Creation of new products  Improved efficiency  Mass customization Supply Chain Integration (cont.)Supply Chain Integration (cont.)
  • 27. Copyright 2006 John Wiley & Sons, Inc. 10-27 Collaborative Planning,Collaborative Planning, Forecasting, and ReplenishmentForecasting, and Replenishment  Process for two or more companies in a supply chain to synchronize their demand forecasts into a single plan to meet customer demand  Parties electronically exchange  past sales trends  point-of-sale data  on-hand inventory  scheduled promotions  forecasts
  • 28. Copyright 2006 John Wiley & Sons, Inc. 10-28 SuppliersSuppliers  Procurement  purchase of goods and services from suppliers  On-demand (direct response) delivery  requires supplier to deliver goods when demanded by customer  Continuous replenishment  supplying orders in a short period of time according to a predetermined schedule  Cross-enterprise teams coordinate processes between company and supplier
  • 29. Copyright 2006 John Wiley & Sons, Inc. 10-29 OutsourcingOutsourcing  Sourcing  selection of suppliers  Outsourcing  purchase of goods and services from an outside supplier  Core competencies  what a company does best  Single sourcing  a company purchases goods and services from only a few (or one) suppliers
  • 30. Copyright 2006 John Wiley & Sons, Inc. 10-30 Original Equipment Manufacturer (OEM) Maintenance Repair and Operation (MPO) Corporate Services
  • 31. Copyright 2006 John Wiley & Sons, Inc. 10-31 E-ProcurementE-Procurement  Direct purchase from suppliers over the Internet  Direct products go directly into production process a product, indirect products not  E-marketplaces  web sites where companies and suppliers conduct business-to-business activities  Reverse auction  a company posts orders on the Internet for suppliers to bid on
  • 32. Copyright 2006 John Wiley & Sons, Inc. 10-32 Online Sourcing/ Procurement Process
  • 33. Copyright 2006 John Wiley & Sons, Inc. 10-33 Online Sourcing/ Procurement Process (cont.)
  • 34. Copyright 2006 John Wiley & Sons, Inc. 10-34 Online Sourcing/ Procurement Process (cont.)
  • 35. Copyright 2006 John Wiley & Sons, Inc. 10-35 Source: Adapted from Garrison Wieland for “Wal-Mart’s Supply Chain,” Harvard Business Review 70(2; March–April 1992), pp. 60–71. Relationship between Facilities and Functions along the Wal-Mart Supply Chain
  • 36. Copyright 2006 John Wiley & Sons, Inc. 10-36 DistributionDistribution  Encompasses all channels, processes, andEncompasses all channels, processes, and functions, including warehousing andfunctions, including warehousing and transportation, that a product passes on itstransportation, that a product passes on its way to final customerway to final customer  Often called logisticsOften called logistics  LogisticsLogistics  transportation and distribution of goodstransportation and distribution of goods and servicesand services  Driving force today is speedDriving force today is speed  Particularly important for Internet dot-comsParticularly important for Internet dot-coms
  • 37. Copyright 2006 John Wiley & Sons, Inc. 10-37 Amazon.com
  • 38. Copyright 2006 John Wiley & Sons, Inc. 10-38 Distribution Centers (DC)Distribution Centers (DC) and Warehousingand Warehousing  DCs are some of the largest businessDCs are some of the largest business facilities in the United Statesfacilities in the United States  Trend is for more frequent orders inTrend is for more frequent orders in smaller quantitiessmaller quantities  Flow-through facilities and automatedFlow-through facilities and automated material handlingmaterial handling  PostponementPostponement  final assembly and product configurationfinal assembly and product configuration may be done at the DCmay be done at the DC
  • 39. Copyright 2006 John Wiley & Sons, Inc. 10-39 Warehouse ManagementWarehouse Management SystemsSystems  Highly automated system that runs day-to-dayHighly automated system that runs day-to-day operations of a DCoperations of a DC  Controls item putaway, picking, packing, andControls item putaway, picking, packing, and shippingshipping  FeaturesFeatures  transportation managementtransportation management  order managementorder management  yard managementyard management  labor managementlabor management  warehouse optimizationwarehouse optimization
  • 40. Copyright 2006 John Wiley & Sons, Inc. 10-40 A WMS
  • 41. Copyright 2006 John Wiley & Sons, Inc. 10-41 Vendor-Managed InventoryVendor-Managed Inventory  Manufacturers generate orders, not distributors orManufacturers generate orders, not distributors or retailersretailers  Stocking information is accessed using EDIStocking information is accessed using EDI  A first step towards supply chain collaborationA first step towards supply chain collaboration  Increased speed, reduced errors, and improvedIncreased speed, reduced errors, and improved serviceservice
  • 42. Copyright 2006 John Wiley & Sons, Inc. 10-42 Collaborative Logistics andCollaborative Logistics and Distribution OutsourcingDistribution Outsourcing  Collaborative planning, forecasting, andCollaborative planning, forecasting, and replenishment create greater economies ofreplenishment create greater economies of scalescale  Internet-based exchange of data andInternet-based exchange of data and informationinformation  Significant decrease in inventory levels andSignificant decrease in inventory levels and more efficient logisticsmore efficient logistics  Companies focus on core competenciesCompanies focus on core competencies
  • 43. Copyright 2006 John Wiley & Sons, Inc. 10-43 TransportationTransportation  Rail  low-value, high-density, bulk products, raw materials, intermodal containers  not as economical for small loads, slower, less flexible than trucking  Trucking  main mode of freight transport in U.S.  small loads, point-to-point service, flexible  More reliable, less damage than rails; more expensive than rails for long distance
  • 44. Copyright 2006 John Wiley & Sons, Inc. 10-44 Transportation (cont.)Transportation (cont.) Air  most expensive and fastest, mode of freight transport  lightweight, small packages <500 lbs  high-value, perishable and critical goods  less theft Package Delivery  small packages  fast and reliable  increased with e-Business  primary shipping mode for Internet companies
  • 45. Copyright 2006 John Wiley & Sons, Inc. 10-45 Transportation (cont.)Transportation (cont.) Water  low-cost shipping mode  primary means of international shipping  U.S. waterways  slowest shipping mode Intermodal  combines several modes of shipping- truck, water and rail  key component is containers Pipeline  transport oil and products in liquid form  high capital cost, economical use  long life and low operating cost
  • 46. Copyright 2006 John Wiley & Sons, Inc. 10-46 Internet TransportationInternet Transportation ExchangesExchanges  Bring together shippers andBring together shippers and carrierscarriers  Initial contact, negotiations,Initial contact, negotiations, auctionsauctions  ExamplesExamples www.nte.comwww.nte.com www.freightquote.comwww.freightquote.com
  • 47. Copyright 2006 John Wiley & Sons, Inc. 10-47 SCM SoftwareSCM Software  Enterprise Resource Planning (ERP)  software that integrates components of a company by sharing and organizing information and data  SAP was first ERP software  mySAP.com  web enabled modules that allow collaboration between companies along the supply chain
  • 48. Copyright 2006 John Wiley & Sons, Inc. 10-48 Linking Supply Chain with SAP
  • 49. Copyright 2006 John Wiley & Sons, Inc. 10-49 Measuring Supply Chain Performance  Key performance indicators  inventory turnover  cost of annual sales per inventory unit  inventory days of supply  total value of all items being held in inventory  fill rate  fraction of orders filled by a distribution center within a specific time period
  • 50. Copyright 2006 John Wiley & Sons, Inc. 10-50 Inventory turns =Inventory turns = Average aggregate value of inventoryAverage aggregate value of inventory Cost of goods soldCost of goods sold Average aggregate value of inventory =Average aggregate value of inventory = ==(average inventory for item(average inventory for item ii)) X (unit value itemX (unit value item ii)) Days of supply =Days of supply = (Costs of goods sold)/(365 days)(Costs of goods sold)/(365 days) Average aggregate value of inventoryAverage aggregate value of inventory Key Performance Indicators
  • 51. Copyright 2006 John Wiley & Sons, Inc. 10-51 Key Performance Indicators: Example Inventory turns =Inventory turns = $34,416,000$34,416,000 $425, 000, 000$425, 000, 000 Days of supply =Days of supply = ($425,000,000)/(365)($425,000,000)/(365) $34,416,000$34,416,000 = 12.3= 12.3 = 29.6= 29.6 1. Cost of goods sold: $425 million 2. Production materials and parts: $4,629,000 3. Work-in-process: $17,465,000 4. Finished goods: $12,322,000 5. Total average aggregate value of inventory (2+3+4): $34,416,000
  • 52. Copyright 2006 John Wiley & Sons, Inc. 10-52 Other Measures of Supply ChainOther Measures of Supply Chain PerformancePerformance  Process ControlProcess Control  used to monitor and control any process inused to monitor and control any process in supply chainsupply chain  Supply Chain Operations ReferenceSupply Chain Operations Reference (SCOR)(SCOR)  establish targets to achieve “best in class”establish targets to achieve “best in class” performanceperformance
  • 53. Copyright 2006 John Wiley & Sons, Inc. 10-53 SCOR Model ProcessesSCOR Model Processes Plan Develop a course of action that best meets sourcing, production and delivery requirements Source Procure goods and services to meet planned or actual demand Make Transform product to a finished state to meet planned or actual demand Deliver Provide products to meet demand, including order management, transportation and distribution Return Return products, post-delivery customer support
  • 54. Copyright 2006 John Wiley & Sons, Inc. 10-54 Number of days to achieve an unplanned 20% change in orders without a cost penalty Production flexibility Number of days for supply chain to respond to an unplanned significant change in demand without a cost penalty Supply chain response time Supply Chain Flexibility Number of days from order receipt to customer delivery Order fulfillment lead time Supply Chain Responsivenes s Percentage of orders delivered on time and in full, perfectly matched with order with no errors Perfect order fulfillment Percentage of orders shipped within24 hours of order receipt Fill rate Percentage of orders delivered on time and in full to the customer Delivery performance Supply Chain Delivery Reliability DefinitionPerformanc e Metric Performanc e Attribute SCOR: Customer FacingSCOR: Customer Facing
  • 55. Copyright 2006 John Wiley & Sons, Inc. 10-55 DefinitionPerformanc e Metric Performanc e Attribute SCOR: Internal FacingSCOR: Internal Facing Revenue divided by total assets including working capital and fixed assets Asset turns Number of days that cash is tied up as inventoryInventory days of supply Number of days that cash is tied up as working capital Cash-to-cash cycle time Supply Chain Asset Management Efficiency Direct and indirect costs associated with returns including defective, planned maintenance and excess inventory Warranty/returns processing cost Direct material cost subtracted from revenue and divided by the number of employees, similar to sales per employee Value-added productivity Direct cost of material and labor to produce a product or service Cost of goods sold Direct and indirect cost to plan, source and deliver products and services Supply chain management cost Supply Chain Cost
  • 56. Copyright 2006 John Wiley & Sons, Inc. 10-56 Global Supply ChainGlobal Supply Chain  To compete globally requires anTo compete globally requires an effective supply chaineffective supply chain  Information technology is anInformation technology is an “enabler” of global trade“enabler” of global trade  Nations form trading groupsNations form trading groups  No tariffs or dutiesNo tariffs or duties
  • 57. Copyright 2006 John Wiley & Sons, Inc. 10-57 Obstacles to Global ChainObstacles to Global Chain TransactionsTransactions  Increased documentation for invoices, cargo insurance, letters of credit, ocean bills of lading or air waybills, and inspections  Ever changing regulations that vary from country to country that govern the import and export of goods  Trade groups, tariffs, duties, and landing costs  Limited shipping modes  Differences in communication technology and availability
  • 58. Copyright 2006 John Wiley & Sons, Inc. 10-58 Obstacles to Global ChainObstacles to Global Chain Transactions (cont.)Transactions (cont.)  Different business practices as well as language barriers  Government codes and reporting requirements that vary from country to country  Numerous players, including forwarding agents, custom house brokers, financial institutions, insurance providers, multiple transportation carriers, and government agencies  Since 9/11, numerous security regulations and requirements
  • 59. Copyright 2006 John Wiley & Sons, Inc. 10-59 Duties and TariffsDuties and Tariffs  Proliferation of trade agreementsProliferation of trade agreements  Group members charge uniform tariffsGroup members charge uniform tariffs  Member nations have a competitiveMember nations have a competitive advantage within the groupadvantage within the group  Trade specialists include freight forwarders, customs house brokers, export packers, and export management and trading companies
  • 60. Copyright 2006 John Wiley & Sons, Inc. 10-60 Duties and Tariffs (cont.)Duties and Tariffs (cont.) APECAPEC ASEANASEAN ANZCERTAANZCERTA FTAAFTAA NAFTANAFTA CALMCALM ATPAATPA MERCOSURMERCOSUR TAFTATAFTA
  • 61. Copyright 2006 John Wiley & Sons, Inc. 10-61 Landed CostLanded Cost  Total cost of producing, storing, andTotal cost of producing, storing, and transporting a product to the site oftransporting a product to the site of consumption or another portconsumption or another port  Value added tax (VAT)  an indirect tax assessed on the increase in value of a good at any stage of production process from raw material to final product  Clicker shock  Occurs when an ordered is placed with a company that does not have the capability to calculate landed cost
  • 62. Copyright 2006 John Wiley & Sons, Inc. 10-62 Web-based International TradeWeb-based International Trade Logistic SystemsLogistic Systems  International trade logistics web-based software systems reduce obstacles to global trade  convert language and currency  provide information on tariffs, duties, and customs processes  attach appropriate weights, measurements, and unit prices to individual products ordered over the Web  incorporate transportation costs and conversion rates  calculate shipping costs online while a company enters an order  track global shipments
  • 63. Copyright 2006 John Wiley & Sons, Inc. 10-63 Recent Trends in Globalization forRecent Trends in Globalization for U.S. CompaniesU.S. Companies  Two significant changesTwo significant changes  passage of NAFTApassage of NAFTA  admission of China in WTOadmission of China in WTO  Electronic IndustryElectronic Industry  70% of cost is in components70% of cost is in components  major supply chains have moved to Chinamajor supply chains have moved to China  Proliferation of counterfeit partsProliferation of counterfeit parts
  • 64. Copyright 2006 John Wiley & Sons, Inc. 10-64 Effects of 9/11 on Global ChainsEffects of 9/11 on Global Chains  Increase security measuresIncrease security measures  added time to supply chain schedulesadded time to supply chain schedules  Increased supply chain costsIncreased supply chain costs  24 hours rules for “risk screening”24 hours rules for “risk screening”  extended documentationextended documentation  extend time by 3-4 daysextend time by 3-4 days  Inventory levels have increased 5%Inventory levels have increased 5%  Other costsOther costs include:  new people, technologies, equipment, surveillance, communication, and security systems, and training necessary for screening at airports and seaports around the world
  • 65. Copyright 2006 John Wiley & Sons, Inc. 10-65 Copyright 2006 John Wiley & Sons, Inc.Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond thatAll rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act withoutpermitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for furtherexpress permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley &information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only andSons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility fornot for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from theerrors, omissions, or damages caused by the use of these programs or from the use of the information herein.use of the information herein.