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  1. 1. Supply Chain Management
  2. 2. Learning Objectives <ul><li>Be Able To Apply Concepts Listed In Learning Goals </li></ul><ul><li>Be Able To Use Formulas Listed In Equation Summary of Chapter </li></ul>
  3. 3. Introduction <ul><li>Materials Are Any Commodities Used Directly or Indirectly in Producing a Product or Service. </li></ul><ul><ul><li>Raw Materials, Component Parts, Assemblies, & Supplies </li></ul></ul><ul><li>A Supply Chain Is the Way Materials Flow Through Different Organizations From Raw Material Supplier to Finished Goods Consumer. </li></ul>
  4. 4. Supply Chain Management <ul><li>Supply Chain Management Includes All Management Functions Related to Flow of Materials From Company’s Direct Suppliers to Its Direct Customers. </li></ul><ul><ul><li>Includes Purchasing, Traffic, Production Control, Inventory Control, Warehousing, & Shipping. </li></ul></ul><ul><li>Materials Management & Logistics Management Includes All Decisions About Purchasing Materials and Services, Inventories, Production Levels, Staffing Patterns, Schedules, and Distribution. </li></ul>
  5. 6. Inventory at Different Stocking Points Supplier Manufacturing plant Distribution center Retailer Figure 8.1 Raw materials Work in process Finished goods
  6. 7. Supply Chain Management in a Manufacturing Plant Receiving and Inspection Raw Materials, Parts, and In-process Ware- Housing Production Finished Goods Ware- housing Inspection, Packaging, And Shipping Suppliers Customers Materials Management Purchasing Production Control Warehousing and Inventory Control Shipping and Traffic Physical materials flow Information flow
  7. 8. Four Important Activities in SCM <ul><li>Purchasing </li></ul><ul><li>Logistics </li></ul><ul><li>Warehousing </li></ul><ul><li>Expediting </li></ul>
  8. 9. Purchasing <ul><li>Factors Increasing Importance of Purchasing Today: </li></ul><ul><li>Tremendous Impact of Material Costs on Profit -- 60-70% of Sales Dollar Paid to Material Suppliers </li></ul><ul><li>Popularity of JIT Manufacturing -- Supply Deliveries Must Be Exact in Timing, Quantity, & Quality </li></ul><ul><li>Increasing Global Competition -- More Competition for Scarce Resources, & Geographically Stretched-out Supply Chain </li></ul>
  9. 10. Mission of Purchasing <ul><li>Develop Purchasing Plans for Each Major Product or Service Consistent With Operations Strategies: </li></ul><ul><ul><li>Low Production Costs </li></ul></ul><ul><ul><li>Fast and On-Time Deliveries </li></ul></ul><ul><ul><li>High Quality Products & Services </li></ul></ul><ul><ul><li>Flexibility </li></ul></ul>
  10. 11. Purchasing Management <ul><li>Maintain Database of Available, Qualified Suppliers </li></ul><ul><li>Select Suppliers to Supply Each Material </li></ul><ul><li>Negotiate Contracts With Suppliers </li></ul><ul><li>Act As Interface Between Company & Suppliers </li></ul><ul><li>Provide Training to Suppliers on Latest Technologies </li></ul>
  11. 12. Managing the Customer Interface <ul><li>Order Placement Process—Involves Activities Required to Register Need for Product or Service & to Confirm Acceptance of Order </li></ul><ul><li>Order Fulfillment Process—Involves Activities Required to Deliver Product or Service to Customer </li></ul><ul><ul><li>Inventory Pooling </li></ul></ul><ul><ul><li>Forward Placement </li></ul></ul><ul><ul><li>Vendor-Managed Inventories </li></ul></ul><ul><ul><li>Continuous Replenishment </li></ul></ul>
  12. 13. Managing the Supplier Interface <ul><li>E-Purchasing </li></ul><ul><ul><li>EDI—Enables Transmission of Routine Business Documents with Standard Format over Telephone or Direct Lines </li></ul></ul><ul><ul><li>I-ERP—Allowing Portal to ERP System Between Customer and Supplier </li></ul></ul><ul><li>Supplier Selection & Certification </li></ul><ul><ul><li>Selection—Price, Quality, Deliver, Green </li></ul></ul><ul><ul><li>Certification—Verification Supplier Can Deliver Goods Customer Requires </li></ul></ul><ul><li>Supplier Relations </li></ul><ul><li>Outsourcing </li></ul>
  13. 14. Advantages of Centralized Purchasing <ul><li>Buy in Large Quantities --> Better Prices </li></ul><ul><li>More Clout With Suppliers --> Greater Supply Continuity </li></ul><ul><li>Larger Purchasing Department --> Buyer Specialization </li></ul><ul><li>Combine Small Orders --> Less Order Cost Duplication </li></ul><ul><li>Combine Shipments --> Lower Transportation Costs </li></ul><ul><li>Better Overall Control </li></ul>
  14. 15. Purchasing Process Material Requisition Request for Quotations Select Best Supplier Purchase Order Receive & Inspect Goods From Purchasing, To Potential Suppliers From Any Department, To Purchasing Based on Quality, Price, Lead Time, Dependability From Purchasing, To Selected Supplier From Supplier, to Receiving, Quality Control, Warehouse
  15. 16. Make-or-Buy Analysis <ul><li>Considerations in Make-or-Buy Decisions: </li></ul><ul><li>Lower Cost - Purchasing or Production? </li></ul><ul><li>Better Quality - Supplier or In-House? </li></ul><ul><li>More Reliable Deliveries - Supplier or In-House? </li></ul><ul><li>What Degree of Vertical Integration Is Desirable? </li></ul><ul><li>Should Distinctive Competencies Be Outsourced? </li></ul>
  16. 17. JIT Purchasing <ul><li>Key Elements of JIT Purchasing Are: </li></ul><ul><li>Cooperative, Not Adversarial Relationships </li></ul><ul><li>Longer-Term Relationships, Fewer Suppliers </li></ul><ul><li>Delivery & Quality Enters Into Selecting a Supplier </li></ul><ul><li>JIT in Supplier’s Operation </li></ul><ul><li>Suppliers Nearby </li></ul><ul><li>Shipments Delivered Directly to Production Line </li></ul><ul><li>Deliveries in Small, Standard-Size, Returnable Containers </li></ul><ul><li>Minimum of Paperwork </li></ul>
  17. 18. Logistics <ul><li>Logistics Usually Refers to Management of: </li></ul><ul><ul><li>Movement of Materials Within Factory </li></ul></ul><ul><ul><li>Shipment of Incoming Materials From Suppliers </li></ul></ul><ul><ul><li>Shipment of Outgoing Products to Customers </li></ul></ul>
  18. 19. Movement of Materials within Factories Incoming Vehicles Receiving Dock Quality Control Warehouse Work Center Other Work Centers Packaging Finished Goods Shipping Shipping Dock Outgoing Vehicles Typical Locations From/To Which Material Is Moved:
  19. 20. Shipments To and From Factories <ul><li>Traffic Departments Routinely Examine Shipping Schedules & Select: </li></ul><ul><ul><li>Shipping Methods </li></ul></ul><ul><ul><li>Time Tables </li></ul></ul><ul><ul><li>Ways of Expediting Deliveries </li></ul></ul><ul><li>Traffic Management Is Specialized Field Requiring Technical Training in DOT and ICC Regulations & Rates. </li></ul>
  20. 21. Shipments To and From Factories <ul><li>Distribution , or Physical Distribution, Is Shipment of Finished Goods Through Distribution System to Customers. </li></ul><ul><li>A Distribution System Is Network of Shipping & Receiving Points Starting With Factory & Ending With Customers. </li></ul>
  21. 22. Shipments To and From Factories <ul><li>Distribution Requirements Planning </li></ul><ul><ul><li>DRP Is Planning for Replenishment of Regional Warehouse Inventories. </li></ul></ul><ul><ul><li>DRP Uses MRP-type Logic to Translate Regional Warehouse Requirements Into Central Distribution-Center Requirements, Which Are Then Translated Into Gross Requirements in MPS at Factory. </li></ul></ul>
  22. 23. Shipments To and From Factories <ul><li>Distribution Requirements Planning </li></ul><ul><ul><li>Scheduled Receipts Are Previously-placed Orders That Are Expected to Arrive in a Given Week </li></ul></ul><ul><ul><li>Planned Receipt of Shipments Are Orders Planned, but Not Yet Placed, for the Future </li></ul></ul><ul><ul><li>Projected Ending Inventory Is Computed As: </li></ul></ul><ul><ul><ul><li>Previous Week’s Projected Ending Inventory </li></ul></ul></ul><ul><ul><ul><li>+ Planned Receipt of Shipments in Current Week </li></ul></ul></ul><ul><ul><ul><li>+ Scheduled Receipt of Shipments in Current Week </li></ul></ul></ul><ul><ul><ul><li>-- Forecasted Demand in Current Week </li></ul></ul></ul>
  23. 24. Shipments To and From Factories <ul><li>DRP Time-Phased Order Point Record </li></ul>Forecasted demand (units) Scheduled receipts Projected ending inventory Planned receipt of shipments Planned orders for shipments Region. Warehouse #1 LT = 1 Std. Quantity = 50 SS = 10 60 -1 80 50 30 40 40 1 2 3 30 50 50 50 50 30 20 10 40 5 4 40 Week
  24. 25. Shipments To and From Factories <ul><li>Distribution Resource Planning </li></ul><ul><ul><li>Distribution Resource Planning Extends DRP So That Key Resources of Warehouse Space, Workers, Cash, & Vehicles Are Provided in Correct Quantities at Correct Times. </li></ul></ul>
  25. 26. Innovations in Logistics <ul><li>New Developments Affecting Logistics Include: </li></ul><ul><ul><li>All-Freight Airports </li></ul></ul><ul><ul><li>Inter-Modal Shipping </li></ul></ul><ul><ul><li>In-Transit Rates </li></ul></ul><ul><ul><li>Consolidated Shipments </li></ul></ul><ul><ul><li>Air-Freight & Trucking Deregulation </li></ul></ul><ul><ul><li>Advanced Logistics Software </li></ul></ul>
  26. 27. Warehousing <ul><li>Warehousing Is Management of Materials While They Are in Storage. </li></ul><ul><li>Warehousing Activities Include: </li></ul><ul><ul><li>Storing </li></ul></ul><ul><ul><li>Dispersing </li></ul></ul><ul><ul><li>Ordering </li></ul></ul><ul><ul><li>Accounting </li></ul></ul><ul><ul><ul><li>Periodic Inventory </li></ul></ul></ul><ul><ul><ul><li>Perpetual Inventory </li></ul></ul></ul>
  27. 28. Warehousing <ul><li>Record Keeping Within Warehousing Requires Stock Record for Each Item That Is Carried in Inventories. </li></ul><ul><li>The Individual Item Is Called a Stock-Keeping Unit (SKU) . </li></ul><ul><li>Stock Records Are Running Accounts That Show: </li></ul><ul><ul><li>On-Hand Balance </li></ul></ul><ul><ul><li>Receipts & Expected Receipts </li></ul></ul><ul><ul><li>Disbursements, Promises, & Allocations </li></ul></ul>
  28. 29. Inventory Accounting <ul><li>In Past, Inventory Accounting Based On: </li></ul><ul><ul><li>Periodic Inventory Accounting Systems -- Periodic (End-of-Day) Updating of Inventory Records </li></ul></ul><ul><ul><li>Physical Inventory Counts -- Periodic (End-of-Year) Physical Counting of All SKUs at One Time </li></ul></ul><ul><li>Today, More and More Firms Are Using: </li></ul><ul><ul><li>Perpetual Inventory Accounting Systems -- Real-Time Updating of Records As Transactions Occur </li></ul></ul><ul><ul><li>Cycle Counting -- Ongoing (Daily or Weekly) Physical Counting of Different SKUs </li></ul></ul>
  29. 30. Measuring the Performance Materials Managers <ul><li>Level and Value of In-House Inventories </li></ul><ul><li>Percentage of Orders Delivered on Time </li></ul><ul><li>Number of Stockouts </li></ul><ul><li>Annual Cost of Materials </li></ul><ul><li>Annual Cost of Transportation </li></ul><ul><li>Annual Cost of Warehouse </li></ul><ul><li>Number of Customer Complaints </li></ul><ul><li>Other Factors </li></ul>
  30. 31. Inventory Measures