This document provides an overview of supply chain management concepts. It discusses supply chains and supply chain processes. Key aspects covered include supply chain uncertainty and inventory management, the role of information technology in enabling supply chains, supply chain integration, and measuring supply chain performance. Supply chain management software and the Supply Chain Operations Reference (SCOR) model are also summarized.

6. Ope a onsManagemen
Supply Chain Management
Strategy and Design
Chapter 10

7. •The Management of Supply Chains
•Information Technology: A Supply Chain
Enabler
•Supply Chain Integration
•Supply Chain Management (SCM)
Software
•Measuring Supply Chain Performance
10-508
Lecture Outline

8. All facilities, functions, and activities
associated with flow and transformation
of goods and services from raw materials
to customer, as well as the associated
information flows
An integrated group of processes to
“source,” “make,” and “deliver” products
10-509
Supply Chains

9. 10-510
Supply Chain Illustration

10. Supply Chain Processes
10-513
Supply Chain Proces

11. • 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
10-516
Supply Chain
Management (SCM)

12. Supply Chain for Service
• More difficult than manufacturing
• Does not focus on the flow of physical goods
• Focuses on human resources and support
services
• More compact and less extended
10-514
Supply Chain for Servi
Providers

13. • 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
• ultimate goal is same as that of value chain
Demand chain
• increase value for any part or all of chain
Terms are used interchangeably
Value
•
•
•
• creation of value for customer is important aspect
chain management
of supply
10-515
Value Chains

14. Uncertainty and Inventory
• Factors that contribute to
uncertainty
• One goal in SCM:
• respond to uncertainty
customer demand
without creating costly
excess inventory
in
inaccurate demand
forecasting
•
long variable lead times
late deliveries
incomplete shipments
product changes
batch ordering
price fluctuations and
discounts
inflated orders
•
• Negative effects
uncertainty
• lateness
of •
•
•
• incomplete
Inventory
orders •
• •
• insurance against supply
chain uncertainty •
10-517
Supply Chain
Uncertainty and Invent

15. Information Technology:
A Supply Chain Enabler
•
•
Information links all aspects of supply chain
E-business
• replacement of physical business processes with
ones
electronic
• 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
•
10-520
Information Technolog
A Supply Chain Enable

16. Information Technology:
A Supply Chain Enabler (cont.)
• 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
Build-to-order (BTO)
• direct-sell-to-customers model via the Internet; extensive
communication with suppliers and customer
•
10-521
Information Technolog
A Supply Chain Enable

17. Supply 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,
• Higher capacity utilization
• Improved customer service levels
•
etc.)
10-525
Supply Chain Integra

18. Supply Chain Integration (cont.)
• Coordinated workflow, production
operations, procurement
• Production efficiencies
• Fast response
and
• Improved service
• Quicker to market
Adopt new business models
technologies
• Penetration of new markets
• Creation of new products
• Improved efficiency
• Mass customization
• and
10-526
Supply Chain Integrati

19. Supply Chain Management
•Enterprise resource planning (ERP)
• software that integrates the components of a
company by sharing and organizing
information and data
10-528
Supply Chain Manage
(SCM) Software

20. Forecasting,
and Replenishment (CPFR)
• Process for two or more companies
a supply chain to synchronize their
demand forecasts into a single plan
meet customer demand
in
to
• Parties electronically exchange
• past sales trends
• point-of-sale data
• on-hand inventory
• scheduled promotions
• forecasts
10-527
Collaborative Planning,
and Replenishment (CP

21. Key Performance Indicators
• Metrics used to measure supply chain performance
• Inventory turnover
Cost of goods sold
Inventory turns
Average aggregate value of inventory
• Total value (at cost) of inventory
Average aggregate value of inventory ∑(average inventory for item i) (unit value item i)
• Days of supply
Average aggregate value of inventory
Days of supply
(Cost of goods sold)/(365 days)
• Fill rate: fraction of orders filled by a distribution center within a
specific time period
10-529
Key Performance Ind

22. Computing
Key
Performance
Indicators
10-530

23. Process Control and SCOR
• Process Control
• not only for manufacturing operations
• can be used in any processes of supply chain
• Supply Chain Operations Reference (SCOR)
• a cross industry supply chain diagnostic tool
maintained by the Supply Chain Council
10-531
Process Control and

24. 10-532
SCOR

25. SCOR
(cont.)
10-533

26.  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


Copyright 2006 John Wiley & Sons, Inc. 10-28
Suppliers

27.  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

Copyright 2006 John Wiley & Sons, Inc. 10-29
Outsourcing

28.  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

Copyright 2006 John Wiley & Sons, Inc. 10-31
E-Procurement

29. Encompasses all channels, processes, and
functions, including warehousing and
transportation, that a product passes
way to final customer
Often called logistics
Logistics
on its


 transportation and distribution of
and services
goods


Driving force today is speed
Particularly important for Internet dot-coms
Copyright 2006 John Wiley & Sons, Inc. 10-36
Distribution

30. (DC)
DCs are some of the largest business
facilities in the United States
Trend is for more frequent orders in
smaller quantities
Flow-through facilities and automated
material handling
Postponement



final assembly and product configuration
may be done at the DC
Copyright 2006 John Wiley & Sons, Inc. 10-38
Distribution Centers
and Warehousing

31. Warehouse Management
Highly automated system that runs day-to-day
operations of a DC
Controls item putaway, picking,
shipping
Features
packing, and






transportation management
order management
yard management
labor management
warehouse optimization
Copyright 2006 John Wiley & Sons, Inc. 10-39
Warehouse Manage
Systems

32.  Enterprise Resource Planning (ERP)
software that integrates components
company by sharing and organizing
information and data
SAP was first ERP software
mySAP.com
of a



web enabled modules that
between companies along
allow collaboration
the supply chain
Copyright 2006 John Wiley & Sons, Inc. 10-47
SCM Software

33. Measuring Supply Chain
 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
a specific time period
within

Copyright 2006 John Wiley & Sons, Inc. 10-49
Measuring Supply Cha
Performance

34. Key Performance Indicators
Inventory turns =
Average aggregate value of inventory =
Days of supply =
Copyright 2006 John Wiley & Sons, Inc. 10-50
Average aggregate value of inventory
(Costs of goods sold)/(365 days)
=(average inventory for item i)X (unit value item i)
Cost of goods sold
Average aggregate value of inventory
Key Performance I

35. = 12.3
Inventory turns =
= 29.6
Days of supply =
Copyright 2006 John Wiley & Sons, Inc. 10-51
$34,416,000
($425,000,000)/(365)
$425, 000, 000
$34,416,000
Key Performance Indicators:
Example
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

36. Other Measures of Supply Chain
 Process Control
used to monitor and control any process in
supply chain
Supply Chain Operations Reference
(SCOR)


establish targets to achieve “best in class”
performance

Copyright 2006 John Wiley & Sons, Inc. 10-52
Other Measures of S
Performance

37. SCOR Model Processes
Make
Transform
product to a
finished state to
meet planned
or actual
demand
Deliver
Plan Source
Procure goods
and services to
meet planned
or actual
demand
Provide products
to meet demand,
including order
management,
transportation
Develop a course
of action that best
meets sourcing,
production and
delivery
requirements
and distribution
Return
Return
products,
post-delivery
customer
support
Copyright 2006 John Wiley & Sons, Inc. 10-53
SCOR Model Proce

38. Global Supply Chain
Procurement and Distribution
Chapter 11

39. Procurement
E-Procurement
Distribution
Transportation




 The Global Supply Chain
Copyright 2009 John Wiley & Sons, Inc. 11-2
Lecture Outline

40. The purchase of goods and services from suppliers
Cross enterprise teams


coordinate processes between a company and its supplier

On-demand (direct-response) delivery

requires the supplier to deliver goods when demanded by
customer
Continuous replenishment
the


supplying orders in a short
predetermined schedule
period of time according to a

Copyright 2009 John Wiley & Sons, Inc. 11-3
Procurement

41. 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

Copyright 2009 John Wiley & Sons, Inc. 11-4
Outsourcing

42. Direct purchase from suppliers over the
Internet, by using software packages or
through e-marketplaces, e-hubs, and
trading exchanges

Can streamline
purchase order
and
and
speed up the
transaction process

Copyright 2009 John Wiley & Sons, Inc. 11-6
E-Procurement

43. E-Procurement (cont.)
What can companies buy over
Internet?
the

Manufacturing inputs

the raw materials and components that go
directly into the production process of the product
Operating inputs


maintenance, repair,
services
and operation goods and

Copyright 2009 John Wiley & Sons, Inc. 11-7
E-Procurement (cont

44. E-Procurement (cont.)
E-marketplaces (e-hubs)

Websites where companies and suppliers
conduct business-to-business activities
Reverse auction


process used by e-marketplaces for buyers
to purchase items; company posts orders on
the internet for suppliers to bid on

Copyright 2009 John Wiley & Sons, Inc. 11-8
E-Procurement (cont

45.  Encompasses all channels, processes, and
functions, including warehousing and transportation,
that a product passes on its way to final customer
Order fulfillment

 process of ensuring on-time delivery of an order
 Logistics
 transportation and distribution of goods
services
and


Driving force today is speed
Particularly important for Internet dot-coms
Copyright 2009 John Wiley & Sons, Inc. 11-9
Distribution

46. (DC)
and Warehousing
 DCs are
facilities
Trend is
some of the largest business
in the United States
for more frequent orders in

smaller quantities
Flow-through facilities and automated
material handling
Postponement


 final assembly and product configuration
may be done at the DC
Copyright 2009 John Wiley & Sons, Inc. 11-10
Distribution Centers

47. Warehouse Management
Systems
 Highly automated system that runs day-to-day
operations of a DC
 Controls item putaway, picking,
shipping
Features
packing, and






transportation management
order management
yard management
labor management
warehouse optimization
Copyright 2009 John Wiley & Sons, Inc. 11-11
Warehouse Manage

48. Vendor-Managed Inventory
 Manufacturers generate orders, not distributors
retailers
Stocking information is accessed using EDI
A first step towards supply chain collaboration
or


 Increased
service
speed, reduced errors, and improved
Copyright 2009 John Wiley & Sons, Inc. 11-13
Vendor-Managed Inve

49. and
g
 Collaborative planning, forecasting, and
replenishment create greater economies
scale
Internet-based exchange of data and
information
of

 Significant decrease in inventory levels and
costs and more efficient logistics
Companies focus on core competencies

Copyright 2009 John Wiley & Sons, Inc. 11-14
Collaborative Logistics
Distribution Outsourcin

50. 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



Copyright 2009 John Wiley & Sons, Inc. 11-15
Transportation

51. 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




Copyright 2009 John Wiley & Sons, Inc. 11-16
Transportation (con

52. 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
high capital cost, economical use
long life and low operating cost
form



Copyright 2009 John Wiley & Sons, Inc. 11-17
Transportation (con

53. Internet Transportation
Exchanges
 Bring together shippers and
carriers
Initial contact, negotiations,
auctions
Examples
www.nte.com
www.freightquote.com


Copyright 2009 John Wiley & Sons, Inc. 11-18
Internet Transportati

54.  International trade barriers have
fallen
New trade agreements

 To compete globally requires
effective supply chain
Information technology is an
“enabler” of global trade
an

Copyright 2009 John Wiley & Sons, Inc. 11-19
Global Supply Chain

55. 

Proliferation of trade agreements
Nations form trading groups
no tariffs or duties within group
charge uniform tariffs to nonmembers
Member nations have a competitive
advantage within the group
Trade specialists
include freight forwarders, customs house


brokers,
export packers, and export management and trading
companies
Copyright 2009 John Wiley & Sons, Inc. 11-22
Duties and Tariffs

56. Web-based International Trade
Logistic 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
individual products ordered over the Web
incorporate transportation costs and conversion rates
to


calculate shipping costs
order
track global shipments
online while a company enters an


Copyright 2009 John Wiley & Sons, Inc. 11-25
Web-based Internation

57. lization for
U.S. Companies
Two significant changes

passage of NAFTA
admission of China in WTO


Mexico

cheap labor and relatively short shipping time

China

cheaper labor and longer work week, but lengthy
shipping time
Major supply chains have moved to China


Copyright 2009 John Wiley & Sons, Inc. 11-26
Recent Trends in Globa

58. in the Global Supply Chain
World’s premier sources of supply
Abundance of low-wage labor
World’s fastest growing market



 Regulatory changes
market
Increased exporting
products
have liberalized its
of higher technology

Copyright 2009 John Wiley & Sons, Inc. 11-27
China’s Increasing Role