Chapter 11 Supply Chain Management

Definition, issues, logistics, EDI, E-commerce, purchasing, make or buy, DRP

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Definition of SCM

Definition: chain consisting of multiple organizations and organization units operating as customer/supplier links Includes external suppliers and subcontractors Involves internal manufacturing plants, warehouses, and distribution centers Extends to final (external) customers
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Supply Chain Example

Contract manufacturer Hewlett-Packard Ingram Micro CompUSA You or me

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Factors Leading to SCM

Globalization Competitive pressure Move to e-commerce Cost reduction opportunities Ability to share information Greater use of contract manufacturers Desire to manage vertical markets
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Key Elements of SCM

Determine customer needs Forecast demand Design products to meet customer needs and minimize costs Control operations processes Minimize inventory Strengthen supplier relationships Optimize facility location Improve handling and storage of material
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SCM Issues

Strategic

Building the chain (suppliers, manufacturing facilities, distribution centers, customers) Establishing partnerships Inventory, procurement, logistics, quality policies Production and inventory planning and control Outsourcing Quality control
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Tactical

Operational

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Integration

Horizontal Integration

Acquisition of complementary product lines Example: HP and Compaq Backward integration (upstream)

Vertical Integration

Control of supply Example: Ford Control of customers Example: Apple

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Forward integration (downstream)

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Focused Factories

Focused factories

Emphasis on niche, distinctive competency Limited products and functions Example: HP casting plant
(SJMN 10/24/02) :

HP: Carly Fiorina comments

in contrast to IBM, HP is not going to be a vertically integrated company Focus less and less on component-level innovation Work with key partners (e.g., Intel and Canon) Position itself as broad-based technology company
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Logistics

Managing movement of materials within the supply chain Traffic management

Scheduling, carrier selection, rate and tariff management

Electronic Data Interchange (EDI) Internet (B2B, exchanges) Distribution Requirements Planning (DRP) JIT deliveries
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Communications

Traditional

Mail, Phone, Fax Transmission of forecasts, orders, etc. Individual supplier/customer agreements Buying and selling using the Internet Business-to-business, business-to-consumer Exchanges
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EDI

Internet (E-Commerce)

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Creating an Effective Supply Chain

Key is external and internal partnerships Steps

Strategic objectives and tactics Integrate internal part first Extend to suppliers and customers Optimize data management across chain Develop strategic partnerships
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SCM Software Vendors

Supply Chain Management (SCM)

SAP Oracle I2 Technologies Manugistics

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Internet Applications (B2B)

Ariba (Sunnyvale) BEA (San Jose) Siebel (San Mateo)

(acquired by Oracle 06/01/06) (Redwood Shores)

BroadVision (Redwood City) Many others

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Internet Applications (B2C)

Oracle (Redwood Shores)

Including Siebel (San Mateo) Acquired by Oracle 06/01/06)

BroadVision (Redwood City) Many others

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Purchasing - 1

Purchasing activities and interfaces Purchasing cycle

Requisition from user or inventory control Supplier selection Order placement Order monitoring and follow-up Order receipt Contract manufacturers
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Outsourcing

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Purchasing - 2

JIT purchasing

Fewer suppliers More contracts

Traditional vs. partnership relationships Supplier selection Supplier audits and certification

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Supplier Relationships 1
Source: Schonberger & Knod, Operations Management, Fourth Edition, 1991

Factor
1. 2. 3. 4. 5. 6.

Traditional Short P.O. Many Low High Uncertain

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Partnership Long term Contract Few High Low High

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Tenure Agreement Sources Volume Price (total) Quality

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Supplier Relationships 2
Source: Schonberger & Knod, Operations Management, Fourth Edition, 1991

Factor
7. 8. 9. 10. 11. 12.

Traditional Customer Infrequent Mail Dock Lots Arms length

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Partnership Joint Frequent Kanban Prodn line Little or none Arm-in-arm

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Design Delivery Order Receipt Paperwork Openness

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Purchasing - 3

Supply Chain Tools

Bar coding EDI (Electronic Data Interchange) RFID (Radio Frequency Identification) E-commerce

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Purchasing - 4

Make or buy (breakeven analysis)

Q BEP = FC / (p v) Aggregate requirements from stores Assign through warehouses to factories

Distribution requirements planning (DRP)

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E-Commerce Areas

CRM - Oracle (including Seibel), BroadVision B2B - SAP, Oracle B2C - BroadVision SCM - SAP, i2 E-Procurement - SAP, Ariba

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