Supply Chain

Management
 Supply Chain
 All activities associated with the flow
and transformation of goods and
services from raw materials to the end
user, the customer

 A sequence of business activities

from suppliers through customers
that provide the products, services,
and information to achieve customer
satisfaction
 The Supply Chain

Suppliers Producers Distributors Customers

Materials, Finished Package Total

parts, sub- goods, end and delivery satisfaction
Products Products Products
assemblies, and products and and with quality,
and
Services
and services Services Services price,
services delivery,
and service
Inventory Inventory Inventory
 The Supply Chain
Information

Suppliers Producers Distributors Customers

Materials, Finished Package Total

parts, sub- goods, end and delivery satisfaction
Products Products Products
assemblies, and products and and with quality,
and
Services
and services Services Services price,
services delivery,
and service
Inventory Inventory Inventory
 The Supply Chain
Information

Suppliers Producers Distributors Customers

Materials, Finished Package Total

parts, sub- goods, end and delivery satisfaction
Products Products Products
assemblies, and products and and with quality,
and
Services
and services Services Services price,
services delivery,
and service
Inventory Inventory Inventory

Cash
 Is supply chain so
simple?
Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Upstream Downstream
 Drivers of Supply Chain
Performance
• Inventory
– Raw materials
– WIP
– Finished Goods
• Sourcing
– Outsourcing
• Transportation
 Transportation Total
costs

Cost Inventory
costs

Transport
costs

Rail Air
 Inventory
• Where do we hold inventory?
– Suppliers and manufacturers
– warehouses and distribution centers
– retailers
• Types of Inventory
– raw materials
– WIP
– finished goods
• Why do we hold inventory?
– Uncertainty in supply and demand
– Lead Time
– Avoid stock outs (customer goodwill)
 Terms Involved
• Inventory lot size
• Replenishment Lead time
• Stock out
• Reorder Point
• Safety stock
 Relevant Costs in an
Inventory System
• Procurement costs
– Ordering cost (appx. administrative, inspection,
transportation etc.)
• Holding costs
– Maintenance and Handling
– Taxes
– Obsolescence
• Stock-outs costs
– Lost sales (Customer goodwill)
– Backorders
 The Inventory Cycle
Profile of Inventory Level Over Time
Q Demand
rate Constant
Demand
Quantity
on hand

Reorder
point

Time
Receive Place Receive Place Receive
order order order order order
Lead time
 Decisions
• When to order
• How much to order
• Types of System
– Continuous Review
– Periodic Review
 EOQ: A View of Inventory

Note:
• No Stockouts
• Order when no inventory
• Order Size determines policy

Inventory

Order
Size

Time
 EOQ - Cost Minimization Goal

The Total-Cost Curve is U-Shaped

Annual Cost

Holding Costs

Ordering Costs

Order Quantity
QO (optimal order quantity)
or EOQ (Q)
Process View
Customer Customer
Order Cycle Pull
Retailer

Replenishment
Cycle
Distributor

Manufacturing
Cycle Push
Manufacturer

Procurement
Cycle
Supplier
Supply Chain Management
 Synchronization of activities
required to achieve maximum
competitive benefits
 Coordination, cooperation, and
communication
 Rapid flow of information
 Vertical integration
Supply Chain Uncertainty
 Forecasting, lead times, batch
ordering, price fluctuations, and
inflated orders contribute to
variability
 Inventory is a form of insurance
 Distorted information is one of
the main causes of uncertainty
Information in the Supply Chain
 Centralized coordination of information flows
 Integration of transportation, distribution, ordering, and
production
 Direct access to domestic and global transportation and
distribution channels
 Locating and tracking the movement of every item in the
supply chain
 Consolidation of purchasing from all suppliers
 Inter company and intra company information access
 Data interchange
 Instantaneous updating of inventory levels
 Bull Whip Effect
• Each organisation seek to solve the problem
from its own perspective
– Small changes in consumer demand result
in large variations in orders placed
upstream
• Dramatic order size variation
• Amplification of order size variation as one
moves up the supply chain
Delay 2 weeks Delay 2 weeks Delay 2 weeks

Supplier Manufacturer Distributor Retailer Customer

Orders 40 Orders 25 Orders 15 Buys 10

 Causes of Bull whip effect

• Little or no communication between

supply chain partners.
• Delay times between order
processing, demand, and receipt of
products.
• Over reacting to the backlog orders.
• Inaccurate demand forecasts.
Electronic Business
 Replacement of physical processes
with electronic ones
 Cost and price reductions
 Reduction or elimination of
intermediaries
 Shortening transaction times for
ordering and delivery
 Wider presence and increased visibility
 Electronic Business
 Greater choices and more information for
customers
 Improved service
 Collection and analysis of customer data
and preferences
 Virtual companies with lower prices
 Gain global access to markets & customers
Electronic Data Interchange
 Computer-to-computer exchange of
business documents in a standard
format
 Quick access, better customer service,
less paperwork, better communication,
increased productivity, improved
tracing and expediting, improves billing
and cost efficiency
 Bar Codes
 Computer readable codes attached to
items flowing through the supply chain
 Generates point-of-sale data which is
useful for determining sales trends,
ordering, production scheduling, and
deliver plans

1234 5678
 The Internet
 Instant global access to organizations,
individuals, and information sources
 Fundamentally changes the way
organizations do business
 Removed geographic
barriers
 Adds speed and accessibility
to the supply chain
The E-Automotive Supply Chain
Intranets and Extranets
 Intranets are internet-like networks that
operate within a single organization
 Extranets are intranets that can be
connected to the global internet
 Difference is in who has access to the
system
 Suppliers
 Purchased materials account for about
half of manufacturing costs
 Materials, parts, and service must be
delivered on time, of high quality, and
low cost
 Suppliers should be integrated into
their customers’ supply chains
 Partnerships should be established
 On-demand delivery (JIT) is a frequent
requirement
 Sourcing
 Relationship between customers and
suppliers focuses on collaboration and
cooperation
 Outsourcing has become a long-term
strategic decision
 Organizations focus on core
competencies
 Single-sourcing is
increasingly a part
of supplier relations
 E-Procurement
 Business-to-business commerce
conducted on the Internet
 Benefits include lower transaction costs,
lower prices, reduce clerical labor costs,
and faster ordering and delivery times
 Currently used more for indirect goods
 E-Marketplaces service industry-specific
companies and suppliers
 Distribution
 The actual movement of products and
materials between locations
 Handling of materials and products at
receiving docks, storing products,
packaging, and shipping
 Often called logistics
 Driving force today
is speed
 Particularly important
for Internet dot-coms
Order Fulfillment at
Amazon.com
 Distribution Centers
and Warehousing
 DCs are some of the largest business
facilities in the world.
 Trend is for more frequent orders in
smaller quantities
 Flow-through facilities and automated
material handling
 Final assembly and product
configuration may be done at the DC
 Transportation
 Important element, often
overlooked
 Common methods are railroads,
trucking, water, air, intermodal,
package carriers, and pipelines
 Railroads
 Low cost, high-volume
 Improving flexibility
 intermodal service
 double stacking
 Trucking
 Flexible, small loads
 Consolidation,
Internet load match sites
 Part of TQM supplier-customer
relationship
 Single sourcing reduces number of
trucking firms serving a company
 Air
 Rapidly growing segment of
transportation industry
 Lightweight, small items
 Quick, reliable,
expensive
 Package Carriers
 Significant growth driven by
e-businesses
 Use several modes
of transportation
 Expensive
 Fast and reliable
 Innovative use of
technologies
 Intermodal
 Combination of several modes of
transportation
 Most common are truck/rail/truck
and truck/water/rail/truck
 Enabled by the
use of containers
 Water
 One of oldest means of transport
 Low-cost, high-volume, slow
 Bulky, heavy and/or large items
 Standardized shipping containers
improve service
 The most common
form of international
shipping
 Pipelines
 Primarily for oil & refined oil
products
 Slurry lines carry coal or kaolin
 High capital investment
 Low operating costs
 Can cross difficult terrain
 Internet Transportation
Exchanges
 Bring together shippers and
carriers
 Initial contact, negotiations,
auctions
 Typically only one
form of transportation,
intermodal exchanges
have been difficult to develop
The Transportation Method
 Ship items at lowest cost
 Sources have fixed supplies
 Destinations have fixed demand
Thank You