16-1 Supply Chain Management

Operations Management

William J. Stevenson

8th edition
16-2 Supply Chain Management

CHAPTER
16

Supply Chain Management

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright 2005 by The McGraw-Hill Companies, Inc. All rights
16-3 Supply Chain Management

Supply Chain Management

Supply Chain: the sequence of

organizations - their facilities, functions,
and activities - that are involved in
producing and delivering a product or
service.

Sometimes referred to as value chains

16-4 Supply Chain Management

Functions and Activities

Forecasting
Purchasing

Inventory management

Information management

Quality assurance

Scheduling

Production and delivery

Customer service
16-5 Supply Chain Management

Typical Supply Chains

Production Distribution
Purchasing Receiving Storage Operations Storage
16-6 Supply Chain Management

Typical Supply Chain for a Manufacturer

Figure 16.1a

Supplier

Supplier

Supplier
} Storage Mfg. Storage Dist. Retailer Customer
16-7 Supply Chain Management

Typical Supply Chain for a Service

Figure 16.1b

Supplier

Supplier
} Storage Service Customer
16-8 Supply Chain Management

Need for Supply Chain Management

1. Improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-commerce
7. Complexity of supply chains
8. Manage inventories
16-9 Supply Chain Management

Bullwhip Effect
Figure 16.3

Amount of
= inventory

Tier 2 Tier 1 Final

Producer Distributor Retailer
Suppliers Suppliers Customer
16-10 Supply Chain Management

Benefits of Supply Chain Management

Organization Benefit

Campbell Soup Doubled inventory turnover rate

Hewlett-Packard Cut supply costs 75%

Sport Obermeyer Doubled profits and increased sales 60%

National Bicycle Increased market share from 5% to 29%

Wal-Mart Largest and most profitable retailer in the world

16-11 Supply Chain Management

Benefits of Supply Chain Management

Lower inventories
Higher productivity

Greater agility

Shorter lead times

Higher profits

Greater customer loyalty

16-12 Supply Chain Management

Elements of Supply Chain Management

Table 16.1

Element Typical Issues

Customers Determining what customers want
Forecasting Predicting quantity and timing of demand
Design Incorporating customer wants, mfg., and time
Processing Controlling quality, scheduling work
Inventory Meeting demand while managing inventory costs
Purchasing Evaluating suppliers and supporting operations
Suppliers Monitoring supplier quality, delivery, and relations
Location Determining location of facilities
Logistics Deciding how to best move and store materials
16-13 Supply Chain Management

Logistics

Logistics
Refers to the movement of materials and
information within a facility and to incoming
and outgoing shipments of goods and
materials in a supply chain
16-14 Supply Chain Management

Logistics

Movement within the facility

Incoming and outgoing shipments
Bar coding
EDI
0
Distribution
JIT Deliveries 214800 232087768
16-15 Supply Chain Management

Materials Movement
Figure 16.4
Work center
Work center Work
center

Work Storage
center

Storage

Storage
RECEIVING

Shipping
16-16 Supply Chain Management

Distribution Requirements Planning

Distribution requirements planning (DRP) is

a system for inventory management and
distribution planning
Extends the concepts of MRPII
16-17 Supply Chain Management

Uses of DRP

Management uses DRP to plan and

coordinate:
Transportation
Warehousing

Workers

Equipment

Financial flows
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Electronic Data Interchange

EDI the direct transmission of

interorganizational transactions, computer-to-
computer, including purchase orders,
shipping notices, and debit or credit memos.
16-19 Supply Chain Management

Electronic Data Interchange

Increased productivity
Reduction of paperwork

Lead time and inventory reduction

Facilitation of just-in-time systems

Electronic transfer of funds

Improved control of operations

Reduction in clerical labor

Increased accuracy
16-20 Supply Chain Management

Efficient Consumer Response

Efficient consumer response (ECR) is a

supply chain management initiative specific
to the food industry
Reflects companies efforts to achieve quick
response using EDI and bar codes
16-21 Supply Chain Management

E-Commerce

E-Commerce: the use of electronic

technology to facilitate business transactions
Applications include
Internet buying and selling
E-mail

Order and shipment tracking

Electronic data interchange

16-22 Supply Chain Management

Advantages E-Commerce

Companies can:
Have a global presence
Improve competitiveness and quality
Analyze customer interests
Collect detailed information
Shorten supply chain response times
Realize substantial cost savings
Create virtual companies
Level the playing field for small companies
16-23 Supply Chain Management

Disadvantages of E-Commerce

Customer expectations
Order quickly -> fast delivery
Order fulfillment
Order rate often exceeds ability to fulfill it
Inventory holding
Outsourcing loss of control
Internal holding costs
16-24 Supply Chain Management

Successful Supply Chain

Trust among trading partners

Effective communications
Supply chain visibility
Event-management capability
The ability to detect and respond to unplanned
events
Performance metrics
16-25 Supply Chain Management

SCOR Metrics
Table 16.4

Perspective Metrics
Reliability On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillment
Flexibility Supply chain response time
Upside production flexibility

Expenses Supply chain management costs

Warranty cost as a percent of revenue
Value added per employee
Assets/utilization Total inventory days of supply
Cash-to-cash cycle time
Net asset turns
16-26 Supply Chain Management

Creating an Effective Supply Chain

1. Develop strategic objectives and tactics

2. Integrate and coordinate activities in the
internal supply chain
3. Coordinate activities with suppliers with
customers
4. Coordinate planning and execution across
the supply chain
5. Form strategic partnerships
16-27 Supply Chain Management

Supply Chain Performance Drivers

1. Quality
2. Cost
3. Flexibility
4. Velocity
5. Customer service
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Velocity

Inventory velocity
The rate at which inventory(material) goes
through the supply chain
Information velocity
The rate at which information is
communicated in a supply chain
16-29 Supply Chain Management

Challenges

Barriers to integration of organizations

Getting top management on board
Dealing with trade-offs
Small businesses
Variability and uncertainty
Long lead times
16-30 Supply Chain Management

Trade-offs

1. Lot-size-inventory
Bullwhip effect
2. Inventory-transportation costs
Cross-docking
3. Lead time-transportation costs
4. Product variety-inventory
Delayed differentiation
5. Cost-customer service
Disintermediation
16-31 Supply Chain Management

Supply Chain Benefits and Drawbacks

Table 16.5
Problem Potential Benefits Possible
Improvement Drawbacks
Large Smaller, more frequent Reduced holding Traffic congestion
inventories deliveries costs Increased costs

Long lead Delayed differentiation Quick response May not be feasible

times Disintermediation May need absorb
functions
Large number Modular Fewer parts Less variety
of parts Simpler ordering

Cost Outsourcing Reduced cost, Loss of control

Quality higher quality

Variability Shorter lead times, Able to match Less variety

better forecasts supply and demand