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Chapter 12
Supply Chain Management
Management 3620 Chapter 12 Supply Chain Management 12-2
Supply Chain
• A supply chain is the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.
• Also referred to as a value chain
Management 3620 Chapter 12 Supply Chain Management 12-3
Typical Supply Chainfor a Manufacturer
Supplier
Supplier
Supplier
Storage Mfg. Dist. Retailer CustomerStorage
Management 3620 Chapter 12 Supply Chain Management 12-4
Supplier
Supplier
Storage} Service Customer
Typical Supply Chainfor a Service
Management 3620 Chapter 12 Supply Chain Management 12-5
Customers are Suppliers
InitialSupplier
Customer
Supplier
Customer
Supplier
Customer
Supplier
FinalCustomer
Management 3620 Chapter 12 Supply Chain Management 12-6
Need for Supply Chain Management
• Improve operations
• Increasing levels of outsourcing
• Increasing transportation costs
• Competitive pressures
• Increasing globalization
• Increasing importance of e-commerce
• Complexity of supply chains
• Manage inventories
Management 3620 Chapter 12 Supply Chain Management 12-7
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
Management 3620 Chapter 12 Supply Chain Management 12-8
Key Elements ofSupply Chain Management
Deciding how to best move and store materialsLogistics
Determining location of facilitiesLocation
Monitoring supplier quality, delivery, and relationsSuppliers
Evaluating suppliers and supporting operationsPurchasing
Meeting demand while managing inventory costsInventory
Controlling quality, scheduling workProcessing
Incorporating customer wants, mfg., and timeDesign
Predicting quantity and timing of demandForecasting
Determining what customers wantCustomers
Typical IssuesElement
Management 3620 Chapter 12 Supply Chain Management 12-9
Purchasing in Supply Chain Management
• Increasing outsourcing
• Increasing conversion to lean production and JIT requirements
• Increasing globalization
Management 3620 Chapter 12 Supply Chain Management 12-10
Supply Chain Issues
Quality controlProduction planning and control
Inventory policiesPurchasing policiesProduction policiesTransportation policiesQuality policies
Design of the supply chain Partnering
Operating IssuesTactical IssuesStrategic Issues
Management 3620 Chapter 12 Supply Chain Management 12-11
SCOR Performance MeasuresPerspective Performance Measure
Reliability On-time deliveryOrder fulfillment lead timeFill rate (fraction of demand met from stock)Perfect order fulfillment
Flexibility Supply chain response timeUpside production flexibility
Expenses Supply chain management costsWarranty cost as a percent of revenueValue added per employee
Assets/utilization
Total inventory days of supplyCash-to-cash cycle timeNet asset turns
Management 3620 Chapter 12 Supply Chain Management 12-12
Logistics
• Logistics– The movement of materials and
information within a facility and incoming and outgoing shipments of goods and materials
Management 3620 Chapter 12 Supply Chain Management 12-13
Figure 12-5
Storage
Workcenter
Work centerWork center Work
center
Storage
Shipping
Materials Movement
Receiving
Storage
Supplier Warehouse
Customer
Management 3620 Chapter 12 Supply Chain Management 12-14
Traffic Management
• Overseeing the shipment of incoming and outgoing materials and goods
• Handles schedules and decisions on shipping method and times– Costs of alternatives– Regulations– Quantities and timing– Risk of delays
Management 3620 Chapter 12 Supply Chain Management 12-15
Electronic Data Interchange (EDI)
• Direct, computer-to-computer transmission of interorganizational transactions– Purchase orders
– Shipping invoices
– Debit or credit memos
Management 3620 Chapter 12 Supply Chain Management 12-16
Reasons for Using EDI• 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
Management 3620 Chapter 12 Supply Chain Management 12-17
Quick Response• An application of EDI technology in the retail
industry• Based on scanning bar codes at point-of-
sale devices and transmitting information directly to vendors
• Creates a JIT replenishment system keyed to customer buying patterns
• Benefits– Reduced dependence on forecasts– Achieve better match between supply and
demand– Savings of inventory carrying costs
Management 3620 Chapter 12 Supply Chain Management 12-18
Distribution Requirements Planning (DRP)
• A system for inventory management and distribution planning
• Extends the concepts of material requirements planning (MRP) to multiechelon warehousing systems
• Useful in planning and coordinating transportation, warehousing, workers, equipment, and financial flows
Management 3620 Chapter 12 Supply Chain Management 12-19
Just-In-Time Deliveries
• Suppliers are required to make frequent small deliveries on a precise schedule
• Increases traffic into the customer firm
• May be an increase in transportation cost per unit
• Any disruption in the supply chain is felt very quickly throughout the chain
• Some firm employ third-party logistics
Management 3620 Chapter 12 Supply Chain Management 12-20
E-Commerce
• The use of electronic technology to facilitate business transactions
• Applications include– Internet buying and selling
– Order and shipment tracking
– EDI
Management 3620 Chapter 12 Supply Chain Management 12-21
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
Management 3620 Chapter 12 Supply Chain Management 12-22
• 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
Disadvantages of E-commerce
Management 3620 Chapter 12 Supply Chain Management 12-23
Business-to-Business (B2B) Market Places
• Buyer exchange (reverse auction)
• MRO-catalog hub
• Supplier exchange
• Business process operations (BPO)
• Neutral exchange
Management 3620 Chapter 12 Supply Chain Management 12-24
Steps in Creating an Effective Supply Chain
• Develop strategic objectives and tactics
• Integrate and coordinate activities in the internal portions of the supply chain
• Coordinate activities with suppliers and with customers
• Coordinate planning and execution across supply chain
• Consider strategic partnerships
Management 3620 Chapter 12 Supply Chain Management 12-25
Supply Chain Performance Drivers
• Quality
• Cost
• Flexibility
• Velocity– material
– information
• Customer service
Management 3620 Chapter 12 Supply Chain Management 12-26
Challenges in Designing and Operating a Supply Chain
• Barriers to integration of separate organizations
• Getting top management on board
• Dealing with trade-offs
• Small businesses
• Variability and uncertainty
• Long lead times
Management 3620 Chapter 12 Supply Chain Management 12-27
Trade-offs (1 of 2)• Lot size-inventory
– Bullwhip effect – inventories increase as you move backward through the supply chain
• Inventory-transportation costs– Combine order to obtain full truckloads– Downsize truck capacity– Ship late in the process and cross-
docking
Management 3620 Chapter 12 Supply Chain Management 12-28
Trade-offs (2 of 2)
• Lead time-transportation costs– Time required for supplier to produce
truckload
• Product variety-inventory– Delayed differentiation
• Cost-customer service– Disintermediation - bypassing parts of
the supply chainSkip next slide
Management 3620 Chapter 12 Supply Chain Management 12-29
Bullwhip Effect
Tier 2Suppliers
Tier 1Suppliers
Producer Distributor Customers
Ordering
Amount ofinventory=
return
Management 3620 Chapter 12 Supply Chain Management 12-30
Supply ChainBenefits and Drawbacks
Problem PotentialImprovement
Benefits PossibleDrawbacks
Large inventories
Smaller, more frequent deliveries
Reduced holding costs
Traffic congestionIncreased costs
Long lead times
Delayed differentiationDisintermediation
Quick response May not be feasibleMay need to absorb functions
Large number of parts
Modular design Fewer partsSimpler ordering
Less variety
CostQuality
Outsourcing Reduced cost, higher quality
Loss of control
Variability Shorter lead timesBetter forecasts
Able to match supply and demand
Increased costsIncreased coordination
Table 12-5
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