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Business Plug-In B8Business Plug-In B8

Supply Chain Supply Chain ManagementManagement

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LEARNING OUTCOMES

1. List and describe the four drivers of supply chain management.

2. Explain supply chain management strategies focused on efficiency.

3. Explain supply chain management strategies focused on effectiveness.

4. Summarize the future of supply chain management.

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INTRODUCTION

• Supply Chain—Consists of all parties involved, directly or indirectly, in the procurement of a product or raw material

• Supply Chain Management (SCM)—Involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability

• This plug-in takes a detailed look at how an organization can create a supply chain strategy focusing on efficiency and effectiveness

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SUPPLY CHAIN DRIVERS

• The four primary drivers of supply chain management:

1. Facilities

2. Inventory

3. Transportation

4. Information

• Organizations use these four drivers to support either a supply chain strategy focusing on efficiency or a supply chain strategy focusing on effectiveness

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FACILITIES DRIVER 1:LOCATION

• Facility—Processes or transforms inventory into another product, or it stores the inventory before shipping it to the next facility

• Location Efficiency—Centralize the location to gain economies of scale, which increases efficiency

• Location Effectiveness—Decentralize the locations to be closer to the customers, which increases effectiveness

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FACILITIES DRIVER 2: CAPACITY

• Capacity Efficiency—Minimal excess capacity with the ability to produce only what is required

• Capacity Effectiveness—Large amounts of excess capacity that can handle wide swings in demand

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FACILITIES DRIVER 3: OPERATIONAL DESIGN

• Operational Design Efficiency—Product focus design allows the facility to become highly efficient at producing one single product, increasing efficiency

• Operational Design Effectiveness—Functional focus design allows the facility to perform a specific function on many different types of products, increasing effectiveness

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INVENTORY DRIVER 1: CYCLE INVENTORY

• Cycle Inventory—The average amount of inventory held to satisfy customer demands between inventory deliveries

– Cycle Inventory Efficiency—Holding small amounts of inventory and receiving orders weekly or even daily

– Cycle Inventory Effectiveness—Holding large amounts of inventory and receiving inventory deliveries only once a month

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INVENTORY DRIVER 2: SAFETY INVENTORY

• Safety Inventory—Extra inventory held in the event demand exceeds supply

– Safety Inventory Efficiency—Holding small amounts of safety inventory

– Safety Inventory Effectiveness—Holding large amounts of safety inventory

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TRANSPORTATION DRIVER 1: METHOD OF TRANSPORTATION

• Transportation—Moves inventories between the different stages in the supply chain

• Global Inventory Management System—Provides the ability to locate, track, and predict the movement of every component or material anywhere upstream or downstream in the supply chain

– Method of transportation efficiency

– Method of transportation effectiveness

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TRANSPORTATION DRIVER 2: TRANSPORTATION ROUTE

• Transportation Planning Software—Tracks and analyzes the movement of materials and products to ensure the delivery of materials and finished goods at the right time, the right place, and the lowest cost

• Distribution Management Software—Coordinates the process of transporting materials from a manufacturer to distribution centers to the final customer

– Transportation route efficiency

– Transportation route effectiveness

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INFORMATION DRIVER 1: INFORMATION SHARING

• Information—An organization must decide how and what information it wants to share with its supply chain partners

• Information Sharing Efficiency—Freely share lots of information to increase the speed and decrease the costs of supply chain processing

• Information Sharing Effectiveness—Share only selected information with certain individuals, which will decrease the speed and increase the costs of supply chain processing

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INFORMATION DRIVER 2: PUSH VS. PULL INFORMATON STRATEGY

• Pull Information Strategy (Efficiency)—Supply chain partners are responsible for pulling all relevant information

– Pull Technology—Pulls information

• Push Information Strategy Effectiveness—Organization takes on the responsibility to push information out to its supply chain partners

– Push Technology—Sends information

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APPLYING A SUPPLY CHAIN DESIGN

• Wal-Mart’s supply chain management strategy emphasizes efficiency, but also maintains adequate levels of effectiveness

– Facilities Focus—Efficiency– Inventory Focus—Efficiency– Transportation Focus—Effectiveness– Information Focus—Efficiency

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FUTURE TRENDS

• Just-in-time supplier—Consumers purchasing products when they want, how they want, and at the price they want

• Radio Frequency Identification (RFID)—Use active or passive tags in the form of chips or smart labels that can store unique identifiers and relay this information to electronic readers

• Integrating RFID and software– RFID tags are evolving