OM 7 SC Planning

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Chapter 13

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Source: Tibbett and Britten


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What is supply chain management?

Supply chain management is the management of theinterconnection of organizationsthat relate to each

other throughupstream and downstreamlinkages


between the processes that producevalue to the

ultimate consumerin the form of products and

services.


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Supply chain management is concerned with managing the flowof materials and information between a string of operations

that form the strands or chains of a supply network

Flow between processesFlow between processes

Flow between processes




Supply chain managementconcerns flow between a

string of operations

Flow between processesFlow between processes


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Supply chain management is concerned with the flow ofinformation as well as the flow of products and services

Upstream flowof customer

requirements

Long-term plans and requirementsMarket research informationIndividual ordersPayment

Potential new products and services

Flow betweenprocesses




Products and services

New products and servicesDelivery informationPayment request / Credit

Downstream flow

of products and servicesfor customer

fulfilment

Consumer


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From the operationsperspective 90%

satisfaction

Customerrequirements

Product/service

available?

Product/serviceappropriate?

100

80

20

Y

N

70

10

Y

N

50

N

10

40

Y

N

1

Y

N

CustomersatisfactionFrom the customers perspective 8% satisfaction

Taking a customer perspective of supply performancecan lead to very different conclusions

8

N


Meets priceand delivery

requirements?

Customerorders?

Produced aspromised?

Received aspromised?

20Y

10

10

Y

N

9

8

1

Y

N

8

1

Y

9

1

Y

N


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The operationPurchasing functionSuppliers

Request forproducts

and services

Demandfrom

customers

Requestfor

quotations

Preparequotation forspecification,price, delivery,

etc.

Requests

Liaison

The purchasing function brings together

the operation and its suppliers


Supply tocustomers

Preparepurchase

order

Selectsupplier(s)

Quotations

Produceproducts

and services

Order Receiveproducts

and services

Deliver

e ween

purchasingand the

operation


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Short-term ability to supply Longer-term ability to supply

Range of products or servicesprovided

Potential for innovation

Quality of products or services Ease of doing business

Responsiveness Willingness to share risk

Dependability of supply Long-term commitment to supply

Factors for rating alternative suppliers


Delivery and volume flexibility Ability to transfer knowledge as wellas products and services

Total cost of being supplied Technical capability

Ability to supply in the requiredquantity

Operations capability

Financial capability

Managerial capability


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Factor Weight Supplier A score Supplier B score

Cost performance 10 8 (8 x 10 = 80) 5 (5 x 10 = 50)

Quality record 10 7 (7 x 10 = 70) 9 (9 x 10 = 90)

Delivery speed promised 7 5 (5 x 7 = 35) 5 (5 x 7 = 35)

Weighted supplier selection criteria for the hotel chain


Delivery speed achieved 7 4 (4 x 7 = 28) 8 (8 x 7 = 56)

Dependability record 8 6 (6 x 8 = 48) 8 (8 x 8 = 64)

Range provided 5 8 (8 x 5 = 40) 5 (5 x 5 = 25)

Innovation capability 4 6 (6 x 4 = 24) 9 (9 x 4 = 36)

Total weighted score 325 356


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AttitudesTrust

Elements of process partnership relationships

Jointlearning

Long-termexpectations

Sharingsuccess

Multiplepoints ofcontact


Actions

Joint problemsolving

Joint co-ordination of

activities

Fewrelationships

Informationtransparency

Dedicatedassets

Closeness ofrelationship


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Supply chain time compression

Schedulechanges impact

market faster

so canrespond to

market changesbetter

so improvedforecasts

Forecastsmade closer todemand time

Defects aredetected faster

so easier toimprove quality

New productsand service

faster to market

so fewer lostsales from

delayed launch

so reducedrisk of

obsolescence

The effects of supply chain compression


Improved profitability

so revenuesare maximized

so reducedstockholding

costs

so less need forsafety stocks

so reducedwastage costs so revenuesare maximized

so less

discountedsales


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2

1

Third-levelsupplier

Second-levelsupplier

First-levelsupplier

Originalequipmentmanufacturer

Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100 100100100100

100100

100100

100

2010060 60

10080 80

10090

1009590

10095

60 80 90 95

The bullwhip effect


MARKET

6

5

4

3 2 1 OEM

ALL OPERATIONS HOLD ONE PERIODS STOCK

120 100 95 9560

12090 90

10095 95

9595

1009095

95959595

95959595

9595 9595

959595

95 9595

959595

95 9595959595


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2

1

Third-levelsupplier

Second-levelsupplier

First-levelsupplier

Originalequipment

manufacturer

Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100 100100

100100

100100

100100

100

100

95

The bullwhip effect


6

5

43 105

105

95

95

3 2 1 OEM MARKET

ALL OPERATIONS HOLD ONE PERIODS STOCK


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0Time

Sales fromstore

0Time

Stores ordersto wholesaler

Time

Wholesalersorders to

manufacturer

0

Manufacturersorders to its

suppliers

0Time Time


ConsumersRetailStore

Whole-saler

Manu-facturer

Supplier


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Supply chain dynamics

Supply chains with different end objectives



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Matching the supply chain with market requirements

Nature of demandFunctional products Innovative products

PredictableFew changes

Low varietyPrice stable

Long lead-timesLow margin

UnpredictableMany changesHigh varietyPrice markdowns

Short lead-timesHigh margin

es

icient

uttimes

n

entory

liers


Lean supplychain

management

Mismatch

Mismatch Agile supplychain

managementSupply

chainobjec

ti

Responsive

E

ff

Lowco

st

Highutilization

Minimuminvento

ry

Low-costsupplie

rs

Lowthrough

Highutiliza

ti

Deployedinv

Flexiblesu

pp


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Supplier Manufacturer

Depot

Depot

Customer-responsive supply


ProductsInformation

Supplier Manufacturer

Depot

Outlets

Depot

Efficient fast-throughput supply

Outlets


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Matching supply chain characteristics to the nature of demand

Nature of demandFunctional products Innovative products

Predictable UnpredictableFew changes Many changes

Low variety High varietyPrice stable Price markdowns

Long lead-time Short lead-timeLow margin High margin

s

t


Supply

chainobjectiv

Responsive

Efficien a c sma c

Mismatch Match

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OM 7 SC Planning