adeyl khan, faculty, bba, nsu. supply chain management supply chain: the sequence of organizations...

Adeyl Khan, Faculty, BBA, NSU

C11- Supply ChainManagement


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.

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Sometimes referred to as value chains

PurchasingReceiving Storage Operations Storage

Production Distribution

Typical Supply Chains


• Warehouses• Factories• Processing

centers• Distribution

centers• Retail outlets• Offices

Facilities

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• Forecasting• Purchasing• Inventory management• Information management• Quality assurance• Scheduling• Production and delivery• Customer service

Functions and Activities


Typical Supply Chain for a Manufacturer

Typical Supply Chain for a Service

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Supplier

Supplier

Supplier

Storage} Mfg. Storage Dist. Retailer Customer

Supplier

Supplier

} Storage Service Customer


Need for Supply Chain Management

Improve operationsIncreasing levels of outsourcingIncreasing transportation costsCompetitive pressuresIncreasing globalizationIncreasing importance of e-commerceComplexity of supply chainsManage inventories

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Bullwhip Effect

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Final CustomerInitialSupplier

Demand

Inventory oscillations become progressivelylarger looking backward through the supply chain


Benefits of Supply Chain Management

Lower inventoriesHigher productivityGreater agilityShorter lead timesHigher profitsGreater customer loyaltyIntegrates separate organizations into a cohesive operating system

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Benefits from SCMOrganization 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

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Global Supply Chains

Increasing more complex Language Culture Currency fluctuations Political Transportation costs Local capabilities Finance and economics Environmental

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Elements of Supply Chain Management

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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


Strategic or Operational

Two types of decisions in supply chain management Strategic – design and policy Operational – day-today activities

Major decisions areas Location Production Inventory Distribution

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LogisticsRefers to the

movement of materials and information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain

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Movement within the facility

Incoming and outgoing shipments

Bar coding

EDI

Distribution

JIT Deliveries0

214800 232087768


Materials Movement

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RE

CE

IVIN

G

Storage

Workcenter

Work centerWork center

Storage

Workcenter

Storage

Shipping


Distribution Requirements PlanningDistribution

requirements planning (DRP) is a system for inventory management and distribution planning

Extends the concepts of MRPII

Used to plan and coordinate various operations

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• Transportation

• Warehousing• Workers• Equipment• Financial flows

Uses of DRP


E-Business

E-Business: the use of electronic technology to facilitate business transactionsApplications include

Internet buying and selling E-mail Order and shipment tracking Electronic data interchange

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Advantages E-Business

• 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

Advantages

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• 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


Reverse Logistics

Reverse logistics – the backward flow of goods returned to the supply chainProcessing returned goods

Sorting, examining/testing, restocking, repairing Reconditioning, recycling, disposing

Gatekeeping – screening goods to prevent incorrect acceptance of goodsAvoidance – finding ways to minimize the number of items that are returned

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Effective Supply Chain Requires linking the market, distribution channels processes, and suppliers

Supply chain should enable members to: Share forecasts Determine the status of

orders in real time Access inventory data of

partners

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• Trust among trading partners

• Effective communications• Supply chain visibility• Event-management

capability• The ability to detect and

respond to unplanned events

• Performance metrics

Successful Supply Chain


SCOR MetricsPerspective Metrics

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

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Adeyl Khan, Faculty, BBA, NSU11-20

Attribute Performance Attribute Definition Level 1 Metric

Supply Chain Reliability

The performance of the supply chain in delivering: the correct product, to the correct place and customer, at the correct time, in the correct condition and packaging, and with the correct quantity and documentation

Delivery Performance

Fill Rates

Perfect Order Fulfillment

Supply Chain Responsiveness

The velocity at which a supply chain provides products to the customer.

Order Fulfillment Lead Times

Supply Chain Flexibility

The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage.

Supply Chain Response Time

Production Flexibility

Supply Chain CostsThe costs associated with operating the supply chain.

Cost of Goods Sold

Total Supply Chain Management Costs

Value-Added Productivity

Warranty / Returns Processing Costs

Supply Chain Asset Management Efficiency

The effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital.

Cash-to-Cash Cycle Time

Inventory Days of Supply

Asset Turn


RFID Technology

Used to track goods in supply chainRFID tag attached to objectSimilar to bar codes but uses radio frequency to transmit product information to receiverRFID eliminates need for manual counting and bar code scanning

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CPFR- Collaborative Planning, Forecasting, and ReplenishmentFocuses on information

sharing among trading partners

Forecasts can be frozen and then converted into a shipping plan

Eliminates typical order processing

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• 1. Develop Front End Agreement

• 2. Create the Joint Business Plan

• 3. Create the Sales Forecast• 4. Identify Exceptions for

Sales Forecast• 5. Resolve/Collaborate on

Exception Items• 6. Create Order Forecast 7.

Identify Exceptions for Order Forecast

• 8. Resolve/Collaborate on Exception Items

• 9. Order Generation

CPFR Process


CPFR Results

Nabisco and Wegmans 50% increase in category sales

Wal-mart and Sara Lee 14% reduction in store-level inventory 32% increase in sales

Kimberly-Clark and Kmart Increased category sales that exceeded market growth

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Creating an Effective Supply ChainDevelop strategic objectives and tacticsIntegrate and coordinate activities in the

internal supply chainCoordinate activities with suppliers with

customersCoordinate planning and execution across

the supply chainForm strategic partnerships

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• Quality• Cost• Flexibility• Velocity• Customer service

SC Performance Drivers

Inventory velocityThe rate at which inventory(material) goes through the supply chainInformation velocityThe rate at which information is communicated in a supply chain


Supply chain optimization

• Barriers to integration of organizations

• Getting top management on board

• Dealing with trade-offs• Small businesses• Variability and uncertainty• Long lead times

Challenges

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Trade-offsBullwhip effect

Inventories are progressively larger moving backward through the supply chain

Cross-docking Goods arriving at a

warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks

Avoids warehouse storage

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Delayed differentiation Production of standard

components and subassemblies, which are held until late in the process to add differentiating features

Disintermediation Reducing one or more

steps in a supply chain by cutting out one or more intermediaries


Supply Chain Issues

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Quality controlProduction planning and control

Inventory policiesPurchasing policiesProduction policiesTransportation policiesQuality policies

Design of the supply chain, partnering

Operating IssuesTactical IssuesStrategic Issues


Supply Chain Situational ComparisonProble

mPotential

Improvement

Benefits PossibleDrawback

sLarge inventories

Smaller, more frequent deliveries

Reduced holding costs

Traffic congestionIncreased costs

Long lead times

Delayed differentiationDisintermediation

Quick response

May not be feasibleMay need absorb functions

Large number of parts

Modular Fewer partsSimpler ordering

Less variety

CostQuality

Outsourcing Reduced cost, higher quality

Loss of control

Variability Shorter lead times, better forecasts

Able to match supply and demand

Less variety11-28


PurchasingPurchasing is

responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.

Purchasing cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition.

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• Develop and implement purchasing plans for products and services that support operations strategies

Goal of Purchasing

• Identifying sources of supply

• Negotiating contracts• Maintaining a database

of suppliers• Obtaining goods and

services• Managing supplies

Duties of Purchasing


Purchasing Interfaces

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Purchasing

Legal

AccountingOperations

Dataprocessing

Design

ReceivingSuppliers

Adeyl Khan, Faculty, BBA, NSU11-31

• Requisition received

• Supplier selected• Order is placed• Monitor orders• Receive orders

Purchasing Cycle

Purchasing

Legal

AccountingOperations

Dataprocess-ing

Design

Receiving

Suppliers


Centralized purchasing Purchasing is handled by one special department

Decentralized purchasing Individual departments or separate locations handle their own purchasing requirements

Value analysis Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance

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Supplier selectionChoosing suppliersEvaluating sources of

supplySupplier auditsSupplier certificationSupplier relationshipsSupplier partnerships

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• Quality and quality assurance• Flexibility• Location• Price• Product or service changes• Reputation and financial stability• Lead times and on-time delivery• Other accounts

Factors in Choosing a Supplier

• Vendor analysis: Evaluating the sources of supply in terms of• Price• Quality• Services• Location• Inventory policy• Flexibility

Evaluating Sources of Supply


Supplier as a PartnerAspect Adversary PartnerNumber of suppliers

Many One or a few

Length of relationship

May be brief Long-term

Low price Major consideration

Moderately important

Reliability May not be high High

Openness Low High

Quality May be unreliable; buyer inspects

At the source; vendor certified

Volume of business

May be low High

Flexibility Relatively low Relatively high

Location Widely dispersed Nearness is important

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Supplier Partnerships- Ideas could improve competitiveness

Reduce cost of making the purchase Reduce transportation costs Reduce production costs Improve product quality Improve product design Reduce time to market Improve customer satisfaction Reduce inventory costs Introduce new products or services

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Critical Issues

• Cost• Quality• Agility• Customer service• Competitive advantage

Strategic importance

• Benefits• Risks

Technology management

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• Increased outsourcing

• Increased conversion to lean production

• Just-in-time deliveries

• Globalization

Purchasing function

Adeyl Khan, Faculty, BBA, NSU37


Learning Objectives

Explain what a supply chain is. Explain the need to manage a supply chain and the potential benefits of doing so. Explain the increasing importance of outsourcing. State the objective of supply chain management. List the elements of supply chain management. Identify the strategic, tactical, and operations issues in supply chain management. Describe the bullwhip effect and the reasons why it occurs.

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Learning Objectives

Explain the value of strategic partnering. Discuss the critical importance of information exchange across a supply chain. Outline the key steps, and potential challenges, in creating an effective supply chain. Explain the importance of the purchasing function in business organizations. Describe the responsibilities of purchasing. Explain the term value analysis. Identify several guidelines for ethical behavior in purchasing.

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adeyl khan, faculty, bba, nsu. supply chain management supply chain: the sequence of organizations...

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