supply chain management, in planning production and inventory control

7/26/2019 Supply Chain Management, in Planning Production and Inventory Control

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SUPPLYSUPPLYCHAINCHAIN

MANAGEMENMANAGEMEN

TT


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Lecture OutlineLecture Outline

Supply Chain Management Information Technology: A Supply ChainEnabler

Supply Chain Integration Suppliers E-Procurement Distribution Supply Chain Management Software Measuring Supply Chain Performance Global Supply Chain


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Supply ChainSupply Chain

All facilities, functions, activities,All facilities, functions, activities,associated with flow andassociated with flow and

transformation of goods and servicestransformation of goods and services

from raw materials to customer, as wellfrom raw materials to customer, as wellas the associated information flowsas the associated information flows

An integrated group of processes toAn integrated group of processes to

source, make, and deliversource, make, and deliver

productsproducts


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Supply Chain IllustrationSupply Chain Illustration


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Supply Chain for Denim JeansSupply Chain for Denim Jeans


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Supply Chain for Denim Jeans ..Supply Chain for Denim Jeans ..


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Supply Chain ProcessesSupply Chain Processes


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More difficult than manufacturingMore difficult than manufacturingDoes not focus on the flow of physicalDoes not focus on the flow of physical

goodsgoods

Focuses on human resources andFocuses on human resources and

support servicessupport services

More compact and less extendedMore compact and less extended

Supply Chain for Service ProvidersSupply Chain for Service Providers


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Value chainValue chain Every step from raw materials to theEvery step from raw materials to the

eventual end usereventual end user

Ultimate goal is delivery of maximum valueUltimate goal is delivery of maximum value

to the end userto the end user

Supply chainSupply chain Activities that get raw materials andActivities that get raw materials and

subassemblies into manufacturingsubassemblies into manufacturingoperationoperation

Terms are used interchangeablyTerms are used interchangeably

Value vs. Supply ChainValue vs. Supply Chain


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Managing flow of information through supplyManaging flow of information through supply

chain in order to attain the level ofchain in order to attain the level of

synchronization that will make it moresynchronization that will make it more

responsive to customer needs while loweringresponsive to customer needs while lowering

costscostsKeys to effective SCMKeys to effective SCM

InformationInformation

CommunicationCommunication

CooperationCooperation

TrustTrust

Supply Chain Management (SCMSupply Chain Management (SCM


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One goal in SCM:One goal in SCM: Respond to uncertainty inRespond to uncertainty incustomer demand withoutcustomer demand without

creating costly excesscreating costly excess

inventoryinventory

Negative effects ofNegative effects ofuncertaintyuncertainty LatenessLateness

Incomplete ordersIncomplete ordersInventoryInventory

Insurance against supplyInsurance against supplychain uncertaintychain uncertainty

Contributing factorsContributing factorsto uncertaintyto uncertainty Inaccurate demandInaccurate demandforecastingforecasting

Long variable lead timesLong variable lead times Late deliveriesLate deliveries Incomplete shipmentsIncomplete shipments Product changes batchProduct changes batch

orderingordering Price fluctuations andPrice fluctuations anddiscountsdiscounts

Inflated ordersInflated orders

Supply Chain !ncertaintySupply Chain !ncertainty


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Occurs when slight demand variabilityis magnified as information movesback upstream

"ull#hip $ffect"ull#hip $ffect


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Information links all aspectsInformation links all aspectsof supply chainof supply chain

E-businessE-business Replacement of physicalReplacement of physicalbusiness processes withbusiness processes withelectronic oneselectronic ones

Electronic data interchangeElectronic data interchange(EDI)(EDI) A computer-to-computerA computer-to-computer

exchange of businessexchange of businessdocumentsdocuments

Bar code and point-of-saleBar code and point-of-sale Data creates an instantaneousData creates an instantaneouscomputer record of a salecomputer record of a sale

Radio frequencyRadio frequencyidentification (RFID)identification (RFID) Technology can send productTechnology can send productdata from an item to a readerdata from an item to a readervia radio wavesvia radio waves

InternetInternet

Allows companies toAllows companies tocommunicate with suppliers,communicate with suppliers,customers, shippers and othercustomers, shippers and otherbusinesses around the world,businesses around the world,instantaneouslyinstantaneously

Information %echnology& ' SupplyInformation %echnology& ' SupplyChain $nalerChain $naler


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Cost savings and price reductions Reduction or elimination of the role ofintermediaries

Shortening supply chain response andtransaction times

Gaining a wider presence andincreased visibility for companies

Greater choices and more information

for customers

$)usiness an* Supply Chain$)usiness an* Supply Chain


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Improved service as a result of instantaccessibility to services

Collection and analysis of voluminousamounts of customer data and

preferences Creation of virtual companies

Leveling playing field for small companies

Gaining global access to markets,suppliers, and distribution channels

$)usiness an* Supply Chain ..$)usiness an* Supply Chain ..


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Source: F. Keenan, Logistics Gets a Little Respect, Business Week (November 20, 2000), pp. 11211!.

Supply Chain Evolution at NabiscoSupply Chain Evolution at Nabisco


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Supply Chain Evolution at Nabisco..Supply Chain Evolution at Nabisco..


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Supply Chain Evolution at Nabisco..Supply Chain Evolution at Nabisco..


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+,ID Capailities+,ID Capailities


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+,ID Capailities (cont.+,ID Capailities (cont.

Build to order cars over theBuild to order cars over the


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Build-to-order cars over theBuild-to-order cars over the

InternetInternet


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Customer sales

Production

Distribution

Customerrelationship

Customer sales

Production

Distribution

Customerrelationship

Pushsell from

inventory stock

Goal of even andstable production

Mass approach

Dealer-owned

E-Automotive

Pullbuild-to-order

Focus on customerdemand, respond with

supply chain flexibility

Fast, reliable, and

customized to get carsto specific customer

location

Shared by dealers and

manufacturers

AutomotivePast

Supply ChainProcesses

$)automotive Supply Chain$)automotive Supply Chain


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Managinguncertainty

Procurement

Productdesign

Managing

uncertainty

Procurement

Product

design

Large car

inventory atdealers

Batch-oriented;dealers order

based onallocations

Complexproducts dont

match customerneeds

E-Automotive

Small inventories with

shared information andstrategically placed partsinventories

Orders made in real time

based on available-to-promise information

Simplified products based onbetter information about what

customers want

AutomotivePast

SupplyChain

Processes

E-automotive Supply Chain (cont.)E-automotive Supply Chain (cont.)


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Information sharing among supply chain membersInformation sharing among supply chain members Reduced bullwhip effectReduced bullwhip effect

Early problem detectionEarly problem detection

Faster responseFaster response

Builds trust and confidenceBuilds trust and confidence

Collaborative planning, forecasting, replenishment,Collaborative planning, forecasting, replenishment,and designand design

Reduced bullwhip effectReduced bullwhip effect Lower Costs (material, logistics, operating, etc.)Lower Costs (material, logistics, operating, etc.)

Higher capacity utilizationHigher capacity utilization

Improved customer service levelsImproved customer service levels

Supply Chain IntegrationSupply Chain Integration


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Coordinated workflow, production and operations,Coordinated workflow, production and operations,

procurementprocurement

Production efficienciesProduction efficiencies

Fast responseFast response

Improved serviceImproved service Quicker to marketQuicker to market

Adopt new business models and technologiesAdopt new business models and technologies

Penetration of new marketsPenetration of new markets Creation of new productsCreation of new products

Improved efficiencyImproved efficiency

Mass customizationMass customization

Supply Chain Integration -Supply Chain Integration -

ll i l i iC ll i Pl i , i


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Process for two or more companies in aProcess for two or more companies in asupply chain to synchronize their demandsupply chain to synchronize their demand

forecasts into a single plan to meetforecasts into a single plan to meet

customer demandcustomer demandParties electronically exchangeParties electronically exchange

Past sales trendsPast sales trends

Point-of-sale dataPoint-of-sale data On-hand inventoryOn-hand inventory

Scheduled promotionsScheduled promotions

ForecastsForecasts

Collaorative Planning ,orecastingCollaorative Planning ,orecasting

an* +eplenishmentan* +eplenishment


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ProcurementProcurement Purchase of goods and services from suppliersPurchase of goods and services from suppliers

On-demand (direct response) deliveryOn-demand (direct response) delivery

Requires supplier to deliver goods whenRequires supplier to deliver goods whendemanded by customerdemanded by customer

Continuous replenishmentContinuous replenishment

Supplying orders in a short period of timeSupplying orders in a short period of time

according to a predetermined scheduleaccording to a predetermined schedule

Cross-enterprise teams coordinate processesCross-enterprise teams coordinate processes

between company and supplierbetween company and supplier

SuppliersSuppliers


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SourcingSourcing Selection of suppliersSelection of suppliers

OutsourcingOutsourcing

Purchase of goods and services from anPurchase of goods and services from anoutside supplieroutside supplier

Core competenciesCore competencies

What a company does bestWhat a company does bestSingle sourcingSingle sourcing

A company purchases goods and servicesA company purchases goods and servicesfrom only a few (or one) suppliersfrom only a few (or one) suppliers



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Original EquipmentManufacturer(OEM)

MaintenanceRepair and

Operation (MPO)

CorporateServices



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Direct purchase from suppliers over theInternet

Direct products go directly into production

process a product, indirect products notE-marketplaces

Web sites where companies and suppliers

conduct business-to-business activitiesReverse auction

A company posts orders on the Internet for

suppliers to bid on

$)Procurement$)Procurement


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Online Sourcing/Procurement ProcessOnline Sourcing/Procurement Process


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Online Sourcing/Procurement Process (cont.


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Online Sourcing/ Procurement Process (cont.Online Sourcing/ Procurement Process (cont.

+elationship et#een ,acilities an* ,unctions+elationship et#een ,acilities an* ,unctions


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Source:"#apte# $rom Garrison %ielan# $or %al&'arts *ppl+ -ain,Harvard Business Review 0(2/ 'arc-"pril 12), pp. 01.

+elationship et#een ,acilities an* ,unctions+elationship et#een ,acilities an* ,unctions

along the 0al)Mart Supply Chainalong the 0al)Mart Supply Chain

i i i


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ncompasses all c-annels, processes, an#ncompasses all c-annels, processes, an#$*nctions, incl*#ing 3are-o*sing an#$*nctions, incl*#ing 3are-o*sing an#transportation, t-at a pro#*ct passes on its 3a+ totransportation, t-at a pro#*ct passes on its 3a+ to

$inal c*stomer$inal c*stomer

4$ten calle# logistics4$ten calle# logistics

LogisticsLogistics

5ransportation an# #istrib*tion o$ goo#s an#5ransportation an# #istrib*tion o$ goo#s an#servicesservices

6riving $orce to#a+ is spee#6riving $orce to#a+ is spee#

7artic*larl+ important $or 8nternet #ot&coms7artic*larl+ important $or 8nternet #ot&coms

DistriutionDistriution


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Amazon.com

Di t i ti C t (DCDi t i ti C t (DC


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6s are some o$ t-e largest b*siness6s are some o$ t-e largest b*siness$acilities in t-e 9nite# tates$acilities in t-e 9nite# tates

5ren# is $or more $re:*ent or#ers in smaller5ren# is $or more $re:*ent or#ers in smaller

:*antities:*antities Flo3&t-ro*g- $acilities an# a*tomate#Flo3&t-ro*g- $acilities an# a*tomate#

material -an#lingmaterial -an#ling

7ostponement7ostponement

Final assembl+ an# pro#*ctFinal assembl+ an# pro#*ct

con$ig*ration ma+ be #one at t-e 6con$ig*ration ma+ be #one at t-e 6

Distriution Centers (DCDistriution Centers (DCan* 0arehousingan* 0arehousing


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;ig-l+ a*tomate# s+stem t-at r*ns #a+&to&;ig-l+ a*tomate# s+stem t-at r*ns #a+&to&

#a+ operations o$ a 6#a+ operations o$ a 6 ontrols item p*ta3a+, pic


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A WMS

* ** *


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Manufacturers generate orders, notManufacturers generate orders, notdistributors or retailersdistributors or retailers

Stocking information is accessedStocking information is accessed

using EDIusing EDI A first step towards supply chainA first step towards supply chain

collaborationcollaboration

Increased speed, reduced errors,Increased speed, reduced errors,

and improved serviceand improved service

Ven*or)Manage* InventoryVen*or)Manage* Inventory

C ll i L i i *C ll ti L i ti *


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Collaborative planning, forecasting, andCollaborative planning, forecasting, and

replenishment create greater economies ofreplenishment create greater economies of

scalescale

Internet-based exchange of data andInternet-based exchange of data and

informationinformation

Significant decrease in inventory levels andSignificant decrease in inventory levels andmore efficient logisticsmore efficient logistics

Companies focus on core competenciesCompanies focus on core competencies

Collaorative Logistics an*Collaorative Logistics an*Distriution OutsourcingDistriution Outsourcing

i% i


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Rail Low-value, high-density, bulk

products, raw materials, intermodalcontainers

Not as economical for small loads,

slower, less flexible than trucking Trucking

Main mode of freight transport inU.S.

Small loads, point-to-point service,

flexible More reliable, less damage than

rails; more expensive than rails forlong distance

%ransportation%ransportation

i ( % i (


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AirMost expensive and fastest, mode offreight transport

Lightweight, small packages


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WaterLow-cost shipping modePrimary means of internationalshipping

U.S. waterways

Slowest shipping modeIntermodalCombines several modes ofshipping-truck, water and rail

Key component is containers

PipelineTransport oil and products in liquidform

High capital cost, economical useLong life and low operating cost

%ransportation (cont.%ransportation (cont.


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?ring toget-er s-ippers an# carriers?ring toget-er s-ippers an# carriers

8nitial contact, negotiations, a*ctions8nitial contact, negotiations, a*ctions

@amples@amples

333.nte.com333.nte.com

333.$reig-t:*ote.com333.$reig-t:*ote.com

Internet %ransportation $1changesInternet %ransportation $1changes

SCM S fSCM S ft
http://www.nte.com/http://www.nte.com/http://www.freightquote.com/http://www.freightquote.com/http://www.freightquote.com/http://www.nte.com/


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Enterprise Resource Planning (ERP)Software that integrates components of

a company by sharing and organizinginformation and data

SAP was first ERP software

MySAP.com

Web enabled modules that allowcollaboration between companies alongthe supply chain

SCM Soft#areSCM Soft#are

i 2i l h i i h
http://www.mysap.com/http://www.mysap.com/


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Lin2ing Supply Chain #ith S'PLin2ing Supply Chain #ith S'P


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Key performance indicatorsInventory turnover

cost of annual sales per inventory unit

Inventory days of supplyTotal value of all items being held ininventory

Fill rateFraction of orders filled by a distributioncenter within a specific time period

Measuring Supply Chain PerformanceMeasuring Supply Chain Performance

3 P f I *i3 P f I *i t


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8nventor+ t*rns A8nventor+ t*rns A"verage aggregate val*e o$ inventor+"verage aggregate val*e o$ inventor+

ost o$ goo#s sol#ost o$ goo#s sol#

"verage aggregate val*e o$ inventor+ A"verage aggregate val*e o$ inventor+ A

AA (average inventor+ $or item(average inventor+ $or item ii))B (*nit val*e itemB (*nit val*e item ii))

6a+s o$ s*ppl+ A6a+s o$ s*ppl+ A(osts o$ goo#s sol#)C(D! #a+s)(osts o$ goo#s sol#)C(D! #a+s)

"verage aggregate val*e o$ inventor+"verage aggregate val*e o$ inventor+

3ey Performance In*icators3ey Performance In*icators


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8nventor+ t*rns A8nventor+ t*rns AED,1,000ED,1,000

E2!, 000, 000E2!, 000, 000

6a+s o$ s*ppl+ A6a+s o$ s*ppl+ A(E2!,000,000)C(D!)(E2!,000,000)C(D!)

ED,1,000ED,1,000

A 12.DA 12.D

A 2.A 2.

1. ost o$ goo#s sol# E2! million2. 7ro#*ction materials an# parts E,2,000

D. %or


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Process ControlProcess ControlUsed to monitor and control anyUsed to monitor and control any

process in supply chainprocess in supply chain

Supply Chain OperationsSupply Chain Operations

Reference (SCOR)Reference (SCOR)Establish targets to achieve best inEstablish targets to achieve best inclass performanceclass performance

Other Measures of Supply Chain PerformanceOther Measures of Supply Chain Performance

SCO+ M * l PSCO+ M * l P


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Plan

6evelop a co*rseo$ action t-at bestmeets so*rcing,pro#*ction an##eliver+re:*irements

Source

7roc*re goo#s

an# services tomeet planne#

or act*al

#eman#

Make

5rans$orm

pro#*ct to a

$inis-e# state to

meet planne#

or act*al

#eman#

Deliver

7rovi#e pro#*cts

to meet #eman#,

incl*#ing or#er

management,

transportation

an# #istrib*tion

Return

Ret*rn

pro#*cts,

posteliver+

c*stomer

s*pport

SCO+ Mo*el ProcessesSCO+ Mo*el Processes

4R t F i4R t F i


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Number of days to achieve an unplanned20% change in orders without a costpenalty

Productionflexibility

Number of days for supply chain torespond to an unplanned significantchange in demand without a cost penalty

Supply chainresponse timeSupply ChainFlexibility

Number of days from order receipt tocustomer delivery

Order fulfillmentlead time

Supply ChainResponsiveness

Percentage of orders delivered on time

and in full, perfectly matched with orderwith no errors

Perfect order

fulfillment

Percentage of orders shipped within24hours of order receipt

Fill rate

Percentage of orders delivered on timeand in full to the customer

Deliveryperformance

Supply ChainDeliveryReliability

DefinitionPerformanceMetric

PerformanceAttribute

4R *stomer Facing4R *stomer Facing

4R 8 t l F i4R 8 t l F i


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DefinitionPerformanceMetric

PerformanceAttribute

4R 8nternal Facing4R 8nternal Facing

Revenue divided by total assets including working

capital and fixed assets

Asset turns

Number of days that cash is tied up as inventoryInventory days of

supply

Number of days that cash is tied up as working

capital

Cash-to-cash

cycle time

Supply Chain

Assetanagement

!fficiency

"irect and indirect costs associated with returns

including defective# planned maintenance and

excess inventory

$arranty%returns

processing cost

"irect material cost subtracted from revenue and

divided by the number of employees# similar to

sales per employee

&alue-added

productivity

"irect cost of material and labor to produce a

product or service

Cost of goods

sold

"irect and indirect cost to plan# source and deliver

products and services

Supply chain

management costSupply Chain

Cost

4l l S l Ch i4loal Supply Chain


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5o compete globall+ re:*ires an5o compete globall+ re:*ires ane$$ective s*ppl+ c-aine$$ective s*ppl+ c-ain

8n$ormation tec-nolog+ is an8n$ormation tec-nolog+ is anenabler o$ global tra#eenabler o$ global tra#e

Nations $orm tra#ing gro*psNations $orm tra#ing gro*ps

No tari$$s or #*tiesNo tari$$s or #*ties

4loal Supply Chain4loal Supply Chain

O l 4l l Ch i % iO t l t 4l l Ch i % ti


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Increased documentation for invoices, cargo

insurance, letters of credit, ocean bills oflading or air waybills, and inspections

Ever changing regulations that vary from

country to country that govern the import andexport of goods

Trade groups, tariffs, duties, and landing costs

Limited shipping modes

Differences in communication technology and

availability

Ostacles to 4loal Chain %ransactionsOstacles to 4loal Chain %ransactions

O t l t 4l l Ch i % tiOstacles to 4loal Chain %ransactions


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Different business practices as well as

language barriers

Government codes and reporting requirementsthat vary from country to country

Numerous players, including forwarding agents,custom house brokers, financial institutions,insurance providers, multiple transportationcarriers, and government agencies

Since 9/11, numerous security regulations andrequirements

Ostacles to 4loal Chain %ransactions -Ostacles to 4loal Chain %ransactions -

Duties and TariffsDuties and Tariffs


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Proliferation of trade agreementsProliferation of trade agreementsGroup members charge uniform tariffsGroup members charge uniform tariffs

Member nations have a competitiveMember nations have a competitive

advantage within the groupadvantage within the groupTrade specialists

Include freight forwarders, customs house

brokers, export packers, and exportmanagement and trading companies

Duties and TariffsDuties and Tariffs

Duties an* %ariffs (cont Duties an* %ariffs (cont


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APECAPEC

ASEANASEAN

ANZCERTAANZCERTA

FTAAFTAA

NAFTANAFTA

CALMCALM

ATPAATPA

MERCOSURMERCOSUR

TAFTATAFTA

Duties an* %ariffs (cont.Duties an* %ariffs (cont.

Lan*e* CostLan*e* Cost


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Total cost of producing, storing, and transportingTotal cost of producing, storing, and transporting

a product to the site of consumption or anothera product to the site of consumption or another

portport

Value added tax (VAT)Value added tax (VAT)

An indirect tax assessed on the increase in value of aAn indirect tax assessed on the increase in value of a

good at any stage of production process from rawgood at any stage of production process from raw

material to final productmaterial to final product

Clicker shockClicker shock

Occurs when an ordered is placed with a company thatOccurs when an ordered is placed with a company that

does not have the capability to calculate landed cost.does not have the capability to calculate landed cost.

Lan*e* CostLan*e* Cost

0 * I i l % * L i i S0 * I t ti l % * L i ti S t


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International trade logistics web-based softwareInternational trade logistics web-based softwaresystems reduce obstacles to global tradesystems reduce obstacles to global trade Convert language and currencyConvert language and currency

Provide information on tariffs, duties, and customsProvide information on tariffs, duties, and customs

processesprocesses

Attach appropriate weights, measurements, and unitAttach appropriate weights, measurements, and unit

prices to individual products ordered over the Webprices to individual products ordered over the Web

Incorporate transportation costs and conversion ratesIncorporate transportation costs and conversion rates Calculate shipping costs online while a company entersCalculate shipping costs online while a company enters

an orderan order

Track global shipments/Track global shipments/

0e)ase* International %ra*e Logistic Systems0e)ase* International %ra*e Logistic Systems

+ecent %ren*s in 4loali5ation+ecent %ren*s in 4loali5ation


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Two significant changesTwo significant changes Passage of NAFTAPassage of NAFTA

Admission of China in WTOAdmission of China in WTO

Electronic IndustryElectronic Industry 70% of cost is in components70% of cost is in components

Major supply chains have moved toMajor supply chains have moved toChinaChina

Proliferation of counterfeit partsProliferation of counterfeit parts

+ecent %ren*s in 4loali5ation+ecent %ren*s in 4loali5ationfor !.S. Companiesfor !.S. Companies

$ffects of 6/77 on 4loal Chains$ffects of 6/77 on 4loal Chains


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Increase security measuresIncrease security measures Added time to supply chain schedulesAdded time to supply chain schedules

Increased supply chain costsIncreased supply chain costs

24 hours rules for risk screening24 hours rules for risk screening

Extended documentationExtended documentation Extend time by 3-4 daysExtend time by 3-4 days

Inventory levels have increased 5%Inventory levels have increased 5%

Other costs include:Other costs include: New people, technologies, equipment, surveillance,New people, technologies, equipment, surveillance,

communication, and security systems, and trainingcommunication, and security systems, and training

necessary for screening at airports and seaportsnecessary for screening at airports and seaports

aroundtheworld

$ffects of 6/77 on 4loal Chains$ffects of 6/77 on 4loal Chains

supply chain management, in planning production and inventory control

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