Week 2

BUSN 6110 Fall 2013

Supply Chain Management

“Behind every great leader there was an even greater logistician.”

Supply Chain Management

/Ops Management

Acct’gFinance Marketing

BusinessAdmin

Info Systems

Intl Business

BusinessMgmt

Sales

Supply Chain Management • First appearance – Financial Times • Importance -

→ Inventory ~ 14% of GDP→ GDP ~ $12 trillion→ Warehousing/Trans ~ 9% of GDP→ Rule of Thumb - $12 increase in sales to = $1 savings in Supply Chain

• 1982 Peter Drucker – last frontier• Supply Chain problems can cause ≤ 11% drop in stock

price• Customer perception of company

SCOR

Reference: www.supply-chain.org

End-to-End Supply Chain

• Whether from Cow to Cone or from Rock to Ring SCOR is not limited by organizational boundaries

6Copyright © Supply Chain Council, 2008. All rights reserved 6

Supplier CustomerSuppliers’Supplier

Source

Internal or External Internal or External

Your Company

Return

Deliver MakeSource

Return

PlanDeliver

Return

Source

Return

MakeSource

Return

PlanDeliver

Return

DeliverMake

Plan

Return Return

Customers’Customer

SCOR reference model

SCOR Model

• Capturing the configuration of a supply chain A supply chain configuration is driven by:– Plan levels of aggregation and information

sources – Source locations and products – Make production sites and methods – Deliver channels, inventory deployment and

products – Return locations and methods

SCOR Metrics• Measuring the performance of the supply chain and comparing against

internal and external industry goals Supply chain performance is focused on:– Reliability - achievement of customer demand fulfilment on-time,

complete, without damage etc. – Responsiveness - the time it takes to react to and fulfill customer

demand – Agility - the ability of supply chain to increase/decrease demand

within a given planned period – Cost - objective assessment of all components of supply chain cost – Assets - the assessment of all resources used to fulfill customer

demand

Supply Chain

“The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash.”

APICS Dictionary, 13th Edition

Supply Chain Management is simple, but not easy.

Supply Chain Uncertainty

Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability

Inventory is a form of insuranceDistorted information is one of the

main causes of uncertainty Bullwhip effect

Information in the Supply Chain

Centralized coordination of information flows

Integration of transportation, distribution, ordering, and production

Direct access to domestic and global transportation and distribution channels

Locating and tracking the movement of every item in the supply chain - RFID

Bar Codes

Computer readable codes attached to items flowing through the supply chain

Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans

1234 5678

IT Issues Increased benefits and sophistication come

with increased costs Efficient web sites do not necessarily mean

the rest of the supply chain will be as efficient Security problems are very real – camera

phones, cell phones, thumb drives Collaboration and trust are important

elements that may be new to business relationships

Suppliers

Purchased materials account for about half of manufacturing costs

Materials, parts, and service must be delivered on time, of high quality, and low cost

Suppliers should be integrated into their customers’ supply chains

Partnerships should be established On-demand delivery (JIT) is a frequent

requirement - what is JIT and does it work?

Sourcing Relationship between customers and suppliers

focuses on collaboration and cooperation Outsourcing has become a long-term strategic

decision Organizations focus on core competencies Single-sourcing is

increasingly a part of supplier relations

Barriers

How doessingle sourcediffer from solesource?

Sourcing and Suppliers

• Supplier Selection• Selection Evaluation• Supplier Certification• Sourcing and Ethics

DistributionThe actual movement of products

and materials between locationsHandling of materials and products at

receiving docks, storing products, packaging, and shipping

Often called logisticsDriving force today

is speed

Distribution Centers and Warehousing

DCs are some of the largest business facilities in the United States

Trend is for more frequent orders in smaller quantities

Flow-through facilities and automated material handling

Final assembly and product configuration (postponement) may be done at the DC

Transportation

Railroads

95,000 - 150,000 miles in USLow cost, high-volume Improving flexibility

intermodal service double stacking

Complaints: slow, inflexible, large loadsAdvantages: large/bulky loads, intermodal

Trucking

Most used mode in US -75% of total freight (volume not total weight)

Flexible, small loadsConsolidation,

Internet load match sitesTruck load (TL) vs. Less Than Truck Load

(LTL)

Air

Lightweight, small itemsQuick, reliable, expensive (relatively

expensive depending on costs of not getting item there)

Major airlines and US Postal Service, UPS, FedEx

Package CarriersUPS, US Postal Service, FedEx GroundSignificant growth driven by

e-businesses and the move to smaller shipments and consumer desire to have it NOW

Use several modes of transportation Innovative use of technologies in some

casesOnline tracking – some better than others

Intermodal

Combination of several modes of transportation

Most common are truck/rail/truck and truck/water/rail/truck

Enabled by the use of containers – the development of the 20 and 40 foot containers significantly changed the face of shipping

WaterOne of oldest means of transportLow-cost, high-volume, slow (relative)Security - sheer volume - millions of

containers annuallyBulky, heavy and/or large itemsStandardized shipping containers

improve serviceThe most common form of international

shipping

Pipelines

Primarily for oil & refined oil productsSlurry lines carry coal or kaolinHigh initial capital investmentLow operating costsCan cross difficult terrain

Global Supply Chain

Free trade & global opportunitiesNations form trading groupsNo tariffs or dutiesFreely transport

goods across bordersSecurity!!

Quality Quality ManagementManagement

Quality is a measure of goodness that is inherent to a product or service.

Bottom line: perspective has to be from theCustomer – fitness for use

““The degree of excellence of a thing” The degree of excellence of a thing” (Webster’s Dictionary)(Webster’s Dictionary)

““The totality of features and The totality of features and characteristics that satisfy needs” (ASQ)characteristics that satisfy needs” (ASQ)

Fitness for useFitness for use Quality of designQuality of design

What Is Quality?

Quality

• Quality Management – not owned by any functional area – cross functional

• Measure of goodness that is inherent to a product or service

FedEx and Quality• Digitally Assisted Dispatch System – communicate

with 30K couriers • 1-10-100 rule

1 – if caught and fixed as soon as it occurs, it costs a certain amount of time and money to fix

10 – if caught later in different department or location = as much as 10X cost

100 – if mistake is caught by the customer = as much as 100X to fix

Product Quality Dimensions

• Product Based – found in the product attributes

• User Based – if customer satisfied• Manufacturing Based – conform to specs• Value Based – perceived as providing good

value for the price

Dimensions of Quality (Garvin)

1. Performance Basic operating characteristics

2. Features “Extra” items added to basic features

3. Reliability Probability product will operate over time

Dimensions of Quality (Garvin)

4. Conformance Meeting pre-established standards

5. Durability Life span before replacement

6. Serviceability Ease of getting repairs, speed & competence of repairs

Dimensions of Quality (Garvin)

7. Aesthetics Look, feel, sound, smell or taste

8. Safety Freedom from injury or harm

9. Other perceptions Subjective perceptions based on brand name, advertising, etc

1. Time & Timeliness Customer waiting time, completed on time

2. Completeness Customer gets all they asked for

3. Courtesy Treatment by employees

Service Quality

4. Consistency Same level of service for all customers

5. Accessibility & Convenience Ease of obtaining service

6. Accuracy Performed right every time

7. Responsiveness Reactions to unusual situations

Service Quality

Quality of Conformance

Ensuring product or service produced according to design

Depends on Design of production process Performance of machinery Materials Training

Quality Philosophers

Walter Shewhart – Statistical Process Control W. Edwards Deming Joseph Juran – strategic and planning based Armand Fiegenbaum – total quality control “entire

business must be involved in quality improvement”

Deming’s 14 Points

1. Create constancy of purpose2. Adopt philosophy of prevention3. Cease mass inspection4. Select a few suppliers based on quality5. Constantly improve system and

workers6. Institute worker training

Deming’s 14 Points

7. Instill leadership among supervisors8. Eliminate fear among employees9. Eliminate barriers between

departments10. Eliminate slogans11. Remove numerical quotas

Deming’s 14 Points

12. Enhance worker pride13. Institute vigorous training and

education programs14. Develop a commitment from top

management to implement these 13 points

The Deming Wheel(or PDCA Cycle)

1. PlanIdentify the problem and develop the plan for improvement.

2. DoImplement the plan on a test basis.

3. Study/CheckAssess the plan; is it working?

4. ActInstitutionalize improvement; continue the cycle.

Also known as the Shewart CycleAlso known as the Shewart Cycle

Six Sigma

• Quality management program that measures and improves the operational performance of a company by identifying and correcting defects in the company’s processes and products

Six SigmaStarted By Motorola

• Define• Measure• Analyze• Improve • Control

Made Famous by General Electric40% of GE executives’bonuses tied to 6 sigmaimplementation

Malcolm Baldrige National Quality Award

• Category 3 – determine requirements, expectations, preferences of customers and markets

• Category 4 – what is important to the customer and the company; how does company improve

Total Quality Management

1. Customer defined quality2. Top management leadership3. Quality as a strategic issue4. All employees responsible for quality5. Continuous improvement6. Shared problem solving7. Statistical quality control8. Training & education for all employees

Cost of QualityCost of achieving good quality

PreventionPlanning, Product design,

Process, Training, InformationAppraisal

Inspection and testing, Test equipment, Operator

Cost of QualityCost of poor quality

Internal failure costsScrap, Rework, Process failure,

Process downtime, Price-downgrading

External failure costsCustomer complaints,

Product return, Warranty, Product liability, Lost sales

Cause-and-Effect Diagram

QualityProblemQuality

Problem

Out of adjustmentOut of adjustment

Tooling problemsTooling problems

Old / wornOld / worn

MachinesMachinesFaultyFaulty testing equipmenttesting equipment

Incorrect specificationsIncorrect specifications

Improper methodsImproper methods

MeasurementMeasurement

Poor supervisionPoor supervision

Lack of concentrationLack of concentration

Inadequate trainingInadequate training

HumanHuman

DeficienciesDeficienciesin product designin product design

Ineffective qualityIneffective qualitymanagementmanagement

Poor process designPoor process design

ProcessProcess

InaccurateInaccuratetemperature temperature controlcontrol

Dust and DirtDust and Dirt

EnvironmentEnvironment

Defective from vendorDefective from vendor

Not to specificationsNot to specifications

Material-Material-handling problemshandling problems

MaterialsMaterials

Also known as Ishikawa Diagram or Fish BoneAlso known as Ishikawa Diagram or Fish Bone

Hot House Quality

Lots of Hoopla and no follow through

ISO 9000:2008

• Customer focus• Leadership• Involvement of the people• Process approach• Systems approach to management• Continual process improvement – GAO• Factual approach to decision making• Mutually beneficial supplier relationships

Implications Of ISO 9000Truly international in scopeCertification required by many foreign firmsU.S. firms export more than

$150 billion annually to EuropeAdopted by U.S. Navy,

DuPont, 3M, AT&T, and others

ISO Accreditation

European registration

3rd party registrar assesses quality program European Conformity (CE) mark authorized

United States 3rd party registrars

American National Standards Institute (ANSI) American Society for Quality (ASQ) Registrar Accreditation Board (RAB)

Next week

• Supply chain case study